Wednesday, August 13, 2008

Allergan Smoothing Out Wrinkles

Allergan, Inc. (AGN) has been expanding into new therapeutic areas through acquisitions over the past few quarters. We believe these acquisitions will provide the company with the opportunity to drive growth in its existing business and to expand into new areas of business even in the face of slowing U.S. consumer spend. The Inamed acquisition, in particular, should help strengthen Allergan's position as a specialty pharmaceutical company.

From a fundamental standpoint, we are enthusiastic about the future of Allergan. The company possesses a strong blockbuster product in Botox wrinkle treatment and a slew of innovative new products in the eye and skin care markets. We were pleased to see Allergan receive the Food and Drug Administration approval for Juvederm dermal fillers several months ahead of expectations. Both Botox and Juvederm should help the company strengthen its position in the dermatology and plastic surgery market. We were also pleased to hear about the U.S. approval of silicone breast implants.

We expect 2008 to be a strong year for Allergan and the company's impressive pipeline should help drive growth in the next decade. The stock currently trades at 19.8x our 2008 estimate of $2.59. Several issues are likely to keep a lid on the share price in the near-term. Allergan shares have been under pressure lately due to safety concerns surrounding the use of Botox. Allergan also received a subpoena from the Department of Justice, U.S. Attorney's Office for the Northern District of Georgia, related to promotional, educational and other activities for Botox. We maintain a Hold rating on the stock with a price target of $56.

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