Allergan PLC (NYSE:AGN)
Business Update Conference Call
April 06, 2016 10:00 AM ET
Lisa DeFrancesco - VP, IR
Brent Saunders - CEO & President
Paul Bisaro - Executive Chairman
Tessa Hilado - CFO
Bill Meury - President, Branded Pharma
David Nicholson - EVP & President of Global Brands R&D
Ken Cacciatore - Cowen and Company
Jami Rubin - Goldman Sachs
David Maris - Wells Fargo
Ronny Gal - Sanford C. Bernstein
Gregg Gilbert - Deutsche Bank
Chris Schott - JPMorgan
Elliot Wilbur - Raymond James
Jason Gerberry - Leerink Partners
Randall Stanicky - RBC Capital Markets
Liav Abraham - Citigroup
David Risinger - Morgan Stanley
Good morning. My name is Naomi and I will be your conference operator today. At this time, I'd like to welcome everyone to the Allergan Business Update Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you, Ms. Lisa DeFrancesco. You may begin your conference.
Thank you, Naomi and good morning everyone. Thank you for joining us to discuss Allergan strong standalone growth profile following the termination of the Pfizer transaction, which we announced earlier this morning. A copy of the press release is available on our Web site at www.allergan.com. We will be using a slide presentation during today's call to provide an overview of the transaction, its benefit and its potential timing, which is available on the webcast as well as for download in the Investor Relations section of the Web site.
Joining us on today's call are Brent Saunders our CEO and President; Paul Bisaro our Executive Chairman; Tessa Hilado our Chief Financial Officer; Bill Meury our President of Branded Pharma; and David Nicholson our President of R&D. I'd also like to remind you that during the course of this call, management will make certain forward-looking remarks, please refer to the forward-looking statements and the important information for investors and shareholders language regarding these statements in the press release issued earlier this morning and on Page 2 in the slide presentation.
Following managements' review of the slide presentation we will open up the call for questions from the audience. We're happy to answer questions related to standalone Allergan with the exception of questions related to the current quarter as we have not yet reported. We plan to report our earnings within normal timelines by May 10th. If you have trouble downloading the slide presentation is available in PDF form on our Web site.
With that I'll turn the call over to Brent.
Yes, thank you Lisa and thank you everyone for joining us. As Lisa has mentioned we'll quickly walk through a slide presentation and then we'll open it up for Q&A. So turning to Slide 3, let me open by saying that while we were surprised that the treasury issued the rules and proposed regulations on Monday we were prepared for that contingency. And Allergan and Pfizer both thought it was a remote possibility but also fully we're prepared and are ready to spring into action on our independent strategies on a go forward basis. So turning to Slide 3 I would just like to reiterate the huge opportunity standalone Allergan has because of its compelling growth profile and I know I can speak for myself and our entire management team. We are recharged, excited and ready to go.
And let's just talk about some of the important key attributes. One, we have a commitment to being growth pharma and that commitment is centered around having double-digit top-line branded growth by maintaining leadership in our seven key therapeutic areas. All of which have anchor products with great growth profiles and longevity. We also have a commitment to R&D, and we have a pipeline which if you recall was highlighted in November at our R&D day of 70 mid to late stage programs that support all seven of our therapeutic areas. And will lead our ability to sustain growth in all seven therapeutic areas. We deploy an open science model that we believe can drive innovation and sustain leadership in therapeutic areas by staying humble and staying hungry in looking for R&D assets that weren't invented inside of Allergan, but by partnering with the vast ecosystem that supports the biopharmaceutical industry.
And then lastly our balance sheet, we have post the close at Teva that we fully expect to close in the first half of this year, the opportunity to create optionality for future capital deployment across the entire range of spectrum that will accelerate our growth and our financial profile. Turning to Slide 4, just a reminder our seven therapeutic areas are all performing well. When you look at 2015 we executed across each and every one of these sectors, driving, excluding foreign currency strong double-digit growth across the board. I think this has established a strong base for 2016 and beyond and we will continue to launch new products in each of these therapeutic areas as we move forward and we continue to develop our 70 mid to late stage pipeline products.
And in fact on Slide 5 you can see that 75% of our top products are growing double-digits and we have roughly 20 new global launches in 2016. So our immediate future and our long-term future are incredibly exciting and we know we can continue to deliver on this commitment. Turning to Slide 6, I'd like to remind everyone of our commitment to innovation. I think sometimes we get compared to other companies that don't have a strong commitment to innovation. We know that our mission is to provide strong and leading total shareholder return but to also look for cures and treatments for unmet needs in our seven therapeutic areas. We have 2,000 colleagues or roughly 2,000 colleagues in R&D that come to work every day with strong expertise in clinical development, regulatory affairs and alike that deploy an open science model where they approach the world of R&D very differently than many of our competitors with humility and openness around other people's ideas so that the best ideas win. And we can invest in the best science to look for cures and treatments through our open science model.
