On July 26, 2018 Allergan plc (NYSE: AGN) reported its second quarter 2018 performance (Press release, Allergan, JUL 26, 2018, View Source [SID1234527878]). Total second quarter 2018 GAAP net revenues were $4.12 billion, a 2.9 percent increase from the prior year quarter.

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Executive Commentary
"Allergan’s performance in the first half of 2018 demonstrates the strength of our strategy and a sharp focus on execution. We have driven strong growth in our key products and core business, delivered seven successful pivotal clinical trials for our key R&D programs and executed on our capital deployment strategy," said Brent Saunders, Chairman and CEO of Allergan.

"In the second quarter, our core business grew by 10.6 percent, led by Medical Aesthetics, BOTOX Therapeutic, VRAYLAR and LINZESS. Overall non-GAAP revenues rose 2.3 percent, even amid ongoing exclusivity challenges for older products," said Saunders. "At the same time, the positive clinical trial results on programs for migraine, glaucoma and age-related macular degeneration highlight the promise of our business for years to come."

"I’m extremely proud of the global Allergan team for their excellent work in delivering results for our customers and patients. Allergan’s many successes in the first half of 2018 demonstrate our commitment to driving long term value for shareholders."

Second Quarter 2018 Performance
GAAP operating loss in the second quarter 2018 was $467.0 million, including the impact of amortization and impairments. Non-GAAP operating income in the second quarter of 2018 was $1.97 billion, an increase of 4.6 percent versus the prior year quarter, driven by higher revenues and lower operating expenses.

Operating Expenses
Total GAAP Selling, General and Administrative (SG&A) Expense was $1.19 billion for the second quarter 2018, a decrease of 14.9 percent from the prior year quarter. Total non-GAAP SG&A expense decreased to $1.13 billion for the second quarter 2018, compared to $1.22 billion in the prior year period, driven in large part by a reduction in losses due to foreign exchange, as well as lower advertising and promotional expenses. GAAP R&D investment for the second quarter of 2018 was $689.2 million, compared to $489.4 million in the second quarter of 2017. Non-GAAP R&D investment for the second quarter 2018 was $388.9 million, compared to $393.9 million in the prior year quarter.

Asset Sales & Impairments, Net and In-Process R&D Impairments
Allergan incurred in-process research and development impairments in the three months ended June 30, 2018 of $276.0 million primarily due to a decrease in market opportunity based on clinical data relating to an eye care product acquired as part of the Allergan acquisition and timing delays in other non-strategic projects. Asset sales and impairments, net in the three months ended June 30, 2018 of $259.6 million were primarily related to an impairment on a non-strategic dermatology product held for sale based on estimates of current market value. The Company excludes asset sales and impairments, net and in-process research and development impairments from its non-GAAP performance net income attributable to shareholders as well as from Adjusted EBITDA and non-GAAP Operating Income.

Amortization, Other Income (Expense) Net, Tax and Capitalization
Amortization expense for the second quarter 2018 was $1.70 billion, compared to $1.76 billion in the second quarter of 2017. Other income (expense), net of $215.4 million in the three months ended June 30, 2018 was primarily attributed to a gain on selling the Company’s remaining equity stake in Teva as well as a gain on the divestiture of a business previously held for sale. The Company’s GAAP tax rate was 1.1 percent in the second quarter 2018. The Company’s non-GAAP adjusted tax rate was 14.3 percent in the second quarter 2018. As of June 30, 2018, Allergan had cash and marketable securities of $1.70 billion and outstanding indebtedness of $25.35 billion.

SECOND QUARTER 2018 BUSINESS SEGMENT RESULTS

U.S. Specialized Therapeutics
U.S. Specialized Therapeutics net revenues grew 6.5 percent in the second quarter of 2018 from the prior year quarter to $1.83 billion, driven primarily by growth in Medical Aesthetics, including BOTOX Cosmetic, ALLODERM and the addition of CoolSculpting, as well as growth in BOTOX Therapeutic. Demand growth across the U.S. Specialized Therapeutics portfolio was offset in part by lower net selling prices for RESTASIS and decreased revenues in Medical Dermatology due to generic pressure. Segment gross margin for the second quarter of 2018 was 91.9 percent, also impacted by CoolSculpting. Segment contribution for the second quarter 2018 remained strong at $1.29 billion, an increase of 9.1 percent versus the prior year quarter.

