Activist investor Appaloosa dismisses Allergan board promises as "meaningless"

Hedge fund Appaloosa, which has been urging Allergan to separate the roles of chairman and chief executive, is brushing aside the drugmaker's recent disclosure that it plans to make the split at the next leadership transition. "Allergan has done everything except what needs to be done to fix the company," Appaloosa stated Monday, adding that "unless the board intends to make a CEO transition in the very near term, these measures are no more than a meaningless series of gestures intended to preserve the current system of lax oversight and further entrench management." 

Appaloosa noted that it is not the "lone voice" of criticism against the drugmaker, having recently disclosed that Allergan shareholder John Chevedden also backs a move to split the roles of chairman and CEO. "The status quo is unacceptable," Appaloosa said, and reiterated that Allergan may have to consider "[selling itself] to a more capable acquirer or merger partner." 

The hedge fund also released an investor presentation in which it drew attention to what it called Allergan's "persistent underperformance," including the recent failure of the company's depression drug candidate rapastinel in multiple late-stage studies. According to Appaloosa, the company claimed at an R&D day in 2015 that the drug could be launched in 2020 and generate peak sales from $1 billion to $2 billion. 

In addition, Appaloosa pointed out that there have been no recent updates on Allergan's tavilermide, an experimental topical TrkA agonist being developed for dry-eye disease. In its investor presentation, Appaloosa said it believes tavilermide has "failed Phase III," but when Allergan obtained rights to the drug from Mimetogen Pharmaceuticals in 2015 for $50 million upfront, it had a projected launch of 2019 with peak sales between $500 million and $750 million. 

The hedge fund also highlighted how certain already approved drugs, including the irritable bowel syndrome treatment Viberzi (eluxadoline), and the submental fat therapy Kybella (deoxycholic acid), both launched in 2015, have fallen far short of projected peak sales of up to $1 billion. According to Appaloosa, the drugs have so far brought in peak revenue of $175 million and $38 million, respectively. 

Meanwhile, abicipar has an anticipated launch in 2020 for use in wet age-related macular degeneration and diabetic macular oedema, with Allergan claiming sales could go as high as between $1 billion and $ 2 billion, although Appaloosa cited "inflammation concerns" for the experimental anti-VEGF drug, and predicts it will probably only generate "a few hundred million peak sales, if approved." 

Allergan posted a loss of $4.3 billion in the fourth quarter of 2018, versus a profit of $3.1 billion in the year-prior period, while revenue was down 5.7 percent to $4.1 billion. The company has also dropped plans to divest its women's health business. 

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