Allergan plc’s (AGN - Free Report) fourth-quarter 2017 earnings came in at $4.86 per share, beating the Zacks Consensus Estimate of $4.74 by 2.5%. Earnings rose 24.6% year over year driven by higher revenues and lower R&D costs.

Revenues came in at $4.33 billion, which beat the Zacks Consensus Estimate of $4.28 billion by 1.2%. Revenues rose 12% from the year-ago period.

Key products like Botox and Juvéderm collection of fillers and new products like Vraylar, Viberzi, and Namzaric did well in the quarter. However, sales erosion of Namenda XR and Aczone and loss of exclusivity, mainly from Asacol HD and Minastrin, hurt the top line.

Fourth-quarter revenues also benefited from the addition of Alloderm from LifeCell (January 2017) and CoolSculpting body contouring system from ZELTIQ (April 2017) acquisitions

Segment Discussion

The company reports revenues under three segments – U.S. General Medicine, U.S. Specialized Therapeutics, and International.

U.S. Specialized Therapeutics’ net revenues increased 19.8% to $1.88 billion driven by continued strong performance of its facial aesthetics products, Botox and Juvéderm Collection of fillers.

Botox (cosmetic) raked in sales of $228.4 million (up 14.5%). Botox Therapeutic revenues were $367.2 million, up 17.1%. In addition, Juvéderm Collection of fillers rose 14.7% to $139.5 million. In Eye Care, Ozurdex sales increased 16.8% to $26.4 million while blockbuster dry-eye drug, Restasis’ sales rose 1.8% to $400.3 million. In Plastic Surgery, breast implants sales increased 21.5%, which contributed to the upside. In Medical Dermatology, Aczone sales declined 37.9% in the quarter to $38 million.

LifeCell’s Alloderm added $97.9 million while ZELTIQ’s CoolSculpting business added $94.4 million to sales in the fourth quarter.

U.S. General Medicine net revenues were flat at $1.5 billion in the reported quarter with sales declining in the Diversified Brands and Women's Health franchises. Anti-Infectives sales rose 14.8% to $66.6 million, Gastrointestinal rose 2% to $453.2 million and Central Nervous System sales rose 2.9% to $349 million.

Established products like Linzess and Lo Loestrin as well as new products like Namzaric, Viberzi and Vraylar did well in the quarter. Linzess’ sales rose 12.2% in the quarter to $194.8 million, driven by strong demand. Lo Loestrin sales rose 17.7% to $126.5 million backed by strong demand trends and higher selling prices.

Among the newer products, Namzaric, a once-daily, fixed-dose combination of Namenda XR and Aricept, recorded sales of $36.8 million, almost flat with $37 million in the previous quarter. Viberzi recorded sales of $42.9 million, up 12.9% driven by higher selling prices.

Namenda XR sales declined 30.7% to $97.8 million in the quarter due to lower demand and generic pressure.

Asacol/Delzicol sales declined 32% to $42.8 million due to a reduction in demand for Ascaol HD, following the launch of an authorized generic in August 2016 as well as lower demand for Delzicol.

In the Women’s Health segment, Minastrin 24 revenues declined 93.2% to $5.3 million in the quarter due to loss of exclusivity in March last year.

The International segment recorded net revenues of $915.9 million, up 16.8% from the year-ago period, driven by growth in Facial Aesthetics, Botox (therapeutic), Eye Care and the addition of CoolSculpting.

SG&A Costs Rise, R&D Declines

Selling, general and administrative (SG&A) expenses rose 6.2% to $1.13 billion in the quarter, primarily due to costs related to acquisitions. R&D expenses declined 4.7% to $405.7 million due to cost control and reprioritization of R&D programs.

2017 Results

Full-year 2017 sales of $15.94 billion beat the Zacks Consensus Estimate of $15.89 billion. Revenues were within the guidance of 15.875 billion to $16.025 billion. Sales rose 9.4% year over year.

Adjusted earnings for 2017 were $16.35 per share, which beat the Zacks Consensus Estimate of $16.27 per share and were within the guided range of $16.15–$16.45. Earnings rose 21% year over year.

2018 Outlook

Allergan maintained its previously issued total sales guidance in the range of approximately $15.0 billion – $15.3 billion.

Meanwhile, the company said that it expects adjusted earnings in the range of $15.25 - $16.00 per share in 2018. Last month, Allergan had said that it expected earnings of at least $15.25 per share in 2018.

Adjusted tax rate is expected to be approximately 14% in 2018.

Migraine Candidate Succeeds in Phase III Study

Allergan announced that a phase III study evaluating its migraine candidate, ubrogepant met its co-primary endpoints. The ACHIEVE I study evaluated the efficacy and safety of orally administered ubrogepant for treating a single migraine attack of moderate-to-severe headache intensity. The study data demonstrated that a “significant greater percentage of patients” treated with ubrogepant, at both the doses (50 mg and 100 mg), were free from pain at two hours after the initial dose as compared to those treated with placebo. Also, a statistically significant greater percentage of ubrogepant patients experienced absence of the “most bothersome migraine-associated symptom” at two hours after the initial dose compared to those treated with placebo.

Our Take

Allergan’s fourth-quarter results were strong as it beat expectations for both earnings and revenues on strong demand for its key drug, Botox. This, in addition to the positive top-line data from ubrogepant study, pushed up the share price by 1.2% in pre-market trading. However, in the past year, Allergan’s share price has declined 29.6% compared with the industry’s decline of 27.8%.

Allergan is facing potential loss of exclusivity for several of its key products in 2018 including Namenda XR and Restasis. While a generic version of Namenda XR is expected to be launched in early first quarter, a generic version of Restasis, Allergan’s second best-selling drug, is expected to be launched in the second quarter. Also, in December 2017, Mylan (MYL  - Free Report) launched the first generic version for Estrace cream while a generic version of ulcerative colitis drug Delzicol is expected to be launched in early second quarter.

Meanwhile, new competition for key growth drivers, Botox, Restasis and Linzess, is an investor concern. In December, Revance Therapeutics’ next-generation neuromodulator, RT002 demonstrated substantial reduction in severity of glabellar lines in phase III studies with a longer duration of efficacy compared to the currently marketed neuromodulators including Botox. The product is being considered a potential threat to Botox, which is marketed for the same indication.

Shire’s (SHPG - Free Report) dry eye disease drug Xiidra, launched last year, is posing strong competition for Restasis. Meanwhile, Synergy Pharmaceuticals, Inc.’s (SGYP - Free Report) Trulance (plecanatide) was launched in 2017 for chronic idiopathic constipation, which could pose competition to Linzess.

Nonetheless, Allergan’s products like Botox and Linzess and new products such as Viberzi and Vraylar support sales growth. It also boasts a strong branded pipeline while biosimilars also represent a significant opportunity. Also, last month, Allergan announced a cost-saving and restructuring program. Allergan is laying off over 1,000 employees to protect it from potential revenue declines.

Allergan carries a Zacks Rank #4 (Sell).

Allergan PLC. Price, Consensus and EPS Surprise

Allergan PLC. Price, Consensus and EPS Surprise | Allergan PLC. Quote