Allergan (AGN) Lags Q3 Earnings, Cuts View, Ups Buyback

Allergan (NYSE:AGN_pa) plc’s (NYSE:AGN) third-quarter 2016 earnings came in at $3.32 per share, missing the Zacks Consensus Estimate of $3.57 by 7%. Earnings declined 2.6% from the year-ago period and almost 1% sequentially.

Lower revenues, and higher research and development and selling and marketing costs hurt earnings in the quarter.

Revenues came in at $3.62 billion, up 4.4% from the year-ago period, but short of the Zacks Consensus Estimate of $3.70 billion.

Quarterly Details

The drugmaker sold its generics and Anda distribution business to Teva Pharmaceutical Industries Limited (NYSE:TEVA) in Aug and Oct 2016, respectively. Both these business lines were treated as discontinued operations.

Continuing operations include the U.S. General Medicine, U.S. Specialized Therapeutics and International business segments.

U.S. Specialized Therapeutics net revenues increased 12% to $1.45 billion driven by strong growth in Eye Care, Facial Aesthetics and Neuroscience. Products like Botox and Restasis raked in sales of $174.5 million (up 10%) and $356.4 million (up 14%), respectively. While Botox sales were driven by continued strong demand for the product, Restasis benefited from continued strong promotional efforts.

U.S. General Medicine net revenues fell 4% to $1.49 billion in the reported quarter due to a decline in Central Nervous System and Established Brands revenues that was partially offset by strong growth in Gastroenterology and Women's Health.

Strong growth was put up by established products like Linzess, Lo Loestrin, Estrace Cream, Minastrin 24, and new products like Viberzi, Dalvance and Vraylar. However, lower Namenda IR and XR sales hurt the performance of the CNS franchise. Namenda XR sales declined 32% to $146.9 million in the quarter due to lower demand and selling price. Namzaric a once-daily, fixed-dose combination of Namenda XR and Aricept, recorded sales of $14.9 million compared with $12.8 million in the previous quarter. Namzaric was launched in the second quarter of 2015 to reduce the impact of the Jul 2015 entry of Namenda IR generics. Asacol/Delzicol sales declined 49%, also hurt by generic competition in the quarter.

The International segment recorded net revenues of $697.8 million, up 6% from the year-ago period. Its growth was driven by Eye Care, Facial Aesthetics and Botox revenues.

2016 Outlook Lowered

Allergan lowered its revenue and earnings guidance. The company expects total net revenues in the range of $14.45 billion to $14.65 billion. Previously, Allergan had anticipated total net revenues in the range of $14.65 billion to $14.90 billion.

Allergan expects earnings in the range of $13.30–$13.50 compared with $13.75 to $14.20 per share projected previously. The Zacks Consensus Estimate for earnings and sales stand at $13.93 per share and $14.73 billion, respectively, for 2016. While research and development spend is still expected to be about $1.5 billion, selling, general and administrative expenses are expected to be around $4 billion.

Allergan completed its $5 billion share buyback program in the quarter, ahead of the year-end scheduled. We note that the company had announced a share buyback program of up to $10 billion at the time of releasing first-quarter results.

Importantly, the board expanded the share repurchase authorization to $15 billion including a $10 billion accelerated share repurchase (ASR) program. The company also announced that it is initiating a regular quarterly cash dividend of 70 cents per share, payable from the first quarter of 2017.

Our Take

Allergan’s third-quarter results were weak, with the company missing estimates for both earnings and sales. However, the $10 billion ASR and the new dividend boosted investors’ confidence, pushing the share price up more than 1% in pre-market trading. With the closing of the Teva deal, the company’s restructured and simplified business is encouraging.

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 oncology antibody biosimilars. Allergan and Amgen are developing biosimilar versions of Roche Holding (SIX:ROG) AG’s (OTC:RHHBY) cancer drugs Herceptin andAvastin.

Moreover, the divestment of the generics business should allow the company to focus on its target areas.

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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