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July 27, 2009
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Sepracor Inc. (SEPR) reported financial results for the second quarter of 2009 on Jul 24, 2009. Total revenues for the second quarter increased 11% to $326.2 million, well above our estimate of $279 million. Revenues for the reported quarter included $16.9 million of previously deferred license revenue whose recognition was accelerated following the termination of the company’s agreement with GlaxoSmithKline (GSK) for Lunivia.
Non-GAAP net income totaled $82.3 million, or $0.72 per share, up significantly from the year ago non-GAAP earnings of $7.5 million or $0.06 per share. Non-GAAP net income for the reported quarter excluded a milestone charge and the accelerated GSK license revenue and included a favorable adjustment to income taxes to reflect Sepracor’s estimated annual effective cash-basis tax rate.
Second quarter 2009 EPS easily beat our and the consensus estimates of $0.44 and $0.39, respectively. GAAP net income totaled $44.9 million, or $0.39 per share.
Better-than-expected product sales and cost savings contributed to the strong performance in the second quarter. Sales of all key drugs were above our expectations. Revenues consisted of $89.9 million sales of Xopenex, an increase of 5.2% y-o-y, $14.8 million sales of Xopenex HFA, up 5% y-o-y, and $19.1 million sales of Brovana, up 44% y-o-y. Sales of Lunesta totaled $151.3 million, up 2% y-o-y. Omnaris sales increased 23% y-o-y to $9.1 million. We believe realignment of the sales force and focused detailing efforts has had a positive impact on sales.
Sepracor also reported SPI division sales of $5 million and licensing and royalties of $19.4 million (down 11% y-o-y). The company earns royalty revenues on sales of out-licensed antihistamine products like Schering-Plough’s (SGP) Clarinex, Sanofi-Aventis’ (SNY) Allegra and UCB’s Xyzal/Xusal.
Operating expenses declined significantly (down 22% y-o-y) in the second quarter of 2009. While R&D declined 9.5%, the main cost savings came from SG&A which declined 29% in the reported quarter. Earlier this year, Sepracor had announced a strategic corporate restructuring and workforce reduction plan. Sepracor’s goal is to reduce operating expenses by $210 million in 2009.
Based on the strong second quarter results and the impact of cost saving initiatives, the company increased its financial guidance for 2009. Sepracor now expects non-GAAP earnings in the range of $2.55-$2.90 per share (previous guidance: $2.10-$2.70 per share) on revenues of $1,225-$1,275 million (previous guidance: $1,150-$1,250 million).
The company exited the second quarter with $707 million in cash and short-term investments. We expect management to continue to be acquisitive in 2009 to help build out the pipeline. We expect most deals will include products that are in phase III or beyond, similar to the Stedesa and Alvesco / Omnaris deals in 2008. We maintain our Hold rating on the stock.
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