Allergan, Inc. (NYSE:AGN)
In baseball, you get three strikes before you’re out; for Allergan it just took a called strike three last week, and I’d just as well consider sending it to the showers.
Allergan, Inc. (NYSE:AGN)’s troubles began in mid-April when it received a complete response letter from the Food and Drug Administration for Levadex, the inhaled migraine medication that it acquired when it purchased MAP Pharmaceuticals for close to $1 billion. This was the second CRL for Levadex based on manufacturing process concerns.
In early May, shareholders were delivered their second whammy when Allergan, Inc. (NYSE:AGN) reported that DARPin, its promising vision-loss drug that was expected to be a blockbuster, delivered less-than-expected differentiation from Lucentis in mid-stage results that didn’t — at least for the time being — merit moving onto a late-stage trial. This was, in turn, great news for shareholders of Regeneron Pharmaceuticals Inc (NASDAQ:REGN), whose lead drug, Eylea, was now free to growth by double digits without the fear of any near-term competition.
The strikeout came last week when Allergan, Inc. (NYSE:AGN) confirmed that the FDA may clear the way for a generic form of its dry-eye treatment, Restasis, to hit pharmacy shelves without the need for human clinical trials. With Restasis amounting to nearly 15% of revenue, and generic competition usually sucking 90% of sales away from branded drugs in a short period of time, shareholders have every right to be concerned.
I wouldn’t call Allergan, Inc. (NYSE:AGN) a lost cause, though, as it’s still healthfully profitable. Yet, with nearly as much debt as cash on hand and a myriad of weak news in recent months, I’d suggest that further downside may be on its way.
Verisign, Inc. (NASDAQ:VRSN)
With practically all walks of business having moved to a digital and online platform, it’s hard to not like a company such as VeriSign, which is primarily a domain registry service. In the first-quarter, Verisign, Inc. (NASDAQ:VRSN) recorded 15% revenue growth and a 38% increase in net income, presumably on the heels of sizable pricing power. As for me — and continuing with this week’s theme — I’m much more skeptical.
If you dig a bit deeper, Verisign, Inc. (NASDAQ:VRSN)’s growth isn’t as solid as it looks. Domain registrations actually dropped to 8.8 million from 8.9 million in the year-ago period while its registry services added 5.5% more names than it did last year. What we’re seeing here is tighter cost controls with sales and marketing expenses down 35% year-over-year and administrative expenses lower by 16%. Coupled with these cost controls, VeriSign repurchased approximately 3 million shares of its common stock, helping to pump up its EPS by reducing the number of outstanding shares.
The concern I have is twofold: one, that Verisign, Inc. (NASDAQ:VRSN) can’t continue to cut costs much further; and two, that a global slowdown could threaten to drastically slowdown registry renewals, which is the heart and soul of Verisign, Inc. (NASDAQ:VRSN)’s business. Although I like VeriSign’s cash flow capability, at 18 times forward earnings it’s not nearly the value it once was. I’d suggest looking into short-selling opportunities if shares advance much more from their current levels.
The article 3 Stocks to Get on Your Watchlist originally appeared on Fool.com.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends, Buffalo Wild Wings and Chipotle Mexican Grill.
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