On August 8, 2016 Allergan plc (NYSE: AGN) reported its second quarter 2016 continuing operations performance (Press release, Allergan, AUG 8, 2016, View Source;p=irol-newsArticle&ID=2193636 [SID:1234514368]).
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Second Quarter 2016 Continuing Operations
($ in millions, except per share amounts)
Q2 ’16
Q2 ’15
Q1 ’16
Q2 ’16
v Q2
’15
Q2 ’16
v Q1
’16
Total net revenues
$ 3,684.8
$ 3,628.7
$ 3,399.3
1.5%
8.4%
Branded net revenues*
$ 3,709.2
$ 3,673.8
$ 3,431.2
1.0%
8.1%
Operating (Loss)
$ (487.6)
$ (476.1)
$ (171.5)
2.4%
184.3%
Diluted EPS – Continuing Operations
$ (1.25)
$ (1.38)
$ (0.41)
(9.4)%
204.9%
Cash Flow from Operations
$ 1,382.5
$ 1,401.3
$ 1,218.5
(1.3)%
13.5%
SG&A Expense
$ 1,210.0
$ 1,121.1
$ 1,096.3
7.9%
10.4%
R&D Expense
$ 636.5
$ 349.7
$ 403.1
82.0%
57.9%
Continuing Operations Tax Rate
37.9%
44.7%
81.6%
(6.8)%
(43.7)%
Non-GAAP Adjusted Operating Income
$ 1,860.0
$ 2,008.7
$ 1,734.1
(7.4)%
7.3%
Non-GAAP Diluted EPS
$ 3.35
$ 3.67
$ 2.99
(8.7)%
12.0%
Non-GAAP Adjusted EBITDA
$ 1,936.6
$ 2,080.8
$ 1,816.1
(6.9)%
6.6%
Non-GAAP SG&A Expense
$ 1,038.8
$ 899.4
$ 969.0
15.5%
7.2%
Non-GAAP R&D Expense
$ 345.0
$ 302.0
$ 276.5
14.2%
24.8%
Non-GAAP Continuing Operations Tax Rate
7.1%
8.0%
9.7%
(0.9)%
(2.6)%
* Excludes the reclassification of revenues of ($24.4) million in Q2 2016, ($45.1) million in Q2 2015, and ($31.9) million in Q1 2016 related to the portion of Allergan product revenues sold by our Anda Distribution Business into discontinued operations.
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Total net revenues of $3.7 billion, a two percent increase versus the prior year quarter, were impacted by the loss of exclusivity on Namenda IR, offset by strong performance in key brands and new product launches.
"Allergan delivered another quarter of strong operating performance, while taking important steps to advance our evolution as a focused Growth Pharma leader," said Brent Saunders, CEO and President, Allergan. "Our teams delivered strong revenues powered by robust performance from key brands, including BOTOX, RESTASIS, LINZESS, JUVEDERM and LO LOESTRIN. Our R&D teams have delivered thirteen major U.S. and international approvals, including BYVALSON and NAMZARIC, and completed nine major regulatory submissions, including XEN for glaucoma and True Tear for dry eye to the Food and Drug Administration, so far this year."
"2016 has been a year of significant, positive transition for Allergan. On August 2, we announced the completion of the divestiture of our Global Generics business, and on August 3, announced the proposed divestiture of our Anda distribution business, to Teva. These steps position Allergan as a pure branded focused business able to maximize the power of its therapeutic areas and the promise of its leading Open Science pipeline of 65+ mid-to-late stage development programs," added Saunders.
"Thank you to our more than 16,000 colleagues around the world, who have delivered strong results despite a period of significant change, advanced important innovation for patients, and are the driving force behind our therapeutic area leadership and strong connection to the customers we serve. These efforts have helped us become the most dynamic and exciting Company in our industry," said Saunders.
GAAP operating loss from continuing operations in the second quarter 2016 was $488 million. Non-GAAP operating income from continuing operations in the second quarter 2016 was $1.86 billion. For the second quarter 2016, adjusted EBITDA from continuing operations was $1.94 billion, compared to $2.08 billion for the second quarter 2015. The decrease was primarily due to the loss of exclusivity on NAMENDA IR. Cash flow from operations for the second quarter of 2016 was $1.4 billion.
