Allergan announced Monday alongside its second-quarter financial results that it will reduce its workforce by approximately 1500 employees, or roughly 13 percent of its current global headcount, and also eliminate about 250 vacant positions as part of efforts to boost stockholder value. The company estimated that the staff cuts, along with other restructuring measures, will lead to cost reductions of about $475 million in 2015.
According to Allergan, the savings "will come from efficiencies and reductions in [spending] across the commercial organisation, general and administrative functions, manufacturing and the R&D organisation." The company noted that "additional strategic options are available," including business development, acquisitions and capital return. Allergan, which said the restructuring follows a review of operations, including its portfolio of R&D projects, specified that all pharmaceutical research programmes in the clinic will continue, while any reductions in discovery programmes "will not impact approvals within the strategic plan period" through 2019.
Regarding the company's financial results, CEO David Pyott remarked that "with continuing strong momentum, Allergan recorded the strongest increase in absolute dollar sales in any quarter in our history, and again delivered sales and earnings-per-share growth above the high end of our expectations." Product sales in the second quarter jumped 15.9 percent year-over-year to $1.8 billion, coming in ahead of analyst estimates, while sales of Botox rose 12.9 percent to $579.4 million. Further, net income reached $417.2 million, versus $359.9 million in the same period for 2013.
For the full year, Allergan said it expects total product sales to range from $6.9 billion to $7.1 billion, and also reaffirmed its target for double-digit growth through 2019, noting that earnings are predicted to have a compounded annual growth rate of more than 20 percent. The company again lifted its earnings-per-share forecast for the year, now projecting it will range from $5.74 to $5.80, up from previous guidance of $5.64 to $5.73. Looking further ahead, Allergan said it expects per-share earnings to rise to between $8.20 and $8.40 next year, and to reach approximately $10 a share in 2016.
Earlier this month, sources suggested that the drugmaker might cut costs and end development of some pipeline compounds in an effort to boost its outlook as it tries to stave off a joint $53.8-billion bid from Valeant Pharmaceuticals and Pershing Square Capital Management. Allergan rejected Valeant's latest unsolicited offer, which comprises 0.83 common shares of Valeant and $72 in cash, or an equal amount of cash or number of Valeant shares, saying it "is grossly inadequate, substantially undervalues Allergan [and] creates significant risks and uncertainties."
"Valeant has been saying they'll cut costs when they take over Allergan, and Allergan is now essentially saying, 'We can reduce our own costs; we don't need Valeant to do that,'" remarked Morningstar analyst Michael Waterhouse. Allergan has also criticised Valeant's business model, and the Canadian company said Monday that it contacted regulators in the US and Canada over what it says are Allergan's "false and misleading statements."
Bernstein analyst Ronny Gal described Allergan's quarterly results and outlook as strong and added that the cost-cutting measures were feasible. He suggested Valeant may have to raise its offer yet again, noting that the US drugmaker's "shareholders thus stand to gain regardless of the outcome." However, Pershing Square CEO Bill Ackman described Allergan's planned restructuring as "Valeant-light" cost-cutting measures coming too late. Further, Ackman also indicated that Valeant intends to pursue the takeover bid until Allergan shareholders vote on the matter at a special meeting he has called to overhaul the US drugmaker's board.
Meanwhile, Pyott said Allergan still "has a lot of options" with regard to deal-making of its own, despite Shire, which had recently been named as its potential target, having agreed last week to be bought out by AbbVie for 32 billion pounds ($54.6 billion). "To focus on Shire alone is in the category of nonsense," he said. Valeant CEO Michael Pearson remarked that "a non-value creating deal" on Allergan's part may push the Canadian company to "modify our offer lower, and it might force us to walk."
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