Piper Jaffray Downgrades Allergan To Neutral, Slashes Target To $238

Piper Jaffray’s David Amsellem believes that although Allergan plc Ordinary Shares AGN warrant a premium valuation to its specialty pharma peers, the current premium is “excessive.”

The analyst downgraded the rating on the company from Overweight to Neutral, while lowering the price target from $311 to $238.

Amsellem mentioned that while Allergan had “enough items of concern that ultimately call into question the company’s ability to deliver a long-term earnings CAGR that is in the double digits.”

Pricing Action

Amsellem pointed out that despite pricing action not being “egregious,” it has still been able to drive growth for Allergan.

Over the past two years, the average cumulative price increases have been significant, with 24 percent and 30 percent increase in the dermatology and GI segment, respectively.

Although this is lower than the pricing action taken by some peers, Allergan has taken on major pricing action on select products, such as a 282 percent increase over 2014-2015 for Armour Thyroid.

“Given the reality that the world has changed, and that payors, at least for now, appear to be extracting their pound of flesh, we wonder how the spreads between gross and net sales will look for AGN going forward,” Amsellem stated.

Rx Volumes

However, Amsellem expressed concern regarding Rx volumes, noting that beyond the “newer or heavily promoted brands, there are some trouble spots.”

Apart from Linzess, the Rx for GI product have declined year to date, as have those for Asacol HD and Delzicol.