Allergan Beats on Earnings Again

Zacks

Allergan, Inc. (AGN) reported third quarter 2013 earnings of $1.23 per share, a couple of cents above the Zacks Consensus Estimate of $1.21 per share. The company had guided towards third quarter earnings in the range of $1.18 - $1.20 per share.

While earnings increased 18.3% from the year-ago quarter, revenues increased 13.2% to $1,558.7 million, above the Zacks Consensus Estimate of $1,526 million.

The Quarter in Detail

Specialty pharmaceuticals sales increased 12.8% to $1,329.8 million, with eye-care pharmaceuticals, Botox and skin-care sales driving growth.

Eye-care pharmaceutical sales increased 8.1% to $717.1 million with Restasis (up 20.7%), contributing significantly to growth.

Allergan maintained its 2013 guidance for Lumigan franchise sales at $620 million - $640 million. Meanwhile, 2013 Alphagan franchise sales guidance was narrowed to $470 million - $480 million (old guidance of $450 million - $480 million).

Restasis sales are expected to increase to $900 million - $920 million in 2013 (previous guidance: $870 million - $900 million). Allergan continues to expect Latisse sales to increase to $110 million in 2013.

Botox sales increased 12.5% year over year to $485.7 million. Allergan increased the lower end of its 2013 Botox sales guidance by $20 million and now expects 2013 Botox sales in the range of $1,960 million - $2,000 million (previous guidance: $1,940 million - $2,000 million).

Meanwhile, Allergan’s medical devices segment posted sales of $198.6 million, up 13.4%. While breast aesthetics sales increased 6.7% to $91.9 million, facial aesthetics sales increased 19.8% to $106.7 million.

Other Details

Selling, general and administrative (SG&A) expenses increased 12.2% during the quarter to $582.9 million. Research and development (R&D) expenses amounted to $250.9 million, up 10.4%.

2013 Guidance Updated

Allergan now expects 2013 earnings of $4.74 - $4.76 per share compared to the previous guidance of $4.72 - $4.76 per share. The guidance excludes the impact of the R&D tax credit signed into law earlier this year. The Zacks Consensus Estimate of $4.76 is at the higher end of the company’s new guidance range.

The company expects product net sales to range from $6,125 - $6,200 million in 2013 (previous guidance: $6,050 - $6,200 million).

For 2013, Allergan expects total specialty pharmaceuticals net sales of $5,295 million - $5,350 million (previous guidance: $5,230 million - $5,340 million).

The company expects medical devices net sales of $830 million - $850 million (old guidance: $820 million - $860 million). Here, performance will be driven mainly by facial aesthetics. Facial aesthetics sales are now expected in the range of $450 million - $460 million (old guidance: $440 million - $460 million).

Allergan gained FDA approval for Juvéderm Voluma XC for cheek augmentation to correct age-related volume deficit in the mid-face last week. The company will most likely launch the product by year end.

Breast aesthetics sales are now expected in the range of $380 million - $390 million (old guidance: $380 million - $400 million).

For 2013, Allergan continues to expect cost of sales to product net sales ratio of about 13%, SG&A expenses to product net sales ratio of 38% and R&D expenses to product net sales ratio of 16.5%.

Allergan expects fourth quarter earnings in the range of $1.31 - $1.33 per share on product net sales of $1,585 million - $1,660 million. Allergan’s guidance includes the dilutive impact of the MAP Pharmaceuticals acquisition. The Zacks Consensus Estimate of $1.35 is above the company’s guidance range.

Signs Deal for Obesity Biz

Allergan also announced a definitive agreement for the sale of its obesity intervention business. The obesity business will be sold to Apollo Endosurgery, Inc. for an up-front cash payment of $75 million. Additional considerations include a $15 million minority equity interest in Apollo and contingent payments of up to $20 million based on the achievement of certain regulatory and sales milestones. The deal should close by year end.

Our Take

Allergan’s third quarter results were once again above expectations with the company beating the Zacks Consensus Estimate as well as its guidance. Although we believe Allergan’s presence across different segments will help maintain growth, we remain concerned about the generic and competitive challenges being faced by the company. Moreover, Allergan suffered a setback in Jun 2013 with the issuance of bioequivalence draft guidelines by the FDA for Restasis. These draft guidelines, if finalized, could make it easier for generic versions of Restasis to enter the market. We expect investor focus to remain on the Restasis situation.

Allergan currently carries a Zacks Rank #3 (Hold). At present, Roche (RHHBY), Bayer (BAYRY) and Johnson & Johnson (JNJ) look well-positioned. While Roche is a Zacks Rank #1 (Strong Buy) stock, Johnson & Johnson and Bayer are Zacks Rank #2 (Buy) stocks.
 

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