MAPP Map Pharmaceuticals, Inc. (MM)

Shares of Allergan, Inc. (AGN) hit a 52-week high of $109.74 almost at the end of the trading session on Mar 4, 2013. The stock was buoyed by the announcement that it was a step closer to acquiring MAP Pharmaceuticals, Inc. (MAPP) following the expiration of the tender offer to purchase the shares of the latter and withdrawal rights.

With more than 22% year-to-date return, a long-term expected earnings growth rate of approximately 13.3%, this specialty pharmaceutical company seems to be an attractive pick for long-term investors.  Average volume of shares traded over the last three months stands at approximately 1,539K. The company has a market capitalization of $32.7 billion as of Mar 4.

Growth Drivers

On Jan 22, 2013, Allergan announced its intention to acquire MAP Pharma. The offer price represented a premium of 60% over MAP Pharmaceuticals’ closing price on that date. The deal is expected to be worth approximately $958 million.

The acquisition will give Allergan the exclusive rights to migraine candidate, Levadex, in the US. Levadex is currently under regulatory review for the treatment of adults suffering from acute migraine. A response from the US Food and Drug Administration (FDA) should be out by Apr 15, 2013.

We are positive on Allergan’s decision to buy MAP Pharmaceuticals. Levadex’ approval would be a major boost for Allergan and will complement the company’s portfolio, which includes Botox (onabotulinumtoxinA). Botox is indicated for several indications including the treatment of chronic migraine headache.

We remind investors that in Jan 2013, the FDA approved Botox for the treatment of patients suffering from overactive bladder (OAB) with symptoms of urge urinary incontinence, urgency and frequency, which was a major boost for the company.

Allergan is looking to sell the obesity intervention segment, which has performed disappointingly for some quarters now and expects to do the same in the first half of 2013.

Premium Valuation Justified

Allergan currently trades at a forward price-to-equity (P/E) of 23.0x, reflecting a huge  premium of 47.9% compared with the peer group average of 15.55x. On a price-to-sales and price-to-book basis, the stock is trading at a premium to the peer group average. The company has a trailing 12-month return on equity (ROE) of 22.7%, which is below its peer group average of 28.2%.

Given the company’s strong fundamentals, the premium valuation is justified and well supported by its long-term estimated earnings growth rate of 13.3% compared to the peer group average of 6.2%.

Allergan carries a Zacks Rank #3 (Hold). Right now, Eli Lilly and Company (LLY) and Shire plc (SHPG) look more attractive in the pharma space with a Zacks Rank #2 (Buy).

 
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