Allergan Management Discusses Q4 2011 Results - Earnings Call Transcript

Allergan (AGN)

Q4 2011 Earnings Call

February 02, 2012 11:00 am ET

Executives

James M. Hindman - Chief Financial Officer

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

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

Joann Bradley -

Analysts

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

Steve Willoughby - Cleveland Research Company

David Risinger - Morgan Stanley, Research Division

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

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

Marc Goodman - UBS Investment Bank, Research Division

Catherine J. Arnold - Crédit Suisse AG, Research Division

Ken Cacciatore - Cowen and Company, LLC, Research Division

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

Larry Biegelsen - Wells Fargo Securities, LLC, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

David G. Buck - Buckingham Research Group, Inc.

John T. Boris - Citigroup Inc, Research Division

Douglas D. Tsao - Barclays Capital, Research Division

Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

Presentation

Operator

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

James M. Hindman

Thank you, Mary Ann. Good morning. With me for today's conference call is David Pyott, Chairman of the Board, President 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 would 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 fourth quarter and year-end 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 www.allergan.com.

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

David E.I. Pyott

Thanks, Jim. Good morning, ladies and gentlemen. During the fourth quarter, Allergan sales grew versus the fourth quarter of 2010 by 7.2% and due to the strength of the U.S. dollar relative to most world currencies by a higher 8.2% in local currencies. We enjoyed double-digit growth in many operating regions. That is, in the U.S., pharmaceutical business, thanks to the acceleration of the Botox therapeutic franchise, in Latin America and Asia-Pacific, while business and economic conditions in Europe were more challenging than earlier in the year.

For the full year of 2011, Allergan grew year-over-year by 10.9% in dollars and 9.2% in local currencies with double digit growth in all of our overseas operating regions: Europe, Africa, Middle East, Latin America and Asia-Pacific.

Regarding operating performance, we continued on a strong trajectory, with fourth quarter non-GAAP diluted earnings per share at $1 even, marking an increase of 13.6% over the fourth quarter of 2010 and above the range provided on the last earnings call.

Gross margin in the quarter was a direct core tie of 86.8% of sales, which Jeff Edwards will comment shortly. For the full year of 2011, Allergan generated on the same basis, earnings per share of $3.65, an increase of 15.5% over 2010. For reconciliations to GAAP numbers kindly consult our press release.

With this strong result, we are pleased that we delivered on our midterm aspiration of mid-teens earnings per share growth. The strong earnings we achieved after we absorbed estimated total cost of U.S. healthcare reform and overseas price cuts of just over $130 million on a pre-tax equivalent basis. The split is just over $90 million for U.S. healthcare reform and approximately $40 million for overseas price reductions.

At the start of the year, we have estimated the cost of $100 million for the year. This cost increased as the year progressed. As we were hit with waves of mandated price reductions in Europe as well as in South Korea, and in Q4, by an increase in our accrual for the so-called doughnut toll for Medicare Part D by an additional amount in excess of $10 million.

Of the $130 million plus, approximately $100 million was reflected as a reduction to net sales. We continue to invest vigorously into our future, increasing our investment into R&D by 12.6% to $858 million on a non-GAAP basis.

For 2012, we plan to execute off the large number of regulatory approvals that we secured from agencies around the world in 2010 and 2011. If this [ph] be noted within the guidance given for 2012, that R&D is substantially higher than the models of many sellside analysts.

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