Investors are angry with Botox-maker Allergan - and they're trying to get an activist involved to shake it up

Jim Young/Reuters

Botox is Allergan's most well known product.

• Some of Allergan's top shareholders have approached potential activist investors to gauge their interest in pushing for change at the Botox-maker, according to people familiar with the matter.
• Allergan's shares are down 33% in the last year, compared to a 7% rise for the Nasdaq Biotech Index.
• Allergan is set to report earnings on April 30.

Several of Allergan's largest shareholders have recently approached activist investors to gauge their interest in pushing for change at the Botox-maker, according to people familiar with the matter.

Business Insider spoke with half a dozen funds with top 50 positions in Allergan who said they have held talks with company management over the last several months about selling off businesses that are not central to the drugmaker's strategy. These include women's health, which makes products such as the birth control pill Lo Loestrin Fe and menopause treatment Femring, in addition to the urology and gastroenterology units.

Some of the investors have also raised concerns about Allergan's direction in conversations with large activist funds after seeing the drugmaker's shares plummet 33% in the past year. That's compared to a 7% rise for the Nasdaq Biotech Index during the same period. They've encouraged the activists to build a stake in the company to raise pressure on management to change its strategy faster.

The investors say the company has lost focus, which they believe should be on its core aesthetics business which includes products like Botox and double chin treatment Kybella as well as its eye care brands like Restasis for dry eye. Combined, these comprise around 40% of the company's revenue.

It remains unclear if any major activist investor has taken a stake in Allergan in the last several weeks.

A representative for Allergan could not be reached for comment.

Allergan CEO Brent Saunders said at a March investor conference that the company was considering various options to address share underperformance. Investors will learn more when Allergan reports earnings on April 30.

While Allergan and its CEO were once investor darlings, things took a turn in September 2017 when the company touted a deal it had struck with the Saint Regis Mohawk Tribe to transfer patents of the eye drug Restasis. The move gives the drug sovereign immunity from certain patent challenges.

In October, a district judge invalidated some of Restasis' patents through another channel. The loss meant Allergan wouldn't get much of the upside from the St. Regis deal, especially after the negative reaction it received from lawmakers and the public.

Matters didn't get better when Allergan announced it was in the "in the early stages of considering a possible offer" for the UK-listed Shire, only to say four hours later that it wouldn't make an offer.

"Core long-term holders are pretty frustrated with the way the stock's performed, the way the company's performed, the way they've done sort of these unusual things over the last year or so," Credit Suisse analyst Vamil Divan told Business Insider.

Selling in pieces

Allergan's two best-selling drugs, Restasis and Botox, face the looming threat of competition. Taken together with the way the stock's been performing, it's plausible there may be some pressure for Allergan to sell its entire business. However, selling off certain therapeutic areas seems to be more likely.

Bloomberg reported in early April that Allergan's been weighing selling its women's health business. Mizuho analyst Irina Koffler noted that could be an easier move to make than a sale of the company.

"With a number of competitive overhangs on Allergan's Botox business, we think selling the entire company outright could prove to be more time consuming and challenging. However, selling the division could be a productive first step," Koffler wrote in early April.

After the flip-flop over Shire - and how negatively Allergan's stock reacted - going forward with a large deal instead of selling some of its non-core assets might not be the best move, according to analysts.

"We think the more logical path to that value creation is asset sales and not large scale M&A," RBC analyst Randall Stanicky wrote in a note.