Investors and analysts just can’t get enough of pharma breakups—and Allergan may be the next subject of their enthusiasm.
With its stock struggling, the company should expect to field more questions on the topic, RBC Capital Markets analyst Randall Stanicky figures. He sees support for the idea that Allergan’s parts are worth more than its whole, “and we expect focus on unlocking that value to pick up.”
The reason? Allergan’s “higher-value aesthetics business.” If Allergan were to split its portfolio in two, that unit and Botox’s therapeutic sales would drive 41% of revenue, with the rest of the business generating 59%.
According to his calculations, the implied multiple on the aesthetics/Botox business sits at around 13.3 times 2019’s earnings—but considering that aesthetics is largely a cash-pay, consumer business with durable growth, he thinks that number should be closer an earnings multiple of 15 to 20. “That would imply an equity range of $210 to $258,” he noted.
Bernstein analyst Ronny Gal echoed those sentiments in his own note to clients. “[W]e continue to believe the company’s aesthetic business is worth close to the complete value of the stock.”
“The pullback in Allergan over the past three months surprised us,” he said.
It’s been a rough stretch for the Dublin drugmaker, which this week saw a federal judge invalidate patent protections on its second-best seller, Restasis. And in the weeks before that, it faced blowback from lawmakers for a patent licensing agreement it had struck with the Saint Regis Mohawk Tribe to shield those same patents from an inter partes challenge at the U.S. Patent and Trademark Office.
Meanwhile, if Allergan does fall into the breakup spotlight, it’ll join a long line of pharma peers that have faced the same scrutiny. Analysts recently directed their questions toward troubled Teva Pharmaceutical, which they thought could split its generics and specialty units. GlaxoSmithKline, with its hefty consumer health unit, has also been a popular target in recent years. Pfizer, which kicked off the trend by jettisoning its infant nutrition and animal health businesses—and then considering and rejecting a wholesale split—continues to keep it going; it's now exploring a divestment of its consumer health division.