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Sepracor Earns Split Decision

The pharmaceutical company beats estimates for earnings but falls short for sales.



on Tuesday revealed a split decision for its first quarter, as earnings beat Wall Street estimates but sales missed the average forecast.

And although the pharmaceutical company's full-year forecast topped the Wall Street consensus, shares dropped $1.44, or 2.6%, to $48.67 by early afternoon in higher-than-average trading.

For the year, Marlborough, Mass.-based Sepracor predicted earnings per share of $2.39, excluding a 28-cent charge for preliminary settlements of two lawsuits. Analysts polled by Thomson First Call had expected earnings of $2.35 a share, excluding special items.

For the three months ended March 31, Sepracor earned 47 cents a share, excluding items, on revenue of $331.4 million, vs. the average Wall Street forecast of 38 cents and $338.6 million.

On a GAAP basis -- which includes the $32.9 million charge, or 28 cents a share, for the litigation -- Sepracor earned $22.5 million, or 19 cents a share. For the same period last year, it earned $10 million, or 9 cents, on revenue of $285.7 million.

Sepracor reported a preliminary settlement of two class action suits on April 20. Plaintiffs alleged the company had violated federal securities laws by making "false and misleading statements" about the prospects of an allergy drug. The Food and Drug Administration

rejected Sepracor's application in 2002, and the company discontinued work on the drug the following year.

Sepracor will pay plaintiffs $34 million, and its insurers will pay another $18.5 million. Sepracor admitted no wrongdoing, while saying that it settled the cases due to the "potential cost and burden of continued litigation."

Sepracor's first quarter was propelled by the insomnia drug Lunesta and the asthma medication Xopenex. Lunesta sales rose to $148.3 million, vs. $138.1 million in the year-ago quarter. Xopenex sales rose to $173 million, from $139.4 million. Sepracor launched the lung-disease drug Brovana earlier this month.

Sepracor's most immediate challenge will be an insomnia-market slugfest, now that market leader Ambien is subject to generic competition. On Monday, the FDA approved 13 companies' cheap copies of Ambien, made by


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Sanofi-Aventis also sells a patent-protected successor called Ambien CR. Other brand-name sleep drugs include Rozerem from


and Sonata from

King Pharmaceuticals


, but they are minor products compared with the drugs from Sepracor and Sanofi-Aventis.

Analysts have mixed views of Lunesta's prospects. Some say sales will be hurt by managed care companies and insurers steering patients to generic Ambien, while others say Ambien CR will be hurt more than Lunesta.

Adrian Adams, Sepracor's CEO, told analysts Tuesday that "we remain confident" that Lunesta will perform well despite generic competition. Noting that Lunesta has slightly more favorable coverage among managed care companies than does Ambien CR, Adams said Sepracor will continue its direct-to-consumer marketing and seek improved managed-care coverage.

Although Adams said he doesn't plan to increase the size of the Lunesta sales force, he suggested that Lunesta

might gain some advantage when -- and if -- the FDA approves Sanofi-Aventis weight loss drug Acomplia.

Some analysts say Sanofi-Aventis would have to transfer much of its Ambien CR sales force to promoting Acomplia, thus giving Sepracor an advantage. Adams didn't discourage the speculation, but he didn't make any predictions.

The long-delayed Acomplia will be reviewed by an FDA advisory panel in June, and the agency might make a ruling in July.