Allergan Narrows Q4 Losses on New Product Launches

Revenue rose 7.1% to $3.86 billion driven by Facial Aesthetics, BOTOX Therapeutic, and Eye Care

Irish drugmaker Allergan Inc. (NYSE: AGN) announced its Q4 FY16 and FY16 financial results on February 08th, 2017.

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.

Allergan 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, US General Medicine, and International. Read more about Allergan’s financial results below.

Q4 FY16 financial highlights

During Q4 FY16, Allergan’s revenue rose 7.1% Y-o-Y to $3.86 billion, driven by strong performance from higher revenues in Facial Aesthetics, BOTOX® Therapeutic, Eye Care, LINZESS® and new product launches across therapeutic areas, partially offset by lower revenues from Namenda XR® and loss of exclusivity of ASACOL® HD.

Total GAAP Selling, General and Administrative (SG&A) expense remained flat at $1.28 billion for Q4 FY16. GAAP R&D investment jumped to $913 million compared to $431 million in the prior year’s same period. Amortization expense from continuing operations for Q4 FY16 was $1.64 billion, compared to $1.58 billion in Q4 FY15. The Company’s GAAP continuing operations tax rate was 96.4% in Q4 FY16. As a result, Q4 FY16 operating loss widened to $900 million versus $569.5 million in the year ago comparable period, primarily due to R&D-related charges and impairments.

Despite higher operating losses, Allergan was able to narrow its Q4 FY16 losses to $70.2 million, or $(0.20) per diluted share, from $700.5 million, or $(1.78) per diluted share, in Q4 FY15.

FY16 financial highlights

For the full-year FY16, Allergan’s revenue jumped 15% to $14.57 billion, driven by continued strong growth across key therapeutic areas and products, and a full year impact of acquired Allergan brands. GAAP operating loss from continuing operations contracted to $1.82 billion from $3.13 billion in the prior year, primarily because 2015 included the impact of selling through acquired inventory, higher acquisition related stock compensation expense and higher restructuring costs all in connection with the Allergan acquisition. As a result of higher revenue and lower operating losses, Allergan’s net income for FY16 jumped to $14.69 billion, or $38.18 per diluted share, from $3.68 billion, or $10.01 per diluted share, in the prior year.

Cash flow from operations of approximately $1.4 billion for FY16, a decrease of 68.5% versus the prior year, due to reduced revenues from the Global Generics business, tax payments related to the Global Generics, ANDA Distribution divestitures to Teva, and increased R&D investment.

For the full-year 2016, Allergan’s net price increases on its US products averaged 4.8% (list price increases averaged 8.1%). Effective January 2017, Allergan increased the price of certain US branded products. These changes are consistent with Allergan’s Social Contract. The average list price increase was 6.7%. No single product list price has increased more than single digits and the net increase for these products is expected to be in the low single digits (2% to 3%) after discounts and rebates. This will be the only increase in 2017 for these branded products.

Segmental highlights

US Specialized Therapeutics: This segment’s Q4 FY16 revenue grew 11% to $1.57 billion, driven by growth in Eye Care, Facial Aesthetics, and Neuroscience & Urology. The segment’s gross margin grew to 95.2% during Q4 FY16 from 94.7% in the year ago corresponding period. During the reporting quarter, SG&A expenses jumped to $47.8 million from $22.2 million, primarily due to sales force expansion and increased promotion for key brands, including Kybella DTC advertising. The segment’s contribution grew to $1.15 billion versus $1.07 billion in Q4 FY15, while the segment’s margin declined to 73.5% from 75.7%.

US General Medicine: This segment’s Q4 FY16 revenue remained flat at $1.53 billion, 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 inched up to 85.0% from 84.7% in the year-ago period. During the reporting quarter, SG&A expenses jumped to $329.6 million, primarily due to new product launches, including VIBERZI and VRAYLAR. The segment’s contribution declined to $973.2 million from $1 billion in the year-ago same period, while the segment’s margin declined to 63.5% from 65.5%.

International: This segment’s Q4 FY16 revenue excluding foreign exchange impact grew 11% to $753.2 million, driven by growth in Facial Aesthetics and Eye Care. The segment’s gross margins rose to 85.5% from 84.5% during the reporting quarter. During the reporting quarter, SG&A expenses increased 16% to $236 million primarily due to investments in key brands and market expansion. The segment’s contribution increased to $408.1 million from $376.9 million in the year-ago period, while the segment’s margin declined to 54.2% from 54.6%.

Other highlights

Cash position: As of December 31st, 2016, Allergan had cash and marketable securities of $13.2 billion and outstanding indebtedness of $32.8 billion.

