Allergan plc’s (AGN - Free Report) third-quarter adjusted earnings came in at $4.25 per share, in line with the Zacks Consensus Estimate. Earnings were flat year over year as higher revenues were offset by lower operating profits.
Revenues came in at $4.05 billion, which exceeded the Zacks Consensus Estimate of $3.89 billion. Revenues rose 3.6% from the year-ago quarter as higher sales of key products like Botox (cosmetic and therapeutics), Juvéderm collection of fillers, Vraylar, Ozurdex, and Lo Loestrin made up for the loss of exclusivity on some brands and divestitures of some others.
Allergan reports revenues under three segments – U.S. General Medicine, U.S. Specialized Therapeutics and International.
U.S. Specialized net revenues declined 2.1% to $1.67 billion. Strong demand for 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. Sales of CoolSculpting and Alloderm also declined in the quarter.
In Facial Aesthetics, Botox (cosmetic) recorded sales of $237.6 million, up 10% year over year. Juvéderm collection of fillers rose 6% to $134.8 million
Alloderm sales, however, fell 10.2% to $95.0 million while CoolSculpting sales of $53.0 million declined 37.6% year over year.
In Eye Care, while Ozurdex sales rose 17.8% to $33.7 million, Restasis sales fell 3.8% to $286.8 million. A generic version of Restasis is expected to be launched this year.
Botox Therapeutic revenues were $431.6 million, up 5.9% year over year.
There also have been concerns regarding possible new competitors to Botox. Evolus’ Jeuveau injection, indicated to improve the appearance of glabellar or frown lines, was launched in the United States in May this year and is off to a strong start. It poses strong competition for Botox. Later this month, Revance Therapeutics will file for approval of DaxibotulinumtoxinA for Injection (DAXI), a rival treatment to Botox for the frown lines indication. It has demonstrated longer duration of efficacy compared to Botox in late-stage studies.
The entry of CGRP antibodies may also have a negative impact on sales of Botox Therapeutics, mainly for the chronic migraine indication. Amgen (AMGN - Free Report) , Eli Lilly (LLY - Free Report) and Teva Pharma’s CGRP migraine treatments, Aimovig, Emgality and Ajovy, respectively were all launched in 2018.
U.S. General Medicine net revenues were up 9.9% year over year to $1.52 billion in the reported quarter as strong demand growth of Vraylar, Viibryd and Lo Loestrin was offset by lower sales of drugs that lost exclusivity.
Vraylar sales were $234.6 million in the third quarter, 70% higher than the year-ago quarter. In May, Vraylar was approved for the new indication of bipolar depression, which may have contributed to higher sales of the drug in the quarter.
Linzess sales rose 4.8% to $214.7 million. Lo Loestrin sales grew 14.1% to $161.4 million while Bystolic sales rose 0.7% to $152.2 million. Viibryd sales were $105.1 million, up 18.5% from the year-ago quarter.
The International segment recorded net revenues of $835.1 million, up 5% 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.
Adjusted operating income decreased 7.7% to $1.76 billion in the third quarter due to lower revenues and higher costs.
Selling, general and administrative expenses increased 14.3% to $1.18 billion in the third quarter, owing to higher marketing spending to support product launches.
Research and development (R&D) expenses rose 14% to $448.9 million due to pipeline progress.
Allergan slightly raised its sales guidance for 2019 while maintaining the previously issued earnings view.
Allergan expects sales to be in the range of $15.63-$15.83 billion, up from the previous guidance of $15.43-$15.63 billion.
The company still estimates adjusted earnings to be more than $16.55 per share.
Adjusted tax rate is expected to be approximately 12%-12.5% versus prior expectation of approximately 13% in 2019.
Adjusted R&D expense guidance was increased from a range of approximately $1.6 - $1.7 billion to approximately $1.75 billion while the SG&A range was increased from approximately $4.4 - $4.5 billion to approximately $4.5 billion. Adjusted gross margin is expected to be approximately 85% (previously 85%-85.5%).
Allergan reported decent third-quarter results and raised its sales guidance for the third time this year due to delayed entry of generic Restasis. Shares were up less than 1% in pre-market trading on Nov 5. So far this year, Allergan’s share price has risen 33.8% against the industry’s decrease of 1%.
Allergan’s key products like Botox and new products such as Viberzi and Vraylar are supporting sales. Allergan also continues to deliver on its R&D pipeline with some major product launches expected over the next couple of years. Biosimilars also represent significant opportunity. However, in 2019, sales are being hurt by loss of exclusivity of key drugs, product recalls, pricing pressure and currency headwinds. Meanwhile, new competition for key growth drivers, Botox, Restasis and Linzess, is a concern.
In June, Allergan announced that it has entered into a definitive transaction to be acquired by AbbVie (ABBV - Free Report) in a cash-and-stock deal worth nearly $63 billion. Last month, Allergan’s shareholders gave green signal to the pending merger. The deal is expected to close in early 2020. The deal could be rewarding for Allergan shareholders. With Restasis expected to face generic competition, fears of new competition to Botox and recent pipeline setbacks, the merger with AbbVie could prove to be the best way out for Allergan.
Allergan currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.