Operating Expenses
Total GAAP SG&A was $1.2 billion for the second quarter 2016 compared to $1.1 billion in the prior year period. Total non-GAAP SG&A was $1.0 billion for the second quarter 2016 compared to $899 million in the prior year period as a result of increased promotional spending to support the launches of new products including VIBERZI, VRAYLAR and KYBELLA. GAAP R&D investment for the second quarter 2016 was $637 million. Non-GAAP R&D investment for the second quarter 2016 was $345 million. R&D investment increased as a result of an increasing number of products moving into phase 3 development.
Amortization and Tax
Amortization expense from continuing operations for the second quarter 2016 was $1.63 billion, compared to $1.52 billion in the second quarter of 2015. The Company’s GAAP continuing operations tax rate was 37.9 percent in the second quarter 2016. The Company’s non-GAAP continuing operations tax rate was 7.1 percent in the second quarter 2016.
Capitalization
As of June 30, 2016, Allergan had cash and marketable securities of $507 million and outstanding indebtedness of $39.6 billion. "Post the completion of the Teva transaction we have made significant progress toward strengthening our balance sheet to support our long-term growth," said Tessa Hilado, Chief Financial Officer, Allergan. "Using the proceeds of the Teva transaction and cash flows from operations in the second quarter, we have repaid $9.3 billion in debt, leaving us with $33.3 billion in total outstanding debt and approximately $27.6 billion remaining in cash. We plan to commence our share repurchase program shortly with the initial focus on repurchasing approximately $5 billion in shares over the remainder of the year. Upon the conclusion of this program, we will evaluate whether to move forward and repurchase the remaining $5 billion authorized by the Allergan board. This is in-line with our larger capitalization strategy – which is focused on maximizing value for our shareholders over the long-term."
Discontinued Operations and Continuing Operations
As a result of the decision to hold for sale our Anda Distribution business as of June 30, 2016, which we subsequently announced we are selling to Teva, and the now completed divestiture of the Company’s Global Generics business to Teva on August 2, 2016, the second quarter 2016 financial results of these businesses are being reported as discontinued operations in the condensed consolidated statements of operations. The Company’s Anda Distribution results will be reported as discontinued operations until the close of that transaction. A portion of the third quarter 2016 Global Generics business results will be reported as discontinued operations in Allergan’s third quarter 2016 earnings report. Included in segment revenues are product sales that are sold by the Anda Distribution business once the Anda Distribution business has sold the product to a third party customer. These sales are included in segment results and are excluded from total continuing operations revenues through a reduction to Corporate revenues. Cost of sales for these products in discontinued operations is equal to our average third-party cost of sales for third-party brand products distributed by Anda Distribution.
Continuing operations includes the U.S. General Medicine, U.S. Specialized Therapeutics and International business segments. All prior year results have been recast to reflect continuing operations results and will be available along with other earnings materials on our website at View Source
Second Quarter 2016 Business Segment Results
U.S. Specialized Therapeutics
(Unaudited; $ in millions)
Three Months Ended June 30,
2016 (1)
2015 (1)
Eye Care
$ 636.1
$ 578.6
Total Medical Aesthetics
419.8
366.2
Facial Aesthetics
320.2
263.7
Plastic Surgery
52.8
54.1
Skin Care
46.8
48.4
Medical Dermatology
97.1
120.7
Neuroscience & Urology
326.3
277.7
Other Revenues
9.6
4.5
Net revenues
$ 1,488.9
$ 1,347.7
Operating expenses:
Cost of sales(2)
75.1
74.4
Selling and marketing
287.8
247.8
General and administrative
46.0
20.9
Segment contribution
$ 1,080.0
$ 1,004.6
Segment margin
72.5%
74.5%
Segment gross margin(3)
95.0%
94.5%
(1) Includes revenues earned that were distributed through the Anda Distribution business to third party customers.
(2) Excludes amortization and impairment of acquired intangibles including product rights.
(3) Defined as net revenues less segment related cost of sales as a percentage of net revenues.
U.S. Specialized Therapeutics net revenues grew 11 percent driven by strong growth in Eye Care, Facial Aesthetics and Neuroscience.
Eye Care
RESTASIS net revenues in the second quarter of 2016 were $371.3 million, driven by continued strong promotional efforts.
LUMIGAN/GANFORT net revenues in the second quarter of 2016 were $80.6 million, impacted by modest prescription declines.
