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Here's Why Allergan is Outperforming Its Industry Of Late

Zacks Equity Research

Shares of Allergan plc AGN have risen 19.1% this year so far against the industry’s decline of 10.9%.



AbbVie ABBV offered to buy Allergan in a cash-and-stock deal worth nearly $63 billion in June, which has been driving Allergan's shares since then. AbbVie offered $120.30 in cash and 0.866 of its share (worth $67.94) for each share of Allergan, representing a premium of 45% to Allergan’s closing price on Jun 24. The deal should, thus, prove to be rewarding for its shareholders. Amid expectations of generic competition for its blockbuster eye drug, Restasis; fears of new competition for key drug Botox and some recent pipeline setbacks, the merger with AbbVie could prove to be the best way out for Allergan.

Allergan also continues to deliver on its R&D pipeline with some major product launches expected over the next couple of years. Key programs include Ubrogepant, an oral CGRP antagonist for migraine; Abicipar for age-related macular degeneration; Atogepant, an oral CGRP antagonist, for migraine prevention and Bimatoprost SR for glaucoma. A regulatory application in the United States for Ubrogepant was filed in March 2019 (FDA decision expected in December 2019) while that for Bimatoprost SR was filed in July 2019 (FDA decision in first half of 2020). A regulatory application for Abicipar is expected to be filed in 2019. This late-stage pipeline has the potential to lead to major product launches over the next couple of years.

The company is also working on expanding the labels of marketed products like Botox and Linzess among others. Importantly, in May, its schizophrenia drug, Vraylar (cariprazine) was approved by the FDA for a new indication — bipolar depression — which expands the drug’s eligible patient population, thereby providing an incremental sales opportunity. Botox was approved by the FDA for upper limb spasticity in pediatric patients in June. In the same month, Allergan received FDA clearance for its CoolTone device for muscle toning, strengthening and firming of the abdomen, buttocks and thighs.

Meanwhile, biosimilars represent significant opportunity for Allergan. It has a collaboration agreement with Amgen AMGN for the worldwide development and commercialization of four oncology antibody biosimilars. Amgen/Allergan’s biosimilar version of Roche’s RHHBY Avastin, Mvasi, was launched the United States last month and was approved in the EU last year. However, it has not been launched yet. Meanwhile, Kanjinti, the biosimilar version of Roche’s Herceptin was launched in the United States and EU in July 2019 and May 2018, respectively. A biosimilar of Roche’s Rituxan (ABP 798) is in phase III development.

However, Allergan has its share of challenges. Its sales are being hurt by loss of exclusivity of key drugs, recalls of textured breast implants, pricing pressure and currency headwinds. Restasis is also expected to face generic competition this year.  Please note, however, that a delayed generic entry of Restasis has allowed Allergan to raise its sales guidance twice this year. However, new competition for key growth drivers, Botox, Restasis and Linzess, is a concern.

In February, Evolus’ Jeuveau injection indicated to improve the appearance of glabellar or frown lines was approved by the FDA, which can pose competition for Botox. In the fall of 2019, Revance Therapeutics will file for approval of DaxibotulinumtoxinA for Injection (DAXI), a rival treatment to Botox for the frown lines indication. It has demonstrated longer duration of efficacy compared to Botox in late-stage studies. Allergan has also faced its share of setbacks, the most recent being the failure of its three acute pivotal studies on depression candidate, rapastinel, which failed to meet the primary endpoints.

Despite all the negatives, strong performance of its key products like Botox, Viberzi and Vraylar, product launches and potentially successful closing of the merger with AbbVie should keep the stock afloat through the rest of the year.

Allergan has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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