Allergan Q4 Earnings Beat, But M&A Dance Card Challenges Comps
Big Pharma player Allergan unveiled what it expects to be its final full year of operation as an independent drug maker before merging into Pfizer, reporting fourth-quarter 2015 earnings that beat expectations and revenue that barely topped Wall Street estimates. Before the market open, Allergan ( AGN ) said non-GAAP earnings rose 33% to $3.41 per share on a revenue gain of 74% to $4.2 billion. Both metrics exclude discontinuing operations, notably Allergan’s Global Generics business that it agreed to sell in July. The Global Generics unit carries the old Actavis name and generic drugs lines of business. Actavis had purchased specialty drug and Botox maker Allergan, a deal that closed in March, and renamed itself Allergan. Shares jumped 2.8% to 283.07 in early trading in the stock market today . Allergan had closed down 0.8% on Friday to 275.75, 18% off its all-time high of 340.34, touched July 29. Pfizer ( PFE ) was up 1.4% to 29.93 in early trading Monday, 17% below a nearly 12-year high set July 31 at 36.46. Analysts polled by Thomson Reuters expected Q4 EPS of $3.34 minus items, down 14.6% from $3.91 in 2014, on revenue of $4.192 billion, up 3.4% from Q4 2014’s $4.057 billion, although analyst numbers apparently were not uniformly adjusted for discontinuing operations. Allergan presented the pro forma year-earlier numbers as adjusted EPS of $2.57 and revenue of $2.4 billion. For the full year, Allergan said non-GAAP EPS from continuing operations increased 78% to $13.43 on revenue from continuing operations up 124% to $15.07 billion. With varying adjustments, for the full 2015 analysts expected $15.43 per share minus items, up 66% from $9.29 in 2014, on sales of $18.206 billion, up 117% from $8.380 billion in 2014. Allergan reported a Q4 GAAP loss from continuing operations of $2.13 per share, compared to a GAAP loss from continuing operations of $4.48 per share in the prior-year period. It said full GAAP results were impacted by amortization and acquisition expenses, license agreements, impairments, and severance related mainly to the acquisition of Allergan on March 17, and Kythera on Oct. 1, as well as research and development expenses resulting from the purchase of R&D assets of Mimetogen. Allergan had declined to freshen its guidance upon issuing its Q3 performance Nov. 4, citing early merger discussions with Pfizer back then. But Monday it guided 2016 revenue to about $17 billion, with “no material changes to gross margins” from current levels and a non-GAAP tax rate “normalized” to about 14%. Management didn’t specify EPS for the year nor offer Q1 guidance other than suggesting Q1 performance would be the weakest of the year and fall below Q4 2015 results. Allergan’s 2015 results were an analyst’s challenge, influenced by its extraordinary M&A dance card. In Q3, it began discontinuing operations of the renamed Actavis generic lines, which it agreed to sell to Teva Pharmaceutical ( TEVA ) in July for $40 billion. By Nov. 23, Allergan’s board agreed to Pfizer’s offer of 11.3 Pfizer shares for each Allergan share, then valuing Allergan at $363.63 a share, or $160 billion for the entire deal, expected to take nine months to close. CEO Brent Saunders told analysts in a conference call following the Q4 earnings release that he still expects the Pfizer buyout to close in the second half of 2016. It would be the second-largest acquisition ever, after the sale of Vodafone AirTouch in 1999 to Mannesmann for $202 billion. Dell’s October offer to buy EMC ( EMC ) is valued at $67 billion. The Pfizer acquisition of Allergan is another in a thinning number of tax inversion deals that allow American companies to domicile in Ireland, Allergan’s home base, where the buyer may enjoy a lower tax base. The Obama administration has criticized the practice and thrown up speed bumps, if not road blocks. On Feb. 8, Pfizer said it plans to reorganize its two broad lines of business into three after the merger with Allergan is complete. Allergan CFO Tessa Hilado told analysts that debt stood at $42.7 billion on Dec. 31 and that $8 billion would be paid down after the close of the Teva sale. She put revenue from top-seller Botox at $656 million in Q4, with eye drug Restasis at $365 million, and Namenda XR at $190 million. She said the CVS ( CVS ) purchase of Target ( TGT ) pharmacies “had an effect in Q4” on revenue, but that it didn’t and wouldn’t impact earnings.