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Allergan Is Our Top Pick in Specialty Pharma

The underpriced wide-moat drugmaker boasts an attractive product portfolio, healthy pipeline, and clean balance sheet.


Michael Waterhouse: We think there are plenty of legitimate concerns about risks facing much of the specialty pharma industry, but we think investors are overlooking higher quality names in the space that potentially creates an opportunity for long-term investors. Weak corporate strategies, aggressive pricing, and high debt levels are just a few of the issues that have plagued firms like Valeant and Mylan, and concerns of potential pharma regulation shifts from the U.S. election are potentially pressuring the sector as well. 

Allergan remains our top pick in the spec pharma industry thanks to the company's attractive product portfolio, healthy pipeline, and clean balance sheet. Allergan's aesthetics business, led by Botox, remains the company's most popular and highest quality asset, which leads its large limited-competition aesthetics business that doesn't face insurance reimbursement risks. We also like the firm's ophthalmology, gastrointestinal, and central nervous system segments, where a number of recent and upcoming innovative drug launches should support future pricing power in these therapeutic areas. 

We think the firm can sustain high-single digit growth over the next few years while share repurchases help accelerate earnings per share. Following the recent $40 billion sale of its generics segment, Allergan is in the process of paying down debt and buying back shares under its $10 billion repurchase authorization.

Michael Waterhouse does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.