Investors are frustrated with Botox-maker Allergan -- and its CEO says it's 'deep into the process' of figuring out what to do next

  • Allergan said Monday during its first-quarter earnings call that it’s “deep into the process” of its strategic review of the company amid its stock price slipping over the past year.
  • Allergan CEO Brent Saunders outlined five possible approaches the company’s exploring, which include divesting certain businesses.
  • Investors, Saunders said, are frustrated, and some of Allergan’s top shareholders have approached activist investors to get involved in pushing for change at the company, Business Insider reported on Thursday.

Allergan knows its investors are frustrated.

Botox-maker Allergan reported its first-quarter earnings on Monday, announcing a better-than-expected profit and raising its forecast for the year. Still, the company’s stock fell by 3% Monday morning.

Over the past year, Allergan’s stock has fallen 36%, while over the same period the Nasdaq Biotech Index has risen by 5%. In response to the stock’s performance, some of Allergan’s top shareholders have approached activist investors to get involved in pushing for change at the company, Business Insider reported on Thursday.

Allergan CEO Brent Saunders acknowledged the disconnect between how the company’s performed and its stock price. He said the company’s “deep into the process” of reviewing its strategic options for the company, including divesting certain businesses and splitting the company outright. Though he didn’t give a set timeline, he said he’d give an update at the next earnings call in a few months if not before.

“Everything is on the table,” Saunders said Monday, reiterating what he said at a March investor meeting.

Saunders broke out the potential options into five categories.

  • Share buybacks, something Allergan’s done recently. Saunders said he didn’t see this as a primary strategy, but it could be used to boost the company incrementally.
  • Divestitures of some of the non-core Allergan businesses. Saunders considered its “big four” businesses to be eye care, aesthetics, diseases of the central nervous system, and gastrointestinal conditions, while women’s health and anti-infectives are “less strategically important.”
  • Splitting up the company is also on the table. “If we pursue it will take the longest time to complete and most disruptive,” Saunders said. Something that makes it especially tricky: Botox fits into both the aesthetics and the CNS businesses, because it’s used to treat conditions like chronic migraine. That would make a split along Allergan’s cash-pay businesses and its therapeutic businesses tricky.
  • Acquisitions, likely not through a large merger but through smaller deals.
  • Continuing as the company stands now.

If the last two options become the strategy, it’s likely investors won’t be too pleased.

“This is going to increase debate which we have already seen based on incoming emails and add risk that a ‘do nothing’ option or resumption of bolt-on deals could be the answer – we would expect push-back from investors if either were the case,” RBC Capital Markets analyst Randall Stanicky said in a note Monday.

When it came to Allergan’s announcement earlier in April that it was in the “in the early stages of considering a possible offer” for the UK-listed Shire, only to say four hours later that it wouldn’t make an offer, Saunders said that the company was only in the “cursory review” phase of checking out the deal. Because Takeda put Shire into pay, the company took the steps to feel it out. Saunders said it’s standard practice at Allergan to look at every company that comes up for deals, “even if it’s just a remote possibility.”

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