Allergan Posts Earnings Increase - Analyst Blog

Allergan, Inc. (AGN) reported fourth quarter earnings of 88 cents per share, a penny short of the Zacks Consensus Estimate but towards the higher end of its guidance range. While earnings increased 12.8% from the year-ago quarter, revenues increased 6.9% to $1,309.3 million.

Revenues easily surpassed the Zacks Consensus Estimate of $1,256 million. Allergan also declared a fourth quarter dividend of 5 cents per share.

Fiscal 2010 earnings increased 13.7% from the year-ago period to $3.16 per share. However, full year earnings, which were towards the higher end of the company's guidance, fell a penny short of the Zacks Consensus Estimate. Revenues for the year increased 8.4% to $4,883.4 million, and beat the Zacks Consensus Estimate of $4,825 million.

The Quarter in Details

Specialty pharmaceuticals sales increased 6.9% to $1,063.6 million with eye care pharmaceutical sales increasing 6.6%. Strong performance of products like Lumigan and Restasis helped drive eye care sales.

Alphagan and Combigan franchise sales went up 0.7% to $103.4 million in the reported quarter. We believe sales were impacted by generic competition for Alphagan 0.15%. The company expects sales to decline to $380 million - $400 million in 2011.

New product Latisse contributed $17.4 million to fourth quarter sales. We note that Latisse sales declined both on a sequential and year-over-year basis. Allergan expects Latisse sales to amount to about $100 million in 2011.

Botox sales, which came in at $386.2 million, recorded an increase of 11.1% from the year-ago period. Going forward, Allergan is looking to grow Botox sales by gaining approval for additional indications.

The company received approval for two additional indications. While the first label expansion allows the use of Botox for the treatment of increased muscle stiffness in the elbow, wrist and fingers in adults with upper limb spasticity, the second label expansion is for the treatment of chronic migraine.

Both label expansions should contribute nicely to sales. While the migraine control indication could be a multi-hundred million-dollar opportunity for Botox, the spasticity indication, which affects about 1 million Americans, especially after a stroke, could bring in incremental sales in the range of $200 - $300 million. Allergan is now seeking approval for the use of Botox for the treatment of urinary continence, which represents significant incremental opportunity.

For 2011, Allergan expects total specialty pharmaceuticals net sales in the range of $4,160 million - $4,300 million. Sales should be driven by Botox (guidance: $1,490 million - $1,540 million), Lumigan franchise (guidance: $550 million - $580 million), and Restasis (guidance: $680 million - $710 million).

Meanwhile, Allergan's medical devices segment also delivered growth with sales increasing 7.1% to $226.5 million. While breast aesthetics sales increased 8.9% to $84.7 million, facial filler sales increased a whopping 22.6% to $80.9 million.

However, obesity intervention sales continued to disappoint with sales declining 9.9% to $60.9 million. The medical devices segment faces competition primarily from companies like Johnson & Johnson (JNJ) and Medicis Pharmaceutical Corp. (MRX).

Medical devices net sales are expected in the range of $860 million - $920 million in 2011. Here, performance will be driven mainly by breast aesthetics (guidance: $330 million - $350 million) and facial aesthetics (guidance: $310 million - $330 million). The US approval of Juvederm XC, Allergan's latest facial filler product, should help drive facial aesthetics sales. Obesity intervention sales are expected to decline to $220 million - $240 million in 2011.

2011 Guidance Provided

Allergan expects earnings in 2011 to range from $3.54 - $3.60. The Zacks Consensus Estimate of $3.63 is above the company's guidance range. Allergan expects product net sales to range from $5,020 - $5,220 million.

Allergan also provided guidance for the first quarter of 2011. The company expects to earn 71 – 73 cents on total product net sales of $1,170 million - $1,220 million. The Zacks Consensus Estimate currently stands above the guidance range at 78 cents.

Neutral on Allergan

We currently have a Neutral recommendation on Allergan, which is supported by a Zacks #3 Rank (short-term Hold rating). Although the company is facing significant challenges in the form of slowing sales due to the global economic weakness, EU pricing pressure, safety issues surrounding the use of Botox, and increased competition, we think Allergan will be able to face these challenges well and will be back on its historical mid-to-high teens earnings growth trajectory.

 
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