Allergan Narrows Losses on New Product Launches

Revenue rose 4.4% Y-o-Y to $3.62 billion, but was lower than estimates of $3.68 billion

a1Irish drugmaker Allergan Inc. (NYSE: AGN) announced its Q3 FY16 financial results on November 2nd, 2016.

The Dublin, Ireland-based company is a leader in a new industry model – Growth Pharma. Allergan is focused on developing, manufacturing and commercializing branded pharmaceuticals, devices and biologic products. Allergan markets a portfolio of leading brands and best-in-class products for the central nervous system, eye care, medical aesthetics and dermatology, gastroenterology, women’s health, urology and anti-infective categories.

a2Allergan is an industry leader in Open Science, the Company’s R&D model, which has led to Allergan building one of the broadest development pipelines in the pharmaceutical industry with 70+ mid-to-late stage pipeline programs in development. With commercial operations in approximately 100 countries, Allergan operates through three segments: U.S. Specialized Therapeutics, U.S. General Medicine, and International. Read more about Allergan’s financial results below.

Q3 FY16 financial highlights

During Q3 FY16, Allergan’s revenue rose 4.4% Y-o-Y to $3.62 billion, but was lower than estimates of $3.68 billion, driven by strong performance from key brands and new product launches. These positives were offset by the loss of ASACOL HD exclusivity, lower revenues from NAMENDA XR and IR, a decline in non-promoted Established Brands revenues, and unfavorable foreign exchange impact during the reporting quarter.

During Q3 FY16, Allergan’s GAAP selling, general, and administrative (SG&A) expenses rose to $1.16 billion compared to $1.02 billion in the prior year period, while R&D investment amounted to $623 million, due to costs related to key Eye Care and Central Nervous System development programs.

Despite higher costs, Allergan’s Q3 FY16 net loss from continuing operations narrowed to $266.4 million, or $1.15 per share, from $1,377.4 million, or $2.40, a year earlier. Adjusted diluted EPS came in higher at $3.32 per share, but widely missing the average analyst estimate of $3.65, due to weaker-than-expected sales, slightly lower gross margins, and higher expenses.

Source: Company's Data
Source: Company’s Data

During the reporting quarter, non-GAAP adjusted EBITDA from continuing operations was $1.9 billion compared to $2.0 billion in the year-ago period, mainly due to higher R&D and selling and marketing costs. The Company reported negative cash flow from operations of $1.1 billion in the reporting quarter, which was unfavorably impacted by the $2.6 billion current period payment of taxes related to the divestiture of Allergan’s Generics business to Teva Pharmaceutical Industries Ltd (NYSE: TEVA).

Segmental highlights

a4U.S. Specialized Therapeutics: This segment’s Q3 FY16 revenue grew 12% to $1.45 billion, driven by growth in Eye Care, Facial Aesthetics and Neuroscience & Urology. The segment’s gross margin stood at 95% during Q3 FY16. During the reporting quarter, SG&A expenses jumped 32% primarily due to sales force expansion and increased promotion for key brands, including Kybella DTC advertising. The segment’s contribution grew to $1.05 billion versus $0.97 billion in the year-ago period, while the segment’s margin declined to 72.3% from 74.9%.

U.S. General Medicine: This segment’s Q3 FY16 revenue fell 4% to $325.5 million, impacted by a decline in Central Nervous System and Established Brands revenues, offset primarily by growth in Gastrointestinal and Women’s Health performance. The segment’s gross margins remained stable at 85.5%. During the reporting quarter, SG&A expenses jumped 20% to $335.1 million, primarily due to new product launches, including VIBERZI and VRAYLAR. The segment’s contribution declined to $937.9 million versus $1,044.2 million in the year-ago period, while this segment’s margin declined to 63.0% from 67.3%.

International: This segment’s Q3 FY16 revenue grew 6% to $697.8 million, driven by growth in Facial Aesthetics and Eye Care. Excluding the impact of an out-of-period adjustment in the three months ended September 30, 2015, net revenues would have increased 11%. The segment’s gross margins stood at 86.4% during Q3 FY16. During the reporting quarter, SG&A expenses increased to $216.2 million primarily due to new launches. This segment’s contribution increased to $386.5 million versus $363.2 million in the year-ago period, while this segment’s margin inched up to 55.4% from 55.0%.

Other highlights

Strategic acquisitions: Allergan announced on September 20th, 2016, that it would pay up to $1.7 billion for Tobira Therapeutics Inc. (NASDAQ: TBRA) to get a leg up in the race to develop therapies for non-alcoholic steatohepatitis (NASH), an incurable fatty liver disease closely linked to obesity. The deal assumes significance since there are no current approved treatments for NASH, which affects more than 15 million Americans. NASH involves the accumulation of fat in the liver that is not caused by alcohol; it can lead to cirrhosis, liver transplants or liver cancer.

Allergan’s offer of $28.35 upfront per Tobira share is a whopping 500% premium to the stock’s close on Monday, September 19th, 2016, which gives Tobira a market capitalization of about $89 million. Tobira shareholders could receive up to $49.84 per share, subject to the company achieving certain milestones.

On August 11th, 2016, Allergan announced the acquisition of drug-eluting ophthalmological implant maker ForSight Vision5 for $95 million. In early September 2016, Allergan announced that it would pay $639 million for Vitae Pharmaceuticals Inc. (NASDAQ: VTAE), which is developing drugs for psoriasis, eczema and autoimmune disorders. On September 6th, 2016, Allergan agreed to pay $60 million for RetroSense, a privately held company developing an ophthalmology gene therapy.

Focus on NASH therapies: Allergan’s CEO Brent Saunders has been scoring several deals for the company to get a breakthrough for the treatment of NASH, which could emerge as a focus area for Allergan in the near future. On September 20th, 2016, Allergan announced the acquisition of Akarna Therapeutics Ltd, a privately held company that is planning early-stage studies of a treatment for NASH. Allergan would pay $50 million upfront and make future milestone payments to Akarna for potential drug candidates relating to NASH.

a5Divesture of Global Generics business: On August 2nd, 2016, Allergan completed the divestiture of its Global Generics business, and on August 3rd, 2016, announced the divestiture of its abbreviated new drug applications (ANDAs) distribution business to Teva. Allergan sold its Global Generics business for $40.5 billion and its ANDA drug distribution business for $500 million to Teva. These steps have positioned Allergan as a pure branded business that is able to maximize focus on its therapeutic areas and its pipeline of 65+ mid-to-late stage development programs.

a6Share buyback and dividends: Allergan expanded its share buyback program by $5 billion to $15 billion. In May 2016, Allergan stated that it would buy back up to $10 billion in stock, and has repurchased $5 billion in shares so far. It also initiated a first-ever quarterly dividend of $0.70 per share, to be paid on March 28th, 2017, to shareholders on record as on February 28th, 2016. This is a positive change from Allergan’s previous quarterly dividend of $0.05.

Guidance for full year FY16

Allergan trimmed its adjusted FY16 revenue forecast to the range of $14.45 billion to $14.65 billion from the earlier range of $14.65 billion to $14.90 billion. It also reduced its FY16 adjusted EPS to a range of $13.30 to $13.50 from a previous range of $13.75 to $14.20.

Source: Allergan
Source: Allergan

Stock Performance

a8Allergan’s stock stood at $202.10, falling 2.64%, at the close on Monday, November 14th, 2016, having vacillated between an intraday high of $209.72 and a low of $201.62 during the session. The stock’s trading volume was at 5,560,823 for the day. The Company’s market cap was at $79.36 billion as of Monday’s close.

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