Medical Aesthetics

Facial Aesthetics
BOTOX Cosmetic net revenues rose 12.5 percent in the second quarter of 2018 from the prior year quarter to $236.5 million.
JUVÉDERM Collection (defined as JUVÉDERM, VOLUMA and other fillers) net revenues in the second quarter of 2018 were $139.8 million, an increase of 10.8 percent versus the prior year quarter.
Regenerative Medicine
ALLODERM net revenues in the second quarter of 2018 grew 26.6 percent from the prior year quarter to $107.1 million.
Body Contouring
CoolSculpting net revenues (including both CoolSculpting Systems/Applicators and Consumables) in the second quarter of 2018 were $108.3 million. The CoolSculpting acquisition closed on April 28, 2017.
Neurosciences & Urology

BOTOX Therapeutic net revenues in the second quarter of 2018 were $404.7 million, an increase of 16.7 percent versus the prior year quarter.
Eye Care

RESTASIS net revenues in the second quarter of 2018 were $318.2 million, a decrease of 5.4 percent versus the prior year quarter.
ALPHAGAN/COMBIGAN net revenues in the second quarter of 2018 were $98.1 million, compared with $96.4 million in the prior year quarter.
OZURDEX net revenues in the second quarter of 2018 increased 10.8 percent from the prior year quarter to $27.6 million.
U.S. General Medicine
U.S. General Medicine net revenues in the second quarter 2018 were $1.32 billion, a decrease of 7.5 percent versus the prior year quarter, impacted by lower revenues from NAMENDA XR and ESTRACE due to generic competition, offset by strong demand growth from VRAYLAR, LINZESS, Lo LOESTRIN and anti-infectives including AVYCAZ. Segment gross margin for the second quarter of 2018 was 84.7 percent. Selling and marketing expenses in the segment were $254.8 million, a decrease of 11.6 percent versus the prior year quarter, due in part to sales force expense reductions as a result of previous restructurings. Segment contribution for the second quarter 2018 was $828.7 million.

Central Nervous System

VRAYLAR net revenues grew 72.2 percent in the second quarter of 2018 from the prior year quarter to $114.2 million.
VIIBRYD/FETZIMA net revenues in the second quarter of 2018 were $86.7 million, compared with $85.2 million in the prior year quarter.
NAMENDA XR net revenues in the second quarter of 2018 were $3.4 million, versus $118.7 million in the prior year quarter, impacted by loss of patent exclusivity for NAMENDA XR in February 2018.
Gastrointestinal, Women’s Health & Diversified Brands

LINZESS net revenues in the second quarter of 2018 were $191.8 million, an increase of 14.3 percent versus the prior year quarter.
Lo LOESTRIN net revenues in the second quarter of 2018 were $127.8 million, an increase of 13.1 percent versus the prior year quarter.
BYSTOLIC/BYVALSON net revenues in the second quarter of 2018 were $148.1 million, compared to $150.7 million in the prior year quarter.
International
International net revenues in the second quarter of 2018 were $948.9 million, an increase of 8.1 percent versus the prior year quarter excluding foreign exchange impact, driven by growth in Medical Aesthetics, Eye Care and BOTOX Therapeutic. Segment gross margin for the second quarter of 2018 was 85.3 percent. Segment contribution was $529.4 million.

Facial Aesthetics

BOTOX Cosmetic net revenues in the second quarter of 2018 were $171.4 million, an increase of 14.1 percent versus the prior year quarter excluding foreign exchange impact, driven by continued strong growth in Europe and Asia Pacific/Middle East/Africa.
JUVÉDERM Collection net revenues in the second quarter of 2018 were $156.1 million, an increase of 11.2 percent versus the prior year quarter excluding foreign exchange impact, reflecting continued strong growth in Latin America/Canada and Asia Pacific/Middle East/Africa.
Eye Care

