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Allergan Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 6, 2012 04:37PM

Allergan Inc. (AGN) filed Quarterly Report for the period ended 2012-09-30. Allergan, Inc. has a market cap of $28.19 billion; its shares were traded at around $92.06 with a P/E ratio of 23.8 and P/S ratio of 5.2. The dividend yield of Allergan, Inc. stocks is 0.2%. Allergan, Inc. had an annual average earning growth of 14.9% over the past 10 years.



Highlight of Business Operations:

We increased prices on certain eye care pharmaceutical products in the United States in the fourth quarter of 2011 and the first nine months of 2012. Effective January 7, 2012, we increased the published U.S. list price for Alphagan® P 0.15% by three percent, Acular®, Acular LS® and Acuvail® by four percent, Lumigan® 0.1% and Lumigan® 0.3% by five percent, Alphagan® P 0.1%, Combigan® and Zymaxid® by eight percent and Lastacaft® by ten percent. Effective April 7, 2012, we increased the published U.S. list price for Restasis® by five percent. Effective May 12, 2012, we increased the published U.S. list price for Lastacaft® by an additional five percent, Alphagan® P 0.15%, Alphagan® P 0.1%, Lumigan® 0.1%, Lumigan® 0.3% and Combigan® by an additional eight percent, and Acular®, Acular LS®, Acuvail® and Zymaxid® by an additional ten percent. These price increases had a positive net effect on our U.S. sales in the third quarter of 2012 compared to the third quarter of 2011, but the actual net effect is difficult to determine due to the various managed care sales rebate and other incentive programs in which we participate. Wholesaler buying patterns and the change in dollar value of the prescription product mix also affected our reported net sales dollars, although we are unable to determine the impact of these effects. Due to the strong acceptance of Lumigan® 0.1% in the United States market, we plan to cease manufacturing Lumigan® 0.3% for the U.S. market by the end of fiscal year 2012.

Selling, general and administrative, or SG&A, expenses increased $2.3 million, or 0.4%, to $540.8 million, or 38.9% of product net sales, in the third quarter of 2012 compared to $538.5 million, or 41.1% of product net sales, in the third quarter of 2011. SG&A expenses in the third quarter of 2012 include expenses of $0.5 million for external costs of stockholder derivative litigation associated with the 2010 global settlement with the U.S. Department of Justice, or DOJ, regarding our past U.S. sales and marketing practices relating to certain therapeutic uses of Botox® and a $2.4 million charge related to the change in fair value of contingent consideration liabilities associated with certain business combinations. SG&A expenses in the third quarter of 2011 include $0.8 million of stockholder derivative litigation costs associated with the 2010 global settlement with the DOJ discussed above and a $20.0 million milestone payment to MAP Pharmaceuticals, Inc., or MAP, for the achievement of a regulatory milestone in connection with our collaboration and co-promotion agreement for Levadex®, a self-administered, orally inhaled therapy for the acute treatment of migraine in adults that has not yet achieved regulatory approval. Excluding the effect of the items described above, SG&A expenses increased $20.2 million, or 3.9%, to $537.9 million, or 38.7% of product net sales, in the third quarter of 2012 compared to $517.7 million, or 39.5% of product net sales in the third quarter of 2011. The increase in SG&A expenses in dollars, excluding the charges described above, primarily relates to increases in selling and marketing expenses and general and administrative expenses, partially offset by a reduction in promotion expenses. The increase in selling and marketing expenses in the third quarter of 2012 compared to the third quarter of 2011 principally relates to increased personnel and related incentive compensation costs that support the 6.1% increase in product net sales. The increase in general and administrative expenses is primarily due to an increase in legal fees, compliance costs, compensation costs, general insurance expenses and losses from the disposal of fixed assets, partially offset by a reduction in bad debt expenses.

