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Best Value In Biotech? Actavis (ACT), Says UBS



11/18/2014 12:45:17 PM

Best Value In Biotech? Actavis, Says UBS

November 18, 2014

By Riley McDermid, BioSpace.com Breaking News Sr. Editor

Biotech powerhouse Actavis Plc (ACT) is currently the best value in the sector for investors and its recent $66 billion deal to acquire Botox maker Allergan Inc. (AGN) will be a good fit, said Mark Goodman, biotech analyst with UBS, on Tuesday.

“Management also understands that it must spend on marketing to drive this business and is committed to DTC/marketing programs that have proven successful at Allergan, but there are synergies in back office and training, and overlaps in dermatology, neurology and urology,” wrote Goodman.

“Management made it clear once again that it is very committed to generics. We still don’t understand why some investors keep thinking Actavis may sell off that business, given the strong OUS footprint that is basically a branded generics business.”

Goodman wrote in a note to investors after a conference call with management that Actavis sees a double digit accretion to consensus earnings per share for 2016 of around $20.50 (consensus is $18.61) and an aspirational goal of $25 in 2017.

Management also sees $1.8 billion of synergies via the Allergan deal that include $400 million in research and development, $400 million in sales and marketing, $350 million in general and administration, “which should all come pretty quickly.” There could be an additional $200 million in general management from procurement.
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When it comes to general thoughts on the stock, “We like Actavis even more now,” said Goodman, because the Allergan deal should accelerate both top line and earnings growth and thus boost the price-to-earnings ratio of Actavis.

“We understand that there are many moving parts regarding the stock in the near term, with an equity raise, convert, and arbitration positioning; however, looking through the noise, we see a very attractive company, trading at a very attractive valuation currently,” he wrote.

“Some question management’s comment in the press that the company is positioned for long-term double-digit organic revenue and earnings growth. We don’t understand why this matters; it’s not guidance, and the valuation doesn’t reflect anything close to this aspirational goal,” he said. “We remain focused on the very strong visible five year growth.


Read at BioSpace.com


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