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Warner Chilcott’s fourth quarter 2012 earnings (excluding special items) of 91 cents per share handsomely beat the Zacks Consensus Estimate of 73 cents. Lower selling, general & administrative costs boosted earnings in the reported quarter. The company earned 96 cents per share in the final quarter of 2011. Including one-time items, fourth-quarter  2012 earnings surged 36.1% to 49 cents per share.

Revenues in the final quarter of 2012 declined 5% to $612 million. The decline was primarily attributable to lower sales of its osteoporosis drug, Actonel due to generic competition. Moreover, reduced sales of dermatological product Doryx hurt revenues in the fourth quarter of 2012. Revenues, however, beat the Zacks Consensus Estimate of $564 million.

Full year earnings came in at $4.09 per share, well above the Zacks Consensus Estimate of $3.91 and 6. 8% above the year-ago earnings. Full year earnings were above the guidance range of $3.75–$3.85 per share. Revenues decreased 7.4% to $2.5 billion in 2012, in line with the Zacks Consensus Estimate.

Quarterly Details

Revenues from osteoporosis products declined 35.2% to $125 million.  Actonel sales declined 42% to $104 million. The loss of patent exclusivity of the drug in Western Europe in Dec 2010 hurt revenues in the quarter. We remind investors that Actonel was acquired from Procter & Gamble Company (PG - Analyst Report) in 2009. Bulk of the revenues (62.5%) came from the US market. US sales of the drug were down 40% in the fourth quarter of 2012 primarily due to a 40% decrease in filled prescriptions.

Warner Chilcott, which expects Actonel sales to continue declining, believes that osteoporosis therapy Atelvia (launched in Dec 2010) will help counter loss of revenues from Actonel in the US. Atelvia contributed $21 million to total revenue in the fourth quarter of 2012, up 10.5% sequentially.

Revenues from oral contraceptives climbed 40.2% to $136 million. Sales of Lo Loestrin FE (launched in the US in 2011) doubled to $42 million in the final quarter of 2012. Moreover, sales of Loestrin 24 FE climbed 25.4% to $89 million. Sales of Loestrin 24 FE increased due to a decline in sales-related deductions and higher average selling prices. An expansion in pipeline inventories also contributed to the increase in sales of Loestrin 24 FE in the final quarter of 2012.

Sales of hormone therapy products climbed 15% to $61 million in the fourth quarter of 2012, driven by increased sales of Estrace cream (up 21.4% to $51 million). A 10% increase in filled prescriptions, a decline in sales-related deductions and higher average selling prices led to the rise in Estrace cream sales in the reported quarter.

Sales of dermatological product Doryx plummeted 59% to $19 million owing to generic competition and an increase in sales-related deductions

Sales of gastroenterology product Asacol climbed 15% to $204 million in the final quarter of 2012. Bulk of the sales (90.6%) came from the US market. US sales of Asacol climbed 15.6% facilitated by higher average selling prices, decline in sales-related deductions and an expansion of pipeline inventories. Sales of urology product Enablex declined 2% to $40 million in the final quarter of 2012.

Selling, general and administrative (SG&A) expenses were down 8% in the reported quarter to $191 million. The decline was attributable to cost savings as a result of the move to the distributor model in Western Europe, reduced co-promotion expenses as a result of lower Actonel sales in ex-US markets and a reduction in the US field sales forces. Research and development (R&D) costs climbed 15% to $30 million in the fourth quarter of 2012 due to an increase in project spending.

2013 View Backed

Warner Chilcott maintained the guidance for 2013, issued by it earlier in the month. The company continues to expect to earn $3.20–$3.30 per share on total revenues of $2.3–$2.4 billion in 2013. The Zacks Consensus Estimate for 2013 is currently pegged at $3.28 per share, on revenues of $2.4 billion.

Warner Chilcott currently carries a Zacks Rank #3 (Hold). Lannett Inc (LCI - Snapshot Report) and United Therapeutics (UTHR - Analyst Report) are well placed in the pharmaceutical space with a Zacks Rank #1 (Strong Buy).
 

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