Note: FLASH REPORT; more details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.
Reason for Report: Flash Update: 1Q18 Earnings Results
Previous Edition: 4Q17 Earnings Update
Flash Update
Allergan Q1 Earnings Beat Estimates, Sales Up Y/Y
Allergan’s first-quarter 2018 earnings came in at $3.74 per share, beating the Zacks Consensus Estimate of $3.36 by 11.3%. The bottom line also rose 11.6% year over year, driven by higher revenues and lower operating costs. Earnings also surpassed the previously expected range of $3.20-$3.40.
Revenues generated $3.67 billion, which marginally exceeded the Zacks Consensus Estimate of $3.59 billion by 2.2%. The top line also rose 2.8% from the year-ago period. Revenues also surpassed the past projection between $3.5 billion and $3.6 billion.
Key products like Botox and Juvéderm collection of fillers and new products like Vraylar, Viberzi and Namzaric did well in the quarter under review. However, sales erosion of Namenda XR and Aczone and loss of exclusivity, mainly from Asacol HD and Minastrin, hurt the top line.
Segment Discussion
The company reports revenues under three segments, namely U.S. General Medicine, U.S. Specialized Therapeutics and International.
U.S. Specialized Therapeutics’ net revenues increased 6.5% to $1.58 billion, driven by a consistently strong performance of its facial aesthetics products, Botox and Juvéderm Collection of fillers.
Botox (cosmetic) raked in sales of $196.7 million (up 7% year over year). Botox Therapeutic revenues were $358.5 million, up 16.1%. In addition, Juvéderm Collection of fillers rose 2.5% to $122.8 million. In Eye Care, though Ozurdex sales increased 13.3% to $25.5, blockbuster dry-eye drug, Restasis’ sales decreased 17.2% to $255.8 million. In Plastic Surgery, breast implants sales increased 11.8%, which contributed to the upside. In Medical Dermatology, Aczone sales plunged 60.6% in the reported quarter to $16 million.
LifeCell’s Alloderm added $99.5 million while ZELTIQ’s CoolSculpting business added $87.1 million to sales in the first quarter.
U.S. General Medicine net revenues were down 9.1% year over year to $1.22 billion in the reported quarter with sales declining in the Diversified Brands, Central Nervous System (CNS) and Women's Health franchises. Anti-Infectives sales rose 28.5% to $71.6 million and Gastrointestinal inched up 0.3% to $388.7 million.
Established products like Linzess and Lo Loestrin as well as new products like Namzaric, Viberzi and Vraylar did well in the first quarter. Linzess’ sales rose 7.9% to $159.3 million, driven by strong demand. Lo Loestrin sales rose 14.8% to $114.6 million, backed by strong demand trends.
Among the newer products, Namzaric, a once-daily, fixed-dose combination of Namenda XR and Aricept, recorded sales of $33.4 million, up 41.5% compared with the year-ago figure. Viberzi recorded sales of $35.9 million, up 14% year over year.
Namenda XR sales slumped 66.8% to $40.5 million in the reported quarter due to loss of patent exclusivity for Namenda XR this February.
Asacol/Delzicol sales declined 33.7% to $38.2 million due to a reduction in demand for Ascaol HD, following the launch of an authorized generic in August 2016.
In the Women’s Health segment, Minastrin 24 revenues plummeted 87.3% to $5.2 million in the quarter due to loss of exclusivity last March.
The International segment logged net revenues of $864 million, up 17.2% from the year-ago period, driven by growth in Facial Aesthetics, Botox (therapeutic), Eye Care and the addition of CoolSculpting.
SG&A Costs Rise, R&D Declines
Selling, general and administrative (SG&A) expenses decreased 5.2% to $1.05 billion in the first quarter owing to a substantial reduction in selling and marketing spending including the impact of previous restructurings.
Research and development (R&D) expenses improved 9.7% to $355.8 million due to reprioritization of R&D programs.
2018 Outlook Raised
Allergan lifted its sales guidance in the approximate range of $15.15-$15.35 billion compared with the former forecast of $15.0-$15.3 billion. The Zacks Consensus Estimate for the metric in the current year is pegged at $15.22 billion.
Meanwhile, the company also raised its adjusted earnings expectation in the band of $15.65-$16.25 per share from $15.25-$16, guided earlier. The consensus mark for the metric in the current year was pegged at $15.22 per share.
The company however, continues to estimate adjusted tax rate at approximately 14% in 2018.
Second-Quarter 2018 View OR Q218 View
In second-quarter 2018, revenues are anticipated between $3.85 billion and $4 billion while earnings per share are likely to be between $4 and $4.20. While the Zacks Consensus Estimate for revenue in the second-quarter is pegged at $3.59 billion, the consensus mark for earnings was pegged at $3.36 per share during the same period.
