Wall Street's not modeling threats to Allergan's older meds—and it's hurting shares, analyst says

Bernstein analyst Ronny Gal thinks consensus has it wrong when it comes to Allergan's older meds.

Allergan’s stock is languishing despite company fundamentals that industry watchers call solid. Why? One analyst thinks he may have the reason.

The way some critics see it, the risk to Allergan’s older products—from both generics and other branded competitors—“is not well captured in consensus,” Bernstein’s Ronny Gal wrote in a Friday note to clients. And “as long as downside risks are not well captured by us (and our peers) in models, it is a barrier to stock performance.”

So Gal did his best to “remediate that,” examining threats to existing products that consensus isn’t modeling—and determining that those threats could leave Allergan $1.6 billion below where consensus pegs 2019 sales.

One such threat: The patent risk to Restasis, Allergan’s eyedrop powerhouse that sits second in the company’s ranks of top sellers behind aesthetic behemoth Botox. Gal counts six to seven companies as current generics filers, with a bench trial set for next August. And generics giant Mylan is taking another avenue, working to nix Allergan’s six-patent IP shield through the inter partes review process. With that in mind, Gal predicts a 50% chance of Allergan’s IP falling, and also he expects copycat meds to snag approval sometime between 2018 and 2020.

He also sees knockoff meds biting into sales of antidepressant Viibryd, which has about five generics filers and a bench trial set for January 2018—and so he’s modeling a decline where others are forecasting expansion, he wrote.

Another factor that could weigh on one of Allergan’s older meds? Pricing pressure in the genericized oral contraceptive market, which Gal sees taking a toll on branded Lo Loestrin. Taking that into consideration, he views growth as “limited” for the product and is forecasting a flat sales trajectory.

After tallying the results of the exercise, Gal wound up with 2019 revenue estimates that, at $16.4 billion, sit well below Wall Street’s $18 billion forecast, and EPS of $19 that sits roughly $2 lower than consensus.

That doesn’t mean he’s sour on Allergan’s prospects, though—and in fact, he’s just the opposite. But putting “a fair ‘floor’” on estimates for the next few years provides a benchmark against which “the stock can be fairly judged,” he wrote.

And “once consensus recalibrates, we expect the stock can outperform.”