Turning to Slide 7, you can see the productivity of our open science approach has delivered. We have been able to assemble a pipeline second to none. That pipeline is anchored by some really important projects and I would like to just highlight a few, not to leave any out. But ABICIPAR our Phase 3 asset for age related macular degeneration continues to progress in clinical development and could be a true game changer for people suffering with this disease by lowering the injection burden significantly. RAPASTINEL, a breakthrough designation from the FDA on this very novel approach to treating an area with huge unmet medical need in mental health depression, ESMYA, an area where there are no pharmacological Intervention Uterine Fibroids and the surgical intervention is certainly under scrutiny. So when you look at the list here, we know that our late-stage pipeline will deliver and sustain the growth that complements our existing portfolio and open science has been a strategic and compelling advantage in assembling it.
Turning to Slide 8, it’s important to step back and look at what we’ve presented last November that I know many of our investors were impressed by. We have a very strong pipeline and I would argue best in class. And strength is divided across all of our therapeutic areas and we are confident that this pipeline that we will continue to add to through future open science acquisitions, will deliver our long-term growth profiles.
Turning to Slide 9, I know many of you ask about this and let me say it again. We fully expect the Teva transaction to close in the first half of this year in June. We think that Teva has done a very good job at working diligently to clear the anti-trust authorities around the world, they have secured approval in Europe, they’re working hard with the U.S. FTC and we are very confident that they will get this deal closed in the coming weeks.
I’m going to turn the slide, the presentation on Slide 10 over the Tessa Hilado.
Thank you, Brent and good morning everyone. On Slide 10, following the close of the Teva deal, we will have a reloaded balance sheet to further accelerate growth. We remain committed to our investment grade ratings. With a $36 billion of after-tax cash and equity proceeds from the Teva transaction, we will have a lot of optionality to either pay down debt, invest in the business and explore other options for capital deployments including share buybacks. Our team has a proven track-record of creating shareholder value and we remain laser focused on evaluating all options.
On Slide 11, we have also included the guidance slide from our full year 2015 earnings call in February 2016. And if you can see, we expect strong standalone performance in 2016 with approximately 17 billion in non-GAAP revenue, representing approximately 10% non-GAAP branded growth. We expect to report our first quarter earnings by May 10th and at that time we’ll provide an update if any on the timing of the close of the Teva transaction, as well as any update to our plans to simplify the operating, the company operations post the close.
On Slide 12, I wanted to take a moment and address some of the questions we have been receiving regarding the impact of the treasury rules on Allergan as a standalone company. First, Allergan will stay in its Irish domicile. And second, there will be no material change to our tax rate of approximately 14% following the Teva close. And third, the notice does not impact our prior transactions. And lastly, we will continue to have strong flexibility to utilize cash or equity to fuel future growth.
Turning back to Brent.
So at this time, Lisa you can perhaps successfully open it up to Q&A.
Operator, can you start taking Q&A.
[Operator Instructions] Your first question comes from the line of Ken Cacciatore from Cowen and Company.
Just had a question about as we look forward to the cash in the equity from the Teva transaction closes. And I know Brent you have talked about kind of bolt on acquisitions to supplement the seven therapeutic areas. But if we think about maybe potentially bigger acquisitions and you’ve spoken in the past about wanting to buy growth assets. Can you put a little bit more nuance into that, does it need to be have a pipeline as well and can you talk about your views on orphan, as orphan becomes to more predominant part of the therapeutic landscape? Thank you.
Look, I mean, I think our -- I just want to reiterate. Our first focus is on executing our existing business opportunities as well as advancing our existing pipeline. That being said, we are always on the lookout for growth assets and I don’t want anyone to think that we’re looking for a big M&A transaction versus a string of pearls, everything is on the table, as well as potentially share buybacks and other ways of returning capital to shareholders and creating shareholder return. That being said I think the profile of anything we buy big or small has to be growth and that means the assets within the acquisition, if their marketed products have to have longevity. We have to believe that in the hands of Allergan, we can do better with those assets and we can strengthen the growth profile of those assets. We also are very interested in R&D and innovation and to the extent we believe that there are assets that support our seven therapeutic areas that are novel that we will be able to value price appropriately both in the U.S. and around the world then we’re highly interested in those things as well. So it really is, I think the only profile that really should be looked at is growth, right. We’re not going to go out and buy nature products or slow growing products. Unless we believe, we can change the profile to a growth profile.
And your views on orphan as they have become more prominent types of programs?
Yes, a little less interested in orphan as a broad grouping, I think to the extent we can do orphan drugs in areas where we either have therapeutic presence or we have R&D capability, certainly that is something we would consider, but I think going out and trying to become an orphan drug company is not really on strategy for us at this time moment.
Your next question comes from the line of Jami Rubin from Goldman Sachs.
