Medicis Pharmaceutical Corp.‘s (MRX) fourth quarter fiscal 2011 earnings per share (EPS) declined 24.4% from the prior-year quarter to 56 cents. Nonetheless, earnings were within management’s guidance range of 51 cents to 57 cents per share, and above the Zacks Consensus Estimate of 54 cents.

Full year 2011 earnings of $2.40 per share came in ahead of the Zacks Consensus Estimate of $2.29 and were within Medicis’ guidance range of $2.35 to $2.41 per share. However, 2011 earnings dropped 14.2% from the year-ago period mainly due to higher expenses.

Quarterly revenues remained flat at $180.7 million, within the company’s guidance range of $170 million to $183 million. However, revenues were just above the Zacks Consensus Estimate of $180 million. Full year revenues increased 3.6% to $721.1 million, just above the Zacks Consensus Estimate of $720 million. Revenues were within the company’s guidance range of $711 to $724 million.

Increased demand for Dysport, the Restylane franchise and Vanos led to the rise in revenues.

Quarterly Highlights

Medicis’ acne product sales decreased 14.3% year over year to $101.9 million. Increased sales reserves in the fourth quarter associated with the company’s previously announced managed care strategy, discontinuation of Triaz and Plexion coupled with the halt of the shipment of the legacy strengths of Solodyn to wholesalers led to the slip in acne product sales. This business franchise primarily comprises Solodyn and Ziana.

Non-acne product sales came in at $64.0 million, up 27.5%, primarily due to increased demand for Dysport, the Restylane franchise and Vanos. The non-acne group consists of Dysport, Perlane, Restylane, Vanos and Zyclara.

Revenues from other non-dermatological products went up 39.9% during the quarter to $14.8 million, driven by higher sales of Buphenyl. The non-dermatological products franchise comprises Ammonul, Buphenyl, Maxair Autohaler and contract revenue.

Gross margin for the reported quarter went down 20 basis points (bps) to 90.5%. Research and development (R&D) expenses were $10.2 million, compared with $21.6 million in the fourth quarter of 2010. Prior-year quarter included an R&D charge of $13.9 million associated with the upfront and milestone payments made to partners. SG&A expenses came in at $85.1 million versus $77.6 million in the year-ago quarter. The increase was due to higher spending on promotional programs.

During the year, Medicis repurchased 4.4 million shares for $150 million, in accordance with the previously approved stock repurchase plan.

Outlook for 2012

For 2012, Medicis expects earnings in the range of $2.51 – $2.79 per share on revenues of $817 – $861 million. The current 2012 Zacks Consensus Estimate of $2.67 lies within the company’s guidance range.

Additionally, the company expects gross margin of about 89% – 91% of revenues in 2012. While SG&A expenses are expected to come in at about 47% – 49% of revenues, R&D expenses are expected to be about 6% – 8% of revenues.

Moreover, for 2012, Medicis expects cash flow from operations in the range of $235 million to $250 million.

For the first quarter of 2012, Medicis has forecasted earnings of 37 cents to 43 cents per share on revenues of $177 to $188 million. The current Zacks Consensus Estimate of 44 cents lies above the guidance range.

Our Take

We currently have a Neutral recommendation on Medicis. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. While we believe that the February 2012 Graceway Pharma acquisition has expanded the company’s commercial product portfolio and strengthened its pipeline, we remain concerned about the competitive threats to Dysport from Allergan Inc.‘s (AGN) Botox.

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