Medicis Cuts Fourth Quarter View - Analyst Blog
Medicis ( MRX ) recently updated its fourth quarter 2011 outlook. The company said that it expects higher sales reserves for the fourth quarter which will impact revenues by about $17 million and adjusted earnings by 17 cents.
Higher Sales Reserves to Impact Results
The company has been working on reducing its exposure to managed care restrictions for acne treatment, Solodyn, and other products. In order to achieve this, Medicis has been signing new, multi-year contracts with targeted managed care organizations and pharmacy benefit managers. The company's goal is to achieve total coverage and access of at least 75% of the insurable lives in the US. Medicis said that it has achieved access to about 64% of the insurable lives in the US for Solodyn.
With the company expecting higher sales reserves, Medicis now expects to earn 51-57 cents per share (cash earnings) on revenues of $170 - $183 million in the fourth quarter of 2011. The company had previously guided towards fourth quarter earnings of 63-69 cents per share (cash earnings of 68-74 cents) on revenues of $187 - $200 million. The Zacks Consensus Earnings Estimate for the fourth quarter, prior to the change in guidance, was 64 cents on revenues of approximately $190 million.
For 2011, the company expects earnings of $2.35 - $2.41 (cash earnings) on revenues of $711 - $724 million (old guidance: earnings of $2.33 - $2.39 on revenues of $728 - $741 million). The Zacks Consensus Earnings Estimate for 2011, prior to the change in guidance, was $2.36 on revenues of approximately $731 million. The 2011 guidance also reflects the commencement of shipment of Zyclara in the US and other products in Canada and the buyback of about 4.4 million shares (worth $150 million).
Medicis also provided an insight on expectations for 2012. While the company will be providing full guidance in February 2012, Medicis said that it expects revenues to grow more than 10% year-over-year in 2012. Earnings are expected to grow about 10% from the year-ago period. The company expects to spend about 8-10% of revenues on its research and development efforts.
Neutral on Medicis
We currently have a Neutral recommendation on Medicis, which carries a Zacks #3 Rank (short-term Hold rating). The reduced outlook for the fourth quarter did not come as a surprise - Medicis had stated on its third quarter call that it could take additional sales reserves ranging from $12 - $17 million in the event of being successful in its negotiations with managed care organizations and pharmacy benefit managers.
Medicis' progress on the managed care front for Solodyn should help drive growth despite some pricing pressure. Meanwhile, the Graceway Pharma acquisition has expanded Medicis' commercial product portfolio and strengthened its pipeline.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.