Just back to that question on -- I know you're going to get a lot of cash from Teva very soon, Brent, the last I guess when you announced that you were selling the Teva deal, the Teva deal, selling the Teva deal is obviously very dilutive to Allergan's earnings you had talked about still aspiring to that $25 in earnings at some point maybe not in 2017, so I guess the question now is with the stock a lot lower being where it was last summer and lower in the last couple of days obviously, how -- what is your appetite for a very large buyback program which would be obviously very accretive to your earnings versus using that cash to go out in doing what a transformative deal which six-12 months from now I think the market would have perceived as very attractive I don't know how the market would perceive that today, but how are you thinking about your options in terms of capital allocation given where Allergan’s stock price is trading change today? And then also if you could address that I mean I don't want to put words in your mouth but that $25 does still sort of hang out there and how we should think about that?
Look I think with respect to capital allocation all actions are on the table and I think we will look at every option vis-a-vis the other option, right, and do the right thing for shareholders over the long-term. And so I think clearly at our current stock price levels, buybacks will look more attractive than at higher levels to the extent that we can find really compelling growth assets that could deliver more or better return over the long-term that becomes more attractive, so it really is very specific to the conditions at the time and to be fair they are not mutually exclusive. And so I think the real way to think about it is how do you balance all those options? We have a lot of cash coming in from Teva. We generate a lot of cash this is a very strong business with lots of momentum. And the only thing that isn't negotiable for us is our investment-grade rating, right so that is something that I've always maintained is strategic and critical to us.
And anything we do and we may consider all those options and push the envelope will always be done under the consideration of maintaining that investment-grade rating. That's the only limitation we have. With respect to the $25, you're right the sale of the generics business to Teva was dilutive but I think to be fair this team had the courage to make that decision. I had the courage to make that decision, it's not easy doing dilutive deals but it was the right thing for us to do long-term for our business. Many companies and I don't want to get too far in a tangent, but many companies won't take that tough decision and then they wake up in three or four years and they have an arbitrage. Right, they have an anchor around their neck, they have a low growth business that's throwing off all the cash that drives their ability to run their main business and they can't separate or they can't spend it off because it is massively dilutive.
We took the right action at the right time and in an industry that was consolidating in which we weren’t alone to be the consolidator. And so strategically I think with the benefit of hindsight absolutely the right decision, we got the right price, we sold it to the right people under the right terms, and Teva is going to be better off for it. It is going to strengthen them and it's going to strengthen us. So, yes, dilutive but the right thing to do for our shareholders, that being said $25 absolutely we want to get to $25, we want to get to $30, we'd like to get to $35. Our one of I think the hallmarks of this team is being focused on shareholder value creation and shareholder return. And the faster we can get there obviously the better, but we need to do it in a way that is sustainable. And so that's why we don't buy massively accretive low growth assets. Yes, we can get to $25 but then we would be stuck there. This is a journey, we want to continue to get stronger, we want to continue to drive EPS and top-line growth because that's the way to do it successfully long-term in this industry.
Your next question comes from the line of David Maris from Wells Fargo.
Two questions, first, what are the pipeline events over the next three to six months that you're most focused on and maybe if you can highlight what the next steps in the GLYX-13 and ABICIPAR programs are? And then separately I wanted to kind of reconcile two things that you said one on CNBC this morning you were asked about Bausch & Lomb and I think you said I know there are good people there and that’s been taken to mean that you are interested in them. But separately you had said that you thought that the -- that just based on public information you thought it was probably worth less than what it traded four years ago just because of the pipeline value. Can you reconcile those two things just so that people are clear on that?
Yes of course. Let me start with that and then let’s turn to the pipeline question. So just to be clear on the Bausch & Lomb comment, obviously I have a fondness for Bausch & Lomb that goes beyond my time at Allergan. And to be fair Bausch & Lomb is a premier brand in eye care, very different than Allergan in that most of its focus is in consumer, eye care and then surgical, their pharmaceutical business really is one that supports the surgical business with regimens that support cataract surgery. They have great people, they work -- most of the people there used to work for me, they were a great team, but that being said first of all Bausch & Lomb is not for sale. Second as I said on TV Valeant maybe for sale or maybe it isn’t I don’t know. But we only buy growth assets, so you had have to understand the growth profile to see it would even make our screen or be interesting to us. And I think Bausch & Lomb is interesting at the right price given that we are an eye care and it's a complimentary business to us. But it was sold for 8.7 billion in what three-four years ago with late stage pipeline of 30 some programs and a strong organic growth profile. I can’t tell today that any of those things are still true. And so based on public information it's impossible to tell that it's worth more than what it was sold for back four years ago. Does that clarify that David or do you have?
I think it does thank you.
Yes. I think with respect to the pipeline, I am going to ask David to answer I would just say some of the big events over the next few months for me or getting the patients started in Phase III on Rapastinel and starting the Phase III on Ubrogepant our oral CGRP. But let’s see what David thinks. David, you want to talk about your big events?
Yes sure that’s great. So we have a goal for this year for 50 major submissions and approvals in the U.S. and in Europe. So far this year we have submitted five major drug theories to those authorities. And we have four approvals in the bag already this year, that’s the Botox, it's the dalbavancin and it's the new formulations for ACZONE. And during the course of the rest of the year we are anticipating several major approvals in Europe and the U.S. and including we are on track for agents like Zenpep in or is that in Europe, and further rolling out eluxadoline around the world. So all in all as Brent mentioned in his introductory remarks the R&D organization hasn’t missed a beat and it's hitting all our goals.
And maybe because of such an important question, maybe I’ll ask Bill and see if he has to commercialize many of these products, what his top two or three are?
Yes David, in the United States launches that will hit in the second half of the year and early 2017, of course following FDA approval will be two dry eye products for RESTASIS MDPF and then the neurostimulator from Oculeve which will be marketed right alongside RESTASIS. Then we have a Glaucoma medication minimally invasive Glaucoma procedure XEN 45 and then Dalbavancin which is a combination of Bystolic and valsartan, so all four of those can create great deal of value over the next several years.
And then I would just add to the statics business, we continue to roll out Kybella but Belkyra is its European name and while probably will be early next year, we look forward to tracking for the launch of Belkyra in certain markets in Europe early next year.
Yes that’s one of the projects that we anticipate approval for in state and European markets later this year indeed.
Your next question comes from the line of Ronny Gal.
I have got three. The first one is I think one of the things you had mentioned in the prepared remarks around this business simplification initiatives that you have delayed for a year as a result of the possibly a Pfizer merger. Are you guys -- I am going to assume you guys are not quite willing to say that this will accelerated at this point, is this correct or should we expect that in some version we will go back to achieving some of the synergies earlier? Second, as you think about deals for the next 12 month, obviously those treasury deals have got some implications for acquisition you might want to do in the United States, if you kind of -- I don’t know if you mentioned numbers already but, how many shares can you issue in the United States in the next 12 months as part of the a large transaction, just how do you understand the regulation in terms of how they restrict you until some of those transactions to force in the Allergan transaction a job? And third for Bill, Bill I look at VIBERZI it seems to be going a little bit ahead of what expected maybe a little bit more than a little ahead what I expected. Can you just talk a little bit about how you guys are seeing this product I know you are not talking about the quarter but in terms of where we can really should think about this product for '16 and '17 versus your original expectations?
Sure. So let me comment on the first two then Bill can talk about VIBERZI. I think with respect to our business simplification plan post the Teva divestiture obviously we did a lot of work on that pre-Pfizer. We are -- I don’t think there is a lot of work to make sure it's still viable and we can execute on it to be fairly clear to execute on it till the Pfizer deal closed. I think given that that will likely happen towards June or in June, we have plenty of time to get ourselves organized and do that exactly as we had always intended so we really didn’t miss a beat. I think that in our May earnings we can provide a little bit more detail around that as we take a fresh look at it again, but we haven’t been disadvantaged by time in anyway and I'm very comfortable that we as a team know exactly what we need to do and we will do exactly what we have to do on that and look forward to perhaps a little bit more in depth conversation in May on that.
With respect to deals and the proposed rules that came out and any restrictions to be fair we've done a lot of the math on that, I don’t want to go into the specific detail of the math, but the one thing I can tell you and I can say this with absolute confidence Ronny it really does not impair our ability to do anything. We have tremendous flexibility to use equity and a deal if we decided that was the appropriate thing to do for shareholders, and the deal have a strong strategic logic and the growth profile that we have talked about a lot already. We could use stock directly almost without restriction but we could also sell equity and raise cash so there are a lots of alternatives and to be fair those rules really are not restrictive on us in anyway shape or form I can't underscore that enough. It really is designed to stop future inversions and takeaway the benefit of future inversions. Our deal is almost three years old in October and we’re really in a very flexible strong position. Is that fair Tessa?
Yes, absolutely. First to add to the fact that obviously with the Teva proceeds after tax proceeds of cash and equity of about $36 billion we have a good amount of reloaded balance sheet to do further acquisition.
Right, and obviously and maintain that investment grade rating as the base case. As to primary care I will let -- it's not negotiable. I'll ask Bill to talk about VIBERZI but I just have to say it I'm pleased that we have surprised you.
Ronny this is Billy, you have the numbers are very encouraging I think the two biggest surprises so far relate to one the use for the product in primary care, which was a strategic decision that we made as you know Valeant currently focus is primarily on gastroenterology because we have primary care firepower so to speak we went into that market with VIBERZI right along alongside Linzess and when we look at the prescription volume or sales levels in that segment or market we are very, very encouraged it was the right decision and the other surprise is, its formulary coverage right now, it takes time to build but I like the way the picture looks right now and I would expect that the coverage rates for VIBERZI are going to be comparable to those for Linzess.
