Anyone who tuned into Allergan’s Q1 earnings call hoping for signs of big M&A to come likely left disappointed.
CEO Brent Saunders, as he has repeatedly over the past year, emphasized Allergan's commitment to smaller, “stepping-stone deals”—but this time, he went a step further in shutting down hopes of a Pfizergan-style megamerger.
“Allergan is in a very strong position today with no need to do large M&A,” he told investors.
One key reason companies make hefty purchases is that “you have a big gap in your own business that you need to cover for,” he pointed out. “We don’t have a big gap in our business that we need to cover for, so the odds of us doing large M&A, I think, are very low.”
It’s no surprise it’s taking Saunders a while to shake off the perception that Allergan is constantly scouting for a game-changing acquisition, considering how many it’s struck over its short lifetime as a brand-focused drugmaker.
As Actavis, the company bought up Forest Labs and Allergan before turning around and striking an ultimately-shut-down mammoth Pfizer pact. And especially considering the prospect of pharma’s M&A scene heating up if tax reform frees up dealmaking dollars, some industry-watchers have been expecting—or hoping—to see the company return to its serial-buying ways.
After Q1’s performance, though, analysts seemed to agree with Saunders that the company doesn’t have any gaping holes to fill. The company beat the Street in both the sales and profit departments, posting revenue of $3.57 billion versus expectations of $3.53 billion, and earnings of $3.35 per share, which topped consensus by four cents.
"In our view, Allergan did what it needed to do in this quarter, by delivering solid results and showing that the previous earnings miss was an anomaly and it is focused on managing expectations appropriately," Wells Fargo analyst David Maris wrote to clients.
The results "should help alleviate any concerns around negative surprise," RBC Capital Markets' Randall Stanicky added in his own research note, saying that the performance "gets us past a seasonally lighter 1Q and, most importantly, it adds another beat and raise result to a grind-higher story we think is all about execution."
Allergan’s major products largely got their jobs done, with Restasis—newly under pressure in the dry eye category from Shire rival Xiidra—notably topping forecasts by $5 million.
The blockbuster “has proven again to be a durable business even in the face of a new entrant,” commercial chief Bill Meury said on the call, adding that “we maintain a leading position” with market share of more than 75%.
And while gastrointestinal product Viberzi—which the FDA warned in March should not be used in patients without gallbladders—checked in $9 million lower than expected at $32 million, Meury reassured investors that the past four weeks have seen a “very reassuring” prescription rebound for the med.
“We hit a speed bump, but fundamentally, this is still a very, very good business that should produce meaningful growth in the future,” he said.
Overall, Allergan raised its guidance after the Q1 showing, with increases in EPS and revenue estimates reflecting its recent pickup of aesthetics player Zeltiq. The company now expects revenue for the year to tally between $15.8 billion and $16 billion, up from a prior $15.5 billion to $15.8 billion range, and earnings per share to hit between $15.85 and $16.35, versus an earlier $15.80 to $16.30 prediction.