Allergan CEO pooh-poohs investor sniping amid Q2 beat, but analysts aren't so sure

Brent Saunders
Allergan sales beat expectations in the second quarter, fueled by some newer meds, but mostly its aging Restasis, one analyst said. (Allergan)

The critics moaning that Allergan’s plan to sell off its women’s health and infectious disease businesses doesn’t go far enough? The activist investors demanding CEO Brent Saunders give up the board chairman’s title? Forget both, Saunders said Thursday.

Allergan’s fine, the CEO said during the company’s second-quarter earnings call with analysts, and so is its strategy after its recent review—disgruntled shareholders notwithstanding.

With its shares lagging, activists sniping and at least one analyst calling for a wholesale breakup of the company to deliver returns to shareholders, Allergan reviewed its operations and said it would focus on four therapeutic areas—central nervous system disorders, gastrointestinal problems, eye care and its cash cow, aesthetics—and jettison two, women’s health and infectious diseases. That board review was “exhaustive,” Saunders said Wednesday after rolling out the company’s Q2 earnings.

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“That is our strategy,” he said. “We believe it is a strong and solid strategy. We are excited about that strategy.”

The four therapeutic areas Allergan plans to keep “are performing,” Saunders said, pointing to numbers showing big growth for some key products, including a 14.5% Botox boost, to $985 million, and 14.4% growth for GI med Linzess, to $198 million. Restasis, its dry eye drug that could face sooner-than-expected generic competition later this year, shrank a bit, but still beat sales expectations at $334 million for the quarter.

Despite Namenda XR generics that drove that product down to just $3 million and change for the quarter, and Estrace copycats, which took an 85% bite out of that product, overall revenue grew by 3% and the company raised its guidance for the year. The four units Allergan plans to keep are “growing through LOEs,” he said. “They each have strong pipelines behind them. ... We have capabilities in commercial operations and R&D that I think are best in class.”

RELATED: Rebel Allergan investors demand C-suite shakeup after 'half-hearted' strategic review

Goldman Sachs analyst Jami Rubin, however, said that despite outperformance by a few new products—the antipsychotic Vraylar and the GI drugs Viberzi and Linzess—it was the lack of Restasis generics that really drove Allergan’s growth this quarter and took the top line beyond Street expectations.

“We calculate the bulk of the top line increase encompasses the Restasis beat and lack of Restasis competition in July,” Rubin wrote Thursday morning. And that could change quickly, she noted; Mylan is due a decision on its generic next week. Then again, if the generic is delayed further, Allergan could continue to benefit by about $80 million to $100 million per month.

Rubin and other analysts, including Credit Suisse’s Vamil Divan, figured the earnings call would focus on the strategic review and activist investor pressure to split the CEO and chairman roles, both of which are occupied by Saunders now.

RELATED: Saunders supporter Carl Icahn joins activist party at Allergan—just as rebels push for a C-level overhaul

But instead, Saunders addressed investor dissatisfaction with the strategic review only briefly, and when it came to the makeup of the board, pointed out that the company has added four directors in recent months, most recently Thomas Freyman, a former Abbott Laboratories CFO. As for the possibility that he’d have to give up one of his titles, said only that “Board leadership is a decision for the board of directors. The board is committed to strong corporate governance and has determined that the current structure provides the right independence, oversight and leadership.”

Meanwhile, the company is working on selling off the infectious disease unit first, because its valuing its women’s health business is a conundrum right now, what with the FDA reviewing whether to approve its Esmya drug for endometriosis. And that review has been complicated a bit by the fact that E.U. regulators recently put limits on the drug to minimize the risk of rare but severe liver injury.

And in both cases, price will be key, Saunders said. “This is no fire sale,” he said, adding that both business have strong cash flow and earnings. “We need to be sure we get the right price,”  he said. “Getting to the right price is critical.”

Editor's note: This story originally stated that Thomas Freyman was a former Abbott CEO. He is a former CFO.

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