We haven’t even that being said we haven’t really kicked off the consumer campaign, and I think it started actually this week and that's a pretty significant investment and just generally speaking the implementation risk on this in this launch is manageable because we did it Linzess, it's not identical to the Linzess playbook but there are a lot of similarities. We know the gastroenterology space extremely well and I think that's a big reason why we see the results that we do, but as you know it's early and so if the numbers we are trading lower than expectations, I wouldn’t be drawing any long-term conclusions and I don’t want to do the same here we’re still in implementation mode.
Our next question comes from the line of Gregg Gilbert.
Brent you mentioned that Bausch & Lomb is not for sale right now maybe that will change in an hour or in a week, but if you determine that something like Bausch & Lomb can be valued at a price that reflects really good durability and franchise value, but does have sort of modest growth well below your sort of 10% bogie, can you talk about how that would fit or not fit your screen conceptually? And then my second question is about sort of inverted companies buying non-inverted companies. Do you think the treasury actions sort of effects your ability to do that to the same degree going forward? You mentioned you don’t want to get deep into math but just conceptually why would inverted companies not overtime vacuum up those sort of disadvantaged U.S. companies and create that sort of unintended consequence so? Thanks.
Yes, so I think with respect to Bausch & Lomb obviously I am in a unique position because I -- while I don’t know their business perfectly and I don’t know its current status I understand the fundamentals, I understand the markets and I know a lot of the people there so I have a unique insight into that business. And we would have to again we are a growth pharma company, so we would have to believe in order to be interested in an asset like Bausch & Lomb that in our hands we could create growth on that platform. And we'd have to be able to articulate how we could create growth on that platform and why the price we paid would support the growth on that platform. And so you know I think that's not just true for Bausch & Lomb that's true for any asset that we would ever acquire. So despite what perhaps the media or even politicians say about us, our goal is not to be a serial acquirer, our goal is to be the premier growth pharmaceutical company. And you know I would just remind everyone and I think I have said this on TV today that the blue chip names in our industry were built impart by M&A and impart by an investment in R&D, and it's the combination of those two things that create premier companies.
We have been doing exactly that. There have been others that have done M&A and solely M&A and forgot the R&D part and perhaps that may not prove to be or is proving to be a not sustainable model. But we have, I think this industry has proven if you do it smart and you buy growth assets and you stay committed to innovation and R&D you can create sustainable growth, and strong shareholder return and provide cures and treatment for unmet need and so I think our strategy is incredibly sound and frankly more relevant than ever. But it's not just about serial acquisitions and in fact it's about building a sustainable growth pharmaceutical company.
I think with respect to the inverted companies buying non-inverted companies, in essence the best way we think about these rules and we really had a chance to digest it over the last two days and maybe we'll learn a bit more as there's further thinking on it. But it really has no impact on us. And that's both in our current tax, or our current and future tax rate as well as our current ability to deploy capital both cash, debt and equity and I think you're right I think one of the problems with these rules is, I said this on TV, that everybody's talking about walls. The treasury's building a wall around the U.S. to keep people in and global companies inverted or just foreign domiciled are going to be advantaged in buying U.S. companies as long as this is the tax code, it is a scheme that the U.S. government wants to have. And I am patriotic I don't want to get a surpass, but I think it's incredibly misguided and unproductive policy for the United States.
But flip side Gregg is I guess we'll take the advantage for Allergan and Allergan shareholders.
Your next question comes from the line of Chris Schott from JPMorgan.
A couple of quick ones here, first where would you be willing to take the Company's leverage post the generic divestiture, it does seem like we're in an environment where the market seems to be punishing companies with significant leverage, I guess how does that factor at all in your thinking on potential deals? Second just following up on earlier question, I think you'd previously talked about SG&A in a 21% to 24% range, you'd obviously bumped that with the 4Q results but overtime is that 21 to 24 range a reasonable place to think about the company going or has something changed that's putting upward pressure on your spending levels.? And just finally a really quick one just on timing of deals, there's been a lot of focus in the organization in this Pfizer transaction. Are you in a position to do something quickly or do we need to give the company a few quarters to kind of reorient itself and kind of look at the landscape before we should think about significant capital deployment? Thanks very much.
Yes so maybe I'll ask Tessa to take the first two and I'll quickly answer the third one, and then she can talk about leverage ratio and the SG&A between 21 and 24. With respect to timing of deals, to be fair I think if we saw the right opportunity we would not hesitate. And so if we saw something that supported the business, supported the R&D, supported the -- our therapeutic presence in one of the seven areas we could announce it tomorrow. And so I don't think that's really an issue if there was something large because of our commitment to the investment grade rating we may have to wait to post, to have a closing in the June timeframe, but that's really not that far away at this point. Tessa you want to talk about the leverage ratio and the 21-24 SG&A?
