Gabriel Grego

Allergan: Unlocking Value Through Management Changes – Gabriel Grego of Quintessential Capital Sohn HK Slides

The following is a presentation by Gabriel Grego, founder of Quintessential Capital Management, from the 2019 Sohn Hong Kong Conference on Allergan.

Q1 hedge fund letters, conference, scoops etc

QCM: Effectiveness As Activist

Gabriel Grego

Allergan: Unlocking Value Through Management Changes

QCM May 2019 –

(QCM is long AGN)

Allergan In A Nutshell

  • Market Cap: $46b (NYSE)
  • Industry: pharma
  • Segments: esthetics, general medicine
  • Sales: $15.7b
  • EBITDA: $7.1b
  • Known for: Botox

Challenging Stock Performance (-58% Since 2015)

Gabriel Grego


  • Formerly Actavis.
  • Redomiciled to Ireland (tax inversion)
  • Generics division sale to Teva, deleveraging
  • M&A spree
  • Recent issues:
    • Loss of exclusivity
    • Serial write offs
    • Looming botox competition
    • Activist shareholders involved

Product Portfolio

Gabriel Grego

Not Exactly A Thriving Business At First Sight…

Gabriel Grego

…But Appearances Can Be Deceptive…

Gabriel Grego

AGN: Inexpensive By Most Measures

Gabriel Grego

EV/EBITDA: 9.7 (vs 13.5 Median*)

Gabriel Grego

Valuation: FWD P/E 8.4 (vs. 17.9 Median*)

Gabriel Grego

Why So Cheap? Plenty Of Uncertainty

  • Botox: fear of new competitors
  • Write offs: poor management?
  • Loss of Exclusivity
  • High leverage (3.2x EBITDA)

Loss Of Exclusivity: Can Be Managed

Gabriel Grego

  • Restasis + other LOE
  • Only 9% of sales affected
  • Mitigated by core growth*

->little/no impact on valuation

Write Offs: Poor Management?

Gabriel Grego

  • Questionable M&A
  • Spectacular failures (e.g. Rapastinel)
  • No new champions
  • $13.4bn of balance sheet write-downs (in 4 years).
  • Underperforming pipeline

Botox: Great Franchise, But New Competition Looming

Gabriel Grego

  • 24% of total AGN sales
  • Fast (9%) growth rate
  • Demographic tailwind
  • High margin
  • Limited regulatory risk (cash-based)

…Still Dominant

Gabriel Grego

…But New Competitive Threats: Jeuveau

  • Jeuveau (by Evolus)
  • Seems clinically equivalent
  • Marketed aggressively
    • Discounts to doctors
    • Branding
    • Social media

…But New Competitive Threats: Daxi

  • Daxi (by Revance)
  • Might be approved in 2020 for frown lines.
  • Seems to lasts significantly longer than Botox*.

Daxi Clinical Studies

Gabriel Grego

Assessing Competitive Threats: Bull Case

  • Brand strength
  • Some customer lock-in
  • cosmetic portfolio synergies
  • Resilience vis-à-vis old, stronger competitors
  • Competitors provide little/no new benefits, no clinical history.
  • Botox upcoming longer-lasting product

Assessing Competitive Threats: Bear Case

  • Some Botox clients will switch, if incentives are large enough.
    • Product choice usually driven by doctor, not patient.
    • Competitors may provide discounts to doctors.
    • Safety profile not an issue (products perceived as nearly equivalent).
  • New products may be more effective/longer lasting

Botox Worst-Case-Ccenario: Not So Bad

Gabriel Grego

  • Cosmetic Botox: only 10% of AGN’s revenue.
  • Medical Botox less threatened.
  • Doctors store 2/3 products max. Botox must-have.
  • Growing market (CAGR 7.6%) should accommodate new supply

Many Ways To Win…

  • Management shakeout
    • Total vs biz dev
  • Stand still, deleverage & buyback
  • Botox fears proven unfounded
  • Split cosmetic/medical
  • Sale

Notable Investors

  • David Tepper (Appaloosa)
  • Seth Klarman (Baupost)

Why We Believe Management Has To Go

  • Failed M&A policy
  • Bad buyback timing
  • Questionable compensation
  • Lack of candor
  • Main reason for depressed stock price


  • Strong core portfolio.
  • Botox threats probably overblown
  • Very strong FCF generation
  • Deleveraging & buyback underway
  • Price multiple depressed
  • Activists safeguarding questionable management

Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Are you an intelligent investor?

ValueWalkPremium is a website and newsletter for smart investors like yourself. We focus on the latest hedge fund industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers