Allergan Premium Makes It a Hold

We are enthusiastic about the future of Allergan, Inc. (AGN - Analyst Report) from a fundamental standpoint. It possesses a strong blockbuster product in Botox and a slew of innovative new products in the eye and skin care markets. We were pleased to see Allergan receive FDA approval for Juvederm dermal fillers several months ahead of expectations.

We consider Allergan to be one of the premier specialty pharmaceutical companies. 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.

Allergan has been pretty active on the acquisition front over the past few quarters. We believe these acquisitions will provide Allergan with the opportunity to drive growth in its existing business and to expand into new areas of business. Even in the face of slowing consumer spending in the U.S., the company’s presence across different segments and geographies should help maintain decent growth going forward.

We expect 2008 to be a strong year for the company. The stock currently trades at 20.5x our 2008 estimate of $2.59, at a premium to the industry mean. We believe that the premium is warranted, given Allergan’s strong growth, which is likely to continue in the next decade, given its impressive pipeline.

However, several issues are likely to keep a lid on the share price in the near term, especially due to safety concerns surrounding the use of Botox. We maintain a Hold rating on the stock with a price target of $58.

Arpita Dutt, CA, contributed to this report.

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