Details, other news update and broker comments will be provided in the next edition.
Portfolio Manager Executive Summary
Allergan plc is a makes brand, biosimilar and over-the-counter pharma products. Following its Mar 2015 acquisition of Botox maker Allergan Inc. (for $77 billion), Actavis changed its name to Allergan. Allergan sold its generics business in August 2016 and the Anda distribution business to Teva in October 2016.
Of the firms covering the stock, 65.0% (13 firms) rendered positive ratings, 35.0% (7) neutral while no firm assigned a negative stance to the stock.
Positive outlook (13/20 firms): The bullish firms are positive on the company’s divestiture of the generics business as this would allow it to focus on branded portfolio. The firms are also optimistic about inclusions of well-positioned LifeCell and CoolSculpting businesses to Allergan’s aesthetic portfolio. Moreover, the firms are positive on the continued outperformance in key products such as Botox and dermal fillers as they believe these products would drive the company’s long-term growth.
Neutral Outlook (7/20 firms): Though the firms view the third quarter as a solid execution by the company, they remain concerned about threat of a generic Restasis reaching the market between 2018 and 2019, which might weigh on the profitable franchise. The firms are also concerned about a continued erosion of Namenda XR revenues and loss of exclusivity of Asacol HD and Minastrin.
Apr 19, 2018
Overview
Dublin, Ireland-based Allergan plc is a global pharmaceutical company focusing on development, manufacturing, marketing, sale, medical aesthetics, brand, biosimilar and over-the-counter (OTC) products, targeting a wide range of therapeutic areas like CNS, gastroenterology, women’s health, urology, cardiovascular, respiratory and anti-infectives.
Allergan has a presence in about 100 countries including several established and growing international markets. The company divested its generics business to Teva in August 2016 for $33.4 billion and also its Anda distribution business in October 2016.
For more details, check the company’s website http://www.allergan.com/home
The firms identified the following factors for evaluating the investment merits of Allergan:
Key Positive Arguments / Key Negative ArgumentsOwing to the Allergan Inc., Warner Chilcott and the Forest acquisitions, Allergan’s growth prospects have grown stronger. Moreover, with the Allergan Inc. acquisition, Allergan has strengthened its global presence and is one of the top 10 pharma companies in the world based on sales. / Allergan has been entering into several acquisition agreements of late, as a result of which, integration risks persist.
The sale of the generics business allows the company to focus on the branded segment. Allergan is using the proceeds from the divestiture to buy back shares, pay down debt and pursue additional. / Allergan is facing patent challenges for quite a few of its products including Generess Fe, Restasis and Namenda XR. Other products like Bystolic, Linzess and Viibryd are all slated to lose exclusivity over the next few years. The earlier-than-expected entry of generic competition would impact branded segment sales.
The company’s oncology antibody biosimilars also represents a significant commercial opportunity.
Note: The company’s financial year coincides with the calendar year.
Apr 19, 2018
Long-Term Growth
Acquisitions form an integral component of Allergan’s expansion strategy with the company completing four major acquisitions (Arrow, Specifar, Actavis Group and Warner Chilcott) apart from the Forest and Allergan Inc. deals in the past few years.
Following the March 2015 acquisition of Botox maker Allergan Inc., Actavis changed its name to Allergan. With the $77-billion acquisition, Allergan, previously known for its strong presence in the generics market, finds itself in the list of the top 10 pharma companies globally based on sales. Allergan sold its generics business in August 2016 and the Anda distribution business to Teva in October2016.
Further, in order to focus on its branded segment, Allergan sold its generics business to Teva. Allergan retained its global branded pharmaceutical and medical aesthetic businesses as well as the biosimilars development programs. Additionally, Allergan sold its Anda distribution segment to Teva in October 2016.
The divestiture helped Allergan's goal to transform into a branded growth pharma leader. Moreover, Allergan used part of the proceeds from the Teva deal for share buyback programs (completed $15 billion share repurchase program in 2017) while it continues to invest in growth.
Allergan has more than 65 projects in mid-to-late stage development including six key phase III programs. Meanwhile, Vraylar gained an FDA approval in September 2015 for schizophrenia and bipolar disorder and Viberzi for irritable bowel syndrome-diarrhea in May 2015. Both Vraylar and Viberzi performed above expectations in 2016 as well as in 2017. The company is also working on expanding the labels of marketed products like Botox, Linzess and Restasis among others. Focus is on core therapeutic areas like Eye Care, Aesthetics, CNS, Gastrointestinal, Medical Aesthetics and Women's Health.
Allergan is also working on bringing biosimilars to the market. Biosimilars represent a significant opportunity and the company has a collaboration agreement with Amgen for the worldwide development and commercialization of oncology antibody biosimilars. The products developed under the collaboration will be sold under a joint Amgen/Allergan label.