ALPHAGAN/COMBIGAN net revenues in the second quarter of 2016 were $96 million. Overall prescriptions remain stable.
OZURDEX net revenues in the second quarter of 2016 were $21.5 million, driven by the acceleration of sales in DME following publication of new clinical data.
Medical Aesthetics
Facial Aesthetics
BOTOX Cosmetic net revenues in the second quarter of 2016 were $189.9 million, driven by continued market share expansion, enhanced promotional focus and overall continued strong demand for the product.
Fillers net revenues in the second quarter of 2016 were $117.6 million, reflecting strong sales of JUVEDERM and the continued benefit of new product introductions from the Vycross line.
KYBELLA net revenues in the second quarter of 2016 were $12.7 million, as we focus on developing the market for submental fullness.
Plastic Surgery
Breast implant net revenues in the second quarter of 2016 were stable at $51.7 million.
Skin Care
SkinMedica net revenues in the second quarter of 2016 were strong at $29.1 million.
Medical Dermatology
ACZONE and TAZORAC net revenues in the second quarter of 2016 were $54.1 million and $23.4 million, respectively.
Neurosciences & Urology
BOTOX Therapeutic revenues in the second quarter of 2016 were $296 million, driven by continued strong growth in migraine and overactive bladder.
RAPAFLO revenues in the second quarter of 2016 were stable at $29.4 million.
U.S. Specialized Therapeutics gross margin for the second quarter of 2016 was 95 percent. SG&A expenses increased 24 percent in the second quarter 2016 primarily due an expansion of the medical aesthetics salesforce and the launch of Kybella in the U.S. Segment contribution for the second quarter 2016 increased 7.5% percent versus the prior year period to $1.08 billion.
U.S. General Medicine
(Unaudited; $ in millions)
Three Months Ended June 30,
2016 (1)
2015 (1)
Central Nervous System
$ 317.5
$ 560.8
Gastroenterology
442.0
373.2
Women’s Health
296.1
219.4
Anti-Infectives
63.1
44.1
Established Brands
308.5
394.5
Other Revenues
21.9
16.0
Net revenues
$ 1,449.1
$ 1,608.0
Operating expenses:
Cost of sales(2)
214.9
238.0
Selling and marketing
332.7
309.2
General and administrative
43.7
18.1
Segment contribution
$ 857.8
$ 1,042.7
Segment margin
59.2%
64.8%
Segment gross margin(3)
85.2%
85.2%
(1) Includes revenues earned that were distributed through the Anda Distribution business to third party customers.
(2) Excludes amortization and impairment of acquired intangibles including product rights.
(3) Defined as net revenues less segment related cost of sales as a percentage of net revenues.
U.S. General Medicine net revenues were impacted by a decline in Central Nervous System and Established Brands revenues, offset by strong growth in Gastroenterology, Women’s Health and Anti-Infectives performance.
Central Nervous System
Allergan CNS franchise net revenues were down 43.4% year over year reflecting the loss of exclusivity of Namenda IR in July 2015. Sales of key products and new launches continued strong performance in the second quarter 2016.
NAMZARIC net revenues in the second quarter of 2016 were $12.8 million. Following approval of the expanded label, Namzaric is well-positioned to be the standard of care for patients with moderate Alzheimer’s disease.
NAMENDA XR net revenues in the second quarter of 2016 were $166.5 million, a decline of $38 million over the previous year as a result of lower net selling price and volume.
Overall, NAMENDA XR plus NAMZARIC days of therapy volume have been stable. Decreases in NAMENDA XR revenues were impacted by higher levels of investment to support the future of the franchise.
VRAYLAR continues to achieve rapid acceptance six months into launch with net revenues in the second quarter of 2016 of $11.1 million.
VIIBRYD/FETZIMA continue to perform well with net revenues in the second quarter of 2016 of $81.7 million.
SAPHRIS net revenues remained stable at $41.3 million for the quarter.
Gastrointestinal
LINZESS net revenues in the second quarter of 2016 were $150.5 million, driven by continued strong OTC conversion.
VIBERZI net revenues in the second quarter of 2016 were $20.4 million. The product continues to trend at approximately 90 percent of sales for Linzess at the same time of launch.
