Allergan (AGN) isn't standing firm on Tuesday morning despite strong results from Botox and other products.
Shares of the Dublin-based pharmaceutical company were down nearly 2% before Tuesday's opening bell even though Allergan reported first-quarter beats on its top and bottom lines and raised its 2019 forecast above prior estimates.
"Our first-quarter results reflected continued growth of our Core Business, which increased 4.4% year-over-year across our four key therapeutic areas. Growth of key products such as BOTOX Cosmetic, BOTOX Therapeutic, VRAYLAR, JUVÉDERM and Lo LOESTRIN offset declines in products that lost exclusivity and products which were divested in 2018," Allergan CEO Brent Saunders said. "Many key R&D programs have made steady progress and we now anticipate five regulatory approvals over the next 18 months."
The regulatory approvals and research-and-development efforts will be keys for Allergan to restore shareholder value after a series of setbacks that recently included the failure of its depression drug rapastinel. Many observers hope it decreases the company's reliance on sales of Botox products, which are still far and away the company's most profitable offerings.
One red flag possibly causing the stock to slip are impairment charges that totaled more than $2 billion.
"GAAP operating loss in the first quarter of 2019 was $2.31 billion, including the impact of impairments," the company's SEC filings released alongside the earnings report reveal. "Non-GAAP operating income in the first quarter of 2019 was $1.63 billion, a decrease of 7.6% versus the prior year quarter, impacted by lower operating margin and revenues due to the impact of divestitures, products that lost exclusivity and declines in textured breast implants and RESTASIS."
The issue is reminiscent of the fourth quarter of 32018, when the company reported pretax impairment charges of $5.4 billion as a result of a write-off related to the planned sale of its anti-infectives unit and a charge from lower-than-expected sales of its double chin treatment Kybella.
"The Company's intended sale of Anti-Infectives and its increased cost of capital based on market dynamics as well as other commercial factors prompted a review of its General Medicine Reporting Unit goodwill," the company explained earlier this year.
The impairments appear to be a persistent issue.
Allergan's management has invoked the ire of activist investors such as David Tepper's Appaloosa LP in the past, with calls for a separation of the chairman and CEO roles currently held by Saunders.
"We again call on the Company to install an independent chairman with suitable experience to bring new leadership to the Board and rein in management's predilection for value-destruction," Tepper's firm said in March. "We view this action as only one in a long list of difficult decisions the Board will need to confront, which may include a change in senior management, separation of business units, merger or sale of the entire Company."
For now, Saunders has dodged the bullet, as shareholders voted to reject the Appaloosa proposal by a majority of 61.3%.
"The Allergan Board appreciates the support of our shareholders reflected in the voting results. We take seriously the feedback we received during our shareholder engagements leading up to the Annual Meeting and look forward to a continued dialogue moving forward," a statement following the annual shareholders meeting last week reads. "Allergan's Board of Directors is dedicated to best-in-class governance, strong independent oversight, accountability for performance and delivering on our strategic priorities to create value for our shareholders."
The vote alleviates at least one management issue while the company contends with a somewhat adversarial political environment and litigation risks surrounding the company's ties to the opioid epidemic.
It will be Saunders who will kick off an earnings call at 8:30 a.m. ET Tuesday in order to encourage the market to trust his management and the company's more bullish goals for 2019.
