The Medicines Co.'s Q3 Earnings Fall Y/Y, Guidance Lowered - Analyst Blog

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The Medicines Co. 's ( MDCO ) shares fell 6.4% immediately after the company announced third-quarter 2014 results. However, shares gained slightly (0.6%) in the subsequent trading session. Overall, shares are down 5.9% since the release of third quarter results.

The Medicines Co. reported earnings of 5 cents per share in the third quarter of 2014, compared to the year-ago earnings of 38 cents per share. Excluding the impact of stock-based compensation expense, third-quarter 2014 earnings stood at 18 cents per share, well below the year-ago earnings of 47 cents per share. The Zacks Consensus Estimate for the third quarter of 2014 was a loss of 10 cents per share.

Third-quarter 2014 revenues decreased 1.1% year over year to $172.4 million, well below the Zacks Consensus Estimate of $191 million.

The Quarter in Detail

Total Angiomax sales were $151 million, down 2% year over year driven by a fall in Angiox (trade name for Angiomax in Europe) sales in Europe, particularly in the UK. Angiox was impacted by hospitals switching back to heparin for the treatment of patients undergoing percutaneous coronary intervention (PCI) following the release of data from a study on Angiox in the UK which showed increased complications in primary PCI patients who were treated with Angiox compared to heparin. Additionally, the diversion of primary PCI patients to the cross-Europe Global Leaders study (in which Angiox is being used as the foundation anticoagulant) and continued increase in pressure on cost-of-care in hospitals and reduction in healthcare expenditure due to very low GDP growth also affected Angiox sales.

However, U.S. sales of Angiomax increased 3.7% to $143.6 million.

Recothrom sales in the U.S. totaled $16.8 million, down 1.2% from the year-ago period.

Sales of other products like Argatroban RTU, Cleviprex, Minocin injection and PreveLeak surgical sealant amounted to $4.6 million, up 24.3% from the year-ago period.

R&D expenditure increased 43.7% to $33.3 million. Adjusted SG&A spend was up 31.2% to $71 million.

European Operations to Be Reorganized

Although The Medicines Co. intends to release data supporting Angiox, the company has decided to reorganize its European operations - it will consolidate the organization into one Europe-wide commercial team which will be operated from Zürich, supply Angiox in a selective manner, focus on approximately 250 leading hospitals for launching new products (some under regulatory review) beginning the fourth quarter of 2014, and reduce expenses in different fields except essential administrative expenditure. The company might also seek partners to strengthen its position in Europe. The reorganization is expected to bring in cost savings of $20 - $25 million from 2015.

2014 Revenues Outlook Lowered

The Medicines Co. expects 2014 net revenues in the range of $720 million - $735 million (previous guidance: $745 million - $760 million). The reduction reflects the underperformance of Angiox in Europe. R&D expenditure is expected in the range of $150 million - $160 million (previous guidance: $165 million - $175 million). SG&A expenditure is expected in the range of $350 million - $360 million (previous guidance: $285 million - $295 million).

Our Take

While Angiomax remains the growth driver at The Medicines Co., we remain concerned about Angiox's performance in Europe. Although the company is making efforts to re-organize its operations in Europe, we believe that it will face a tough task in overcoming its loss-making state in this market. Moreover, patent challenges from Hospira ( HSP ) and Mylan ( MYL ) are concerning. The earlier-than-expected entry of generic versions of Angiomax would be a major setback for the company.

The company has a number of regulatory events lined up for the first part of 2015. We expect investor focus to remain on pipeline and regulatory updates from the company.

The Medicines Co. carries a Zacks Rank #3 (Hold). A better-ranked stock in the health care sector is Actavis plc ( ACT ), carrying a Zacks Rank #1 (Strong Buy). Mylan also holds a Zacks Rank #1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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