Analyst backing an Allergan breakup is undeterred by doubters. Here's why

Allergan California
Allergan could unlock more value for its aesthetics business if it split up, RBC Capital Markets analyst Randall Stanicky has posited.

RBC Capital Markets analyst Randall Stanicky has fielded some investor pushback to his suggestion that Allergan could be a good breakup candidate. And Monday, he outlined his responses to the skeptics.

Asked whether Allergan would even look at a breakup and whether it was too early to consider such a thing, Stanicky’s response was unequivocal. The “focus will not go away, especially given that Allergan has been nimble in the past,” he wrote. One example? The company’s willingness to hive off the generics business on which it built its foundation.

“We think management needs to signal it is open to alternatives otherwise frustrations will mount,” he added.

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And as to whether Allergan in its current form “could work,” he wasn’t too hopeful. If the Dublin drugmaker “remains married to the existing platform we are going to have a hard time supporting upside to the standalone story,” he said.

Stanicky first put forth the big split idea earlier this month, writing to clients that breakup talk would likely ensue thanks to the stock’s struggles. The way he sees it, the aesthetics business could do more on its own. Bernstein analyst Ronny Gal has also pointed out in his own research note that “the company’s aesthetic business is worth close to the complete value of the stock.”

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Shares have gone through a turmoil-filled stretch, and a federal judge’s recent decision to invalidate patent protections on second-best seller Restasis hasn’t helped matters. Before that verdict, Allergan faced blowback from lawmakers for a patent licensing agreement it had struck with the Saint Regis Mohawk Tribe to protect those same patents from a challenge at the U.S. Patent and Trademark Office.

Allergan, meanwhile, isn’t the only company under breakup pressure. Fellow Irish specialty drugmaker Shire has reportedly fielded a similar suggestion from Sachem Head Capital Management, an activist hedge fund founded by Bill Ackman protégé Scott Ferguson.