Allergan (AGN) Tops Q2 Earnings, Revises '16 Outlook

Allergan plc’s AGN second-quarter 2016 earnings came in at $3.35 per share, easily surpassing the Zacks Consensus Estimate of $3.28. Though up 12% sequentially, reported earnings were down 8.7% from the year-ago period.

Revenues, however, missed expectations. Revenues came in at $3.68 billion, up 1.5% from the year-ago period, falling short of the Zacks Consensus Estimate of $4.14 billion.

Quarterly Details

Earlier this month, Allergan divested its generics business to Teva Pharmaceutical Industries (NYSE:TEVA) Ltd. TEVA and also signed an agreement to sell its Anda distribution segment. Allergan has been treating its generics business as discontinued operations and has considered the Anda distribution segment as discontinued operations from the second quarter of 2016.

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

U.S. Specialized Therapeutics net revenues increased 10.5% to $1.5 billion driven by strong growth in Eye Care, Facial Aesthetics and Neuroscience. Products like Botox and Restasis brought in sales of $189.9 million and $371.3 million, respectively. While Botox sales were driven by continued market share expansion, enhanced promotional focus and overall continued strong demand for the product, Restasis benefited from continued strong promotional efforts.

U.S. General Medicine net revenues fell 9.9% to $1.4 billion in the second quarter of 2016 due to a decline in Central Nervous System and Established Brands revenues that was partially offset by strong growth in Gastroenterology, Women's Health and Anti-Infectives performance.

Strong growth was put up by products like Linzess, Lo Loestrin, Estrace Cream, Minastrin 24, Liletta and new product launches like Viberzi, Avycaz and Dalvance.

International segment recorded net revenues of $757 million, up 5.6% from the year-ago period. Its growth was driven by Eye Care, Facial Aesthetics and Botox revenues.

2016 Outlook Updated

Allergan updated the guidance for 2016. The updated guidance excludes the impact of Anda from net revenues and expenses. Allergan expects total net revenues in the range of $14.65 billion to $14.90 billion. Previously, Allergan had anticipated total net revenues of about $17 billion. The Zacks Consensus Estimate for revenues is currently at $16.62 billion. Branded net revenues are expected in the range of $14.75 billion to $15 billion in 2016. Previously, branded net revenues were expected to be approximately $15 billion in 2016.

Allergan expects earnings in the range of $13.75 to $14.20 per share. The Zacks Consensus Estimate for earnings is currently at $14.01 per share.

While research and development spend is still expected to be about $1.5 billion, selling, general and administrative (SG&A) expenses are expected to be around $4 billion. Previously, the company had anticipated SG&A expenses (as a percentage of net revenue) to be approximately 25%.

Allergan plans to start a share buyback program shortly with an initial focus of repurchasing approximately $5 billion in shares over the remainder of the year. Upon the closing of this program, the company will evaluate whether to move forward and repurchase the remaining $5 billion authorized by the board. We note that the company had announced a new share buyback program of up to $10 billion at the time of announcing first-quarter results.

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Our Take

Allergan’s second-quarter results were mixed with the company beating on earnings while missing revenue estimates. 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. Moreover, the divestment of the generics business should allow the company to focus on its target areas.

Allergan is a Zacks Rank #3 (Hold) stock. A couple of better-ranked stocks in the health care sector are Anika Therapeutics Inc. ANIK and Geron Corporation GERN, each sporting a Zacks Rank #1 (Strong Buy).