Biotech Values

[DewDiligence]

Barron’s touts AGN in the current issue. The article describes the enduring
tailwind from vanity, but it overlooks the looming competition for Botox.
The competition I’m referring to is not Dysport, which has yet to make
much headway (#msg-49695042, #msg-49695053), but rather is
PurTox from JNJ (#msg-32588581, #msg-32559716).

http://online.barrons.com/article/SB127387488565491787.html

Having let our looks go during the recession, Americans are committing to beauty with renewed zeal. Allergan (AGN) recently reported first-quarter sales gains of 8% in eye-care products, 11% in Botox treatments and 32% in skin-care remedies. Breast-implant sales were brisk, and while its new "Latisse" lash lengthener was a tad underwhelming, spokesmodel [is this a word?] Brooke Shields can always bat her eyes more energetically next quarter.

Allergan is a health-care company that's dressed up as a consumer stock. It makes everything from lubricating eye drops to weight-loss bands, but what it really sells is narcissism. Is there a more appropriate stock for our times? The population is growing older and heavier -- and vainer, too. Customers pay out of pocket for many treatments, less of a problem as the job market improves. Opportunities abound for global expansion, given the media's talent for exporting our insecurities, along with our aesthetic standards -- hello, Jessica Alba! -- to the planet's impressionable and growing middle class.

One need look only at the allegedly real housewives of New York, New Jersey, et. al. to appreciate Allergan's foresight in snatching up rights to Botox in 1988 for $9 million. Today, Botox is a $1.3 billion franchise poised to expand if, come July, regulators approve it for treating migraines. Botox is a purified protein derived from bacteria that can block nerve responsiveness, and may well find broader application beyond Hollywood has-beens and hedge-fund wives.

Wells Fargo pegs the odds of regulatory approval at 60% [my own probability of approval for headache is lower, FWIW]. Should the government ask for more studies, the potential upside isn't lost -- it's just deferred.

At 61, Allergan fetches 17 times projected 2011 profits. Drug companies sell for 10 times earnings, but how many boast 19% profit margins? Put the stock next to the average multiple of 14 for personal-products shares, or 20 for Estee Lauder (EL), and Allergan is even lovelier to behold. Like everything else, beauty is relative.