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Allergan Requests Shareholders to Veto Management Change

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Allergan plc (AGN - Free Report) issued a statement in response to a letter from public shareholders from Appaloosa and Senator Investment Group of the company expressing disappointment on the recently announced strategic plan to divest the women's health and infectious disease units.

Activist investors Tepper from Appaloosa and Douglas Silverman from Senator Investment Group and have requested to split Brent Saunders' responsibilities, who is currently the chairman as well as the chief executive officer (“CEO”). They suggested recruiting a new chairman or CEO who is not from the company, replacement of two additional board members and changes to management of critical operating units. They are of the view that the company needs fresh ideas. They believe the above changes are required to drive returns or else share prices will continue to decline.

In its statement, the company stated that its board and management are open to inputs from all shareholders and considers the same while making decisions. They are focused on building a world class company and drive return for shareholders.

On its earnings call held in May, Allergan management discussed several strategic plans including divestment and share buybacks. The company recently concluded its strategic review and announced that it will focus on its leading four therapeutic areas – medical aesthetics, CNS, eye care and GI – and will divest the two units mentioned above. In January, the company cut jobs as part of a restructuring process.

Moreover, Allergan also mentioned that the board has been refreshed with the addition of three members in the last 16 months.

Meanwhile, the shareholders have rejected the proposal of splitting the role of Brent and appointment of an independent chairman during the annual general meeting held in May.

So far this year, Allergan’s share price has declined 7% compared with the industry’s decline of 6.4%.

We note that Allergan recorded strong earnings in the first quarter and also announced successful results from clinical studies. However, its shares are declining as several of its key products are facing loss of exclusivity, which may have an unfavorable impact on the top line.

Restasis, a major revenue contributor, is facing stiff competition with the launch of Shire plc’s (SHPG - Free Report) dry eye disease drug Xiidra last year. Its sales have declined more than 17% in the first quarter. A generic version of the drug may also be launched by mid-2018. Meanwhile, Synergy Pharmaceuticals Inc.’s Trulance, which was approved for chronic idiopathic constipation last year is expected to increase competition for Linzess. Several companies are looking to bring generic version of the drug in the market. Moreover, in January, Mylan (MYL - Free Report) launched the generic version of Estrace vaginal cream, which saw sales erosion of more than 90% in the first quarter.

The company estimated that the products losing exclusivity were worth $3 billion in 2017. We expect a significant decline in revenues from these products.

Allergan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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