ASACOL/DELZICOL net revenues in the second quarter of 2016 were $119.8 million. ASACOL HD prescriptions declined as a result of lower promotion and formulary coverage. ASACOL HD is approaching loss of exclusivity on August 1, 2016.
Women’s Health
Lo LOESTRIN net revenues in the second quarter of 2016 were $101 million, driven by continuing strong demand.
ESTRACE Cream and MINASTRIN 24 net revenues in the second quarter of 2016 were $97.2 million and $83.0 million, respectively.
Anti-Infectives
TEFLARO, AVYCAZ and DALVANCE continue to experience strong performance with net revenues in the second quarter of 2016 of $35.2 million, $13.7 million and $10.2 million, respectively.
Established Brands
BYSTOLIC net revenues in the second quarter of 2016 were $150.3 million. Overall prescriptions experienced a modest decline following reintroduction of the 20 mg dosage form.
U.S. General Medicine gross margin for the second quarter of 2016 remained stable at 85.2 percent. SG&A expenses increased 15 percent in the second quarter 2016 primarily due to incremental promotional costs in support of VIBERZI and VRAYLAR. Overall profitability decreased with segment contribution for the second quarter 2016 decreasing 18 percent versus the prior year period to $858 million.
International
(Unaudited; $ in millions)
Three Months Ended June 30,
2016
2015
Eye Care
$ 318.7
$ 301.7
Total Medical Aesthetics
284.1
262.2
Facial Aesthetics
240.6
215.2
Plastic Surgery
40.3
43.2
Skin Care
3.2
3.8
Botox Therapeutics and Other
141.1
129.8
Other Revenues
13.1
23.4
Net revenues
$ 757.0
$ 717.1
Operating expenses:
Cost of sales(1)
115.0
111.8
Selling and marketing
207.2
196.1
General and administrative
30.9
35.0
Segment contribution
$ 403.9
$ 374.2
Segment margin
53.4%
52.2%
Segment gross margin (2)
84.8%
84.4%
(1) Excludes amortization and impairment of acquired intangibles including product rights.
(2) Defined as net revenues less segment related cost of sales as a percentage of net revenues.
International continues to experience strong growth, driven by Eye Care, Facial Aesthetics and Botox Revenues.
Eye Care
LUMIGAN/GANFORT revenues in the second quarter of 2016 were $94.5 million reflecting stable performance across Allergan’s glaucoma product franchise.
ALPHAGAN/COMBIGAN revenues in the second quarter of 2016 remained stable at $44.2 million.
OZURDEX revenues in the second quarter of 2016 were $45.7 million, driven by its launch in China.
OPTIVE revenues in the second quarter of 2016 remained stable at $26.0 million.
Medical Aesthetics
Facial Aesthetics
BOTOX Cosmetic revenues in the second quarter of 2016 were $132.7 million, driven by continued international market share expansion and strong demand for the product.
Fillers revenues in the second quarter of 2016 were $107.3 million, reflecting continued strong performance and the benefit of new product introductions in international markets.
Plastic Surgery
Breast implant revenues in the second quarter of 2016 were $40.2 million.
Botox Therapeutic & Other Products
BOTOX Therapeutic revenues in the second quarter of 2016 were $84.8 million, driven by continued strong performance of Botox Migraine and share expansion in key markets.
ASACOL/DELZICOL revenues in the second quarter of 2016 were $11 million.
International gross margin for the second quarter of 2016 remained stable at 84.8 percent. SG&A expenses increased 3 percent in the second quarter 2016 primarily due to incremental promotional costs for new product launches. Segment contribution increased 8 percent to $404 million due to higher sales of key products with higher margins, including Ozurdex.
Pipeline Update
R&D productivity continued during the second quarter of 2016. Key development highlights included:
U.S. and International Branded Product Approvals and Launches
TEFLARO (ceftaroline fosamil) received U.S. Food and Drug Administration (FDA) for its supplemental New Drug Application (sNDA) for pediatric patients 2 months of age to less than 18 years of age with acute bacterial skin and skin structure infections (ABSSSI).
BYVALSON (nebivolol and valsartan) 5 mg/ 80 mg tablets received FDA approval for the treatment of hypertension to lower blood pressure.
JUVÉDERM VOLBELLA XC, received FDA approval for use in the lips for lip augmentation and for correction of perioral rhytids, commonly referred to as perioral lines, in adults over the age of 21.
