King Disappoints, Revenues Slide – Analyst Blog

 

King Pharmaceuticals Inc (KG) reported first-quarter earnings of 14 cents per share, well below the Zacks Consensus Estimate of 24 cents and the year-ago earnings of 26 cents. Revenues fell 11.2% from the year-ago quarter to $380.9 million.

 

 

King’s branded Pharmaceuticals segment declined 12.9% with revenues coming in at $242 million. Revenues of all key products excluding Flector Patch declined from the year-ago period.

 

Thrombin-JMI sales declined to $37 million, down 21.3%. We expect Thrombin-JMI sales to continue declining due to the tough competition in the form of ZymoGenetics‘ (ZGEN) Recothrom and Omrix Biopharmaceuticals‘ (OMRI) Evithrom.

 

Meanwhile, Skelaxin, which posted sales of $91 million (down 9.9%), 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. We expect Skelaxin sales to decline significantly as two generic versions of the product hit the market early in the second quarter of 2010.

 

Avinza revenues declined significantly (41%) to $23 million. Meanwhile, Flector Patch, obtained through King’s acquisition of Alpharma, recorded $34 million in sales, up 1.3%. Sales, however, were down on a sequential basis.

 

Embeda, another product obtained through the Alpharma acquisition, posted sales of $9 million. This included the impact of inventory reduction in accordance with King’s inventory management agreements. Embeda was launched in the third quarter of 2009. King announced that Embeda was added to two large formularies during the reported quarter, covering approximately 70 million commercial lives. Additional formulary coverage should help drive sales.

 

Revenues from the Animal Health business were $81 million for the reported quarter. Following a strategic review, King has decided to retain the Animal Health business which should provide positive cash flow and diversification.

 

We were disappointed to see a decline in revenues from King’s Meridian Auto-Injector business which was affected by lower government orders. Sales came in at $50 million, down 12.3%.

 

Operating expenses remained flat at $310 million. Cash flow from operations was affected by a $43 million payment to the Department of Justice based on a definitive settlement relating to improper sales and marketing practices of Kadian by Alpharma. Going forward, King expects 2010 cash flow from operations towards the lower end of its previously issued guidance of $300 million-$350 million.

 

 

We recently downgraded King to Underperform. While the recent approval and launch of Embeda was a major positive for King, we remain concerned about pipeline setbacks, increasing competition, generic threats, and declining prescription trends.