Warner Chilcott’s ( WCRX - Analyst Report ) first quarter 2012 earnings (excluding special items) of $1.16 per share handsomely beat the Zacks Consensus Estimate of 93 cents. Higher-than-expected revenues and lower-than-expected costs led to the earnings beat in the first quarter of 2012. Moreover, earnings beat the prior-year figure by 11.5%.

Revenues in the reported quarter declined 9.5% to $685 million. The decline was primarily attributable to lower sales of its osteoporosis drug, Actonel -- acquired from Procter & Gamble Co. ( PG - Analyst Report ) in 2009 -- due to generic competition. Moreover, reduced sales of dermatological product Doryx also hurt revenues in the reported quarter. Revenues, however, beat the Zacks Consensus Estimate of $651 million.

Quarterly Details

Revenues from osteoporosis products declined 30.5% to $162 million. Actonel sales declined 37.1% to $146 million. The loss pf patent exclusivity of the drug in Western Europe in December 2010 hurt revenues in the quarter. Moreover, U.S. sales of the drug were down 47% in the first quarter of 2012 due to a 39% decrease in filled prescriptions.

Warner Chilcott, which expects Actonel sales to continue declining, believes that osteoporosis therapy Atelvia (launched in December 2010) will help counter the loss of revenues from Actonel in the US. Atelvia contributed $16 million to total revenues in the first quarter of 2012, up 23% sequentially.

Revenues from oral contraceptives climbed 3.6% to $142 million. A 250% jump in the sales of Lo Loestrin FE (launched in the U.S. in 2011) to $28 million more than mitigated the 9% decline in the sales of Loestrin 24 FE. Sales of Loestrin 24 FE declined primarily due to lower filled prescriptions.

Sales of hormone therapy products climbed 34.7% to $66 million in the first quarter of 2012, driven by increased sales of Estrace cream (up 49% to $52 million). Lower sales-related deductions, a 16% increase in filled prescriptions, in addition to higher average selling prices, led to the rise in Estrace cream sales in the reported quarter.

Sales of dermatological product Doryx declined 55% to $30 million. The decline was attributable to an increase in sales-related deductions coupled with a 4% decrease in filled prescriptions. We note that recently Warner Chilcott suffered a huge blow regarding the 150 mg dosage of Doryx.

On April 30, 2012, a U.S. district court issued a verdict regarding Mylan ( MYL - Analyst Report ) and Impax Laboratories’ ( IPXL - Snapshot Report ) applications to the FDA to sell their generic versions of the drug. The court ruled the generic versions of neither of the companies infringed the patent of Doryx. Following the verdict, Mylan has entered the U.S. market with its generic version of Doryx 150 mg.

Sales of gastroenterology product, Asacol, climbed 13% to $211 million. The increase was driven by higher sales in the U. S. aided by higher prices. Sales of urology product Enablex declined 2% to $44 million. A 13% reduction in filled prescriptions hurt revenues during the quarter.

Selling, general and administrative (SG&A) expenses were down 22% in the reported quarter to $198 million. The decline was primarily attributable to a reduction in expenses resulting from restructuring in Western Europe. Research and development (R&D) costs plummeted 19% to $25 million in the first quarter of 2012.

Restructuring Operations to be Completed Shortly

Apart from announcing financial results, Warner Chilcott announced that it will complete the restructuring of its operations in Western European nations such as Belgium, the Netherlands, France, Germany, Italy, Spain, Switzerland and the UK in 2012. The restructuring was announced in April 2011.

Warner Chilcott undertook this move to counter the loss of revenues due to the loss of exclusivity of Actonel in Western Europe in late 2010. Warner Chilcott incurred $50 million in restructuring costs in the first quarter of 2012. As a result of the restructuring, the workforce at Warner Chilcott is expected to be trimmed by approximately 500 employees.

2012 Outlook Slashed

Following the adverse court ruling regarding Doryx 150 mg, Warner Chilcott trimmed its 2012 guidance. The company expects to earn in the range of $3.30-$3.40 per share (on an adjusted basis) on revenues between $2.4 billion and $2.5 billion. Earlier, the company had said that it expected to end 2012 with adjusted earnings in the range of $3.60-$3.70 per share on revenues between $2.5 billion and $2.6 billion.

The Zacks Consensus Estimate for 2012 currently hints at earnings of $3.64 per share on revenues of $2.53 billion.

Our Recommendation

We currently have a Neutral recommendation on Warner Chilcott in the long run. The stock carries a Zacks #3 Rank (Hold rating) in the short run.