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Allergan (AGN) Q2 Earnings & Sales Top, '19 Sales View Up

Zacks Equity Research

Allergan plc’s AGN second-quarter adjusted earnings came in at $4.38 per share, which beat the Zacks Consensus Estimate of $4.34 and came within the guided range of $4.20 and $4.40. Earnings however declined 0.9% year over year due to lower operating profits.

Revenues came in at $4.09 billion, which exceeded the Zacks Consensus Estimate of $3.94 billion as well as the guidance of $3.88 billion to $4.03 billion. Revenues fell 0.8% from the year-ago period primarily due to currency headwinds. Excluding the impact of currency, total revenues rose 1.2% as higher sales of key products like Botox (cosmetic and therapeutics), Juvéderm collection of fillers, Vraylar, Ozurdex, and Lo Loestrin made up for the loss of exclusivity on some brands and divestitures of some others in 2018.

Moreover, sales of Allergan’s blockbuster eye drug, Restasis also declined in the quarter ahead of anticipated generic competition. Also, decline in textured breast implants due to a global recall hurt sales.

Segment Discussion

Allergan reports revenues under three segments – U.S. General Medicine, U.S. Specialized Therapeutics and International.

U.S. Specialized net revenues declined 2.3% to $1.79 billion. Strong sales growth of its facial aesthetics products, Botox and Juvéderm and Botox Therapeutic was offset by decline in sales of Restasis and divestiture of Medical Dermatology business in September 2018. Sales of CoolSculpting and breast implants also declined in the quarter.

In Facial Aesthetics, Botox (cosmetic) raked in sales of $252.4 million, up 6.7% year over year. Juvéderm collection of fillers rose 12% to $156.6 million

Alloderm sales, however, fell 5.5% to $101.2 million while CoolSculpting sales of $78.9 million declined 27.1% year over year.

In Eye Care, while Ozurdex sales rose 8.3% to $29.9 million, Restasis sales fell 2.3% to $310.9 million.

Botox Therapeutic revenues were $447.0 million, up 5.9% year over year.

There have been concerns regarding possible new competitors to blockbuster product Botox. The entry of CGRP antibodies may have a negative impact on sales of Botox Therapeutics, mainly for the chronic migraine indication. Amgen AMGN, Eli Lilly LLY and Teva Pharma’s CGRP migraine treatments, Aimovig, Emgality and Ajovy, respectively were all launched in 2018.

Meanwhile, in February, Evolus’ Jeuveau injection indicated to improve the appearance of glabellar or frown lines was approved by the FDA, which can pose competition to Botox. In the fall of 2019, Revance Therapeutics will file for approval of DaxibotulinumtoxinA for Injection (DAXI), a rival treatment to Botox for the frown lines indication. It has demonstrated longer duration of efficacy compared to Botox in late-stage studies.

U.S. General Medicine net revenues were up 10.3% year over year to $1.46 billion in the reported quarter as strong growth of Vraylar, Viibryd, Linzess and Lo Loestrin was offset by lower sales of drugs that lost exclusivity.

Linzess sales rose 2.2% to $196.0 million. Lo Loestrin sales grew 13.8% to $145.5 million while Bystolic sales rose 1.6% to $150.5 million. Vraylar sales were $196.1 million in the second quarter, 71.7% higher than the year-ago quarter, while Viibryd sales were $107.8 million, up 24.3% from the year-ago quarter. In May, Vraylar was approved for the new indication of bipolar depression, which may have contributed to higher sales of the drug in the quarter.

The International segment recorded net revenues of $847.7 million, down 4.3% from the year-ago period, excluding the impact of foreign exchange as growth in Facial Aesthetics and Ozurdex implant was partially offset by regulatory changes for textured breast implants and lower glaucoma and eye drop revenues.

Profits Decline

Adjusted operating income decreased 6.3% to $1.85 billion in the second quarter due to lower revenues and higher costs.

Selling, general and administrative expenses increased 2.5% to $1.16 billion in the second quarter, owing to higher marketing spending in Medical Aesthetics and for product launches.

Research and development (R&D) expenses rose 14.9% to $447.0 million due to pipeline progress.

2019 Guidance

Allergan slightly raised its sales guidance for 2019 while maintaining the previously issued earnings view.

Allergan expects sales to be in the range of $15.43-$15.63 billion, up from the previous guidance of $15.13-$15.43 billion. The company still estimates its adjusted earnings to be more than $16.55 per share.

Adjusted tax rate is expected to be approximately 13% in 2019 versus 13-13.5% expected previously. Adjusted R&D expense guidance was maintained in the range of approximately $1.6 - $1.7 billion while the SG&A range was increased from approximately $4.1 - $4.3 billion to approximately $4.4 - $4.5 billion. Adjusted gross margin is expected to be approximately 85%-85.5% (maintained).

Our Take

Allergan beat estimates for both earnings and sales in the second quarter and raised its sales guidance for the year. As expected, Allergan delivered a sequentially stronger top line performance in the second quarter. Shares were up less than 1% in pre-market trading on Tuesday. So far this year, Allergan’s share price has risen 20.2% against the industry’s decrease of 5.9%.

 

 

Allergan’s key products like Botox and new products such as Viberzi and Vraylar are supporting sales. Allergan also continues to deliver on its R&D pipeline with some major product launches expected over the next couple of years. Biosimilars also represent significant opportunity. Allergan is also consistently paying down debt and cutting costs. However, in 2019, sales are expected to be hurt by loss of exclusivity of key drugs including Restasis.

Meanwhile, Allergan refrained from holding a conference call due to its proposed acquisition by AbbVie ABBV for a total transaction value of nearly $63 billion. The companies had announced the buyout deal in June. The deal is expected to close in early 2020. The acquisition by AbbVie could prove to be rewarding for Allergan’s shareholders. Moreover, with Restasis expected to face generic competition, fears of new competition to Botox and recent pipeline setbacks, the merger with AbbVie could prove to be the best way out for Allergan.

Allergan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Allergan plc Price, Consensus and EPS Surprise

 

Allergan plc Price, Consensus and EPS Surprise

Allergan plc price-consensus-eps-surprise-chart | Allergan plc Quote

 

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