Par Pharmaceutical Companies Inc. (PRX) posted earnings of 86 cents per share during the third quarter of 2010, beating the Zacks Consensus Estimate of 54 cents per share, and the year-ago earnings of 76 cents per share. Before one-time items, earnings for the quarter came in at 82 cents per share, up from the prior-year figure of 79 cents per share. Higher margins helped boost earnings.

Revenues

Quarterly revenues of $234.4 million surpassed the Zacks Consensus Estimate of $226 million but were 20.5% below the year-earlier figure of $294.8 million. The decline was primarily due to additional competition for Par Pharma’s generic version of AstraZeneca plc’s (AZN) hypertension treatment, Toprol XL (metoprolol).

Sales of Par Pharma’s generic version of Toprol XL declined 18.6% sequentially to $97.4 million. Competition was felt across all strengths of the drug leading to a volume and price decline.

Sales of Par Pharma’s other generic drugs, however, went up during the quarter. Sumatriptan sales were up 4.6%, Megace ES sales increased 8.4%, and sales of Nascobal B12 Nasal Spray were 11.4% higher, all on a sequential basis.

Other Details

Despite a decline in revenues, gross profit improved significantly during the quarter, amounting to $103.3 million (44.1% of total revenues), compared with $92.1 million (31.2% of total revenues) in the year-ago period.  The launch of a generic version of omeprazole and increased sales of other generic products helped boost gross profit.

Research and development (R&D) expenses increased to $10.1 million during the third quarter, compared with $6.5 million in the year-ago period. A $2.0 million milestone payment and elevated biostudy and material costs drove R&D expenses.

Selling, general and administrative (SG&A) expenses amounted to $50.3 million, up 11% year over year, primarily due to pre-commercialization costs for Oravig and Zuplenz. While Oravig was launched during the third quarter, Zuplenz was launched in October.

Par Pharma plans to come up with a three-year outlook (ranging from 2011 through 2013) in January 2011.

Our View

We currently have an Outperform recommendation on Par Pharma, which is supported by a Zacks #1 Rank (short-term Strong Buy rating). Even though competition has negatively affected the Toprol XL franchise, we believe the launches of Oravig and Zuplenz will help drive the top line.

Additionally, Par Pharma currently has around 27 Abbreviated New Drug Applications pending approval with the US Food and Drug Administration, 11 of which are expected to be first-to-file opportunities, valued at about $7.3 billion.

 
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