Jim Cramer wants to know, what the heck happened to Allergan? The acquisitive drug company formerly known as Actavis reported a strong quarter on Thursday, beating Wall Street's sales and earnings estimates.
But instead of rallying on the results the stock was slammed hard, down 5 percent on Thursday.
This was the first full quarter reported since its transformational acquisition of Allergan back in March. It is also the first quarter reported since investors learned that Allergan will sell its generic drug business to Teva for more than $40 billion.
However, the "Mad Money" host remained impressed with Allergan's pipeline of more than 70 products in the mid- to late-stage development. In his perspective, the stock was hammered because management chose to delay updating its guidance until September due to the Teva deal.
It also did not help that management said that the business could be difficult to forecast for the next couple of quarters. The company also received a subpoena from the Justice Department as part of a probe into generic drug prices. It was the compilation of these events that took the stock lower.
So, is this the long-awaited pullback of a lifetime for Allergan, or are these events symptoms of a bigger issue? To find out, Cramer spoke with Allergan CEO Brent Saunders.
"The DOJ investigation really is a red herring. Each one of these things are important, and we disclosed it this morning," Saunders said. (Tweet This)
The CEO confirmed that the company did disclose the investigation to Teva initially. Saunders also said that in his opinion, the U.S. government has gotten used to generic drug prices going down. However, the reality is that generics is a commodity business. Therefore prices will go up and down depending on supply and demand.
"This was a subpoena about three products where prices went up because of supply and demand and to be fair, it will play itself out. But in the context of Allergan, it's not that significant," he added.
With all of Allergan's acquisitions in the past year, Cramer warned investors to not expect the company to suddenly slow down and wait for a large dividend. Based on its tax status and balance sheet, it could leverage that to make further acquisitions down the road.
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"Well bold is kind of our tagline, and in fact I encourage our employees to think and act boldly all the time. Look, we practice what we preach. So, history has been a good guide of us not letting the grass grow under our feet for too long," Saunders said. (Tweet this)
So, far the company has executed over $150 billion in deals this year. Saunders confirmed that as a result, Allergan has now earned the credibility to deploy the capital in a responsible and accretive manner.
"I am telling you this stock was misunderstood. The sellers got to it incorrectly," Cramer said. (Tweet This)