were flogged Thursday as the company warned that 2006 would be a "transition year" and then presented financial projections that are well below analysts' estimates.
The Cranbury, N.J., drugmaker said this year's earnings per share, excluding one-time items and stock-options expensing, would be $2.80 to $2.90, falling short of the $3.25 consensus among analysts polled by Thomson First Call.
Projected revenue will be in the range of $880 million to $900 million, below the Wall Street average estimate of $912 million.
Shares of Kos fell $8.64, or 17.4%, to $41.13 by midafternoon. Trading volume of 4.2 million shares was nearly six times the daily average for the last three months.
Adrian Adams, the Kos chief executive, said the near-term pain would lead to a longer-term gain. "We will continue to make investments in new products and commercial infrastructure to strategically position the company for the next phase of our growth," he said in a prepared statement. Kos specializes in cholesterol, blood pressure and asthma medications.
Adams said he decided to accelerate plans for expanding its sales force this year in advance of planned new-product launches in 2007 and 2008. Those costs, along with higher product royalty expenses, will cut profit margins this year. Operating margins will improve in 2007 due to reduced royalty expenses, the company said.
Earnings and revenue in 2006 also will be affected by recently signed inventory-management agreements with three big drug wholesalers. Some inventory levels are too high. The inventory agreements will cost 33 cents a share. Hiring 250 sales representatives will cost 23 cents a share.
On a GAAP basis, next year's earnings will be $1.70 to $1.80 a share when one-time items and stock-options expensing are included.
The company also reported fourth-quarter earnings, excluding one-time items, of 71 cents a share, 9 cents below the consensus forecast. Fourth-quarter revenue of $213.9 million was slightly better than the consensus estimate of $210 million.
Once all items were counted, Kos earned $26.2 million, or 53 cents a share, for the three months ended Dec. 31. For the same period in 2004, the company earned $53 million, or $1.15 a share, on revenue of $150.7 million.