Medicis Pharmaceutical Corp. (MRX) posted first quarter fiscal 2011 earnings of 50 cents per share, beating the Zacks Consensus Estimate by a penny, but 18.8% down from the year-ago earnings of 61 cents per share. Lower revenues and higher operating expenses led to a decline in earnings during the quarter.

Quarterly revenues decreased 0.4% to $164.9 million. Revenues also missed the Zacks Consensus Estimate of $170 million. Lower revenues from acne products and other non-dermatological products led to the curtailed top line.

First quarter earnings and revenues came within the guidance range provided by the company. Medicis Pharma was expecting earnings in the range of 45 cents to 50 cents per share on revenues of $160 million to $170 million.

Quarterly Highlights

Medicis Pharma’s acne product sales amounted to $103.5 million during the first quarter, down 13.9% year over year. Increased returns reserves associated with the latest strengths of Solodyn (45 mg, 90 mg and 135 mg) and Ziana, the impact of early discontinuation of Triaz and the promotion halt of Plexion, all led to uninspiring sales in the business franchise. Acne products primarily comprise of Solodyn and Ziana.

Non-acne product sales came in at $52.2 million, up 52.5% year over year, primarily due to increased sales of Dysport, Restylane and Vanos. The non-acne group consists mainly of Dysport, Perlane, Restylane and Vanos.

Revenues from other non-dermatological products declined 16.7% during the quarter to $9.2 million. The non-dermatological products franchise mainly comprises Ammonul, Buphenyl and contract revenue.

Gross margin for the reported quarter went up 40 basis points (bps) to 91.3%. While research and development (R&D) expenses were $7.1 million, compared with $6.6 million in the first quarter of 2010, selling, general and administrative (SG&A) expenses shot up 14.4% to $82.7 million.

Outlook Updated

For 2011, Medicis Pharma expects earnings in the range of $2.45 to $2.60 per share (old guidance: $2.40 – $2.60) on revenues of $735 million to $770 million (old guidance: $730 – $770 million). The current 2011 Zacks Consensus Estimate of $2.51 per share lies within the company’s guidance range.

Medicis Pharma also updated the earnings and revenue guidance range for the remaining quarters of 2011. For the second quarter, earnings are expected to range from 61 cents to 66 cents per share on revenues of $185 million to $197 million (old guidance: $185 million – $195 million). The Zacks Consensus Earnings Estimate for the quarter is 63 cents per share.

Medicis Pharma expects third quarter earnings to lie between 63 cents and 68 cents per share on revenues of $190 million to $202 million (old guidance: $190 million – $200 million). The final quarter of fiscal 2011 sees peak guidance for both earnings and revenues, with the former in a band of 71 cents to 76 cents on revenues of $195 million – $206 million (old guidance: $195 million – $205 million).

Medicis Pharma expects gross margin to be about 90 – 92% of revenues in 2011. While SG&A expenses are expected to come in at about 45 – 47% of revenues, R&D expenses are expected to be about 6 – 7% of revenues.

Our Take

We currently have a Neutral recommendation on Medicis Pharma, which is supported by a Zacks #3 Rank (short-term Hold rating). The company received approval for additional dosage strengths (55 mg, 80 mg, 105 mg) of acne treatment drug, Solodyn, in August 2010.

Medicis Pharma currently has US Food and Drug Administration’s approval for eight strengths of Solodyn – 45 mg, 55 mg, 65 mg, 80 mg, 90 mg, 105 mg, 115 mg and 135 mg – offering greater prescribing flexibility to physicians.

We believe that Medicis Pharma will look to shift patients to the new dosage strengths so as to reduce the impact of generics of older dosages post November 2011.

However, we are concerned about the competitive threats to Dysport (used for the treatment of glabellar lines) from Allergan Inc.’s (AGN) Botox.

 
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