Intelligent Investing --- Private & Confidential --- 1 - PowerPoint PPT Presentation

Intelligent Investing --- Private & Confidential --- 1

DISCLAIMER --- Private & Confidential --- 2 www.qcmfunds.com

QCM: EFFECTIVENESS AS ACTIVIST --- Private & Confidential --- 3 www.qcmfunds.com

? ALLERGAN: UNLOCKING VALUE THROUGH MANAGEMENT CHANGES QCM May 2019 - Sohn Hong Kong Conference (QCM is long AGN) 4 --- Private & Confidential ---

ALLERGAN IN A NUTSHELL • Market Cap: $46b (NYSE) • Industry: pharma • Segments: esthetics, general medicine • Sales: $15.7b • EBITDA: $7.1b • Known for: Botox --- Private & Confidential --- 5 www.qcmfunds.com

CHALLENGING STOCK PERFORMANCE (-58% SINCE 2015) -58% --- Private & Confidential --- 6 www.qcmfunds.com

HISTORY • Formerly Actavis. • Redomiciled to Ireland (tax inversion) • Generics division sale to Teva, deleveraging • M&A spree • Recent issues: • Loss of exclusivity • Serial write offs • Looming botox competition • Activist shareholders involved --- Private & Confidential --- 7 www.qcmfunds.com

PRODUCT PORTFOLIO --- Private & Confidential --- 8 www.qcmfunds.com

NOT EXACTLY A THRIVING BUSINESS AT FIRST SIGHT… Earnings from Cont. Ops. 0.0 -1000.0 -2000.0 -3000.0 -4000.0 -5000.0 -6000.0 -7000.0 -8000.0 Dec-31-2014 Dec-31-2015 Dec-31-2016 Dec-31-2017 Dec-31-2018 Mar-31-2019 --- Private & Confidential --- 9 www.qcmfunds.com

…BUT APPEARANCES CAN BE DECEPTIVE… Free cash flow 9000.0 8000.0 7000.0 6000.0 5000.0 4000.0 3000.0 2000.0 1000.0 0.0 Dec-31-2015 Dec-31-2016 Dec-31-2017 Dec-31-2018 Mar-31-2019 Levered Free Cash Flow --- Private & Confidential --- 10 www.qcmfunds.com

AGN: INEXPENSIVE BY MOST MEASURES --- Private & Confidential --- 11 www.qcmfunds.com

EV/EBITDA: 9.7 (VS 13.5 MEDIAN*) EV/EBITDA 60 50 40 30 20 9.7 10 0 Jazz Pharma Horizon AstraZeneca Eli Lilly Novo Nordisk Perrigo Bristol-Myers Allergan --- Private & Confidential --- 12 www.qcmfunds.com

VALUATION: FWD P/E 8.4 (VS. 17.9 MEDIAN*) P/E (ntm) 25 20 15 10 8.4 5 0 Jazz Pharma Eli Lilly AstraZeneca Novo Nordisk Horizon Perrigo Bristol-Myers Allergan --- Private & Confidential --- 13 www.qcmfunds.com

WHY SO CHEAP? PLENTY OF UNCERTAINTY • Botox: fear of new competitors • Write offs: poor management? • Loss of Exclusivity • High leverage (3.2x EBITDA) --- Private & Confidential --- 14 www.qcmfunds.com

LOSS OF EXCLUSIVITY: CAN BE MANAGED Sales (US$m) T otal 18000 Sales, 15700 16000 • Restasis + other LOE 14000 12000 • Only 9% of sales affected 10000 • Mitigated by core growth* 8000 6000 Core 4000 → little/no impact on Growth, 1136 2000 valuation 0 Other -2000 Restasis, - LOE, -187 1261 -4000 Total Sales Restasis Other LOE Core Growth --- Private & Confidential --- 15 www.qcmfunds.com * QCM estimate

WRITE OFFS: POOR MANAGEMENT? Earnings from Cont. Ops. 0.0 • Questionable M&A -1000.0 • Spectacular failures (e.g. -2000.0 Rapastinel) -3000.0 • No new champions -4000.0 • $13.4bn of balance sheet -5000.0 write-downs (in 4 years). -6000.0 • Underperforming pipeline -7000.0 -8000.0 Dec-31- Dec-31- Dec-31- Dec-31- Dec-31- Mar-31- 2014 2015 2016 2017 2018 2019 --- Private & Confidential --- 16 www.qcmfunds.com

BOTOX: GREAT FRANCHISE, BUT NEW COMPETITION LOOMING • 24% of total AGN sales • Fast (9%) growth rate • Demographic tailwind • High margin • Limited regulatory risk (cash-based) --- Private & Confidential --- 17 www.qcmfunds.com

…STILL DOMINANT --- Private & Confidential --- 18 www.qcmfunds.com

…BUT NEW COMPETITIVE THREATS: JEUVEAU • Jeuveau (by Evolus) • Seems clinically equivalent • Marketed aggressively • Discounts to doctors • Branding • Social media --- Private & Confidential --- 19 www.qcmfunds.com

…BUT NEW COMPETITIVE THREATS: DAXI • Daxi (by Revance) • Might be approved in 2020 for frown lines. • Seems to lasts significantly longer than Botox*. --- Private & Confidential --- 20 www.qcmfunds.com

DAXI CLINICAL STUDIES --- Private & Confidential --- 21 www.qcmfunds.com

ASSESSING COMPETITIVE THREATS: BULL CASE • Brand strength • Some customer lock-in • cosmetic portfolio synergies • Resilience vis-à-vis old, stronger competitors • Competitors provide little/no new benefits, no clinical history . • Botox upcoming longer-lasting product --- Private & Confidential --- 22 www.qcmfunds.com

ASSESSING COMPETITIVE THREATS: BEAR CASE • Some Botox clients will switch, if incentives are large enough. • Product choice usually driven by doctor, not patient. • Competitors may provide discounts to doctors. • Safety profile not an issue (products perceived as nearly equivalent). • New products may be more effective/longer lasting --- Private & Confidential --- 23 www.qcmfunds.com

BOTOX WORST-CASE-SCENARIO: NOT SO BAD Sales • Cosmetic Botox: only 10% of AGN’s revenue . • Medical Botox less Botox (medical) threatened. 13% Botox • Doctors store 2/3 (cosmetic) 10% products max. Botox must-have. • Growing market (CAGR 7.6%) should Others 77% accommodate new supply --- Private & Confidential --- 24 www.qcmfunds.com

MANY WAYS TO WIN… • Management shakeout • T otal vs biz dev • Stand still , deleverage & buyback • Botox fears proven unfounded • Split cosmetic/medical • Sale --- Private & Confidential --- 25 www.qcmfunds.com

NOTABLE INVESTORS David T epper (Appaloosa) Seth Klarman (Baupost) --- Private & Confidential --- 26 www.qcmfunds.com

WHY WE BELIEVE MANAGEMENT HAS TO GO ü Failed M&A policy ü Bad buyback timing ü Questionable compensation ü Lack of candor ü Main reason for depressed stock price --- Private & Confidential --- 27 www.qcmfunds.com

CONCLUSION • Strong core portfolio. • Botox threats probably overblown • Very strong FCF generation • Deleveraging & buyback underway • Price multiple depressed • Activists safeguarding questionable management --- Private & Confidential --- 28 www.qcmfunds.com

--- Private & Confidential --- 29 www.qcmfunds.com