Friday, February 22, 2013

Actavis beat estimates; Future looks promising

Actavis (NYSE:ACT) posted Q4 earnings on Tuesday, February 19th 2012. Net revenues were $1.7B, with over $1.4B coming from Actavis Pharma, up from $1.5B and $1.2B, respectively, y/y. The inclusion of legacy Actavis was a large driver in creating this spread. Expenses were particularly high this quarter, with R&D growing 80% to $121.1M and SG&A growing 99% to $424.3M. Total operating expenses for Q4 grew 21.4% to $1.7B from $1.4B, driving margins down. Non-GAAP EPS was down 10.2% from $1.77 to $1.59; 4Q11 generated $0.64 in EPS from inclusion of LIPITOR, but dipped to $0.03 for 4Q12. Non-GAAP EPS beat Analyst estimates by $0.06.

Major pipeline drugs and marketed products have been added to the Actavis portfolio, primarily due to the acquisition of Uteron Pharma in January 2013, and the merger with Watson Pharmaceuticals in 2012. The Actavis pipeline is growing quick: “Our Actavis Pharma pipeline is among the strongest in the industry with over 185 Abbreviated New Drug Applications (ANDAs) on file with the US FDA, including 49 first-to-file opportunities, of which, 33 represent potential exclusive first-to-files.”

Going forward, there are many events that can either be a catalyst or a detriment to Actavis. Guidance projects net revenues to grow 37% to $8.1B. Non-GAAP EPS is expected to grow to $7.70 - $8.10, showing a potential upside between 28% - 35%. Many drugs are being pushed through the pipeline and we see them trying to break into new regions of the world. Analysts questioned when we could see their complex drugs get passed, and management stated they were unable to predict that because of the nature of the FDA process. Actavis is now trying to break into Australia, which they acknowledge would be tough because of top 5 competitors taking 97% market share. If they want to break in, they need a way to cut costs to effectively sell their products. Again, these events can either be a catalyst or a detriment, but for now we reaffirm our buy thesis.

No comments: