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This Is What Hedge Funds Have To Say About Pharmaceutical Giant Allergan plc (AGN)

Allergan plc (NYSE:AGN), formerly known as Actavis, is a pharmaceutical company formed and shaped by at least five major M&A deals since 2012. This summer, Actavis plc announced that it had adopted Allergan plc as its new global name and would start trading on the New York Stock Exchange under a new symbol, “AGN”. This change followed the acquisition of Allergan back in March 2015, which created one of the top ten pharmaceutical companies by revenue in the world and a leader in a new industry model – Growth Pharma. In the meantime, Allergan retains its spot as the most popular stock among the hedge funds tracked by Insider Monkey, even though the number of smart money investors with positions in the stock decreased to 151 from 157 during the second quarter. By the same token, the value of these stakes shrank to $20.73 billion from $21.97 billion. The shares of what is now Allergan have had a great run throughout the last decade or so. The stock has delivered a return of 582% over the past five-year period, and a return of nearly 15% year-to-date despite being affected by the recent broader market sell-off. In the following article we will discuss what some of the reputable hedge funds in the industry think of Allergan.

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At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 118% and beating the market by more than 60 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

We can now turn our full attention to one of Allergan plc (NYSE:AGN)’s major equity holders and that holder’s thoughts on the company. Daniel Loeb’s Third Point LLC talked up the pharmaceutical company in its letter to investors for the second quarter. The value-oriented investment management firm, which owns 3.3 million shares of the pharmaceutical company valued at $1 billion as of June 30, first cast its eye on the former Actavis back in 2013, when “it was a much smaller company”. At that time, Actavis had recently acquired Warner Chilcott, so Daniel Loeb and his team believed that the company was prepared and set to engage in other accretive transactions. The company has done just that, executing a number of acquisitions including those for Forest Laboratories and Allergan, in addition to many other smaller-sized deals.

Dan Loeb
Dan Loeb
Third Point

Additionally, the investment firm believes that both Paul M. Bisaro, who currently serves as Executive Chairman of Allergan, and CEO and President Brent Saunders have outlined a “strong strategic vision” for the pharmaceutical giant and “a coherent framework for pursuing deals”. Third Point also remarked that:

Their mission is to create a growth-oriented pharmaceutical company with attractive long-duration assets while implementing strict expense controls and avoiding high-risk and undisciplined R&D spend. Over the past two years, Allergan has used its formidable cash flow to acquire derisked assets and build a broad based pipeline, in line with its stated goals.

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