CEO Saunders' Stake Fails to Bolster Allergan
Allergan CEO Brent Saunders

On the heels of a third quarter earnings miss and disclosure that investor Carl Icahn is slashing his stake in the company, Allergan (AGN) CEO Brent Saunders on Monday purchased 5,250 shares of company stock Monday, November 21st at $189.13 per share.

The value of the new stake was just below $1 million. The acquisition was disclosed in a filing with the Securities & Exchange  Commission

Disclosure of Saunders' additional stake briefly reversed a steady drop in Allergan shares but the slide resumed with Tuesday's opening bell. In pre-market trading Allergan shares rose from Monday's close of $191.14 to $193.99. However, the shares quickly fell when trading opened Tuesday and stood at $188.50 by mid-day. That put the shares at the same level as they were on Nov. 3, after shares plunged following report of the Q3 earnings miss.

On Nov. 2 Saunders took the blame for the Dublin-headquartered company's earnings per share of $3.32 over the quarter,which was down 24 cents from FactSet's consensus of $3.56. Sales during the period also came in lower than expected at $3.62 billion, as opposed to expectations of $3.67 billion. Allergan also guided down its full-year earnings-per-share estimate to a midpoint of $13.40, from
$13.98.

The numbers miss was largely due to unanticipated competition from generics.

The stock slide shows the market isn't comforted by the company's stock buyback program.

Previously this month activist Carl Icahn unloaded most of the stake he built up earlier in the year. Icahn revealed in a 13F filing Nov. 14 that he trimmed his stake to 425,438 shares worth roughly $99 million as of Sept. 30, down from the 3.4 million shares, or roughly $786 million, owned as of June 30.

It was only at the end of May that Icahn gave a vote of confidence in Allergan, disclosing he had purchased a "sizable position" in the maker of Botox and stating that he was highly supportive of CEO Brent Saunders.

Icahn played a role bringing Saunders on as the new chief executive at Forest Laboratories a few years ago. In July 2014, Forest was acquired by Actavis plc for $25 billion. (Actavis assumed the Allergan name after acquiring Allergan in March 2015.)

The drop in Allergan shares may have some eyeing the stock as a potential buying opportunity. William Blair initiated coverage on Wednesday with a market perform rating. Blair analyst Tim Lugo noted that consensus estimates call for compound annual growth of 10% through 2016 until 2020.

He wrote in his initial report that while Botox growth is benefiting from potential therapeutic uses, "renewed competition could weigh on out-year estimates." He added that the launch of the Vraylar central nervous system franchise has been "impressive" but that he's concerned by sooner-than-expected generic competition to the Namenda Alzheimer's treatment in 2017-2018. In the eye care segment, the company's largest product Restasis may face a patent review in late 2017 and he worries about the company's ability to weather Shire's competitive launch of dry eye treatment Xiidra. Despite the drop in Allergan's valuation, Lugo said these challenges and others lead him to be only an "opportunistic buyer" of Allergan shares. 

The current stock price is closing in on the $180 target that Jim Cramer, founder of TheStreet Inc. (TST) and manager of the Action Alerts PLUS Charitable Trust Portfolio, considers attractive. "We continue to view AGN as the long- term, large-cap growth play in biopharma and view these levels as intriguing—we would recommend snapping up shares under $200," he and AAP analyst Jack Mohr, who hold Allergan, wrote last week. "We reiterate our $270 target and believe there is upside as the company continues to build out its new product brands while it benefits from established franchises."

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