King Beats, but Earnings Down

King Pharmaceuticals, Inc. (KG - Analyst Report) reported third quarter earnings of 29 cents per share, beating the Zacks Consensus Estimate by 2 cents. Despite revenues increasing 19.3% from the year-ago period, earnings declined 25.6% from the year-ago quarter mainly due to higher operating expenses.

Total revenues came in at $463.3 million. The primary growth drivers were the Animal Health business, which came as a part of the Alpharma acquisition and an increase in sales of auto-injectors in the Meridian business.

King’s branded pharmaceuticals segment posted revenues of $283 million, down 6.3% from the prior-year period. While generic versions of Altace continued to impact the top-line, both Skelaxin and Thrombin-JMI sales continued to decline on a year-over-year basis.

Thrombin-JMI sales came in at $43 million, down 35.8%. We expect Thrombin-JMI sales to continue declining due to the tough competition being faced by the product from ZymoGenetics’ (ZGEN - Snapshot Report) Recothrom and Omrix Biopharmaceuticals’ (OMRI) Evithrom.

Meanwhile, Skelaxin, which posted sales of $102 million (down 7.3%), is facing stiff competition from Cephalon’s (CEPH - Analyst Report) Amrix. Amrix’ once-daily dosing regime and low rate of somnolence should provide it with an edge over other muscle relaxants like Skelaxin.

King is also facing patent challenges for Skelaxin and generic competition could enter later this year/early next year if the company does not enter into settlement agreements with the generic companies. Avinza sales also declined 13.9% to $31 million.

Flector Patch, obtained through King’s acquisition of Alpharma, recorded $40 million in sales in the reported quarter. King is promoting the product aggressively in order to drive sales. Embeda, another product obtained through the Alpharma acquisition, posted sales of $11 million. Revenues from the Animal Health business were $96 million for the reported quarter.

King’s Meridian Auto-Injector business continued to perform well with sales coming in at $72 million, up 5.9%. The launch of the next generation EpiPen Auto-Injector should help drive sales going forward.

Operating expenses increased significantly ($334 million, up 33.4%) mainly due to a significant increase in SG&A spending. A major part of the increase could be due to the company’s commercialization efforts in support of the Embeda launch.

The U.S. Food and Drug Administration approval of Embeda, which was launched on September 21, 2009, is a major milestone for King. We expect investor focus to remain on the successful commercialization of Embeda and the re-submission of King’s new drug application (NDA) on Remoxy, an opioid which is being developed with Pain Therapeutics (PTIE - Snapshot Report).