FDA approvals: Allergan announced that it received FDA approval for the XEN® Glaucoma Treatment System (consisting of the XEN45 Gel Stent and the XEN Injector) for use in the US. Allergan also received FDA approval to market NATRELLE INSPIRA® SoftTouch breast implants, offering women undergoing breast reconstruction, augmentation or revision surgery a new medium firmness gel, or cohesive, implant option. The FDA also approved RESTASIS MULTIDOSE™ (Cyclosporine Ophthalmic Emulsion) 0.05%, a preservative-free, multi-dose bottle offering the same preservative-free formulation of RESTASIS as well as RHOFADE™ cream for the topical treatment of persistent facial erythema (redness) associated with rosacea in adults.

Allergan and Ironwood Pharmaceuticals announced the FDA approval of a 72 mcg dose of LINZESS® (linaclotide) for the treatment of chronic idiopathic constipation (CIC) in adults.

Launches: Allergan announced the launch of TAYTULLA™ (norethindrone acetate and ethinyl estradiol capsules and ferrous fumarate capsules), 1mg/20mcg, the first and only oral contraceptive in a softgel capsule for the prevention of pregnancy. Allergan also announced the US launch of JUVÉDERM VOLBELLA® XC for use in the lips for lip augmentation and for correction of perioral rhytids in adults over the age of 21.

Strategic acquisitions: On February 01st, 2017, Allergan announced that it has completed the acquisition of LifeCell Corporation, a leading regenerative medicine company. Allergan acquired LifeCell for approximately $2.9 billion in cash. The acquisition adds LifeCell’s novel, regenerative medicines business, including its dermal matrix products to Allergan’s leading portfolio of medical aesthetic products, breast implants, and tissue expanders. Together, these product lines create a world-class aesthetic and regenerative medicine business providing significant opportunity to enhance the overall product offering for plastic and general surgery customers.

The LifeCell commercial portfolio features Acellular Dermal Matrices, commonly used in breast reconstruction procedures and complex hernia surgeries. Key products include ALLODERM®, a human allograft tissue matrix used in breast reconstruction post-masectomy; and REVOLVE™, a single use high-volume fat grafting device used in plastic and reconstructive procedures. Additionally, LifeCell markets STRATTICE™, a porcine based tissue matrix used in complex abdominal wall repair and for the surgical repair of damaged or ruptured soft tissue. In addition to commercial products, Allergan has also acquired LifeCell’s innovative manufacturing capabilities and its R&D operations, based in New Jersey.

Guggenheim Securities and Barclays served as financial advisors to Allergan and Debevoise & Plimpton LLP is serving as Allergan’s lead legal counsel.

Agreement to acquire ZELTIQ: On February 13th, 2017, Allergan and ZELTIQ Aesthetics Inc. (NASDAQ: ZLTQ), a medical technology company focused on developing and commercializing products utilizing its proprietary controlled-cooling technology platform, announced that they have entered into a definitive agreement, under which Allergan has agreed to acquire ZELTIQ for $56.50 per share, or $2.47 billion, subject to customary adjustments.

The acquisition of ZELTIQ is immediately accretive and enhances Allergan’s global medical aesthetics portfolio with the addition of ZELTIQ’s flagship CoolSculpting®System, the leader in the fast-growing cash pay body contouring segment of medical aesthetics. The CoolSculpting System is FDA-cleared to affect appearance through lipolysis or reduction of unwanted fat using a patented cooling technology. CoolSculpting works by gently cooling targeted fat cells in the body to induce a natural, controlled elimination of fat cells without affecting surrounding tissue. Body contouring is a $4 billion market worldwide and growing.

Moelis & Company is acting as financial advisor to Allergan, and Debevoise & Plimpton LLP is acting as lead legal counsel. Guggenheim Securities is acting as financial advisor to ZELTIQ, and Cooley LLP is serving as legal counsel.

Guidance for full year FY17

Allergan’s full year FY17 estimates are based on management’s current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches and events. Allergan predicts FY17 revenues to range between $15.5 billion and $15.8 billion and loss per share to range between $(1.80) and $(1.30). For Q1 FY17, revenues are expected at $3.5 billion.

Stock Performance

Allergan’s stock stood at $249.32, gaining 0.30%, at the close on Wednesday, February 15th, 2017, having vacillated between an intraday high of $250.94 and a low of $246.50 during the session. The stock’s trading volume was at 3,508,828 for the day. The Company’s market cap was at $97.91 billion as of Wednesday’s close.

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