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Allergan’s (AGN) Sales Guidance for 2018 Lower Than Expected


Allergan plc AGN announced a weaker-than-expected sales outlook for 2018as it faces potential loss of exclusivity for some of its key products in 2018.

Allergan expects total sales in the range of approximately $15.0 billion – $15.3 billion, which falls short of the Zacks Consensus Estimate of $15.76 billion. Meanwhile, the company said that it expects adjusted earnings of at least $15.25 per share. Though not directly comparable, the earnings projection also appears short of the Zacks Consensus Estimate of $15.98 per share.

Allergan is facing potential loss of exclusivity for several of its key products in 2018 including Alzheimer’s treatment, Namenda XR and blockbuster dry-eye drug, Restasis. In the latest press release, the company said that it expects a generic version of Namenda XR to be launched in early first quarter while that of Restasis, Allergan’s second best-selling drug, is not expected to be launched prior to the second quarter.

We remind investors that in October 2017, a Texas federal district court invalidated four of the six patents covering Restasis. The patent loss opened doors for early generic competition for Restasis whose patents were scheduled to expire in August 2024. Please note that no generic version of Restasis has been approved yet.

We also remind investors that on the third-quarter earnings call, Allergan had said that if a generic version of Restasis is launched in mid 2018, adjusted earnings per share would be no less than $16. Also, the company said that if a generic enters the market on Jan 1, 2018, adjusted earnings per share will be more than $15 per share.

Also, this year, Allergan faces loss of patent exclusivity for Estrace vaginal cream and ulcerative colitis drug, Delzicol. In December last year, Mylan MYL launched the first generic version for Estrace cream while a generic version of Delzicol is expected to be launched in early second quarter.

Last week, Allergan, in a regulatory filing, announced that it is laying off over 1,000 employees as part of a cost-saving and restructuring program. In the latest press release, Allergan said its cost reduction efforts should reduce operating expenses by $300 million to $400 million in 2018 from 2017.

Also, new competition for key growth drivers, Restasis and Linzess, is an investor concern. Shire’s SHPG dry eye disease drug, Xiidra, launched last year, is posing strong competition for Restasis. Meanwhile, Synergy Pharmaceuticals Inc.’s SGYP Trulance (plecanatide) was launched last year for chronic idiopathic constipation, which could pose competition to Allergan’s, Linzess.

In the past year, Allergan’s shares have declined 22.5% compared with the industry’sdecline of 25.5%.

Allergan also provided some other updates along with issuing 2018 outlook. The company said that the impact of the tax reforms will be broadly neutral to its adjusted effective tax rate over time with a moderate increase in the 2018 rate from 2017 levels. Allergan guided an adjusted tax rate of approximately 15% in 2018.

Under the new $2 billion share buyback plan announced in September last year, Allergan said it has already bought back approximately 20% of the authorized amount in the three months ended December 2017. Also, the company said it plans to sell its remaining stake in Teva securities this year.

Allergan carries a Zacks Rank #4 (Sell).

You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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