'Losing direction': Allergan investors are unhappy after a wild 4 hour takeover drama

Reuters

Allergan CEO Brent Saunders prepares to give an interview on the floor of the New York Stock Exchange (NYSE) April 6, 2016.

• Allergan's stock closed down 4% on Thursday, after the pharma giant said it was "in the early stages of considering a possible offer" for UK-listed Shire, only to say a four hours later that it wouldn't make an offer.
• The drama extends what's been a tough year for the Botox-maker, with the stock vastly underperforming the broader biotech index.
• Bernstein analyst Ronny Gal said in a note Thursday that investors had told him after the Shire takeover situation they thought management was losing focus.
• Business Insider spoke with several top 30 investors in Allergan who said they've told management that they would like to see the company sell or spin off non-core businesses.

Allergan's stock has been crumbling over the past year.

The Botox-maker's stock is down 33% in the last 12 months, compared to the Nasdaq Biotech Index which is up 10% over the same time period.

Things got worse for Allergan on Thursday after the company said it was in the early stages of considering a possible offer for $50 billion Adderall-maker Shire. Four hours later, Allergan said that it does not intend to make a bid for Shire, stalling out a potential bidding war over the company with Japan's Takeda.

Allergan's stock dropped 8% after its initial interest and closed the day down 4%.

"We noted the market generally did not like the idea of large transactions for Allergan," Bernstein analyst Ronny Gal said in a note Thursday afternoon, adding that investors had told him they thought management was losing focus.

"It will take investors a bit of time to recover from the added concerns, but we do not see a fundamental argument here for management losing direction as some argued to us today," he said. Gal has an outperform rating on the stock.

Business Insider spoke to several top 30 investors in Allergan who said they are pushing for the company to sell or spin off non-core businesses, including women's health and drugs to treat gastrointestinal illnesses.

Allergan CEO Brent Saunders said in March that the company is considering various options to address share underperformance. And on Thursday, in announcing that it wouldn't be making a bid for Shire, the company reiterated that message.

"Allergan continues its ongoing process of evaluating a full range of potential strategic actions that will create value for shareholders, such as divestitures, combinations and acquisitions," it said in a statement.

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

In October, a district court judge invalidated some of Restasis 's patents through another channel. The loss meant that Allergan won't get much of the upside from the St. Regis deal, especially after the negative reaction it received from lawmakers and the public. Allergan's stock dropped 6% on the ruling.

Restasis, which is used to treat chronic dry eye, was approved in 2003. In 2017, the drug made $1.4 billion in sales, making up about 20% of Allergan's profits. Allergan's also facing potential competition to Botox, its blockbuster drug that made $2.2 billion in sales in 2017.

A representative for Allergan declined to comment.

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