Allergan (AGN) Projects Revenues to Surpass $8B in 2H15

Allergan plc AGN provided an updated outlook for the second half of 2015. The outlook includes adjustments related to the upcoming divestment of its global generics business to Teva Pharmaceutical Industries Limited TEVA, which was announced in Jul 2015.

While the transaction with Teva is expected to close in the first quarter of 2016, Allergan will begin reporting the generics business as discontinued operations from the third quarter of 2015.

Outlook for 2H15

In the second half of 2015, Allergan expects revenues to cross $8 billion and earnings to come in the $6.25–$6.65 range from its continuing operations, which include segments like U.S. Brands, U.S. Medical, International Brands and Anda Distribution.

Once the deal with Teva goes through, Allergan expects branded revenue growth of 10% and gross margins in the range of 77%–79% with additional long-term expansion anticipated. The company expects SG&A expense (as a percentage of revenue) between 21%–24%, declining within that range over time and a tax rate of approximately 15%.

Allergan said that the interest expense for the company will depend to a large extent on capital deployment decisions following the close of the transaction. Meanwhile, the company, which currently has more than 70 pipeline candidates in mid-to-late stage development across seven therapeutic areas including biosimilars, expects double-digit top-line growth.

We are encouraged by the company’s outlook for the second half of 2015 and post-Teva deal. The deal will help Allergan expedite its goal to transform into a branded growth pharma leader.

We note that Allergan has been working on expanding its presence in the branded market and has been bolstering its portfolio through a flurry of back-to-back deals. These include the Durata Therapeutics deal completed in Nov 2014 (boosted its infectious disease portfolio), the Forest Labs acquisition (significantly boosted branded products portfolio) and the Mar 2015 Allergan Inc. acquisition among others. Recently concluded deals include the acquisition of clinical-stage companies Naurex (a biotech company focused on treatments for the central nervous system including depression) and Oculeve (a medical device company focused on the development of treatments for dry eye disease).  

Allergan is also looking to acquire KYTHERA Biopharmaceuticals, Inc. KYTH (an aesthetic products manufacturer) and AqueSys, Inc. (a clinical-stage eye care medical device company). While the KYTHERA acquisition is slated to close in the current quarter, the deal with AqueSys is expected to go through by year end.

Allergan is a Zacks Rank #3 (Hold) stock. Regeneron Pharmaceuticals, Inc. REGN is a better-ranked stock in the health care sector carrying a Zacks Rank #1 (Strong Buy).

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