Medicis Pharmaceutical's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Medicis Pharmaceutical Corporation (MRX)

Q2 2012 Earnings Call

August 8, 2012 5:15 pm ET

Executives

Jonah Shacknai – Chairman and Chief Executive Officer

Mark A. Prygocki, Sr. – President

Richard D. Peterson – Executive Vice President, Chief Financial Officer and Treasurer

Analysts

Christopher T. Schott – JP Morgan Securities Inc.

Greg P. Waterman – Goldman Sachs & Co.

Gary Nachman – Susquehanna Financial Group LLP

Rebecca M. Forest – Piper Jaffray, Inc.

Daniel Chang – Stifel Nicolaus & Company, Inc.

Ken Cacciatore – Cowen and Company, LLC

Shibani Malhotra – RBC Capital Markets Equity Research

Ronny Gal – Sanford C. Bernstein & Co.

Catherine Arnold – Credit Suisse

Douglas D. Tsao – Barclays Capital, Inc.

David Risinger – Morgan Stanley

Stephen Barr Willoughby – Cleveland Research Co.

Presentation

Operator

Thank you for joining the Medicis Second Quarter 2012 Financial Results Conference Call. Today's call is being recorded and webcast live on the company's website at www.medicis.com in the Investor Relations section. And will be available for replay for 10 business days following this call.

This is a brief reminder that all discussions today include forward-looking statements. These statements are based on current assumptions made by Medicis based on historical trends, current conditions, expected future developments, and other factors the company believes appropriate today.

Factors may cause actual results to differ materially from those projected in forward-looking statements. You can find a discussion of these factors and more information about Medicis in the company's filings with the Securities and Exchange Commission. The assumptions underlying the forward-looking statements can change and Medicis disclaims any obligation to update those statements. Please note that references to non-GAAP figures in this webcast are reconciled to GAAP figures as noted in today's press release, which also can be found on the company's website at www.medicis.com.

At this time, I would like to turn the call over to you Jonah Shacknai, Chairman and Chief Executive Officer of Medicis. Please, go ahead, sir.

Jonah Shacknai

Thank you very much, everyone, for joining us this afternoon. With me here at Medicis headquarters is the senior management team, and at the end of our narrative, they’ll be happy to join me in answering any questions that financial analysts may have of the company. Again, we appreciate your time this day.

In terms of financial highlights, for the three months ended June 30, 2012, Medicis reported revenues of approximately $196.6 million and non-GAAP cash EPS of $0.52 per diluted share. This compares favorably to our previously published guidance range of $185 million to $195 million in revenues and $0.37 to $0.47 per diluted share, again in non-GAAP cash EPS.

We have been closely monitoring SOLODYN and ZIANA prescription trends since the launch of our alternate fulfillment initiative. While reportable prescriptions for these brands were predicted to decline, the anticipated recovery has happened later than forecasted. Reportable prescription trends continued to decline into the third quarter, until quite recently, when prescriptions began to increase again.

Overall, in-channel inventory on hand was reduced, but not to the levels originally anticipated, which had a corresponding positive effect on our second-quarter results. We expect the reductions in inventory purchases to persist in the third quarter, as wholesale and retail customers continue to adjust inventory levels.

This will have an impact in the third quarter on recorded revenues, and the updated financial guidance for the remainder of 2012 provided in today's press release includes these expectations. The objective of obtaining an improved average selling price per prescription is being achieved, and we believe will continue, both from the alternate fulfillment program and its progeny and the support we are receiving from physicians in working through various types of managed care preventative measures.

We have observed an increase in weekly profitable prescriptions, and the unprofitable prescriptions are now less costly to the company. Again, these were objectives when the program was initiated. We are expecting these trends to continue and our updated financial guidance for the remainder of 2012 provided in today's press release includes these expectations.

Gross profit margins were approximately 89%. Selling, general, and administrative expenses were approximately 5139% of revenues. This includes expenses associated with the previously announced addition of the number of sales representatives, increased promotional expenses, and professional fees related to the previously announced Federal Trade Commission investigation.

In light of the company's revised guidance, we are pursuing necessary cost-cutting measures to streamline our processes and workflow within the company. R&D expenses for the quarter were approximately were $23.3 million. This includes an $8 million purchase of R&D associated with payments to Medicis partners.

We continue to execute on the managed care strategy of securing new multi-year contracts, which we believe is a significant strategic investment and greatly reduces the coverage risk associated with our therapeutic brands. The company remains well-positioned with total coverage and access to SOLODYN for approximately 65% of the insurable commercial lives in the United States.

Revenues from the acne products category were approximately $93.1 million. Average selling prices during the second quarter for SOLODYN and ZIANA on a prescription basis were approximately $330 and $215 respectively. This compares favorably with our previously announced ASP expectations.

During the third quarter, we expected adjusted ASPs based on reportable prescriptions of approximately $320 to $340 for SOLODYN and approximately $200 to $220 for ZIANA. The company is forecasting growth in profitable SOLODYN and ZIANA prescriptions and growth in ZYCLARA prescriptions to achieve our updated guidance objectives.

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