Allergan EPS Growth, Job Cuts Counter Valeant
Allergan reported accelerating earnings growth and bullish guidance on Monday as the specialty drugmaker set plans to cut its workforce by 13% in the face of a hostile takeover bid. Shares rose 2% to 171.14.
Q2 earnings rose 24% vs. a year earlier to $1.51 a share, beating analysts' consensus by 6 cents. It was the fourth straight quarter of faster growth and the best gain in years.
Sales climbed 16% to $1.85 billion, beating estimates by about $8 million. It was the best revenue growth in years as well.
Allergan (AGN) guided full-year sales of $6.9 billion to $7.05 billion, in line with consensus. Its EPS guide of $5.74 to $5.80 bested both consensus and Allergan's prior guidance, however.
The maker of anti-wrinkle Botox and several eye care treatments also guided 2015 EPS at $8.20 to $8.40 and 2016's at $10. Consensus had called for $6.87 and $8.18, respectively.
Allergan Plans Big Cuts One reason for the higher guidance was Allergan's announcement Monday that it will cut its workforce by 1,500 people, along with 250 vacant positions. The company said this will save $475 million next year.
The move likely was made to counter Valeant Pharmaceuticals' (VRX) argument that shareholders are better off going with Valeant's $53 billion hostile takeover bid because Valeant will cut unnecessary spending.
"Today's announcement by Allergan makes it more difficult for Valeant to demonstrate how a merger can add incremental value, and AGN shareholders may now require Valeant to pay a greater premium for Allergan, we believe," wrote Sterne Agee analyst Shibani Malhotra in a research note Monday.
Nonetheless, on the conference call discussing results, Bernstein analyst Ronny Gal said that he'd been hearing some skepticism from clients about Allergan's commitment, given its previous reluctance to cut costs despite shareholder pressure.
"Is this really something that they will execute if .. . the bid from Valeant will go away?" Gal said, paraphrasing some of his clients.
Allergan CEO David Pyott said that the cuts are the ultimate results of a meeting between management and the board of directors last September, well before Valeant's initial April bid.
"Our Board has very rightfully challenged us last September to say, things look so good on the sales growth side ... frankly you can do better than mid-teens earnings growth," said Pyott.
Citi analyst Liav Abraham inquired about Allergan lowering its tax rate, at a time when so many U.S. drugmakers are buying foreign companies — mostly British and Irish — to relocate in lower-tax nations. After Valeant's campaign started, Allergan was rumored to be talking with British peer Shire (SHPG), but that prospect disappeared Friday when AbbVie (ABBV) said it will buy Shire for more than $54 billion.
Pyott said sales and earnings growth are more important than tax rates. But he also held out hope that the current rumblings in the U.S. government against the tax exodus might bring reforms that will level the field.
"One would assume that the U.S. Congress at some point ... will act, although I would take the view that that certainly won't happen in the next couple of months," he said.
Valeant Complains To SEC Meanwhile, Valeant complained to the SEC and its counterpart in Quebec about Allergan "continuing to make false and misleading statements regarding Valeant's business.
Ever since the first unsolicited proposal, Allergan has been denouncing Valeant's business model as unsustainable, adding that its would-be buyer would decimate Allergan's research and development. Valeant has held several investor meetings defending its practices, which it says replace an outdated big-pharma model with a leaner, less risky approach.
Valeant stock rose 3% to 125.54.
Meanwhile, Capital Research and Management, Allergan's top holder as of March 31, has sold nearly all its 6.3% stake, the Wall Street Journal reported, citing sources familiar with the move.
The implication is that the mutual fund didn't see Allergan's stock heading much higher beyond Valeant's offer.
