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Allergan's Teva ties may have pushed both stocks down, analyst says


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Allergan's Teva ties may have pushed both stocks down, analyst says

Allergan plc had a steady second quarter with several products beating sales expectations, although executive comments about Teva Pharmaceutical Industries Ltd. may have moved both drugmakers' stocks lower, an analyst speculated.

Teva, which bought Allergan's generic-drug unit Actavis last year, released its second-quarter earnings Aug. 3, reporting significant misses on revenue and earnings per share expectations, as well as a 75% cut to shareholder dividends this quarter.

An hour after Teva's earnings call, Allergan had its own, and Maria Hilado, CFO and executive vice president, said the company is putting its roughly $3.3 billion Teva stake up for sale.

Teva's dividend slash seemed to take Allergan by surprise. Daphne Karydas, Allergan's senior vice president of global investor relations and strategy, said on the call that the company's earnings report had been slightly delayed to account for Teva's announcement the same morning, and added, "Now I know what it's like to be nimble at Allergan."

With the reduction calculated, Teva's dividend brought Allergan $34 million in the quarter.

Allergan's desire for a sale could have played a part in its relatively flat stock activity following what was an otherwise solid earnings report, Evercore ISI analyst Umer Raffat said in a note that day. Raffat expects the shares will recover and added that big pipeline readouts in Allergan's future could move their price significantly. Allergan stock was down 3% in midafternoon trading on Aug. 4.

Teva saw its stock drop more than 20% on Aug. 3, mostly driven by clear challenges for its generics unit, the biggest in the business. Its American depositary receipts were down 10.7% in midafternoon trading on Aug. 4.

Allergan, by comparison, is largely supported by its aesthetics business, including its flagship Botox treatment and a line of fillers that have gained traction among millennials in particular. Both product lines beat consensus sales expectations for the quarter, Botox bringing in $557 million and fillers making $126 million, Barclays analyst Douglas Tsao said in an Aug. 3 note.

Allergan's general medicines segment is less strong, but a known weakness that the company is managing through, Tsao added. Dry eye drug Restasis saw a sales slump this quarter, which executives said was a one-off based on trade buying patterns. Tsao rates the company's stock as equal weight/positive.

Hilado noted that Allergan raised midpoint guidance on EPS for the rest of the year by about 15 cents, and excluding the Teva dividend it would be 13 cents.

"We're very happy with that," she said.