Par Pharmaceuticals Inc. (PRX) held its analyst day recently, where it highlighted its performance in 2011 and also provided a peek into expectations for 2012 and beyond.
2011: The Year That Was…
Par Pharma develops, manufactures, and markets generic drugs and innovative branded pharmaceuticals for specialty market, through its two division – Strativa Pharmaceuticals (branded segment) and Par Pharmaceuticals (generic segment).
Strativa currently markets Megace ES (anorexia, cachexia, or any other unexplained weight loss) and Nascobal Nasal Spray (vitamin B12 supplement). During 2011, the company experienced consistent demand for Megace ES, with average prescriptions filled each month coming in at 15,000.
The company anticipates Nascobal peak sales to reach $40 to $50 million in future.
We would like to remind investors that Par Pharma acquired Anchen Pharmaceuticals in November 2011, and entered into an agreement to acquire India-based generic company Edict Pharmaceuticals in May 2011. Additionally, In October 2011, Par acquired rights to three products from Teva Pharmaceutical Industries Ltd. (TEVA), following the latter’s acquisition of Cephalon.
We note that following the acquisitions of Anchen Pharma and Edict Pharma, Par Pharma will have 72 abbreviated new drug applications (ANDA) filed for approval with the US Food and Drug Administration (FDA). Of these 72 ANDAs, 4 are potential first-in-market opportunities, with 19 being first-to-file opportunities. We note that these 72 ANDAs represent over $20 billion of branded sales.
Moreover, all three companies together currently have 92 products under development, most of which are, or, will be paragraph IV filings. Of these, Par Pharma has 39 products in its pipeline, Anchen Pharma has 35 and Edict Pharma has the remaining 18.
At Par Pharma’s last analyst meeting, it had said that on an average it expects to file five to seven ANDAs and launch about two to three products annually. The company exceeded this forecast and launched eight new products in 2011.
2012 and Beyond: What Is To Be…
During the analyst meet, Par Pharma provided forecasts for the 2012 to 2014 time period.
The company expects cumulative cash earnings per share (EPS) to be $12.50 for 2012-14, reflecting a compound EPS growth of 15%.
During this three-year period, Par Pharma plans to spend $65-$70 million annually on research and development (R&D), with selling, general and administrative (SG&A) expenditure amounting to $185-$190 million.
The company expects gross margin to be around 50% and above during this period, as Par Pharma experiences an increase in the number of internal product launches and becomes less dependent on authorized generics. The gross margin forecast will represent a double-digit growth over the three-year period.
Moreover, Par Pharma expects effective tax rate to remain at the current level of 37%, while capital spending is expected to increase to about $20 million per year. Cash level during the three-year period is anticipated to be in $400–$500 million range.
The company has an outstanding bank loan of $350 million. It plans to pay back $118 million per year over the next three years. However, Par Pharma will incur $12 million annually as charges associated with the loan, which will impact the company’s earnings by $0.20 per share for the next several years.
Our View
We currently have a Neutral recommendation on Par Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. We believe that the acquisitions of Anchen Pharma and Edict Pharma will play a major role in shaping the company’s future.
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