Par Pharmaceutical Companies Inc. (PRX) posted earnings of 96 cents per share during the first quarter of fiscal 2011, well above the Zacks Consensus Estimate of 89 cents per share, and the year-ago earnings of 75 cents per share. Higher gross margin helped boost earnings.
Revenues
Quarterly revenues of $233.0 million surpassed the Zacks Consensus Estimate of $229 million but were 20.9% below the year-ago figure of $291.9 million. Lower sales of the company’s generic products primarily led to the decline.
Sales of Par Pharma’s generic version of AstraZeneca plc’s (AZN) hypertension treatment, Toprol XL (metoprolol), declined 13.2% sequentially to $63.4 million, due to a change in customer buying pattern.
Sales of some of Par Pharma’s other generic drugs also dwindled, including sumatriptan (down 16.1% sequentially to $16.7 million) and Meclizine (down 9.3% sequentially to $4.9 million).
We note that during the first quarter, the company launched propafenone hydrochloride and amlodipine/benazepril.
Sales of Par Pharma’s branded products, Megace ES (down 4.7% to $4.9 million) and Nascobal B12 Nasal Spray (down 18.8% to $3.9 million), too witnessed a sequential decline.
Other Details
Despite a decline in revenues, gross profit improved during the quarter, amounting to $109.7 million (47.1% of the total revenue), compared with $95.3 million (42.0% of the total revenue) in the fourth quarter of 2010. The launch of generic versions of propafenone and amlodipine/benazepril enhanced gross profit.
Research and development (R&D) expenses dropped to $10.7 million sequentially, from $12.9 million in the fourth quarter of 2010, primarily due to lower development costs.
Selling, general and administrative (SG&A) expenses deteriorated 9.8% sequentially to $47.0 million, mainly owing to lower sales and marketing expenditure at Strativa (branded business).
Our View
We currently have a Neutral recommendation on Par Pharma, which is supported by a Zacks #3 Rank (short-term Hold rating). Even though competition has depleted the Toprol XL franchise sales and affected other generic products, we believe Oravig and Zuplenz (both launched in the second half of 2010) as well as propafenone and amlodipine/benazepril (both launched in the first quarter of 2011) will help drive the top line.
Additionally, Par Pharma currently has around 30 Abbreviated New Drug Applications pending approval with the US Food and Drug Administration. 12 of these are expected to be first-to-file opportunities, representing branded sales of about $8.0 billion.
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