Allergan, Plc (AGN) is one of the newest and largest corporations in existence. The $123 billion company was established in June 2015, one of the latest stages on a complicated journey. A journey that isn’t over yet, as the company is set to purchase Pfizer Inc. (PFE) in a deal expected to close early in 2016. But that’s getting slightly ahead of ourselves. (For more, see: Will Pfizer and Allergan Split After They Merge?)
Not All Allergans Are Alike
First, there’s a reason why Allergan, Plc takes the qualifier, public limited company. Headquartered in Ireland, Allergan, plc is the lineal descendant of U.S.-based Allergan, Inc., a drug manufacturer that was founded in the mid-20th century and purchased in November 2014 by Actavis, plc.
Legally, Allergan, Plc is the former Actavis, plc with a new name. Today, Actavis is the name given to the subsidiary of Allergan, Plc that sells generic drugs in the United States and Canada (more on this later). In fact, Actavis is the third-largest generic drug manufacturer in the world. However, Allergan, Plc will soon finalize the sale of its generic operations to competitor Teva Pharmaceutical Industries Ltd. (TEVA).
As for Allergan itself, it will purchase Pfizer in an tax inversion deal, an unusual but increasingly more common transaction in which the smaller company purchases the larger (Pfizer’s book value is $201 billion). A giant among pharmaceutical firms, over the last 15 years Pfizer has scooped up top drugmakers such as Warner-Lambert, Pharmacia and Wyeth, the latter costing Pfizer $68 billion in 2009.
The deal is structured that way to escape punitive American corporate taxes and take advantage of far lower tax rates in Allergan, Plc’s country of domicile. Presidential candidates across the spectrum from Bernie Sanders all the way to Donald Trump have condemned the deal. Meanwhile, the chorus of politicians who instead see the occasion of a multibillion-dollar inversion as an ideal opportunity to reduce U.S. corporate tax rates has yet to sing its first note. (For more, see: Teva Pharma to Acquire Allergan: Analysts Weigh In.)
Now that we’ve gotten Allergan, Plc’s origin story out of the way, on to what the company actually does. It’s probably most renowned, or infamous, as the maker of cosmetic injection drug Botox.
Medicating the World
Allergan, Plc’s three main reporting segments are North American branded drugs; North American generic and International drugs (see Actavis, above); and Anda Distribution. That last one is unique, and thus deserves our attention first.
Anda is the name of another Allergan, Plc subsidiary, this one tasked with moving generic drugs from factories to retail chains. Anda sells over 11,000 prescription and over-the-counter drugs, from hundreds of companies (which is to say, not just Allergan). It sounds faintly incestuous, but Allergan is only too happy to leverage its network and get the distributor fees for its competitors’ handiwork. For accounting purposes, the Allergan drugs distributed by Anda are counted under the relevant North American subsidiary. (For related reading, see: Why There's Far More to Pfizer Than Viagra.)
Conquering the Americas
In the Allergan, Plc structure, North American brands are their own segment because of patent exclusivity. Somewhat obviously, the in-patent period affords manufacturers such as Allergan the opportunity to make their greatest profit. And Botox isn’t just a curious example listed for the purposes of making easy jokes. Botox is indeed atop the list of the company’s best-selling North American branded drugs.
To be fair, Botox does have several non-cosmetic uses. It’s used to treat chronic muscle spasms and migraines. Other big Allergan, Plc sellers include Rapaflo, which treats frequent urination, and Juvéderm, an injectable gel that’s also used to reduce lines on the face and make lips thicker. In toto, Allergan (or technically, both Allergan, Plc and its predecessor Actavis, plc) sold $4.6 billion worth of North American branded drugs last year. That accounted for 36% of total company revenue. There are a total of 80 North American branded drugs on the roster, treating everything from dementia (Namenda) to osteoporosis (Actonel). (For more, see: Allergan Winning Wall Street's Beauty Pageant.)
The North American generics and international division offers 250 drugs. The most famous among them are probably Marinol (synthetic cannabis, with all of the THC and none of the stoner ritual), Vicodin (the potent painkiller) and Wellbutrin (the famed antidepressant). North American generics and international accounted for $6.7 billion in sales last year, or 52% of total company revenue. Of that $6.7 billion, 38% was derived from outside of the United States.
Big Customers, Future Plans
Unlike many of its competitors, Allergan, Plc discloses exactly which customers buy its brand and generic medication. Not end users, of course; this refers strictly to corporate buyers. Three gigantic wholesalers represent 62% of total Allergan, Plc sales. In descending order of size these are AmerisourceBergen Corp. (ABC) (28%), McKesson Corp. (MCK) (21%), and Cardinal Health, Inc. (CAH). And yes, all three are clients of Anda. (For related reading, see: How Gilead Sciences Became a Big Name in Biotech.)
With the exception of continental drift, nothing is slower than the approval process for drugs. Allergan, Plc has eight drugs in the pipeline with estimated approvals running at late as 2019. The drugs include Lilletta, a female contraceptive; Travena, intended for acute heart failure; and other medications to treat everything from acne to irritable bowel syndrome. (For related reading, see: How Johnson & Johnson Became a Household Name.)
The Bottom Line
Allergan, Plc lost $1.6 billion last year, which is half of what its moneymaking future subsidiary Pfizer paid in U.S. corporate taxes. It’s almost impossible to speculate on the future of the combined venture, except to say that profit can’t help but rise when tax expenses will doubtless fall. Allergan, Plc and Pfizer management clearly thought that the major logistical task of moving the joint company overseas was less expensive than continuing to pay taxes to what Pfizer management and shareholders clearly think is an unforgiving and famously uncooperative taxing authority. (For more, see: Stocks That Made Investors Rich Last Year.)