Medicis Pharmaceutical Corp.’s (MRX) third quarter fiscal 2011 earnings per share (EPS) declined 16.1% from the prior-year quarter to 56 cents. While third quarter 2011 earnings were within management’s guidance range of 48 cents to 67 cents per share, earnings were well below the Zacks Consensus Estimate of 61 cents per share. Higher research and development (R&D) and promotional costs during the quarter pulled the earnings down.
Quarterly revenues increased 4.3% to $184.7 million, within the company’s guidance range of $175 million to $195 million. However, revenues were also below the Zacks Consensus Estimate of $187 million.
Quarterly Highlights
Medicis’ acne product sales were up only 0.5% year over year to $119.1 million. The early discontinuation of Triaz and the halt of the promotion of Plexion led to the uninspiring sales of the business franchise. Acne products primarily comprise Solodyn and Ziana.
Non-acne product sales came in at $55.7 million, up 12.4%, primarily due to increased sales of the Restylane franchise and Vanos. The non-acne group consists of Dysport, Perlane, Restylane and Vanos.
Revenues from other non-dermatological products went up 8.8% during the quarter to $9.9 million. The non-dermatological products franchise comprises Ammonul, Buphenyl and contract revenue.
Gross margin for the reported quarter went up 70 basis points (bps) to 90.7%. Research and development (R&D) expenses were $28.7 million, compared with $8.7 million in the third quarter of 2010. The increase in R&D was mainly due to upfront and milestone payments to partners. Selling, general and administrative (SG&A) expenses shot up 19.3% to $93.2 million, due to higher spending on promotional programs.
During the quarter, Medicis repurchased shares worth approximately $51.8 million, in accordance with the previously approved stock repurchase plan, under which the company plans to buyback stock worth up to $200 million.
Outlook Updated
Entering the fourth quarter of 2011, Medicis narrowed its guidance range for earnings and revenues. Medicis now expects earnings in the range of $2.33 to $2.39 per share (previous guidance: $2.25 – $2.56) on revenues of $728 million to $741 million (previous guidance: $718 million – $758 million). The current 2011 Zacks Consensus Estimate of $2.35 lies within the company’s guidance range.
Medicis also updated its earnings and revenue guidance range for the fourth quarter of 2011. For the fourth quarter, earnings are expected to range from 63 cents to 69 cents per share on revenues of $187 million to $200 million (previous guidance: 63 cents – 75 cents on revenues of $187 million – $207 million). The Zacks Consensus Estimate of 63 cents per share for the fourth quarter of 2011 is at lower end of the revised guidance range.
Medicis expects gross margin of about 90% – 91% of revenues in 2011. While SG&A expenses are expected to come in at about 47% – 49% of revenues, R&D expenses are expected to be about 5% – 6% of revenues.
Our Take
We currently have a Neutral recommendation on Medicis. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. Medicis plans to enter into contracts with targeted managed care organizations and pharmacy benefit managers for Solodyn. Meanwhile, we remain concerned about the competitive threats to Dysport from Allergan Inc.’s (AGN) Botox.
