Warner Chilcott’s (WCRX) second quarter 2011 earnings (excluding special items) of $0.94 per share surpassed the Zacks Consensus Estimate by $0.05 but fell short of the prior-year earnings by $0.01.
On a reported basis, the company earned $0.28 per share, down 39% year over year. The reported results included the costs due to the restructuring of the Western European operations by Warner Chilcott and costs incurred towards using its Manati, Puerto Rico manufacturing facility as a warehouse and distribution service center.
Revenues for the reported quarter declined 18% to $670 million. The decline was primarily attributable to lower sales of its osteoporosis drug, Actonel (acquired from Procter & Gamble Co. (PG) in October 2009) coupled with weakness in the dermatological segment. Revenues fell short of the Zacks Consensus Estimate of $675 million.
Actonel sales declined 26.8% to $193 million. The loss pf patent exclusivity of the drug in Western Europe in December 2010 hurt revenues in the quarter. Revenues from oral contraceptives went up 5.5% to $115 million. Improved sales of Loestrin 24 FE (up 14.6% to $102 million) helped boost revenues. Sales of hormone therapy products declined 14% to $49 million in the second quarter of 2011.
Sales in the dermatological segment plummeted 74.8% to $32 million. The sharp decline was attributable to the termination of the distribution agreement with Leo Pharma for Dovonex and Taclonex. Warner Chilcott did not record sales of the drugs in the second quarter of 2011.
Sales of gastroenterology product, Asacol, fell 2.1% to $188 million mainly because of increased sales related deductions. Sales of urology product Enablex climbed 90.5% to $40 million. Warner Chilcott acquired the US rights of Enablex from Novartis (NVS) in October 2010. Following the purchase of the US rights, Warner Chilcott records revenues from the drug on a gross basis as against the prior method of recording Enablex revenue on a contractual percentage basis.
2011 Outlook
Apart from disclosing financial results, Warner Chilcott provided an outlook for 2011. The company continues to expect to end 2011 with adjusted earnings in the range of $3.70 – $3.80 per share on revenues of $2.7 billion-$2.8 billion. However, 2011 revenues are no longer expected towards the upper end of the guidance range.
The company trimmed its projection for expected R&D expenses for 2011. The company now expects to incur R&D expenses in the range of $120 million – $140 million versus the earlier expected range of $130 million – $150 million.
The reduction is attributable to changes in the expected timing of expenses related to certain R&D projects at Warner Chilcott. The current Zacks Consensus Estimate for 2011 hints at earnings of $3.78 per share on revenues of approximately $2.79 billion.
Our Recommendation
We currently have a Neutral recommendation on Warner Chilcott in the long run. The stock carries a Zacks #3 Rank (Hold rating) in the short run. Although the company is facing patent expirations for many of its key drugs, we believe Warner Chilcott’s diversified product base will help withstand the generic threat.