BOTOX Vista (Allergan’s botulinum toxin type A product) received approval from the Japanese Ministry of Health, Labour and Welfare for use as a treatment for crow’s feet lines (CFL).
JUVEDERM VOLITE with lidocaine received a CE mark in the European Union.
AVYCAZ (ceftazidime and avibactam) received FDA approval of its sNDA including clinical data from a Phase 3 trial evaluating the safety and efficacy of AVYCAZ, in combination with metronidazole, for the treatment of complicated intra-abdominal infections (cIAI) caused by designated susceptible microorganisms.
Allergan and Adamas Pharmaceuticals, Inc. announced that the FDA approved a new, expanded label for NAMZARIC (memantine and donepezil hydrochlorides). The expanded label allows patients with moderate to severe Alzheimer’s disease, who are currently stabilized on Aricept, donepezil hydrochloride (10 mg), to start combination therapy directly with NAMZARIC.
Second Quarter 2016 Regulatory Milestones & Clinical Updates
Allergan announced that its New Drug Application (NDA) filing for oxymetazoline HCl cream 1.0%, a topical prescription product for the treatment of persistent facial erythema (redness) associated with rosacea in adults, was accepted by the FDA for review.
Allergan and Ironwood Pharmaceuticals announced that the FDA accepted for review its sNDA for the 72 mcg dose of linaclotide for use in the treatment of adults with chronic idiopathic constipation (CIC).
Allergan announced that the FDA accepted its 510(k) Premarket Notification Application for the XEN Glaucoma Treatment System (consisting of the XEN45 Gel Stent and the XEN Injector).
Allergan announced positive results from two pivotal trials for True Tear, a handheld stimulator being studied to temporarily increase tear production upon activation in patients with dry eye disease due to decreased tear production. The studies, OCUN-009 and OCUN-010, each met their primary and secondary efficacy endpoints. The Company also filed a de novo application with the FDA for True Tear in the second quarter.
Allergan announced that the Committee for Medicinal Products for Human Use (CHMP) adopted a Positive Opinion for the Marketing Authorization of ENZEPI (pancrelipase) in the European Union.
Allergan plc and Gedeon Richter announced positive results from Venus I, one of two pivotal Phase III clinical trials evaluating the efficacy and safety of ulipristal acetate in women with uterine fibroids.
Allergan received a Positive Opinion from the Swedish Medical Products Agency (MPA) for BELKYRA (deoxycholic acid). BELKYRA will be the first prescription medicine to be licensed in Europe for the treatment of moderate to severe convexity or fullness associated with submental fat (often called double chin) in adults when the presence of submental fat has a psychological impact for the patient.
Full Year 2016 Continuing Operations Guidance1
Allergan’s full year 2016 continuing operations standalone estimates are based on management’s current belief about prescription trends, pricing levels, inventory levels and the anticipated timing of future product launches and events. Continuing operations includes the U.S. Specialized Therapeutics, U.S. General Medicine and International.
GAAP
NON-GAAP
Total Reported Net Revenues
$14.65 billion – $14.90 billion
$14.65 billion – $14.90 billion
Total Branded Net Revenues2
$14.75 billion — $15 billion (~10% growth*)
$14.75 billion — $15 billion (~10% growth*)
Gross Margin (as a % of revenues)
~88%
~89%
SG&A Expense
~$4.4 billion
~$4 billion
R&D Expense
~$2.1 billion
~$1.5 billion
Net Interest Expense
~$1.2 billion
~$1.3 billion
Tax Rate
~57%
~9%
Earnings / (Loss) Per Share3
($1.95 – $2.15)
$13.75 – $14.20
Share Count4
391 million shares
413 million shares
1 Excludes Anda from Net Revenues and expenses. Guidance based on reported net revenues.
2 Excludes revenues of Allergan products sold through Anda which are no longer included in our reported continuing operations revenue as a result of discontinued operations accounting.
* Excludes Namenda IR, divestitures and foreign exchange.
3 GAAP (loss) per share includes the impact of amortization of approximately $6.4 billion, IPR&D impairments and asset sales and impairments, net of $256 million, other income and expense of approximately $150 million and dividends on preferred shares of approximately $278 million.
4GAAP EPS shares do not include dilution of shares as earnings are a net loss. As such, the dilution impact of preferred share conversion and outstanding equity awards is not included in the forecasted shares.