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Allergan, Inc. (AGN - Analyst Report) reported second quarter 2013 earnings of $1.22 per share, a couple of cents above the Zacks Consensus Estimate of $1.20 per share.

While earnings increased 16.2% from the year-ago quarter, revenues increased 10.2% to $1,597.7 million, above the Zacks Consensus Estimate of $1,569 million.

The Quarter in Detail

Specialty pharmaceuticals sales increased 11.1% to $1,347.7 million, with eye-care pharmaceuticals, Botox and skin-care sales driving growth.

Eye-care pharmaceutical sales increased 7.8% to $722.4 million with products like Restasis (up 10.4%), Alphagan franchise (up 7.9%) and Latisse (up 6.1%) contributing to growth.

Allergan lowered its 2013 guidance for Lumigan franchise sales to $620 million - $640 million from the earlier guidance of $630 million - $660 million. Meanwhile, Alphagan franchise sales are now expected in the range of $450 million - $480 million in 2013, up from the earlier guidance of $440 million - $470 million.

Restasis sales are expected to increase to $870 million - $900 million in 2013 (previous guidance: $850 million - $890 million). Allergan continues to expect Latisse sales to increase to $110 million in 2013.

Botox sales increased 11.2% year over year to $513 million. Allergan increased the lower end of its 2013 Botox sales guidance by $20 million and now expects 2013 Botox sales in the range of $1,940 million - $2,000 million (previous guidance: $1,920 million - $2,000 million).

Meanwhile, Allergan’s medical devices segment posted sales of $229.3 million, up 7.4%. While breast aesthetics sales increased 5.5% to $106.8 million, facial aesthetics sales increased 9.1% to $122.5 million.

Allergan is looking to sell the obesity intervention segment and is treating this segment as discontinued operations from the first quarter of 2013.

Other Details

Selling, general and administrative (SG&A) expenses increased 9.9% during the quarter to $605.7 million. Research and development (R&D) expenses amounted to $265.8 million, up 16.8%.

2013 Guidance Tweaked

Allergan now expects 2013 earnings of $4.72 - $4.76 per share as compared to the previous guidance of $4.70 - $4.76 per share. The guidance excludes the impact of the R&D tax credit signed into law earlier this year. The Zacks Consensus Estimate is currently $4.75 per share.

The company expects product net sales to range from $6,050 - $6,200 million in 2013 (previous guidance: $5,975 - $6,200 million).

For 2013, Allergan expects total specialty pharmaceuticals net sales of $5,230 million - $5,340 million (previous guidance: $5,175 million - $5,340 million).

The company expects medical devices net sales of $820 million - $860 million (old guidance: $800 million - $860 million). Here, performance will be driven mainly by facial aesthetics. Facial aesthetics sales are now expected in the range of $440 million - $460 million (old guidance: $410 million - $440 million).

Allergan is currently seeking FDA approval for Juvéderm Voluma XC for cheek augmentation to correct age-related volume deficit in the mid-face. The company expects to launch the product in late 2013 provided it gains approval.

Breast aesthetics sales are now expected in the range of $380 million - $400 million (old guidance: $390 million - $420 million).

For 2013, Allergan expects cost of sales to product net sales ratio of about 13% (old guidance: 13.5%), SG&A expenses to product net sales ratio of 38% (old guidance: 37% - 38%) and R&D expenses to product net sales ratio of 16.5%.

Allergan expects third quarter earnings in the range of $1.18 - $1.20 per share on product net sales of $1,500 million and $1,575 million. Allergan’s guidance includes the dilutive impact of MAP Pharmaceuticals acquisition. The Zacks Consensus Estimate is currently $1.22 per share.

Meanwhile, Allergan conducted a meeting with the FDA regarding the complete response letter for Levadex (acute treatment of migraine in adults). The company intends to re-submit the marketing application by year end and expects approval in the second quarter of 2014.

Our Take

Allergan’s second quarter results were once again above expectations with the company beating the Zacks Consensus Estimate as well as its guidance. Although we believe Allergan’s presence across different segments will help maintain growth, we remain concerned about the generic and competitive challenges being faced by the company. Moreover, Allergan suffered a setback in Jun 2013 with the issuance of bioequivalence draft guidelines by the FDA for Restasis. These draft guidelines, if finalized, could make it easier for generic versions of Restasis to enter the market. We expect investor focus to remain on the Restasis situation.

Allergan currently carries a Zacks Rank #3 (Hold). At present, Johnson & Johnson (JNJ - Analyst Report), Actelion (ALIOF) and Auxilium Pharmaceuticals (AUXL - Analyst Report) look well-positioned. While Actelion is a Zacks Rank #1 (Strong Buy) stock, Johnson & Johnson and Auxilium are Zacks Rank #2 (Buy) stocks.

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