Allergan Beats; Raises Outlook

Allergan, Inc. (AGN - Analyst Report) reported third quarter earnings of 70 cents per share, a cent above the Zacks Consensus Estimate and 7.7% above the year-ago earnings of 65 cents. We were pleased to see total revenues increase 3.9% to $1,141.3 million in the reported quarter. 

Specialty pharmaceuticals sales increased 7.8% to $940.6 million. Eye care pharmaceutical sales increased 4.8%. The strong performance of products like Lumigan and Restasis was offset by weakness in the Alphagan and Combigan franchise. 

Importantly, we were encouraged to see a recovery in Botox sales, which increased 3% from the year-ago period to $327.8 million. Botox sales had been declining during the past few quarters mainly due to weak consumer spending and concerns regarding its safety record. The recovery in Botox sales resulted in Allergan raising its 2009 guidance for the product to $1,280 - $1,290 million (old guidance: $1,200 - $1,220 million). 

Going forward, Allergan is looking to grow Botox sales by gaining approval for additional indications. The company recently filed for U.S. Food and Drug Administration (FDA) approval of Botox for the treatment of chronic migraine. Botox is currently facing increased competition with the entry of Medicis Pharma’s (MRX) - Snapshot Report Dysport, which was launched recently in the U.S. 

Meanwhile, Allergan’s medical devices segment continued to disappoint with sales falling 10.6% to $187.2 million. While breast aesthetics sales declined 4.3% to $69 million, obesity intervention sales declined 18.4% to $64.5 million and facial fillers sales slipped 7.9% to $53.7 million. We believe weak consumer spending continued to affect the performance of this segment. Moreover, the company faces significant competition from players like Johnson & Johnson (JNJ - Analyst Report) and Medicis. 

However, we expect things to look up with the start of the holiday season. Moreover, Allergan intends to increase its investment in direct to consumer (DTC) advertising programs as the economy recovers. 

Allergan increased its total product net sales guidance to $4,350 million - $4,400 million, up from the earlier guidance of $4,200 - $4,300 million. Total specialty pharmaceuticals net sales are now expected in the range of $3,635 million - $3,655 million, up from the previous guidance of $3,505 - $3,560 million. Allergan also increased its earnings guidance. The company now expects earnings in the range of $2.75 - $2.77, up from the previous guidance of $2.71 - $2.75. 

Allergan also declared a third quarter dividend of five cents per share. We consider Allergan to be one of the premier specialty pharmaceutical companies in the world. We believe that the company’s presence across different segments and geographies will help maintain decent growth going forward. Although we expect growth to slow down in 2009, we believe the company will be back on its historical mid-to-high teens earnings growth trajectory from 2011. We have a Neutral rating on the stock.

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