So on SG&A I think what we had basically indicated is that we were comfortable in the 21 to 24% range, that would obviously happen overtime and some of it will naturally happen as basically a revenue growth, as this is a big launch year for us, for 2016 with a couple of launches that have already been executed and planned so you'll see that obviously pick up a little bit this year, but in our view 21 and 24 is reasonable and we are very committed obviously to be one of the top quartile in the industry in terms of efficiency and SG&A.
And if I could just add to Tessa's comment. The 15 launches we’re doing around the world in this year are very first half of the year loaded, in fact we have talked about VIBERZI launching in the first quarter but I just came back from the VRAYLAR launch and Bill is as soon as this call is over he is headed to the VRAYLAR launch. So we have our all field force being trained and working on VRAYLAR as we're doing this call and that's going to be a big launch and an important launch for us. We're also continuing to launch KYBELLA and we are in the heavy part of that launch, which is training, which really will support the growth in the back half of the year and throughout, so just keep in mind that we have a really good issue is that, we’re trying to support really important product launches that are weighted a little to the first half of the year. Do you want to talk about leverage ratio?
Yes. First of all on leverage, I mean obviously we will look to the rating agencies in terms of assisting us on leverage. But if you think about Gregg post, the Teva transaction our leverage would come down significantly and obviously anything would do on a go forward basis in terms of capital deployment will be structured in such a way that we maintain the investment grade rating. In the past, we’ve indicated that leverage a ratio of 3 and 3.5 times would be something that we would be comfortable with, but obviously post Teva it would come down. But anything we do as Brent pointed out earlier would be to ensure that we maintain the investment grade ratings.
Your next question comes from the line of Elliot Wilbur.
Back of the envelope map would suggest Brent that your $25 target or aspirational target of 2017 might actually still be doable if you deploy all the proceeds of the Teva deal into a large scale equity repurchase program no one’s expecting that to happen obviously, but I think it does highlight the relative attractiveness of share buybacks versus some of your options in the short-term. But maybe specifically, you could talk about any potential restrictions or restricted payment coming in the credit agreement that might prevent or limit size and timing large scale repurchases. And everything unique about Irish corporate law that may limit the size and the timing of any potential large scale buybacks remind us of that as well? Thanks.
Yes so, okay I think anything is always feasible and clearly we are focused on EPS growth and not just to 25, but 25 and beyond to continue that growth. I think maybe Tessa’s best positioned to answer the particular detailed question.
Yes. I mean obviously this question is theoretical in nature. I mean, we will obviously comply with any of our bank covenants to ensure that we’re not in reach of that. There are certain Irish laws well with regards to reserves that we would have to comply with, but until such time that we’ve determined, what it is that we want to do from a capital deployment standpoint, it’s tough to talk about that. But suffice to say that we have the ability obviously to deploy capital for various alternatives whether that is acquisitions or share buybacks.
[Operator Instructions] The next question comes from the line of Jason Gerberry.
So most of my questions have been asked, so just a couple, on just the 10% growth outlook, it seems like Botox is clearly an important part of that. So just kind of curious that you can comment at all sort of your assumptions, how much of that is really just continued growth of the continued in line cosmetic products versus line extension versus actually continuing to still grow the therapeutic side of the business? And then my second question just on the Teva deal. Can you just remind us what are the provisions that would allow Teva to walk away and what are if any triggers that could allow them to walk away with a lower break-up fee? Thanks.
Yes so just on the first question Jason. We want to be careful, we’ve really this call -- we’re in a blackout period because of the first quarter earnings being reported in May. And so we really can’t talk about specific products or performance related to those products, but I don’t know if Bill do you have any high level thoughts on Botox?
I mean in 2015, certainly in the fourth quarter growth in chronic migraine and overactive bladder was driving our results. And I think that’s going to continue into [Multiple Speakers].
Yes. And I was going to say and then on the aesthetic side of the business, the market share is very, very high there are a leader, it’s a leading toxin and I think, so it is our good organic growth expected in 2016 and 2017.
And look, and we have about 11 indications on Botox, we are actively pursuing more in, the analogy I like to use is we are only halfway through the, not even probably halfway through the lifecycle of Botox, it really as a pipeline in a product and a great growth asset for the long-term. And particularly as you look at international markets, as well as huge opportunity for that product, now I forgot, you had a second question.
The other question is just on the Teva scenarios?
In terms of walk away I -- look just to be clear the -- Teva doesn’t want to walk away, we don’t want to walk away both management teams are absolutely aligned on getting this deal, Teva is doing a lot of work, they have restructured their company, they have named their entire leadership through few levels that includes many roughly 200 Allergan executives moving to Teva. Our people continue to focus on executing in the business the R&D engine of the generics business continues to fire on all cylinders, you saw some big filings in the last month or so. And so this is a great deal for Allergan, but also a great deal for Teva, and is going to position them for strong growth into the future. So I know everyone likes to look at trying to get out of the deal both management teams are working hard to get this deal done. I will tell you that they're making progress. They are doing all the heavy lifting needed to get the deal cleared in the U.S. and we've very confident that that will happen in June. That being said the outs are really related to the governments not approving the transaction essentially in whole. They already gone through the onerous issues in England or in the UK and perhaps some of the Northern countries and they've gotten excellent plans and good programs to satisfy the regulators there. And so my view is if this deal will close it will close in the first half of this year, late first half of this year.
