Allergan Reports Second Quarter 2014 Operating Results; Announces Layoffs
Allergan, Inc. announced operating results for the quarter ended June 30, 2014. Allergan also announced that its Board of Directors has declared a second quarter dividend of $0.05 per share, payable on September 5, 2014 to stockholders of record on August 15, 2014.
Operating Results Attributable to Stockholders from Continuing Operations
For the quarter ended June 30, 2014:
•Allergan reported $1.37 diluted earnings per share attributable to stockholders compared to $1.17 diluted earnings per share attributable to stockholders for the second quarter of 2013.
•Allergan reported $1.51 non-GAAP diluted earnings per share attributable to stockholders compared to $1.22 non-GAAP diluted earnings per share attributable to stockholders for the second quarter of 2013, a 23.8 percent increase.
For the quarter ended June 30, 2014:
•Allergan reported $1,827.3 million total product net sales. Total product net sales increased 15.9 percent compared to total product net sales in the second quarter of 2013. ◦Total specialty pharmaceuticals net sales increased 13.2 percent, or 13.7 percent on a constant currency basis, compared to total specialty pharmaceuticals net sales in the second quarter of 2013.
◦Total core medical devices net sales increased 25.8 percent, or 26.1 percent on a constant currency basis, compared to total core medical devices net sales in the second quarter of 2013.
◦Total specialty pharmaceuticals and core medical devices net sales, which exclude sales from the transition services agreements related to the sale of the obesity intervention business unit, increased 15.1 percent, or 15.5 percent on a constant currency basis, compared to total specialty pharmaceuticals and core medical devices net sales in the second quarter of 2013.
“With continuing strong momentum, Allergan recorded the strongest increase in absolute dollar sales in any quarter in our history, and again delivered sales and earnings per share growth above the high end of our expectations,” said David E.I. Pyott, Allergan’s Chairman of the Board and Chief Executive Officer. “Furthermore, we are pleased with the progression of key clinical programs into Phase 3 as well as the recent FDA approval of OZURDEX® for Diabetic Macular Edema.”
Product and Pipeline Update
During the second quarter of 2014:
•On May 1, 2014, Allergan announced that BOTOX® (Botulinum Toxin Type A) received a positive opinion from the Irish Medicines Board serving as reference member state in the mutual recognition procedure (MRP) for the treatment of focal spasticity of the ankle in adult post stroke patients. To date this has led to Marketing Authorisations in 10 of the 14 European countries involved in the MRP and marks a key milestone in bringing this treatment to stroke survivors across Europe who are suffering from lower limb spasticity.
•On May 15, 2014, Allergan announced that Agence Nationale du Securite du Medicament et des Produits de Santé (ANSM) has extended the Marketing Authorisation for BOTOX® (Botulinum Toxin Type A) to include the treatment of idiopathic overactive bladder (OAB) associated with symptoms including 3 urgency urinary incontinence episodes within 3 days, urinary frequency defined as 8 or more voids/day in adult patients who don’t respond to anticholinergic medication (after 3 months of treatment) or are intolerant to anticholinergic medication and not responding to a well-controlled physiotherapy. This is the eighth indication for BOTOX® in France and marks another key milestone in bringing this innovative treatment to patients suffering from the symptoms of OAB. BOTOX® is the only botulinum toxin indicated for the management of bladder dysfunctions in France.
•On June 10, 2014, the Court of Appeals for the Federal Circuit reversed a ruling of the U.S. District Court for the Middle District of North Carolina, and found U.S. patent numbers 7,351,404 and 7,388,029, which cover LATISSE®, to be invalid. As of today, none of the Abbreviated New Drug Applications (ANDA) filed by the generic applicants have received approval from the U.S. Food and Drug Administration (FDA). A companion case against the generic applicants involving U.S. patent numbers 8,038,988, 8,101,161 and 8,263,054, which also cover LATISSE®, is currently pending in U.S. District Court for the Middle District of North Carolina.
•On June 13, 2014, the Canadian Federal Court ruled in favor of Allergan in patent infringement applications against Apotex Inc. and Cobalt Pharmaceuticals Company, a subsidiary of Actavis plc, issuing orders prohibiting Health Canada from approving generic drug applications on LUMIGAN® (bimatoprost ophthalmic solution) 0.01% until the expiration of Canadian patent number 2,585,691 in 2026.
