Allergan downgraded on Botox competition
NEW YORK --An analyst Friday downgraded shares of Allergan Inc., which makes Botox wrinkle injection, to "Equal Weight" from "Overweight," citing potential competition from Medicis Pharmaceutical Corp. and Johnson and Johnson.
In a research note to investors, Morgan Stanley analyst Louise A. Chen noted that Medicis expects its Botox competitor Reloxin to be approved by the end of 2008 or in early 2009. She also wrote that Johnson & Johnson has submitted a premarket application for a competitor to Allergan's Lap-Band, a surgical weight loss device used to reduce stomach capacity. Johnson & Johnson's product is expected to be approved in late 2007 or early 2008.
"Approximately 14 percent of Allergan's sales will be subject to potential competition from Johnson & Johnson and Medicis, starting as early as the end of 2007," Chen said. She also noted that Mentor Corp. may also become a stronger competitor on its aesthetics franchise.
Chen recommended that Allergan boost research and development investment to bolster its pipeline, as well as focus on capturing market share ahead of the potential competition from Johnson & Johnson and Medicis.
She maintained Allergan's $125 price target and said Morgan Stanley would be more aggressive buyers at or below $110.
"Although near term share price upside may be limited, we believe that Allergan will continue to post mid to high teens earnings growth over the next several years, and remain a leader in eye care, neuromodulator and the aesthetics medical market," she wrote.
Chen's views differed from those of a Jefferies & Co. analyst, who initiated coverage Wednesday of Allergan with a "Buy" rating. Analyst Peter J. Bye cited potential new applications for Botox and praised Allergan for its "significant" research and development spending, estimated at about 16 percent of sales. His price target is $149.
Shares of Allergan, which is based in Irvine, Calif., closed at $120.28 on Thursday.