LUMIGAN/GANFORT net revenues in the second quarter of 2018 were $100.5 million, an increase of 1.6 percent versus the prior year quarter excluding foreign exchange impact.
OZURDEX net revenues in the second quarter of 2018 were $67.9 million, up 27.5 percent versus the prior year quarter excluding foreign exchange impact, reflecting continued strong growth in all regions.
Botox Therapeutic

BOTOX Therapeutic net revenues in the second quarter of 2018 were $104.6 million, an increase of 8.1 percent versus the prior year quarter excluding foreign exchange impact, reflecting growth in Europe and Latin America/Canada.
NEW SHARE REPURCHASE PROGRAM

Allergan’s Board of Directors has authorized a new $2.0 billion share repurchase program as part of the Company’s capital allocation strategy. Allergan expects to deploy the program over the next 12 months. The Company completed the $2 billion share repurchase that was previously authorized by the board in September 2017.

Allergan reaffirmed its commitment to maintaining investment grade credit ratings and achieving a net debt to adjusted EBITDA ratio of less than 2.5X by the end of 2020.

These actions reflect the Company’s conviction in its strategy and strong future cash flow position, allowing for periodic return of cash to shareholders through dividends and share buybacks while maintaining investment grade ratings and continuing its strategy to pay down debt.

PIPELINE UPDATE

Allergan R&D continues to deliver on its pipeline. Key development highlights included:

Regulatory Milestones & Clinical Updates

Allergan announced that the U.S. Food and Drug Administration (FDA) has granted Fast Track designation for AGN-241751, an investigational new treatment for Major Depressive Disorder (MDD). AGN-241751 is a novel, oral NMDA modulator that recently entered Phase 2 development.
Allergan announced positive topline results in the second of two pivotal phase 3 clinical trials evaluating Ubrogepant, an orally-administered calcitonin gene-related peptide (CGRP) receptor antagonist for the acute treatment of migraine. The results from the ACHIEVE I (UBR-MD-01) and ACHIEVE II (UBR-MD-02) studies support the efficacy, safety and tolerability profile of Ubrogepant. Allergan anticipates filing of a New Drug Application (NDA) to the FDA in 2019.

Allergan announced positive results from a Phase 2b/3 clinical trial evaluating the efficacy, safety, and tolerability of Atogepant, an oral CGRP receptor antagonist in development for migraine prevention. Allergan will continue with its Phase 3 program for Atogepant following discussions with regulatory authorities.
Allergan and Molecular Partners announced two positive Phase 3 clinical trials on Abicipar for the treatment of neovascular age-related macular degeneration. The two identical studies demonstrated that both the 8-week and 12-week treatment regimens met the pre-specified primary endpoint of non-inferiority to Ranibizumab. The filing for Abicipar is planned for the first half of 2019. Allergan will be requesting a meeting with the FDA to discuss our Biologics License Application (BLA) submission.

Allergan announced positive topline Phase 3 results for Bimatoprost SR, the first-in-class sustained-release, biodegradable implant for the reduction of intraocular pressure in patients with open-angle glaucoma or ocular hypertension. Additional safety data from the study and results from a second Phase 3 study with an identical design will be reported in the first half of 2019. Allergan anticipates filing of an NDA to the FDA in the second half of 2019.
Allergan expanded the REFRESH portfolio with the launch of REFRESH REPAIR Lubricant Eye Drops. The over-the-counter artificial tear formulation is clinically proven to treat the signs and symptoms of dry eye and improve visual performance due to dry eye, while offering patients improved comfort with low incidence of visual disturbances.

SECOND QUARTER 2018 CONFERENCE CALL AND WEBCAST DETAILS
Allergan will host a conference call and webcast today, Thursday, July 26, at 8:30 a.m. Eastern Time to discuss its second quarter 2018 results. The dial-in number to access the call is U.S./Canada (877) 251-7980, International (706) 643-1573, and the conference ID is 67781714. A taped replay of the conference call will also be available beginning approximately two hours after the call’s conclusion, and will remain available through 11:30 p.m. Eastern Time on August 26, 2018. The replay may be accessed by dialing (855) 859-2056 or (404) 537-3406 and entering the conference ID 67781714.
On June 1, 2018, Allergan received approval in Japan for JUVÉDERM VOLIFT XC for the treatment of nasolabial folds.