•On June 30, 2014 Allergan announced completion of the topline analysis of data from its Stage 3, Phase 2 study of abicipar pegol (Anti-VEGF DARPin ®) in neovascular, or “wet,” age-related macular degeneration (AMD). These data along with data from previous studies were reviewed with the FDA at an end of a Phase 2 meeting where the FDA supported Allergan’s decision to advance abicipar pegol to Phase 3 clinical trials and agreed with the proposed Phase 3 study plan. The complete data from the Stage 3, Phase 2 study will be presented at the American Association of Retinal Specialists in San Diego, California from August 10, 2014 to August 13, 2014.
•On June 30, 2014, Allergan announced completion of the review of data from its Phase 2 clinical trials of bimatoprost sustained-release implant for the treatment of elevated intraocular pressure and glaucoma. Patients in this trial received a bimatoprost sustained-release implant in one eye and topical bimatoprost in the contralateral eye. The data suggests that bimatoprost sustained-release implant efficacy is comparable to daily topical bimatoprost with duration of 4 to 6 months. Allergan has shared the bimatoprost sustained-release implant data with the FDA and the FDA is supportive of the company’s decision to advance to Phase 3 clinical trials. Allergan expects to initiate the Phase 3 clinical trials by the end of 2014.
•On June 30, 2014, Allergan announced receipt of approval from the FDA for OZURDEX® (dexamethasone intravitreal implant) 0.7 mg as a new treatment option for diabetic macular edema (DME) in adult patients who have an artificial lens implant (pseudophakic) or who are scheduled for cataract surgery (phakic). OZURDEX® is a sustained-release biodegradable steroid implant that demonstrated long-term efficacy without the need for monthly injections.
•On June 30, 2014, Allergan announced receipt of a Complete Response Letter (CRL) from the FDA to its New Drug Application (NDA) for SEMPRANA™ (dihydroergotamine), formerly referred to as LEVADEX®, which is being developed as an acute treatment of migraine in adults. In the CRL, the FDA acknowledged that Allergan has made improvements in the canister filling process. The two specific items listed in the CRL are related to specifications around content uniformity on the improved canister filling process and on standards for device actuation. There were no issues related to the clinical safety and efficacy of the product and Allergan received draft labeling from the FDA for the product in June 2013. Allergan plans to meet with the FDA and will work to fully address these issues to the satisfaction of the FDA. The Company estimates that the next FDA action will occur by the end of the second quarter of 2015.
Stockholder Value Enhancements
As part of an ongoing effort to improve efficiency and productivity which will further increase stockholder value, Allergan recently completed a global review of its structures and processes, portfolio of research and development projects and marketed products, and its geographies in an effort to prioritize the highest value investments. This will deliver enhanced non-GAAP diluted earnings per share (EPS) growth and thus increased stockholder value.
As a result of this review, Allergan will restructure its operations and processes as follows:
•Allergan will execute a restructuring in the remainder of 2014 that it estimates will deliver annual pre-tax savings of approximately $475 million in calendar year 2015 as compared to previously communicated 2015 expectations. Such savings will come from efficiencies and reductions in spend across the commercial organization, general and administrative functions, manufacturing and the research and development organization.
•Allergan will achieve these synergies by focusing resources on the highest value opportunities, streamlining its organizational structure, simplifying processes and interfaces, optimizing site footprints, and enhancing strategic sourcing of goods and services.
•As part of the restructuring, Allergan will reduce its workforce by approximately 1,500 employees, or approximately 13 percent of its current global headcount, and eliminate an additional approximately 250 vacant positions.
•The restructuring will be conducted consistent with Allergan’s model of driving high quality earnings growth through a customer-centric focus on net sales growth and ensuring that Allergan maintains an innovation-focused research and development pipeline to deliver sustained long-term growth. Hence, approximately 94% of all customer-facing personnel are unaffected by the restructuring. All pharmaceutical research and development programs in the clinic will continue, and any reductions in discovery programs will not impact approvals within the strategic plan period.
•Additional strategic options are available including business development / acquisitions and capital return.
•Allergan reconfirms its aspiration of double digit sales growth across the strategic plan period (2014 through 2019), as the planned reductions in selling, general and administrative expenses and reduced focus on lower-value spend will have only a modest impact on the net sales growth.
