Allergan, Inc. (AGN) reported second quarter earnings of 85 cents per share, 4 cents above the Zacks Consensus Estimate and the guidance issued by the company. While earnings increased 13.3% from the year-ago quarter, revenues increased 10.3% to $1,247.2 million. Revenues exceeded the Zacks Consensus Estimate of $1,206 million. Allergan also declared a second quarter dividend of 5 cents per share.
Sales by Product
Specialty pharmaceuticals sales increased 10% to $1,013.2 million, with eye care pharmaceutical sales increasing 9.8%. Strong performance of products like Lumigan, Restasis and Latisse helped drive eye care sales. This was partially offset by weaker sales from the Alphagan and Combigan franchise, which increased just 0.3% to $104.3 million. We believe sales were impacted by the entry of generic competition for Alphagan 0.15%. We expect Alphagan franchise sales to remain weak in 2010. In fact, the company expects sales to decline to $370 million – $390 million in 2010. Alphagan and Combigan franchise sales were $414.5 million in 2009.
Going forward, Lumigan sales should receive a boost following the launch of the product in the EU, where it received approval earlier this year. New product Latisse contributed $23.9 million to second quarter sales.
We were pleased to see a 7% increase in Botox sales, which came in at $360.5 million. Botox sales had been affected in 2009 by weak consumer spending, concerns regarding its safety record, and increased competition in the form of Medicis Pharma’s (MRX) Dysport.
Going forward, Allergan is looking to grow Botox sales by gaining approval for additional indications. The company recently gained approval for the use of Botox for the treatment of increased muscle stiffness in the elbow, wrist and fingers in adults with upper limb spasticity. Allergan is also seeking approval of Botox for the treatment of chronic migraine. While Allergan received approval in the UK for the treatment of headaches in adults who have chronic migraine, US approval is yet to come.
For 2010, Allergan expects total specialty pharmaceuticals net sales in the range of $3,835 million – $3,930 million, up from the earlier guidance of $3,780 million – $3,930 million. Sales should be driven by Botox (guidance: $1,360 million – $1,390 million), Lumigan franchise (guidance: $490 million – $510 million), Restasis (guidance: $580 million – $600 million) and Latisse (guidance: $90 – $100 million).
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.
Meanwhile, Allergan’s medical devices segment also delivered growth with sales increasing 10.6% to $218.5 million. While breast aesthetics sales increased 9.5% to $81.6 million, facial fillers sales increased a whopping 32.3% to $75 million. However, obesity intervention sales disappointed with sales declining 6.6% to $61.9 million. The medical devices segment faces competition primarily from companies like Johnson & Johnson (JNJ) and Medicis.
Medical devices net sales are expected in the range of $785 million – $820 million in 2010 (earlier guidance: $770 million – $820 million). Here, performance will be driven mainly by breast aesthetics (guidance: $290 million – $300 million) and facial aesthetics (guidance: $260 million – $270 million). The US approval of Juvederm XC, Allergan’s latest facial filler product, should help drive facial aesthetics sales. Obesity intervention sales are now expected in the range of $235 million – $250 million, down from the earlier guidance of $250 million – $270 million.
Earnings Guidance Maintained
Allergan maintained its earnings guidance for 2010 and expects to deliver EPS in the range of $3.11 – $3.15. The Zacks Consensus Estimate is slightly above the company’s guidance at $3.16. The company increased the lower end of its product net sales guidance by $70 million and now expects total product net sales in the range of $4,620 million – $4,750 million. Other revenues are expected in the range of $50 million.
Allergan also provided guidance for the third quarter of 2010. The company expects to earn 75 cents to 77 cents on total product net sales of $1,130 million – $1,180 million. The Zacks Consensus Estimate for the third quarter is currently above the company’s guidance at 79 cents.
Neutral on Allergan
We currently have a Neutral recommendation on Allergan, which is supported by a Zacks #3 Rank (Hold). We believe that Allergan’s presence across different segments and geographies will help maintain decent growth going forward. Although growth slowed down in 2009, we believe the company will be back on its historical mid-to-high teens earnings growth trajectory from 2011.
ALLERGAN INC (AGN): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
MEDICIS PHARM-A (MRX): Free Stock Analysis Report
Zacks Investment Research
