Allergan balance sheet anticipates Restasis competition

Issue: December 25, 2018

Allergan, anticipating generic competition for Restasis and loss of exclusivity of other products, is taking steps to strengthen its balance sheet.

Net revenues for the company’s third quarter were down 3%, which was “driven primarily by loss of exclusivity of some brands,” Allergan CEO Brent Saunders said in a press release.

Patents for Restasis (cyclosporine ophthalmic emulsion 0.05%), the company’s popular dry eye treatment, are due to begin expiring in 2024, and a controversial deal between the company and a Native American tribe to protect them longer was found to be invalid by a federal court.

Net revenues for Restasis decreased 18.8% for the third quarter from $366.8 million to $298 million, while total revenues declined 3% to $3.91 billion.

“Total sales growth was impacted by products facing loss of exclusivity, as well as Restasis sales decline ahead of anticipated generic competition,” Allergan Chief Commercial Officer Bill Meury said in a conference call discussing the third quarter financial results.

Anticipating losing exclusivity of Restasis, Allergan announced cost-cutting measures and a significant decrease in its workforce earlier this year. In a January filing with the Securities and Exchange Commission, the company announced its intention to eliminate more than 1,000 filled positions and another 400 open positions, resulting in operating expense savings between $300 million and $400 million.

In addition, a $200 million planned expansion to its Waco, Texas, facility has been canceled, the Waco Tribune-Herald reported.

Restasis is not the company’s only product losing exclusivity in the past year or coming years.

The U.S. general medicine segment of Allergan’s business had revenue declines of 7.8%, making it the segment most affected by generic competition; however, the strength of Allergan’s other products and the restructuring plan have kept the company meeting its financial goals.

Despite “near-term headwinds” in the third quarter, “some of which were unexpected,” the company’s strong business momentum continues, Saunders said in the conference call. The company as a whole had an operating income of $257 million for the third quarter compared with an operating loss of $4.02 billion in 2017’s third quarter. The net non-GAAP income for the quarter increased from $4.15 per share to $4.25 per share.

Among the unexpected near-term headwinds was the voluntary recall of Ozurdex (dexamethasone intravitreal implant 0.7 mg) in certain international markets, Saunders said.

“Importantly, the issue that drove the recall was self-identified and no related safety issues have been reported to date,” he said, adding that the company expects to restart the supply of Ozurdex in the affected markets by year’s end.

“Our third quarter results exceeded the high end of guidance that we provided last quarter, both for revenue and non-GAAP performance net income per share,” Matt Walsh, the company’s chief financial officer, said during the conference call. “Our operating margins throughout 2018 year to date and versus our expectations for the fiscal year have been running on the high side by approximately 200 basis points because we have had the exclusivity of Restasis while our [profit and loss] simultaneously reflects the lower cost achieved by the restructuring undertaken to offset [loss of exclusivity] products including Restasis.” – by Rebecca L. Forand

References:

Allergan PLC. https://www.sec.gov/Archives/edgar/data/1578845/000119312518001247/d466315d8k.htm. Jan. 3, 2018.

Allergan pulls plug on $200 million expansion. https://www.wacotrib.com/news/business/allergan-pulls-plug-on-million-expansion/article_4d28c187-b22c-5956-afe0-3ebe7fff99ca.html. Published Oct. 26. 2018.

Allergan reports third quarter 2018 results including GAAP net revenues of $3.9 billion. https://www.allergan.com/News/News/Thomson-Reuters/Allergan-Reports-Third-Quarter-2018-Results-Includ. Published Oct. 30, 2018.

Allergan third quarter earnings conference call. https://edge.media-server.com/m6/p/sf2mavf6. Oct. 30, 2018. Accessed Nov. 26, 2018.