Billionaire investor John Paulson just loaded up millions of shares of the company that makes Botox—Allergan plc. (NYSE:AGN). The question now is; should you buy it too?
According to his hedge fund’s most recent filing to the Securities and Exchange Commission (SEC), Paulson increased his position in Allergan by 28% in the second quarter. By June 30, Paulson & Co. owned 7.17 million shares of Allergan, with a value of approximately $2.18 billion. (Source: The Securities and Exchange Commission, last accessed August 31, 2015.)
Note that Allergan has also become Paulson’s largest holding, making up 10.03% of his portfolio.
Acquisitions Will Expand Allergan’s Business
Having a solid growth prospect is of critical importance to public companies like Allergan. Fortunately, Allergan has a series of acquisitions to grow its business.
Despite having some of the most well known brands in the business, Allergan is on its way to expand its product lineup. In June, the company announced that it agreed to buy Kythera Biopharmaceuticals, Inc. (NYSE:KYTH) for $2.1 billion. (Source: Allergan, last accessed August 31, 2015.)
The acquisition would give Allergan access to Kybella, Kythera’s product to treat contouring submental fullness, also known as double chin. Kybella is the first and only approved non-surgical treatment to reduce fat under the chin. The product is expected to generate at least $500 million in domestic sales and has also applied for regulatory approval internationally in Switzerland, Canada, and Australia.
Kybella would fit well with Allergan’s current cosmetic treatment lineup. The pharmaceutical company is famous for its Botox injection, which prevents wrinkles. The company also has “Latisse,” a product that promotes eyelash growth.
Most recently, Allergan completed the acquisition of Naurex Inc., a clinical-stage biopharmaceutical company developing transformative therapies for challenging disorders of the central nervous system, including depression. (Source: Allergan, last accessed August 31, 2015.)
The acquisition of Naurex would boost Allergan’s development pipeline in mental health. Allergan now has access to Naurex’s lead development product rapastinel (GLYX-13), “a once-weekly intravenous Phase 3-ready molecule that has demonstrated rapid, robust and sustained efficacy in multiple Phase 2 clinical studies in depression.” Naurex is also developing NRX-1074, a next-generation drug candidate, “the intravenous form of which has shown rapid and robust antidepressant efficacy in an initial single-dose Phase 2 study”.
Allergan has said before that the company was creating a new category in the pharmaceutical industry—“growth pharma,” which would be defined by robust and sustainable revenue and earnings growth. On that front, let’s take a look at the company’s financials.
On August 6, Allergan reported the results of the second quarter of 2015. Note that this was the first full quarter since Activis plc completed the acquisition of Allergan, creating one of the world’s top 10 pharmaceutical companies by sales revenue.
In the second quarter of 2015, Allergan’s net revenue totaled $5.76 billion, a 116% increase from the $2.67 billion in the year-ago period. The company’s non-GAAP earnings also improved. Its adjusted earnings per share (EPS) increased 29% to $4.41. (Source: Allergan, last accessed August 31, 2015.)
Allgergan’s GAAP earnings were impacted by one-time items such as acquisition-related expenses. On a GAAP basis, the company had a loss of $0.80 per share. In the long term, however, acquisitions are likely to improve the company’s financials. Allergan had previously said that it expected the Kythera acquisition to breakeven in 2016 and become accretive afterwards.
Allergan’s shares traded at $304.35 at around 12:30 p.m. E.T. on Monday August 31st. The company’s stock price took a dip during the recent crash but recovered quickly afterwards. Year-to-date, Allergan’s shares had an 18.3% return—quite impressive compared to the overall performance of the U.S. stock market: S&P 500 had slipped 3.8% year-to-date. If everything goes as planned with the acquisitions, Allergan is set up for higher growth in its financials, and perhaps in its stock price too.