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Glitch in Medicis-Valeant Deal

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Medicis Pharmaceutical Corp.’s posted third quarter 2012 earnings of 48 cents, below the Zacks Consensus Estimate of 51 cents.  Earnings declined 21.3% from the prior-year quarter.

Quarterly revenues at Medicis decreased 2.4% to $180.2 million, missing the Zacks Consensus Estimate of $190 million, primarily due to the weak performance of the acne and acne-related dermatological products segment.

On September 2, 2012, Valeant Pharmaceuticals International, Inc. (VRX - Snapshot Report) entered into an agreement with Medicis to acquire the latter for $44.00 per share in cash. The deal is estimated to be worth approximately $2.6 billion.

We note that the transaction was approved by the Boards of Directors of both Valeant and Medicis and is expected to be completed in the first half of 2013. On December 7, 2012, a special meeting will be held for Medicis’ shareholders. The stockholders will vote on the acquisition proposal.

Quarterly Highlights

Medicis’ acne and acne-related dermatological product sales decreased 28.5% year over year to $85.1 million. The decrease was attributable to wholesale customers stocking their inventory levels due to the previously announced alternate fulfillment initiatives by the company.

Non-acne product sales came in at $80.8 million, up 45.1%, primarily due to increased Dysport, Perlane and Vanos sales and the inclusion of Zyclara and Aldara revenues (both acquired in December 2011).

Revenues from other non-dermatological products shot up 44.4% during the quarter to $14.3 million, driven by the inclusion of revenues from products added to the company’s portfolio post the Graceway acquisition in December 2011.

Gross margin for the reported quarter contracted to 89.1% from 90.7% in the year-ago quarter. Research and development (R&D) expenses were down 57.1% to $12.3 million. Inclusion of a payment of $20.0 million related to a product development agreement with Lupin Limited boosted R&D in the third quarter of 2011.

Selling, general and administrative (SG&A) expenses came in at $111.5 million, an increase of 19.6% from the year-ago quarter, primarily driven by a rise in personnel costs and professional fees.

Other Details

Earlier this month, Q-Med AB filed a lawsuit against Medicis alleging that the latter has breached the agreement between the two companies. Q-Med granted Medicis exclusive US and Canadian rights to market certain dermal filler products, including Restylane and Perlane. Q-Med is seeking a preliminary injunction to prevent the Medicis–Valeant deal.

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