Allergan may be facing investor pressure to sell off some businesses—and to get its share price back on an upward trajectory—but the company managed to beat Street estimates with its first-quarter earnings. And that's despite generic competition for some of its older products.
The company turned in a "solid" and "strong" first quarter, analysts said, beating consensus estimates for sales and earnings per share both. And it handed out some news it hopes will keep shareholders mollified.
CEO Brent Saunders said Monday that he's weighing a series of potential strategic moves. Among them are an aggressive share repurchase program, asset sales, a stock split or acquisitions, he said during the company's first-quarter earnings call. A large merger is "unlikely," though, and stock buybacks likely won't be a primary strategy.
He also tried to clear the air on one bit of deal talk: Allergan doesn't intend to make an offer for Shire, which last week agreed to sell itself to Takeda for $64 billion. The company had disclosed last week that it was considering a bid—an announcement required under U.K. takeover law—but just a few hours later said it wouldn't make an offer.
The company started evaluating its various business units for potential sale or spinoff after investors and its own executives grew worried about its stock performance versus its business performance, the CEO said. To Saunders' mind, the company's results support a higher price for its shares.
And here are some reasons why: Sales grew 2.8% in the first quarter—driven by increases for Botox, Vraylar and regenerative medicines, among other products—despite the fact that multiple drugs faced generic competition for the first time. Copycat competition took a $200 million bite out of revenues, and the company's newer drugs more than filled the gap. Thanks to those numbers, Allergan slightly increased and narrowed its 2018 guidance.
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Allergan is now expecting $15.15 billion to $15.35 billion in sales this year, up from a previous estimate of $15 billion to $15.3 billion. That guidance assumes generic competition for its important eye med Restasis between May and July.
Sales for Restasis, which has been at the center of controversy in the last year, fell 17.2% for the quarter. Allergan said demand was higher by 4%, but that was offset by lower prices and buying patterns. Allergan previously tried to defend its Restasis intellectual property by transferring patents to the Saint Regis Mohawk Tribe and licensing them back, seeking to apply tribal sovereignty to a patent review at the U.S. Patent and Trademark Office. The strategy ran into intense opposition and now the case is under appeal.
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During the first quarter, dementia med Namenda XR, vaginal cream Estrace, acne med Aczone and pregnancy prevention pill Minastrin faced generic competition, leading to a sales decline of about $200 million for those products.
Despite the losses of exclusivity and Restasis sales decline, multiple analysts said the first-quarter beat was a good start. Allergan beat consensus expectations for revenue and earnings per share; sales of $3.67 billion came in $78 million ahead of consensus, while EPS of $3.78 bested Street estimates by 38 cents, according to a note from Bernstein analyst Ronny Gal.