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Warner Chilcott’s second-quarter 2012 earnings (excluding special items) of $1.03 per share handsomely beat the Zacks Consensus Estimate of 80 cents and the year-ago earnings of 94 cents. Lower selling, general & administrative costs boosted earnings in the reported quarter.

Revenues in the reported quarter declined 4.8% to $638 million. The decline was primarily attributable to lower sales of osteoporosis drug, Actonel -- acquired from Procter & Gamble Co. (PG - Analyst Report) in 2009 -- due to generic competition. Moreover, reduced sales of dermatological product Doryx hurt revenues in the reported quarter. Revenues, however, beat the Zacks Consensus Estimate of $610 million.

Quarterly Details

Revenues from osteoporosis products declined 17.4% to $166 million.  Actonel sales declined 22.3% to $150 million. The loss of patent exclusivity of the drug in Western Europe in December 2010 hurt revenues in the quarter. Bulk of the revenues (60%) came from the US. US sales of the drug were down 15% in the second quarter of 2012 due to a 37% 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 second quarter of 2012, flat sequentially.

Revenues from oral contraceptives climbed 17.4% to $135 million. A 209% jump in the sales of Lo Loestrin FE (launched in the US in 2011) to $34 million more than mitigated the 9% decline in the sales of Loestrin 24 FE. Sales of Loestrin 24 FE declined due to lower filled prescriptions coupled with an increase in sales-related deductions.

Sales of hormone therapy products climbed 34.7% to $53 million in the second quarter of 2012, driven by increased sales of Estrace cream (up 21.1% to $46 million). A 15% 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 28.1% to $23 million. Generic competition and an increase in sales-related deductions hurt sales of the drug during the reported quarter.

We remind investors that Warner Chilcott suffered a huge blow regarding the 150 mg dosage of Doryx in April 2012. On April 30, 2012, a US 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 entered the US market with its generic version of Doryx 150 mg in May 2012.

Sales of gastroenterology product Asacol and urology product Enablex were more or less flat at $187 million and $41 million, respectively.

Selling, general and administrative (SG&A) expenses declined 30% in the reported quarter to $173 million. All the components of SG&A expenses- advertising and promotion costs, selling and distribution expenses and general, administrative and other- declined in the reported quarter. Research and development (R&D) costs declined 8% to $23 million in the second quarter of 2012.

2012 Earnings Outlook Upped

Apart from announcing second quarter results, Warner Chilcott upped its 2012 adjusted earnings guidance. Warner Chilcott now expects adjusted earnings in the range of $3.55-$3.65 (previous guidance: $3.30-$3.40). The Zacks Consensus Estimate of $3.61 per share is well within the company’s new guidance range.

Warner Chilcott trimmed its SG&A guidance to $775-$825 million (previous guidance: $800-$850 million). Cost savings due to the restructuring of Warner Chilcott’s operations in Western European nations such as Belgium, the Netherlands, France, Germany, Italy, Spain, Switzerland and the UK contributed to the reduced guidance. R&D expenses are now projected in the range of $100-$120 million (previous guidance: $110-$130 million). 

Warner Chilcott continues to expect revenues in the range of $2.4 billion and $2.5 billion. The Zacks Consensus Estimate is $2.48 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.

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