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Holly LaFon
Holly LaFon
Articles (9409)  | Author's Website |

Allergan Tumbles Despite Pressure From David Tepper

Tepper blasts 'ill-considered initiatives' at his third-largest position as stock slides

February 07, 2019 | About:

Drug maker Allergan Inc. (NYSE:AGN) fell 3.45% in Thursday trading, placing it down 6.27% since Tuesday morning, when David Tepper (Trades, Portfolio) turned up pressure on the company’s board to separate the roles of chairman and CEO.

Allergan, which makes Botox and Juvederm, has seen its stock tumble by more than half from its all-time peak in July 2015 to $132.26 a share Thursday. Tepper blasted the company for what he called “chronic underperformance” and a record of executive decision-making rife with “ill-considered initiatives” and “self-inflicted wounds.” Appaloosa Management, Tepper’s hedge fund, sent three previous letters last year to Allergan, its third largest long holding, requesting an independent chairman. Brent Saunders has been the company's CEO since 2014 and chairman since 2016.

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“AGN’s refusal to embrace an emerging benchmark for sound governance in the face of strong shareholder support marks the company as an outlier,” Tepper wrote in a public letter to Allergan. “In the wake of last Tuesday’s earnings call (and market reaction) it should by now be readily apparent to all interested and responsible parties that Allergan requires a fresh approach to its business strategy and an unbiased review of its capabilities, opportunities, and way forward.”

Allergan on Jan. 29 posted a 5.7% year-over-year drop in net revenues for the fourth quarter to $4.08 billion. For the year, revenues declined 1.0%. The company also reported a $4.295 billion net loss, or $12.83 loss per share, for the fourth quarter, compared to net income of $3.12 billion, or $9.21 earnings per share, in the same quarter last year.

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Cutting into earnings was a $5.4 billion pretax impairment charge, which included a $1.6 billion intangible asset impairment for its double-chin treatment Kybella due to lower sales forecasts and $3.5 billion in goodwill related to an adjustment in the value of its general medical segment.

The company has also faced encroaching generic competition as it loses exclusivity on several treatments and lower sales in some of its key drugs. In particular, sales of its second best-selling product, dry-eye treatment Restasis, fell 18.8% to $325.0 million in the fourth quarter. Allergan also expects to lose its patent for Restasis in the near future.

Tepper’s $14 billion hedge fund owns almost 2 million shares of Allergan, worth about $380 million. The position accounted for 9.86% of the public long portfolio at the end of the third quarter, the most recent data available, below stakes in Micron (NASDAQ:MU) and Facebook (NASDAQ:FB). Appaloosa started the position in the fourth quarter of 2015 when the share price averaged $299. GuruFocus estimates the firm’s loss on the position, based on average quarterly share prices, around 10%.

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Tepper made his largest-ever cut to the position during the third quarter, selling nearly 1.4 million shares, or 41.2% of the holding.

See David Tepper (Trades, Portfolio)'s portfolio here.

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About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


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