These steps will definitely position Allergan as a pure branded focused business, able to maximize the power of its therapeutic areas and the promise of its leading Open Science pipeline of more than 65 mid-to-late stage development programs.
Apr 19, 2018
Target Price/Valuation
Rating DistributionPositive / 65.0%↓
Neutral / 35.0%↑
Negative / 0.0%
Avg. Target Price / $221.67↓
High / $267.00↓
Low / $171.00↓
No. of Analysts with Target price/Total / 18/20
Recent Events
Allergan Q4 Earnings Beat on Increase in Botox Sales
Allergan plc’s fourth-quarter 2017 earnings came in at $4.86 per share, beating the Zacks Consensus Estimate of $4.74 by 2.5%. Moreover, the bottom line rose 24.6% year over year, driven by higher revenues and lower R&D costs.
Revenues came in at $4.33 billion, which beat the Zacks Consensus Estimate of $4.28 billion by 1.2%. Also, the top line increased 12% from the year-ago period.
Fourth-quarter revenues also benefited from the addition of Alloderm from LifeCell (January 2017) and CoolSculpting body contouring system from ZELTIQ (April 2017) acquisitions.
2018 Outlook
Allergan maintained its previously issued total sales guidance in the range of approximately $15.0-$15.3 billion.
Meanwhile, the company said that it expects adjusted earnings in the range of $15.25-$16.00 in 2018. Last month, Allergan had said that it projected earnings of at least $15.25 per share in 2018.
Adjusted tax rate is expected to be approximately 14% in 2018.
Revenues
Revenues came in at $4.33 billion, which beat the Zacks Consensus Estimate of $4.28 billion by 1.2%. Revenues rose 12% from the year-ago period. However, 4Q17 revenues were below a couple of firms’ expectations.
Fourth-quarter revenues also benefited from the addition of Alloderm from LifeCell (January 2017) and CoolSculpting body contouring system from ZELTIQ (April 2017) acquisitions.
Allergan 2018 Outlook: Allergan maintained its previously issued total sales guidance in the range of approximately $15.0-$15.3 billion, assuming the generic Restasis to be launched between April and July of 2018.
In first-quarter 2018, revenues are expected to be within $3.5 billion.
Revenue ($ in million) / 4Q16A / 2016A / 2Q17A / 3Q17A / 4Q17A / 2017A / 1Q18E / 2018E / 2019EDigest Average / $3,864.3 / $14,570.6 / $4,007.4 / $4,034.3 / $4,326.1 / $15,940.7 / $3,580.8 / $15,237.5 / $15,816.6
Digest High / $3,864.3 / $14,570.6 / $4,007.4 / $4,034.3 / $4,326.1 / $15,940.7 / $3,599.6 / $15,272.0 / $16,046.0
Digest Low / $3,863.7 / $14,570.6 / $4,007.4 / $4,034.2 / $4,326.1 / $15,940.6 / $3,562.0 / $15,222.9 / $15,431.4
Revenue Segments
U.S. Specialized Therapeutics: This segment includes branded products within the United States including Medical Aesthetics, Medical Dermatology, Eye Care, Neurosciences and Urology therapeutic products.
Segment net revenues increased 19.8% to $1.88 billion, driven by continued strong performance of its facial aesthetics products, Botox and Juvéderm Collection of fillers. The Zacks Digest average revenues in 4Q17 were in line with the company’s report.
$ in million / 2015A / 2016A / 2017E / 2018E / 2019E / Est. Growth (‘15-’18)U.S. Specialized Therapeutics / $4,306.5 / $5,809.7 / $6,803.6 / $6,331.9 / $6,375.7 / –
Botox (cosmetic) raked in sales of $228.4 million (up 14.5%). Botox Therapeutic revenues were $367.2 million, up 17.1%. In addition, Juvéderm Collection of fillers rose 14.7% to $139.5 million. In Eye Care, Ozurdex sales increased 16.8% to $26.4 million while Restasis’ sales rose 1.8% to $400.3 million. In Plastic Surgery, breast implants sales increased 21.5% to $69 million, contributed to the upside. In Medical Dermatology, Aczone sales declined 37.9% in the quarter to $38 million due to generic pressure on the branded acne category and higher discounts for formulary coverage.
Aczone sales declined 37.6% in the quarter to $38.2 million.
LifeCell’s Alloderm added $97.9 million while Zeltiq’s CoolSculpting business added $94.4 million to sales in the fourth quarter.
A couple of firms remains concerned about Restasis challenge from dry eye competitor, Xiidra.
Eye Care generated revenues of $671.7 million, up 1.8% y/y.
Facial Aesthetics recorded revenues of $380 million, up 14.1% y/y.
Neuroscience and Urology sales were $395.4 million, up 15.4% y/y.