SG&A expenses increased $15.8 million, or 0.9%, to $1,710.5 million, or 40.5% of product net sales, in the first nine months of 2012 compared to $1,694.7 million, or 42.7% of product net sales, in the first nine months of 2011. SG&A expenses in the first nine months of 2012 include aggregate expenses of $8.9 million for external costs of stockholder derivative litigation associated with the 2010 global settlement with the DOJ regarding our past U.S. sales and marketing practices relating to certain therapeutic uses of Botox® and other legal contingency expenses, and a $15.8 million charge related to the change in fair value of contingent consideration liabilities associated with certain business combinations. SG&A expenses in the first nine months of 2011 include an upfront payment of $60.0 million and a regulatory milestone payment of $20.0 million related to the Levadex® collaboration and co-promotion agreement with MAP, a gain of $9.4 million from the substantially complete liquidation of a foreign subsidiary and fixed asset impairment charges of $2.2 million related to the discontinued development of EasyBand™, $3.1 million of stockholder derivative litigation costs associated with the 2010 global settlement with the DOJ discussed above, and a $2.3 million charge related to the change in fair value of a contingent consideration liability associated with our purchase of a distributor's business in Turkey. Excluding the effect of the items described above, SG&A expenses increased $69.3 million, or 4.3%, to $1,685.8 million, or 39.9% of product net sales, in the first nine months of 2012 compared to $1,616.5 million, or 40.8% of product net sales in the first nine months of 2011. The increase in SG&A expenses in dollars, excluding the charges described above, primarily relates to increases in selling and marketing expenses and general and administrative expenses, partially offset by a reduction in promotion expenses. The increase in selling and marketing expenses in the first nine months of 2012 compared to the first nine months of 2011 principally relates to increased personnel and related incentive compensation costs that support the 6.6% increase in product net sales, and additional costs supporting the expansion of our sales forces, including the addition of several new direct operations in emerging markets. The increase in general and administrative expenses is primarily due to increased compliance costs, an increase in compensation costs, including an increase in regional management costs related to the expansion of our direct selling operations in emerging markets, and an increase in legal expenses and general insurance costs, partially offset by a decrease in bad debt expenses. The decrease in promotion expenses is primarily due to an overall net reduction in promotion programs, including a decrease in direct-to-consumer advertising for Latisse® and promotion spending for obesity intervention products, partially offset by an increase in direct-to-consumer advertising for Botox® for the treatment of chronic migraine in the United States.

Our effective tax rate for the third quarter of 2012 was 24.2%. Our effective tax rate for the first nine months of 2012 was 28.3%. Included in our earnings before income taxes for the first nine months of 2012 are charges related to changes in the fair value of contingent consideration associated with certain business combination agreements of $15.8 million, upfront payments of $62.5 million associated with two agreements for the in-licensing of technologies from Molecular Partners AG, the fair market value inventory adjustment rollout and integration costs related to the purchase of a distributor's business in Russia of $0.9 million, external costs of stockholder derivative litigation associated with the 2010 global settlement with the DOJ regarding our past U.S. sales and marketing practices relating to certain therapeutic uses of Botox® and other legal contingency expenses of $8.9 million, $0.8 million of interest expense associated with changes in estimated taxes related to uncertain tax positions included in prior year filings and restructuring charges of $4.7 million. In the first nine months of 2012 we recorded no income tax benefits related to the changes in the fair value of contingent consideration liabilities, $15.8 million of income tax benefits related to the upfront payments associated with the two agreements for the in-licensing of technologies from Molecular Partners AG, $0.1 million of income tax benefits related to the fair market value inventory adjustment rollout and integration costs related to the purchase of a distributor's business in Russia, $1.1 million of income tax benefits related to external costs of stockholder derivative litigation associated with the 2010 global settlement with the DOJ regarding our past U.S. sales and marketing practices relating to certain therapeutic uses of Botox® and other legal contingency expenses, income tax benefits of $0.3 million related to interest expense associated with changes in estimated taxes related to uncertain tax positions included in prior year filings and $1.5 million of income tax benefits related to the restructuring charges. In the first nine months of 2012 we also recorded an income tax provision of $6.7 million for changes in estimated taxes related to uncertain tax positions included in prior year filings. Excluding the impact of the pretax charges of $93.6 million and the net income tax benefit of $12.1 million for the items discussed above, our adjusted effective tax rate for the first nine months of 2012 was 27.1%. We believe that the use of an adjusted effective tax rate provides a

Our effective tax rate for the third quarter and first nine months of 2011 was 29.7% and 28.1%, respectively. Our effective tax rate for the year ended December 31, 2011 was 27.8%. Included in our earnings before income taxes for 2011 are a $60.0 million upfront payment and a $20.0 million regulatory milestone payment related to a collaboration and co-promotion agreement with MAP, a $45.0 million upfront payment related to a collaboration and license agreement with Molecular Partners AG, intangible asset impairment charges of $20.4 million, restructuring charges of $4.6 million, fixed asset impairment charges of $2.2 million and a gain of $9.4 million from the substantially complete liquidation of a foreign subsidiary resulting from the discontinued development of EasyBand™. In 2011, we recorded income tax benefits of $22.2 million and $7.4 million, respectively, associated with the upfront payment and regulatory milestone payment related to the collaboration and co-promotion agreement with MAP and income tax benefits of $4.6 million associated with the upfront payment related to the collaboration and license agreement with Molecular Partners AG. In 2011, we did not record any tax benefits related to the intangible asset impairment charges, restructuring charges, fixed asset impairment charges and the gain from the substantially complete liquidation of our investment in a foreign subsidiary resulting from the discontinued development of EasyBand™ since a portion of these charges are not tax deductible and we do not expect to be able to utilize the deductions for the tax deductible portion of these charges in the jurisdiction where the costs were incurred. Excluding the impact of the net pre-tax charges of $142.8 million and the net income tax benefits of $34.2 million for the items discussed above, our adjusted effective tax rate for 2011 was 27.4%.

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