Your next question comes from the line of Randall Stanicky.
Brent, what is the gating factor to share repurchases, is it your share price is it the deal landscape because to me this message sounds very similar to what it was previously in that, the focus is on deploying capital towards deals and share buybacks are always an option but one that you haven't pursued in the past aggressively at least? And then secondly just during the whole Pfizer process how active has your BD process been, there is a lot of talk around big deals but the public prices of small and mid cap assets come in a lot, so could you maybe comment on that landscape and your ability to get some deals done there? Thanks.
So the only gating factor on share buyback for us in pure sense is a Board approval and we have had active discussions with our Board on share buybacks versus other options for capital deployment. They are very well versed in it. And perhaps the reason Randall it sounds a little bit like how we've always talked about it is because we're a growth pharma company with a very strong focus on and orientation on growth. That being said where our stock is currently trading without question makes a share buyback program more compelling. And so it's something that I promise you, I'm in active discussions with our Board on. And if we believe the opportunity is there, we will have no hesitation in executing in that regard. I think with respect to our BD Group, they've been incredibly active throughout the entire Pfizer pre-integration period. I think we announced one deal right Anterios during the process there are other ones that are things that are -- we've been looking at very closely and could or may not happen but could be announced sooner or may go up at the end like all deals. You always hear about the ones we do, we don't hear about the ones we don’t do, but it's a very active period and I agree with you Randall, asset price is coming down, are good for people that have the capability and the expertise to do disciplined, smart, strategic deals and I think where our management team is good at doing disciplined, smart, strategic deals. So the environment has only improved for us and if it stays this way could be an exceptional period for us to look for growth assets.
This question is asked a lot but have the sellers come to the conclusion that valuations are down and are going to stay down or are sellers are still demanding multiples that we might have seen six, 12 to 18 months there?
Yes to be fair most -- on the public company side it's a different than the private company side in my view. Private companies tend to be more realistic, they never really have big impressive valuations lesser a unit quarter or something. On the public company side most of the CEO’s that I talk to have potential targets, say we're not ready to trade at this stock price, you can't take --- they still view their stock declines as anomalies but it's starting to soften. I detected as of late some softening in people to feel on that. And so my sense is when we didn’t plan it this way it's a bit fortuitous, but as we get into the end of the first half of this year and the Teva deal closes, my sense is people will start to come to groups with the new reality. So the timing and frankly couldn’t have lined up any better for us.
Your next question comes from the line of Liav Abraham from Citi.
A question of some of the questions that have already been asked, Brent, you've talked extensively about your open science approach towards R&D, but has there been any change to strategic thinking regarding your pipeline and development of your pipeline given all that has changed in the healthcare space over the past several months? And in particular do you feel the need to focus more on earlier stage pipeline opportunities and potentially even to invest more in enhancing or expanding your R&D capabilities either in current therapeutic areas or in new therapeutic areas? Thanks.
Yes, thanks Liav. Good question, look I think our approach to R&D and acquiring intellectual property and assets within the R&D area really it stays on track. When you look at -- I know a lot of people like to take the kind of public perception of R&D that Allergan carries which I think is not appropriate. And probably if you look at the facts I mean well is it a year or two ago we did Rhythm Health which was an early deal, now that’s moving into late stage. In our history right, we did the auction with Trevena for an early staged cardiac asset, so we have -- Vraylar that launched today is almost 14 year journey of licensing a compound in Phase I and during the entire pharmacological development and clinical development dealing with a CRL step back, brining in staff versus a place holder and actually growing staffers in a third re-launch and then launching current presenting Vraylar this week, that is who we are and that’s we are an R&D organization, identifies themselves as.
So we are very open minded to assets along the entire continuum of development, it's the way we structure the deals that changes depending on the phase it's in. So if it’s earlier we tend to try to take to mitigate the risk by taking more auction like approach to the deal or more heavily based milestone approaches weighted towards commercial milestone, and if it's later we tend to be more aggressive and look at -- because we have all the capabilities to bring it in-house as quickly as possible. With respect to our capabilities, I would say if someone answered the question they are not open to improving their capabilities you should certainly put a sell rating on their stock. I mean we always want to get better, whether it be in R&D or in commercial or any part of our company. We are always looking to improve our capabilities, get smarter, get stronger and that’s -- there is no question that in R&D if we have an opportunity for David to bring in smart people who can add value and capabilities or platform technologies or alike we are very open minded to doing that. So long as we believe that we can drive a return and make a difference.
