Barclays Injects Allergan With An Upgrade, Says Valuation Model Has Improved

Allergan plc Ordinary Shares AGN is down 26 percent over the last six months, but one analyst said there's only upside to its sickly state. The biotech’s trajectory inspired an upgrade from a three-year Hold.

The Rating

Barclays analyst Douglas Tsao upgraded Allergan to a Buy rating and raised the price target from $220 to $230.

The Thesis

Tsao’s confidence in Allergan is driven by lessening concerns around the firm’s legacy pharmaceutical portfolio and expected growth in its aesthetics franchise, he said. 

A Barclays survey of plastic surgeons and dermatologists indicated durability in the aesthetics segment, which is seen to be a key earnings driver. About 44 percent said their patients would not accept Botox alternatives, and 67 percent reported Botox patients to be “very satisfied” with their treatment against Dysport and Xeomin’s rates of 36 percent and 20 percent, respectively. 

Notably, Revance Therapeutics Inc RVNC’s RT-002 was well received but does not hit the market until 2020.

“While we’ve always viewed the strength of Botox’s brand, our survey showed much stronger perceptions around product quality than we anticipated,” Tsao said in a Monday note.

Altogether, the analyst said he found Allergan attractively valued compared to large-cap pharma peers.

“In the past we didn’t think AGN deserved a premium multiple because [it] overvalued legacy pharma assets,” Tsao said. “However, with the proportion of mature assets declining, we think the valuation case has improved.”

Price Action

Allergan shares were up 0.62 percent at $188.13 at the time of publication. 

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