Allergan Wants To Hive Assets Prior To Price Discovery
Allergan is attempting pursue strategic options before its true earnings picture materializes. In Q4 2017 its revenue of $4.3 billion was up 12% Y/Y. However, Q4 2017 revenue included the benefit of acquisitions of Cool Sculpting and regenerative medicines. Sans these acquisitions the company’s total revenue growth would have been around 6%. I believe Q1 2018 results will be on a more apples-to-apples basis and will show single digit revenue growth. Apparently, management wants to sell assets while potential buyers might still believe it is a high-growth company.
Has Sentiment Over Botox Changed?
U.S. Specialty Therapeutics has been the growth engine of the company. Analysts have previously suggested AGN’s sum-of-the parts could be much higher if it segmented Specialty Therapeutics and U.S. General Medicine, and sold them off separately. Specialty Therapeutics represents 46% of Allergan’s segment contribution versus 36% for General Medicine.
In Phase 3 clinical trials Revance’s (RVNC) botulinum toxin RT002 has shown the potential to last up to 6 months; this compares favorably to Allergan’s Botox which lasts about 4 months. Revance and Mylan (MYL) are also partnering to create a biosimilar to rival Botox. AGN currently trades at 11x run-rate EBITDA. Are potential buyers willing to pay 15x EBITDA (or higher) for Botox amid potential threats from Revance and Mylan? The sum-of-the parts narrative may have made sense last year; could now be null and void.
Has LOE Been Fully Priced In?
Allergan is facing LOE for Restasis, vaginal cream Estrace and eye drug Combigan. The drugs represent an estimated 14% of total revenue and 17% of Allergan’s segment contribution. These potential hits have not fully-impacted Allergan’s revenue and earnings. At this juncture a buyer would have estimate the potential revenue and earnings hit, and the timing of them. It might be best to assume the worst case scenario – value the company with a 17% EBITDA reduction already priced in.
