Medicis Outshines in 1Q

Medicis Pharmaceutical Corp.’s (MRX) first quarter 2012 earnings per share (EPS) climbed 9.1% from the prior-year quarter to 60 cents. Earnings were well above management’s guidance range of 37 cents to 43 cents per share, and also surpassed the Zacks Consensus Estimate of 42 cents. Higher revenues and a lower share count helped boost earnings.

Quarterly revenues went up 22.3% to $201.7 million, above the company’s guidance range of $177 million to $188 million and the Zacks Consensus Estimate of $185 million. All three segments contributed to growth.

Quarterly Highlights

Medicis’ acne product sales increased 4.9% year over year to $108.5 million. The company benefitted from the alternate fulfillment initiatives and the corresponding reduction in customer rebates and higher sales of drugs Solodyn and Ziana. This segment primarily comprises Solodyn and Ziana.

Non-acne product sales came in at $74.0 million, up 41.7%, primarily due to increased demand for the Restylane franchise, Zyclara in the U.S. and Aldara in Canada (both acquired in fourth quarter of 2011). The non-acne group consists of Dysport, Perlane, Restylane, Vanos and Zyclara.

Revenues from other non-dermatological products shot up 108.5% during the quarter to $19.2 million, driven by higher sales of Maxair Autohaler in the U.S. and Qvar in Canada (both acquired in fourth quarter of 2011). The non-dermatological products franchise comprises Ammonul, Buphenyl, Maxair Autohaler and contract revenue.

Gross margin for the reported quarter went down 140 basis points (bps) to 89.6%. Research and development (R&D) expenses were $51.8 million, compared with $14.3 million in the first quarter of 2011. The significant increase resulted from R&D charges of $39.0 million associated with the upfront and milestone payments made to partners in the first quarter of 2012. SG&A expenses came in at $103.4 million versus $84.6 million in the year-ago quarter. The increase was due to higher spending on promotional programs.

Outlook for 2012

For 2012, Medicis expects earnings in the range of $2.62 – $2.86 per share on revenues of $830 – $862 million. The current 2012 Zacks Consensus Estimate for earnings is pegged at $2.73 per share on revenues of $849 million, both of which are within the company’s guidance range.

Additionally, the company expects gross margin of about 89% - 91% of revenues in 2012. While SG&A expenses are expected to come in at about 47% - 49% of revenues, R&D expenses are expected to be about 6% - 8% of revenues.

For the second quarter of 2012, Medicis forecasts earnings of 37 cents to 47 cents per share on revenues of $185 to $195 million. The current Zacks Consensus Estimate for earnings of 49 cents falls and revenues of $199 million lie above the guidance range.

Our Take

We currently have a Neutral recommendation on Medicis. The stock carries a Zacks #3 Rank (Hold rating) in the short run. While we believe that the February 2012 Graceway Pharma acquisition has expanded the company’s commercial product portfolio and strengthened its pipeline, we remain concerned about the competitive threats to Dysport from Allergan Inc.’s (AGN - Analyst Report) Botox.