Allergan (AGN)

Q3 2011 Earnings Call

October 26, 2011 11:00 am ET


James M. Hindman - Chief Financial Officer

Jeffrey L. Edwards - Chief Financial Officer and Executive Vice President of Finance & Business Development

Joann Bradley - IR

David E.I. Pyott - Chairman, Chief Executive officer and President

Scott M. Whitcup - Chief Scientific Officer and Executive Vice President of Research & Development


Ken Cacciatore - Cowen and Company, LLC, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

David Risinger - Morgan Stanley, Research Division

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

David Amsellem - Piper Jaffray Companies, Research Division

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

Marc Goodman - UBS Investment Bank, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

Larry Biegelsen - Wells Fargo Securities, LLC, Research Division

Gregory Waterman - Goldman Sachs Group Inc., Research Division

Corey B. Davis - Jefferies & Company, Inc., Research Division

Frank H. Pinkerton - SunTrust Robinson Humphrey, Inc., Research Division

Catherine J. Arnold - Crédit Suisse AG, Research Division



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Hello, and welcome to the Allergan Third Quarter 2011 Earnings Call. [Operator Instructions] At the request of the company, today's conference is being recorded. [Operator Instructions] I would like to introduce today's conference host, Mr. Jim Hindman, Senior Vice President, Treasury Risk and Investor Relations. Sir, you may begin.

James M. Hindman

Thank you, Terry. Good morning. With me for today's conference call is David Pyott, Chairman of the Board and Chief Executive Officer; Jeff Edwards, Executive Vice President, Finance and Business Development, Chief Financial Officer; Dr. Scott Whitcup, Executive Vice President, Research and Development, Chief Scientific Officer; and Jim Barlow, Senior Vice President and Corporate Controller.

Before we move ahead, I'd like to remind you that certain statements that we'll make in this presentation are forward-looking statements. These forward-looking statements reflect Allergan's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Allergan's businesses.

Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third quarter 2011 earnings release, which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in that disclaimer.

We will follow up the question-and-answer session of this call with a short listen-only segment, where we'll provide additional miscellaneous information that relates to our business. Under Regulation FD, in order to be able to discuss this information freely during the quarter, we must be sure that it is in the public domain. This conference call and accompanying webcast are being simultaneously broadcast over the Internet, with replays available for one week. You can access this information on our website at

At this point, I'd like to turn the call over to David Pyott.

David E.I. Pyott

Great. Thanks, Jim. Good morning, ladies and gentlemen. During the third quarter, Allergan continued to enjoy double-digit earnings and sales growth, driven by a wide range of products and franchises and across many countries around the world.

Growth in the quarter outside the U.S. continued at an impressive late with year-over-year growth of 20% in dollars in overall international markets, with Asia-Pacific growing 27%, Latin America by 22% and Europe, Africa, Middle East by 17%.

The latter is particularly encouraging given macroeconomic growth concerns in Europe and as the direct markets of Turkey and Poland are now included in the baseline of the prior year.

With only a small new contribution to growth, we made by the new direct market of South Africa.

Even with general concerns about economics and consumer spending, our cash pay markets around the world generally enjoyed good growth, although there are some signs of a moderation in North America since August.

Western Europe provided surprisingly good growth rates in most product markets in most countries despite some stark external economic reports.

Clearly, we're monetary trends very carefully. Overall, we're benefiting from the many regulatory approvals secured both in 2010 and so far in 2011. Regarding our reimbursed pharmaceutical product lines, we're now receiving notifications of several new rounds of price comps by governments in Europe, as well as in South Korea, which we're factoring into our operating plan for 2012.

During the course of 2011, we have absorbed cost of U.S. healthcare reform and overseas price cuts. Initially estimates in January of $100 million for the year, which we subsequently increased to $110 million on the second quarter earnings call and now estimate about $120 million for this year. Looking ahead, we're pleased that we'll be direct in Russia in 2012 for our medical aesthetics, neurosciences and ophthalmology businesses.

Reviewing the results for the third quarter. Sales increased versus the third quarter of 2010 by 10.0%. This is slightly by the weak dollar in most of the quarter and with local currency growth of 7.2%.

Operating performance continued on a strong trajectory with non-GAAP diluted earnings per share of $0.92, marking an increase of 17.9% versus the third quarter of 2010 and above the range of expectations provided at the time of the last earnings call.

Year-to-date, non-GAAP diluted EPS has grown 15.8% versus prior year, benefiting from strong gross margins, and even as we invested both in overseas expansion and in launching our recently improved products and new BOTOX indications.

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