King Pharmaceuticals, Inc. (KG) reported second-quarter earnings of 32 cents per share, 6 cents above the Zacks Consensus Estimate. However, earnings declined 8.6% from the year-ago quarter mainly due to higher operating expenses. Meanwhile, revenues came in at $445 million, up 12% year over year.

Although generic versions of Altace continued to impact the top-line, products like Skelaxin, Thrombin-JMI and Flector Patch — as well as the Meridian Auto-Injector and Animal Health segments — posted better-than-expected sales.

However, we note that both Skelaxin and Thrombin-JMI sales declined on a year-over-year basis. We expect Thrombin-JMI sales to continue declining due to the tough competition being faced by the product from ZymoGenetics’ (ZGEN) Recothrom, and Omrix Biopharmaceuticals’ Evithrom. Meanwhile, Skelaxin is facing stiff competition from Cephalon’s (CEPH) Amrix. King is currently facing patent challenges for Skelaxin and generic competition could enter later this year if the company does not enter into settlement agreements with the generic companies.

King maintained its previously issued guidance and announced that it has repaid $152 million of its long-term debt of $625 million, which was taken in connection with its acquisition of Alpharma. So far, King has repaid about $200 million. The company remains on track to achieve $80 million in synergies this year from this acquisition, and expects to save approximately $20 million in SG&A expenses in 2009.

From 2010 onwards, King expects annual cost savings of approximately $80 million. A part of these synergies should be achieved by cutting down on SG&A and R&D spend.

Going forward, we expect investor focus to remain on the approvability status of abuse-deterrent opioid, Embeda, which is currently under FDA review. King suffered two major setbacks over the past several months, when Remoxy and Acurox failed to receive FDA approval. Embeda’s approval date has already been pushed back significantly and failure to receive FDA approval would be a major blow for the stock.
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