•Allergan’s strategic plan (2014 through 2019) is expected to deliver a compounded annual growth rate of greater than 20% EPS growth. ◦Allergan estimates 2014 EPS between $5.74 and $5.80.
◦Allergan estimates 2015 EPS between $8.20 and $8.40.
◦Allergan estimates 2016 EPS at approximately $10.00.
•Allergan currently estimates that it will incur total non-recurring pre-tax charges of between $375 million and $425 million in connection with the restructuring and other costs, of which $65 million to $75 million will be a non-cash charge associated with the acceleration of previously unrecognized share-based compensation costs and certain other non-cash accounting adjustments. The restructuring charges and other costs will primarily consist of employee severance and other one-time termination benefits, facility lease and other contract terminations, accelerated depreciation and asset write-downs, accelerated equity-based compensation, temporary labor and duplicate operating expenses. These non-recurring charges will be incurred beginning in the third quarter of 2014 and are expected to continue through the second quarter of 2015.
Unsolicited Proposal from Valeant
•On April 22, 2014, Allergan confirmed receipt of an unsolicited proposal from Valeant Pharmaceuticals International, Inc. (Valeant) to acquire all outstanding shares of Allergan’s common stock. Allergan also confirmed receipt of revised unsolicited proposals from Valeant on May 28 and May 30, 2014. Allergan’s Board of Directors, in consultation with its financial and legal advisors, have unanimously rejected each of these unsolicited proposals, concluding that each substantially undervalues Allergan, creates significant risks and uncertainties for the stockholders of Allergan, and is not in the best interests of the Company and its stockholders.
•On June 18, 2014, Valeant commenced an exchange offer (the Offer) by filing a Schedule TO and Registration Statement on Form S-4 with the U.S. Securities and Exchange Commission (SEC). Pursuant to the terms of the Offer, Valeant proposes to purchase each outstanding share of Allergan common stock, at the election of the holder, for 0.83 common shares of Valeant and $72.00 in cash, or an equal amount of cash or number of shares of Valeant common stock, in each case subject to proration. The Offer is not an all-cash offer.
•On June 23, 2014, Allergan’s Board of Directors issued its recommendation that Allergan stockholders reject the Offer and not tender their Allergan shares pursuant to the Offer. The Allergan Board of Directors issued this recommendation after careful consideration, in consultation with its financial and legal advisors, and unanimously concluded that the Offer is grossly inadequate, substantially undervalues Allergan, creates significant risks and uncertainties for Allergan stockholders and is not in the best interests of Allergan and its stockholders. Allergan filed this recommendation with the SEC on Schedule 14D-9.
For the full year of 2014, Allergan expects:
•Total product net sales between $6,900 million and $7,050 million, excluding any future anticipated revenue from the transition services agreements related to the sale of the obesity intervention business. ◦Total specialty pharmaceuticals net sales between $5,865 million and $5,975 million.
◦Total core medical devices net sales between $1,010 million and $1,050 million.
◦ALPHAGAN® franchise product net sales between $460 million and $480 million.
◦LUMIGAN® franchise product net sales between $600 million and $620 million.
◦RESTASIS® product net sales between $1,040 million and $1,070 million.
◦BOTOX® product net sales between $2,200 million and $2,280 million.
◦LATISSE® product net sales at approximately $100 million.
◦Breast aesthetics product net sales between $400 million and $420 million.
◦Facial aesthetics product net sales between $610 million and $630 million.
•Non-GAAP cost of sales to product net sales ratio at approximately 12.5%.
•Non-GAAP other revenue at approximately $100 million.
•Non-GAAP selling, general and administrative expenses to product net sales ratio between 37% and 38%.
•Non-GAAP research and development expenses to product net sales ratio at approximately 16.5%.
•Non-GAAP diluted earnings per share attributable to stockholders between $5.74 and $5.80.
•Diluted shares outstanding at approximately 304 million.
•Effective tax rate on non-GAAP earnings between 26% and 27%.
For the third quarter of 2014, Allergan expects:
•Total product net sales between $1,675 million and $1,750 million, excluding any future anticipated revenue from the transition services agreements related to the sale of the obesity intervention business.
•Non-GAAP diluted earnings per share attributable to stockholders between $1.44 and $1.47.