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Par Pharmaceutical Companies Inc. ( ) posted adjusted earnings of 74 cents per share during the third quarter fiscal 2011, in line with the Zacks Consensus Estimate, but below the year-ago earnings of 88 cents per share. Lower revenues led to the decline in earnings.
On a sequential basis also, earnings declined 12.0% during the third quarter.
Quarterly revenues of $215.4 million surpassed the Zacks Consensus Estimate of $209 million, but were 8.1% below the year-ago figure of $234.4 million. Lower royalty income and a slip in the sales of Par Pharma’s generic products primarily led to the decline.
On a sequential basis also, revenues for the quarter fell 4.1%.
Sales of some of Par Pharma’s other generic drugs also increased, including sumatriptan (up 10% sequentially to $16.8 million), propafenone hydrochloride (up 36.1% sequentially to $18.1 million) and budesonide (up 25.6% sequentially to $20.6 million). These products experienced a jump primarily due to customer buying patterns.
However, sales of some other generic drugs including amlodipine and benazepril (down 64.0% sequentially to $4.5 million) and meclizine (down 15.2% sequentially to $3.9 million) dwindled given increased competition for these products.
Sales of Par Pharma’s branded products, Megace ES remained almost flat sequentially during the third quarter at $14.2 million, while Nascobal B12 Nasal Spray (down 25.4% to $4.7 million), witnessed a fall, primarily due to increase in Medicaid rebates.
Gross profit declined during the quarter, amounting to $85.1 million (39.5% of the total revenue), compared with $99.0 million (44.2% of the total revenue) in the second quarter of 2011. Lower royalty income and deflated sales of amlodipine/benazepril during the reported quarter led to the sequential decline.
Research and development (R&D) expenses increased to $9.6 million, from $8.1 million in the second quarter of 2011, primarily due to higher generic development costs.
Selling, general and administrative (SG&A) expenses fell 22.5% sequentially to $35.8 million, mainly owing to lower legal and share-based compensation expenses.
Both R&D and SG&A expenses for the quarter declined 5.0% and 28.8%, respectively, on a year-over-year basis.
For 2011, Par Pharma expects R&D expenses in the range of $35 – $40 million and S&A expenses in the range of $175 – $180 million.
We currently have a Neutral recommendation on Par Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. We note that the company currently has around 32 abbreviated new drug applications (ANDAs) pending approval with the US Food and Drug Administration (FDA). Thirteen of these are believed to be first-to-file opportunities.
Par Pharma has been quite active in making acquisitions and entering into deals lately. So far in 2011, the company has announced three deals. In October, Par Pharma acquired the rights to three products from Teva Pharmaceutical Industries Ltd. ( TEVA - Analyst Report ) , following the latter’s acquisition of Cephalon.
In August, the company announced its intention to acquire Anchen Pharmaceuticals for $410 million in cash. Earlier, in May, Par Pharma announced its intention to acquire India-based generic company Edict Pharmaceuticals. We note that these transactions will add to Par Pharma’s portfolio and help boost the company’s revenues.
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