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Earnings Beat at Warner Chilcott

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Warner Chilcott’s first quarter 2013 earnings (excluding special items) of 92 cents per share handsomely beat the Zacks Consensus Estimate of 85 cents. Lower selling, general & administrative costs boosted earnings in the reported quarter.

The company earned $1.16 per share in the first quarter of 2012.  Including one-time items, first-quarter 2013 earnings were flat at 45 cents per share.

Revenues in the first quarter of 2013 declined 13.4% to $593 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 and gastroenterology product Asacol hurt revenues in the first quarter of 2013. Revenues, however, beat the Zacks Consensus Estimate of $589 million.

Quarterly Details

Revenues from osteoporosis products declined 19.8% to $130 million. Actonel sales declined 24% to $111 million. The loss of patent exclusivity of the drug in Western Europe in Dec 2010 hurt revenues in the quarter. Bulk of the revenues (71.2%) came from the US market.

US sales of the drug climbed 3.9% in the first quarter of 2013 due to a reduction in sales-related deductions and higher average selling prices. An expansion of pipeline inventories also led to the increase.

Warner Chilcott, which expects Actonel sales to continue declining, believes that osteoporosis therapy Atelvia (approved in the US in the fourth quarter of 2010) will help counter the loss of revenues from Actonel in the US. Atelvia contributed $19 million to total revenue in the first quarter of 2013, up 19%.

Revenues from oral contraceptives climbed 6.3% to $151 million. Sales of Lo Loestrin FE (launched in the US in 2011) jumped 85.7% to $52 million in the first quarter of 2013. Sales of Loestrin 24 FE declined 13.9% to $93 million. Sales of Loestrin 24 FE declined due to a 22% reduction in filled prescriptions.

Sales of hormone therapy products came in flat at $65 million. Bulk of the sales came from Estrace cream, flat year over year at $53 million. Sales of dermatological product Doryx declined 37% to $19 million owing to generic competition for the 150 mg version of the drug.

In Apr 2013, the US Food and Drug Administration approved Doryx at 200 mg strength (delayed release tablets). The company intends to launch the 200 mg version of the drug in Jul 2013. We are positive on the approval of Doryx (200 mg) as it has extended the life cycle of the drug at Warner Chilcott, following the genericization of the 150 mg dosage of Doryx last year.

Sales of ulcerative colitis drug Asacol plummeted 27.5% to $153 million in the first quarter of 2013. A 30% reduction in US sales primarily contributed to the decline. The decline in US sales was primarily attributable to the company’s decision to stop trade shipments of the 400 mg version of Asacol in the US following the approval and launch of Delzicol in the first quarter of 2013. Delzicol sales came in at $5 million in the first quarter of 2013.

Selling, general and administrative expenses were down 9.6% in the reported quarter to $179 million. The decline was primarily attributable to reduced co-promotion expenses as a result of lower Actonel sales in ex-US markets. Research and development expenses were flat at $25 million in the first quarter of 2013.

2013 View Backed

Warner Chilcott maintained the guidance for 2013, issued by it on Feb 8, 2013. The company expects 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 pegs earnings at $3.29 per share on revenues of $2.36 billion.

Warner Chilcott still expects selling, general and administrative (SG&A) expense in 2013 in the range of $750–$800 million. Research and development (R&D) expenses in 2013 are expected in the range of $115–$135 million.

Warner Chilcott in Merger Talks

On the same day, Warner Chilcott confirmed that it is in preliminary discussions with generic player Actavis Inc. (ACT - Free Report) regarding a merger between the two companies. No further details were disclosed. We expect investor focus to remain on the outcome of talks going forward.

Warner Chilcott currently carries a Zacks Rank #3 (Hold). Companies such as Cubist Pharmaceuticals Inc. and Celgene Corp. (CELG - Free Report) appear to be more attractive with a Zacks Rank #2 (Buy).

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