Warner Chilcott’s (WCRX) first quarter 2011 earnings (excluding special items) of $1.04 per share surpassed the Zacks Consensus Estimate by $0.21 and the prior-year earnings by $0.16.
On a reported basis, the company suffered a loss of $0.10 per share as against a loss of $0.07 in the comparable quarter of 2010. The reported results included the employee severance 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 1% to $756.5 million. The decline was 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. Actonel sales declined 11.5% to $232 million.
Management at Warner Chilcott stated that Actonel is losing market share due to the impact of managed care initiatives that encourage the use of generic versions of other drugs coupled with the reduction in filled prescriptions in the market in which Actonel operates.
Moreover, the loss pf patent exclusivity of the drug in Western Europe in December 2010 also hurt revenues in the quarter. Revenues easily beat the Zacks Consensus Estimate of $681 million.
Revenues from oral contraceptives went up 41% to $137 million. Improved sales of Loestrin 24 FE (up 50.6% to $119 million) helped boost revenues. Sales of hormone therapy products climbed 7% to $49 million in the first quarter of 2011.
Sales in the dermatological segment plummeted 47% to $66 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 first quarter of 2011.
Sales of gastroenterology product, Asacol, climbed 13% to $187 million. Sales of urology product Enablex climbed 150% to $45 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 Earnings Outlook Upped
Apart from disclosing financial results, Warner Chilcott upped its adjusted earnings guidance for 2011. The company now expects to end 2011 with adjusted earnings in the range of $3.70 – $3.80 per share. The earlier expectation was in the range of $3.60 – $3.70 per share.
The increase is primarily attributable to the reduction in expected R&D expenses for 2011. The company now expects to incur R&D expenses in the range of $130 million – $150 million versus the earlier expected range of $150 million – $170 million.
The reduction is attributable to changes in the expected timing of expenses related to certain R&D projects at Warner Chilcott. The company expects 2011 revenues towards the upper end of the forecasted range of $2.7 billion-$2.8 billion.
The current Zacks Consensus Estimate for 2011 hints at earnings of $3.67 per share on revenues of $2.75 billion.
Our Recommendation
Even though the company carries a Zacks #2 Rank (Buy rating) in the short-run, we are more cautious in the long-run and have a Neutral view on Warner Chilcott.
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis Report
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