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Viking Global Investors increases stakes in Allergan

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Viking Global and Allergan

Viking Global added new positions in Alibaba Group Holding (BABA), Citigroup Inc. (C), and Bank of New York Mellon Corp (BK). The fund exited positions in Time Warner Inc. (TWX), Cameron International Corp (CAM), and Constellation Brands Inc. (STZ).

The fund added to its positions in Pioneer Natural Resources (PXD), Precision Castparts Corp (PCP), and Allergan (AGN). The top positions the fund lowered were Monsanto Co. (MON) and Baidu Inc. (BIDU).

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Viking Global Investors added to its position in Allergan (AGN) in 3Q14. The position accounts for 1.63% of Viking’s 3Q portfolio.

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Company profile

Allergan is a multi-specialty healthcare company that develops and commercializes pharmaceuticals, biologics, medical devices, and over-the-counter products for the ophthalmic, medical aesthetics, medical dermatology, and other specialty markets globally. The main portion of its revenue comes from the sale of specialty pharmaceutical products to wholesalers within the United States.

The company has two reportable segments. The specialty pharmaceuticals segment produces a broad range of pharmaceutical products, including ophthalmic products, Botox, skin care, and urological products. The medical devices segment produces a broad range of medical devices, including breast implants and facial aesthetics products.

Allergan reports strongest sales growth in 3Q14

For 3Q14, Allergan reported diluted earnings per share of $1.03 as compared to $1.10 diluted earnings per share for 3Q13. Total product sales were $1.79 billion, up 17.2% as compared to total product sales in 3Q13.

Total specialty pharmaceuticals net sales increased 14.3%, while total core medical devices net sales increased 30.4% as compared to total net sales in the corresponding period last year. The increase in specialty pharmaceuticals product net sales was due to increases in product net sales of eye care pharmaceuticals, Botox, and skin care and other product lines.

The increase in core medical devices product net sales reflects an increase in product net sales of facial aesthetics and breast aesthetics product lines.

Allergan management noted, “We are making excellent progress on the stockholder value enhancements announced in July 2014, which are resulting in enhanced non-GAAP diluted earnings per share growth and thus increased stockholder value.”

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Unsolicited proposal from Valeant

On August 1, 2014, Allergan filed a lawsuit against Valeant Pharmaceuticals International, Inc., Pershing Square Capital Management, and its principal, William A. Ackman, alleging that “Valeant, Pershing Square and Mr. Ackman violated federal securities laws prohibiting insider trading, engaged in other fraudulent practices, and failed to disclose legally required information.”

On September 15, 2014, Allergan announced that it reached an agreement with Pershing Square and Valeant where Allergan agreed to hold the special meeting of stockholders on the already scheduled date of December 18, 2014, without restriction, and Pershing Square and Valeant dismissed their pending litigation. Allergan has established an October 30, 2014, record date for stockholders entitled to vote at the special meeting.

Allergan targets double-digit sales growth over the next five years

Allergan has initiated a restructuring plan that it believes will significantly reduce costs in 2015 by approximately $475 million annually relative to its prior strategic plan while preserving the company’s ability to deliver double-digit sales growth across the next five years.

Over the same five-year period, Allergan expects to generate compounded annual adjusted EPS (earnings per share) growth of more than 20%. It also expects to generate approximately $14 billion in additional free cash flow over the next five years.

In the next segment of the series, we will discuss fund’s lowered positions during Q3.

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