Allergan's Future Looks Promising

Michael Waterhouse: Despite looming generic competition on a few key products like Restasis, we still believe wide-moat Allergan's current stock price still reflects too much pessimism for the company's outlook. While the market is preoccupied with the upcoming launch of a new aesthetic neurotoxins in the U.S. market and the effect of the new class of CGRP monoclonal antibodies in chronic migraine on Botox's therapeutic sales, we still expect limited market share losses and pricing pressure for Botox in this high-barrier-to-entry and limited-competition market.

Besides injection differences among products, Botox retains the most diverse set of approved indications that should help preserve high market share. These competitive issues make 2019 a transition year for Allergan, but we think the optics on the horizon are improving as Allergan advances a number of key pipeline products through late stage clinical trials, including ubrogepant and atogepant for migraine, abiciapar for macular degeneration, rapastinel for major depressive disorder, CVC for NASH, and relamorelin for gastroparesis.

For patient, long-term investors, we think Allergan's future looks more promising than the current stock price at 8 times adjusted 2019 earnings would suggest.