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Allergan (AGN) Down 9.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Allergan (AGN - Free Report) . Shares have lost about 9.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Allergan due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Allergan Beats on Q1 Earnings & Sales, Raises 2019 View

Allergan’s first-quarter adjusted earnings came in at $3.79 per share, which beat the Zacks Consensus Estimate of $3.55 and came ahead of the guidance of $3.40 and $3.60. Earnings rose 1.3% year over year helped by a lower share count.

Revenues came in at $3.60 billion, which exceeded the Zacks Consensus Estimate of $3.53 billion as well as the guidance of $3.4 billion to $3.55 billion. Revenues fell 2% from the year-ago period primarily due to loss of exclusivity on some brands and divestitures of some others in 2018. On a constant currency basis, sales were flat.

Moreover, sales of Restasis also declined in the quarter ahead of anticipated generic competition. Also, declines in textured breast implants in certain international markets hurt sales. However, key products like Botox (cosmetic and therapeutics), Juvéderm collection of fillers, Vraylar, and Lo Loestrin pulled up the top line in the quarter.

Allergan said that its core business (Medical Aesthetics, CNS, Eye Care and GI), comprising about 90% of total revenues, grew 4.4% at constant currency in the quarter.

Segment Discussion

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

U.S. Specialized Therapeutics’ net revenues declined 2.3% to $1.54 billion. Strong sales growth of its facial aesthetics products, Botox and Juvéderm and Botox Therapeutic was offset by decline in sales of Restasis and divestiture of Medical Dermatology business in September 2018.

In Facial Aesthetics, Botox (cosmetic) raked in sales of $229.5 million, up 16.7% year over year helped by strong advertising/promotional efforts. Juvéderm collection of fillers rose 5.6% to $129.7 million on strong demand trends in both domestic and international markets. Alloderm sales, however, fell 4.5% to $95.0 million while CoolSculpting sales of $62.9 million declined 27.8% year over year due to lower consumer demand and a reduction in system sales in the United States. Management expects the launch of Cooltone in second half of 2019 to reinvigorate the Coolsculpting business.

In light of rising competitive pressure, Allergan increased its investments in consumer and digital marketing programs, including new consumer campaigns for both Botox and Juvéderm.

In Eye Care, while Ozurdex sales rose 18.8% to $30.3 million, Restasis sales fell 9.4% to $231.7 million. Restasis sales decreased due to lower selling price.

Botox Therapeutic revenues were $397.6 million, up 5.8% year over year.

On the call the company said that its share of new chronic migraine patients is 47%, stable from last quarter. It said that 2% of CGRP patients were switched from Botox. Botox Therapeutic is expected to grow in the mid-to high single digits range in 2019.

U.S. General Medicine net revenues were up 2.1% year over year to $1.25 billion in the reported quarter as strong growth of Vraylar, Linzess and Lo Loestrin was offset by lower sales of drugs that lost exclusivity including the generic entry of Canasa.

Linzess sales rose 1.3% to $161.3 million as demand growth was partially offset by lower average selling price and unfavorable trade buying patterns. Lo Loestrin sales grew 9.8% to $125.8 million while Bystolic sales fell 3.4% to $128.3 million. Vraylar sales were $143.7 million in the first quarter, 70.3% higher than the year-ago quarter, while Viibryd sales were $85 million, up 18.5% from the year-ago quarter.

Allergan is optimistic that following an approval for the new indication of bipolar depression, which is currently under FDA review, sales of Vraylar can be higher in 2019.

The International segment recorded net revenues of $801.5 million, up 1.3% from the year-ago period, excluding the impact of foreign exchange as growth in Facial Aesthetics and Botox (therapeutic) was partially offset by regulatory changes for textured breast implants and lower glaucoma and eye drop revenues. Excluding the impact of currency and regulatory changes in the textured Implant market, sales in the segment rose 5.2%.

Profits Rise

Adjusted gross margin rose 50 basis points (bps) in the quarter to 86.7%, primarily driven by favorable product mix.

Adjusted operating income decreased 7.6% to $1.63 billion in the first quarter due to the impact of divestitures, loss of exclusivity of some products and a decline in Restasis.

Selling, general and administrative (SG&A) expenses increased 4.5% to $1.10 billion in the first quarter owing to higher marketing spending in Medical Aesthetics.

Research and development (R&D) expenses rose 11.8% to $397.9 million due to pipeline progress.

The company said that from the $2 billion share buyback program authorized in 2018, $800 million were repurchased in the first quarter, thereby exhausting the 2018 plan. Allergan now will buy back shares under its $2 billion share buyback program authorized in 2019.

2019 Outlook

Allergan slightly raised its earnings and sales guidance for 2019 benefiting from delayed generic entry of Restasis. Generic versions for Restasis are expected to be launched in mid-May versus prior expectations of end of March. Allergan said that each additional month of Restasis exclusivity should add an incremental $60 million to $70 million in revenues.

Allergan expects sales to be in the range of $15.13-$15.43 billion, up from the previous guidance of $15.0-$15.3 billion. Allergan expects sequentially stronger top line performance for the remainder of the year.

The company estimates its adjusted earnings to be more than $16.55 per share versus the prior guidance of greater than or equal to $16.36.

Other than generic competition to Restasis, sales in 2019 are expected to be hurt by regulatory changes for textured breast implants in certain international markets as well as industry-wide pricing pressure and currency headwinds.

Adjusted tax rate is expected to be approximately 13-13.5% in 2019. Adjusted R&D expenses are expected to be approximately $1.6 - $1.7 billion and SG&A spend is expected to be approximately $4.1 - $4.3 billion. Adjusted gross margin is expected to be approximately 85%-85.5%.

Second Quarter 2019 Outlook

For the second quarter, the company expects revenues to be in the range of $3.88 billion to $4.03 billion and earnings per share between $4.20 and $4.40.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Allergan has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Allergan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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