King Pharmaceuticals, Inc. (KG) reported fourth-quarter earnings of 23 cents per share, a penny below the Zacks Consensus Estimate. Despite fourth quarter revenues increasing 26.1% from the year-ago period, earnings declined 20.6% from the year-ago quarter, mainly due to higher operating expenses.
Full-year earnings, which came in a couple of cents above the Zacks Consensus Estimate at $1.10, declined 28.6% from the year-ago period. Meanwhile, full-year revenues increased 14% to $1.78 billion.
Fourth-Quarter Performance
Fourth-quarter revenues came in at $439.1 million. King’s branded pharmaceuticals segment remained flat with revenues coming in at $277 million. While Avinza revenues remained flat, both Skelaxin and Thrombin-JMI sales continued to decline on a year-over-year basis.
Thrombin-JMI sales came in at $44 million, down 22.8%. We expect Thrombin-JMI sales to continue declining due to the tough competition being faced by ZymoGenetics‘ (ZGEN) Recothrom and Omrix Biopharmaceuticals‘ (OMRI) Evithrom.
Meanwhile, Skelaxin, which posted sales of $96 million (down 15%), is facing stiff competition from Cephalon‘s (CEPH) Amrix. Amrix’s once-daily dosing regime and low rate of somnolence should provide it with an edge over other muscle relaxants like Skelaxin.
King is also facing patent challenges for Skelaxin, and generic competition could be on the way if the company does not enter into settlement agreements with the generic companies.
Avinza revenues remained flat at $33 million. Meanwhile, Flector Patch, obtained through King’s acquisition of Alpharma, recorded $43 million in sales in the reported quarter. King is promoting the product aggressively in order to drive sales.
Embeda, another product obtained through the Alpharma acquisition, posted sales of $6 million. Embeda was launched in the third quarter of 2009.
Revenues from the Animal Health business were $101 million for the reported quarter. We were disappointed to see a decline in revenues from King’s Meridian Auto-Injector both on a sequential and year-over-year basis.
Operating expenses increased significantly ($339.8 million, up 40.9%) mainly due to a significant increase in SG&A spending. We believe a major part of the increase is due to the company’s commercialization efforts in support of the Embeda launch.
Our Expectations
We currently have a Neutral recommendation on King. While declining sales and prescription trends and regulatory delays remain a matter of concern, we view the approval and launch of Embeda as a major milestone for the company. Embeda represents significant growth potential and could help King gain a leadership position in the abuse-deterrent opioid market.
We expect investor focus to remain on the successful commercialization of Embeda and the re-submission of King’s new drug application (NDA) on Remoxy, an opioid which is being developed with Pain Therapeutics (PTIE).
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