Par Pharmaceutical Companies Inc. (PRX) posted adjusted earnings of 84 cents per share during the second quarter of fiscal 2011, well above the Zacks Consensus Estimate of 76 cents per share, and the year-ago earnings of 71 cents per share. Higher gross margin and lower operating expenses helped boost earnings.
However, on a sequential basis, earnings declined 12.5% during the second quarter.
Revenues
Quarterly revenues of $224.2 million surpassed the Zacks Consensus Estimate of $216 million, but were 12.3% below the year-ago figure of $255.5 million. Lower sales of the company’s generic products primarily led to the decline.
On a sequential basis also, revenues for the quarter slipped 3.8%.
Sales of Par Pharma’s generic version of AstraZeneca plc’s (AZN) hypertension treatment, Toprol XL (metoprolol), remained flat sequentially at $63.7 million.
Sales of some of Par Pharma’s other generic drugs dwindled, including sumatriptan (down 8.4% sequentially to $15.3 million), Propafenone Hydrochloride ER (down 39.5% sequentially to $13.3 million), Amlodipine and Benazepril (down 31.3% sequentially to $12.5 million) and Meclizine (down 6.1% sequentially to $4.6 million).
Sales of Par Pharma’s branded products, Megace ES remained flat sequentially during the second quarter at $14.1 million, while Nascobal B12 Nasal Spray (up 61.5% to $6.3 million), witnessed a climb, primarily due to a shortage in the competing vitamin B12 intramuscular injection product.
Other Details
Gross profit declined during the quarter, amounting to $99.0 million (44.2% of the total revenue), compared with $109.7 million (47.1% of the total revenue) in the first quarter of 2011. Lower sales of propafenone and amlodipine/benazepril during the reported quarter led to the sequential decline in the results.
Research and development (R&D) expenses dropped to $8.1 million sequentially, from $10.7 million in the first quarter of 2011, primarily due to lower generic development costs.
Selling, general and administrative (SG&A) expenses deteriorated 1.5% sequentially to $46.2 million, mainly owing to lower employment costs.
Both R&D and SG&A expenses for the quarter experienced a downside of 64.3% and 5.5%, respectively, on a year-over-year basis.
Our View
The stock carries a Zacks #2 Rank (Buy rating) in the short-run. We note that Par Pharma currently has around 31 Abbreviated New Drug Applications (ANDA) pending approval with the US Food and Drug Administration (FDA). Thirteen of these are expected to be first-to-file opportunities.
Further, the company announced restructuring plans for its branded drugs segment, Strativa Pharmaceuticals in early July. Par Pharma will reduce its workforce by about 100 people as a result of the restructuring, which is expected to drive the Strativa business to profitability. The workforce reduction is expected to help the company focus on its products, Megace ES and Nascobal.
Moreover, the restructuring initiative is expected to generate operating expense savings of $8-$12 million for the rest of 2011.
Longer term, we have a Neutral recommendation on Par Pharma.
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