Last week, Cornerstone Therapeutics Inc. (CRTX) reported second quarter earnings of 13 cents per share, which was well below the Zacks Consensus Estimate of 33 cents.

Net revenues for the quarter came in at $25 million, which reflected a 78% increase over the prior-year quarter. The company reported earnings of 31 cents per share in the previous year quarter.

Operating expenses increased significantly in the quarter primarily due to increases in the workforce — an increase in legal and accounting costs, costs associated with the Chiesi transaction, FDA regulatory-related fees, product liability, insurance-related costs, new product launches and royalties on increased product sales.

As a reminder, Cornerstone Therapeutics Inc. was established through the merger of Critical Therapeutics with Cornerstone Biopharma Holdings Inc. in the fourth quarter of 2008. The financial statements for periods prior to the merger reflect the historical results of Cornerstone BioPharma, not Critical Therapeutics, and those for all subsequent periods reflect the results of the combined company.

Management reaffirmed that their net revenues in 2009 will be in excess of $95 million. Additionally, the company expects to achieve income from operations in excess of $17 million. Cornerstone exited the quarter with $15.5 million in cash and cash equivalents.

The merged entity has a wide range of products in its portfolio including AlleRx for allergic rhinitis; Balacet 325 for pain; Spectracef, an oral antibiotic for infections; and Zyflo/Zyflo CR for asthma. The company currently promotes its products in the United States to respiratory-focused physicians and key retail pharmacies with its specialty sales force. Cornerstone’s sales force consists of more than 80 sales representatives.

Cornerstone also generates revenue from the sale of multiple marketed product lines that it does not promote. The company has a deep late-stage clinical pipeline with quite a few regulatory approval submissions expected between within 2011.

Cornerstone’s recent $70 million deal agreement with Chiesi Farmaceutici, an Italian pharmaceutical firm, further broadens its product portfolio. The deal includes U.S. rights to the Chiesi drug Curosurf, which is used to treat respiratory distress syndrome (RDS) in premature babies.

Cornerstone operates in a highly competitive respiratory market. All its products compete with both big players and generic counterparts. However, we believe the company’s strategy will carve a niche in this market. Cornerstone’s top competitors include big players like AstraZeneca (AZN) and Merck (MRK).
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