With respect to the pricing environment, we shifted our strategy almost two and a half, three years ago to in license R&D assets that we believe we could either be first in the category, not third or fourth like many people do or have a unique product profiles to take Rapastinel right. We believe that is obviously breakthrough designation, if that were an oncology product we would have paid 5 billion not 500 million for it. But commercially it could be more successful than many of the oncology products and it participates in the market that’s larger than many of the oncology products. And really is a revolutionary way to potentially think about treating depression.
Think about CGRP, a crowded space and it's a really strong programs from the injectable side or the antibody side. So when we wanted as a migrating company, we wanted to participate in that market. We could have spent a few billion dollars and bought an antibody and been one or three or four or we could have done something different, and we did. We went out and we looked very specifically for an oral and we believe we bought the best in class oral program. And we have all the capabilities to develop it clinically and do all the regulatory work. And that’s what we intend to do and by the way we only had to pay 250 million or there about not 3 billion or 4 billion. And so we will continue to try to do things that where we can bring true innovation that will allow us to get appropriate pricing in the marketplace, in large markets where we have a presence and there is significant unmet need, and that is really what we do.
Just very quickly on your oral CGRP, can you comment on when your prophylactic asset that’s AGN-241689 when that is expected to enter the clinic in Phase II?
Yes, David do you want to take that one?
Yes, sure. Normally as Valsartan, which is of course the lead compound, we have looked out Phase III on that mid this year and we will be starting this prophylactic program also in early second half of this year with a prophylactic compound.
Yes. Your final question comes from the line of David Risinger from Morgan Stanley.
Just two questions, first, Tessa I was just hoping that you could talk about the first quarter outlook my understanding is that the numbers maybe down sequentially versus the fourth quarter more than consensus appreciates? And then second, with respect to the outlook for Botox clearly growth prospects are strong and Brent you talked about it being a pipeline within a product. But there are going to be growing competitive threats longer term including from Asian companies and so I was just hoping that you could also talk about the competitive threats to Botox and your plans for lifecycle management? Thank you.
Yes, you saw on the quarter, I mean obviously we are in a blackout period and so we can't really speak about our results for the quarter itself. What I would just do is really refer you back to our fourth quarter call and the strip in the presentation we had that trend which was obviously true at that time because I can't get you up to date on our performance given the blackout?
I think the same is to point to it were seasonality and some of the launches in the first half of the year as we already talked about on the call. And just think about that is in the sequencing of the year.
That is right.
With respect to competition for Botox we follow it very carefully and closely and take it quite seriously and to be fair we experience a very different competitive environment in different parts of the world which of course provides a lots of earnings for some of our anchor or key markets for Botox. A couple of things I would say is that Botox both therapeutically and aesthetically and all neuromodulators have to do the studies and get the indication approved and so in the U.S. and in many markets in around the world the competition that's coming isn’t really looking at the therapeutic indications that are critical to us. There are a few but the vast majority of them are not trying to come after the therapeutic because the studies are expensive and take a lot of time.
And then clearly our future indications are even more unique from a competitive perspective. And look I think aesthetically here is the issue with competing with Botox and something that we have to continue to watch carefully and make sure we are invest in is that Botox is the most well known pharmaceutical brand in the world and patients and customers come into offices and ask for Botox by name. Botox is not the cheapest option for neuromodulators in any market including the U.S. there are two other competitors that are priced anywhere from 20% to 30% or thereabout lower. The number one issue physicians tell us they have with Botox is not duration of effect or look or feel or customer service, the number one issue by far away is price and yes they don’t leave Botox for a cheaper competitors because they want the brand, they want their patients come in because their part of brilliant distinctions and they want to earn the points from brilliant distinctions, the physicians are part of the Allergan preferred physician programs they want the points and be part of the APP program and so we have built a wall and a mote essentially around Botox and while from time-to-time people may try to cross it we've been pretty effective in stopping it.
I don’t think that in the future that would change terribly but we have to stay on our toes and continuing to watch it. We will continue and adapt and invest in brilliant distinctions and future indications and we have our own new toxins in development including perhaps a topical. So we are not sitting around just tanning our chest we’re staying focused on building our brand and building the support and services that surround the brand, but also in R&D and I think that will hold well for us to be the market leader for a very long time.
Yes. Thank you. So let me just wrap-up by thanking everyone for participating in today's call. We'd just like to add that or end on the note that while this was clearly not the plan as of last week, we are excited we are energized and we are confident in our ability to drive our future as a standalone company. We have tremendous opportunity to continue to build the Premier Growth Pharmaceutical Company in the world and to continue to be a leader in every therapeutic area we are working in. And so we look forward to updating you in May and seeing many of you between now and then. Thank you.
Thank you everyone.
That does conclude today's conference call. You may now disconnect.
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