Warner Chilcott Beats, Sales Rise - Analyst Blog

Warner Chilcott plc (WCRX) posted second-quarter earnings of 95 cents per share, beating the Zacks Consensus Estimate of 81 cents and the prior-year earnings of 44 cents. Higher revenues accounted for increased earnings.

Revenues

Quarterly revenues, at $815.6 million, more than tripled from $250.8 million, a year ago. The astronomical year-over-year increase resulted primarily due to contributions from the products (mainly Actonel, Asacol and Enablex) acquired from Procter & Gamble Co. (PG) in October 2009. The products acquired from Procter & Gamble added $512.2 million to the revenues of Warner Chilcott.

Revenues from oral contraceptives went up 44.1% to $33.0 million. Improved sales of Loestrin 24 FE (up 53.7% to $89.1 million) helped boost revenues.

Warner Chilcott’s dermatology product sales increased 10.2% to $126.4 million. Key drivers were Doryx (up 13.7%) and Dovonex and Taclonex (up 8%).

Revenues from sales of products purchased from Procter & Gamble included Actonel ($263.6 million) and Asacol ($192.5 million). Unfortunately, Actonel is losing market share with managed care organizations supporting the use of generic versions of competitive products. Moreover, Actonel itself will face generic competition in certain parts of the EU from the fourth quarter of 2010.

Expenses

Warner Chilcott’s research and development (R&D) expenses were $31.3 million during the quarter, compared with $11.9 million during the year-ago quarter. The increase in R&D expenses resulted from continued investment in the pipeline and addition of R&D projects from Procter & Gamble coupled with higher expenses associated with an increase in personnel and facilities.

Selling, general and administrative (SG&A) expenses amounted to $243.2 million, up from $53.0 million in the prior-year period. Increase in advertising and other promotional spending, infrastructure costs and increased head count, all related to the acquired Procter & Gamble products, led to elevated SG&A expenses.

Outlook Reaffirmed

Warner Chilcott reaffirmed its fiscal 2010 earnings expectation range of $3.45 to $3.55 per share, while expecting revenues to come in towards the lower end of the guided range of $2.90 billion to $2.95 billion. The current Zacks Consensus Estimate of $3.43 per share lies below the company’s guidance range.

Our View

We currently have a Neutral recommendation on Warner Chilcott, which is supported by a Zacks #3 Rank (Hold). Although the company will be facing a number of patent expiries in the coming years (including Actonel in December 2010 in Europe, and in 2014 in the US, Doryx in mid 2011, and Asacol in 2013), we believe Warner Chilcott’s diversified product base will help withstand the generic threat.

 

 
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