Allergan (AGN) Beats Q1 Earnings Estimates, Ups 2017 View

Allergan plc’s (NYSE:AGN) first-quarter 2017 earnings came in at $3.35 per share, beating the Zacks Consensus Estimate of $3.32 by 0.9%. Earnings rose 12% year over year.

Revenues came in at $3.57 billion, up 5.1% from the year-ago period, and beat the Zacks Consensus Estimate of $3.53 billion by 1.2%.

First-quarter revenues gained from the addition of two months of revenues from the LifeCell acquisition, which closed in Jan 2017.

While key products like Botox, Lo Loestrin and Linzess and new products like Vraylar and Viberzi did well in the quarter, established products like Namenda IR/XR, Asacol HD and Minastrin 24 witnessed declining sales due to loss of exclusivity.

Meanwhile, sales were slightly hurt by change in U.S. wholesale buying patterns and normal seasonality in the first quarter

Adjusted operating income declined 7% in the quarter due to higher operating expenses.

Quarterly Details

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

U.S. Specialized Therapeutics’ net revenues increased 14% to $1.48 billion driven by strong growth in Facial Aesthetics, Botox Therapeutic and the addition of Alloderm. Products like Botox (cosmetic) and Restasis raked in sales of $183.8 million (up 11%) and $308.8 million (up 3%), respectively. Botox Therapeutic revenues were $308.8 million, up 13%. In addition, Juvéderm Collection of fillers rose 17%, Kybella rose 34% and Ozurdex sales increased 16%, which contributed to the upside.

U.S. General Medicine net revenues declined 7% to $1.35 billion in the reported quarter with sales declining in four out of five sub-segments - Central Nervous System, Diversified Brands, Women's Health, and the Gastrointestinal franchise. Anti-Infectives sales rose 8.2% to $55.7 million.

Established products like Linzess and Lo Loestrin as well as new products like Viberzi and Vraylar did well in the quarter. Linzess’ sales rose 8% in the quarter to $147.6 million, driven by strong demand and continued OTC conversion, which offset the negative impact of trade buying patterns.

However, lower Namenda IR and XR sales hurt the performance of the CNS franchise. Namenda IR sales plunged 90.2% in the quarter. On the other hand, Namenda XR sales declined 30% to $122.0 million in the quarter due to lower demand, unfavorable trade buying patterns and shift of promotional efforts to Namzaric.

Namzaric, a once-daily, fixed-dose combination of Namenda XR and Aricept, recorded sales of $23.6 million compared with $19.5 million in the previous quarter. Asacol/Delzicol sales declined 46% due to a reduction in demand for Ascaol HD, following the launch of an authorized generic in Aug 2016 as well as lower demand for Delzicol.

In the Women’s Health segment, Minastrin 24 revenues declined 48% to $41.1 million in the quarter due to loss of exclusivity in Mar 2017.

The International segment recorded net revenues of $737.3 million, up 10% from the year-ago period driven by growth in Facial Aesthetics.

2017 Outlook Up

The company raised its previously issued earnings and sales guidance for 2017 to reflect contribution from the ZELTIQ Aesthetics, which Allergan agreed to buy in February this year.

Allergan expects total revenue in the range of $15.8 billion to $16.0 billion for 2017 compared with $15.5 billion to $15.8 billion previously. Currency headwinds are expected to hurt revenues by $100 million.

Adjusted earnings are expected in the range of $15.85–$16.35 compared with $15.80–$16.30 per share previously.

The company expects stable Restasis revenues, while Namenda franchise sales will continue to erode in 2017, especially with the expected entry of a generic version of Namenda XR in the fourth quarter of 2017.

Adjusted gross margins are expected between 86% and 87%. R&D expenses are expected to be approximately $1.6 billion compared with $1.45 billion to $1.55 billion expected previously. SG&A spend is expected between $4.45 and $4.55 billion compared with $4.3 billion and $4.4 billion previously.

Our Take

In a seasonally soft first quarter, Allergan did fairly well in beating estimates for both earnings and sales. Meanwhile, the company raised its 2017 outlook, driving shares up around 1.3% in pre-market trading. In fact, Allergan’s share price is up 14.7% this year so far against the Zacks classified Medical-Generics Drug industry’s decline of 2.1%.

Allergan is reshaping its portfolio through strategic acquisitions. The drugmaker sold its generics and Anda distribution business to Teva Pharmaceutical Industries Limited (NYSE:TEVA) in Aug and Oct 2016, respectively.

With the closing of the Teva deal, Allergan has become a “branded biopharmaceutical leader”. As a result, it can now focus on the branded segment and is using the proceeds to buy back shares, pay down debt and pursue additional deals. It also boasts a strong pipeline with nine product launches planned in 2017.

We are also encouraged by Allergan’s focus on building its branded and biosimilars pipeline. Allergan has a collaboration agreement with Amgen, Inc. (NASDAQ:AMGN) for the worldwide development and commercialization of three oncology antibody biosimilars, which include biosimilars of Roche Holding (SIX:ROG) AG’s (OTC:RHHBY) cancer drugs Herceptin and Avastin.

Allergan PLC. Price, Consensus and EPS Surprise

Allergan PLC. Price, Consensus and EPS Surprise | Allergan PLC. Quote

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

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