Medicis Q4 & FY 1996
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Medicis Q4 & FY 1996
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(FOOL CONFERENCE CALL
SYNOPSIS)* By Debora Tidwell (MF Debit)
Medicis Pharmaceutical Corp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MDRX)") else Response.Write("(NASDAQ: MDRX)") end if %> UNION CITY, Ca., August 6, 1996/FOOLWIRE/ --- Medicis Pharmaceutical Corporation reported Q4 and FY 1996 results today. Sales were $25.3 million for the year, compared with $19.1 million for FY 1995, an increase of 32.5%. Net income was $7.9 million or $1.09 per share, up from $1.6 million or $0.24 per share in FY 1995, an increase of 354%. The company's earnings per share of $1.09 beat analyst consensus estimates of $0.79 per share (adjusted for yesterday's 3-for-2 stock split) by 38%. On a pre-split basis, the earnings per share would have been $1.63.
The $7.9 million in net income included a first-time occurring credit of $1.9 million due to required recognition of a portion of the company's income tax benefit derived from its tax loss carryforwards. Even then, however, income from operations was $6.0 million compared to $1.7 million in FY 1995, a 253% increase.
The company is very pleased with operations in both Q4 and for all of fiscal 1996. Q4, like the whole fiscal year, had a very significant increase in sales going from $5.6 million in Q4 1995 to $7.27 million this year, a year-over-year increase of 30%. Q4 earnings per share were $0.54 versus $0.14 per share for Q4 last year, a 286% year-over-year increase for Q4.
The company had significant improvements in all aspects of their balance sheet as well -- including cash and cash equivalents, working capital, shareholders' equity -- which are consistent with the success and stability that they company has enjoyed. Very noteworthy from the company's point of view, was an increase in their margins of 4% over the course of FY 1996 (margins increased from 69% to 73%). In Q4, the gross profit margin was actually 74% -- one point higher than the year as a whole. This obviously gives them additional leverage with each dollar of sales and they think that if they do their jobs correctly, they even see some opportunities for further margin improvement going forward.
It is not the company's practice to comment on the gross profit margin contributions of individual brands, but they thought it was fair to say that Triaz enjoys strong margins and as they see an increasing percentage of their total prescription sales attributable to Triaz, one could expect an increase in overall profit margins. They also indicated that they would continue to improve their gross profit margins even on their Dynacin brand since they continue to achieve the manufacturing efficiencies that typically accompany higher levels of sales.
They finished FY 1996 and move into FY 1997 with $26 million left on their net operating loss carryforward. In terms of the percentage of sales that dropped down to the bottom line from operations, they finished the year with operating income at 24% versus 9% in FY 1995.
Also noteworthy, as a statement of confidence in their operations, their board of directors effected a 3-for-2 stock split in the form of a 50% dividend. That happened on July 22nd and took effect after market close yesterday. They view this as something that will aid liquidity going forward and will hopefully make the stock available at price points that many more investors can look at and consider as an important part of their portfolio.
PRODUCT HIGHLIGHTS
Factors contributing to the company's success in FY 1996 include significant increases in prescription sales. Between their major prescription brands and some of their lesser prescription products, over 80% of corporate revenues were derived from this sector.
Dynacin had a wonderfully strong year. It continues to grow and they are very pleased to announce that during the month of June Dynacin overtook its competitor and, formerly, the number 1 brand in the market (Mynacin -- a product of American Home Products) in the total number of new prescriptions written. So, Dynacin moves into FY 1997 as the #1 preferred oral antibiotic for new prescriptions in the treatment of acne. In approximately 3.5 years, they have displaced the brand that had been on the market for many years and is a product of one of America's strongest pharmaceutical companies. This gives them a lot of confidence that, even though they continue to compete against multi-national companies that have significantly more resources than Medicis, they can be more than competitive and hope to gain the dominant market share in these markets. Medicis continues to see growth in Dynacin and would expect that, based on the very strong clinical performance of the product and the excellent value it represents for patients, that it will continue to grow and gain further in market share.
Also significant during FY 1996 was the performance of the Triaz brand. The company introduced Triaz into the topical acne category at the end of October 1995, about halfway through their fiscal year. It was a strong contributor to revenues in the year and continues to make very significant strides in terms of its penetration. One of the salient features that the company has observed with Triaz is that, when dermatologists have begun using the product, they not only continue to use it but also increase their usage very significantly in terms of its proportion of topical product prescriptions written in that practice. The conclusion that the company's draw from this is that when physicians and their patients use Triaz, they are reinforced in their belief that it is the finest topical agent available in the United States for the treatment of acne. The company's challenge this year is to increase the number of physicians and patients that are using Triaz and that is a challenge they look forward to and have every expectation of succeeding.
BACTERIAL RESISTANCE ISSUES FACING THE INDUSTRY
The company was asked about bacterial resistance patterns in the treatment of acne and whether they were aware of any additional clinical research that might be coming out near-term to address that issue. They responded that recent research has elucidated a phenomenon of bacterial resistance to many of the drugs that have been used historically in the treatment of acne. Specifically tetracycline, erythromycin, doxacycline, and clindamycin have all seen a high degree of mutation among the bacteria population they address to the point where they do not have the effect of killing the organism that they once had. This is not dissimilar conceptually to what has happened with a lot of antibiotics in the treatment of tuberculosis. The bugs have become smarter, have mutated and, as a result, the traditional nostrums are less effective in eradicating the organism.
They like to talk about this subject because there has been no demonstrated resistance to the active ingredient in their Dynacin brand. And, likewise, there is no resistance possible to the active ingredient in Triaz because it is not an antibiotic -- it is an antibacterial that works by releasing an oxygen molecule and exploding the bacterium. They are confident that, as the literature becomes more and more replete with findings related to the development and clinical significance of bacterial resistance to antibiotics, that their products will be flattered. They anticipate that this phenomenon will continue to attract interest by world-class investigators concerned that many of the historical weapons in the fight against acne have lost a great deal of their effect on the bacteria population and strong alternatives that remain are Dynacin and Triaz. The company is not going to let dermatologists forget that fact.
NEW PRODUCT INTRODUCTION STRATEGY AND TIMING RATONALE
They have a high degree of sensitivity to the needs of their sales organization as well as the capacity of their customers (prescribing dermatologists) to listen to and absorb new stories. Their corporate experience leads them to the conclusion that there is a certain degree of risk in introducing products more frequently than every 12 months or so, simply because one needs time to tell the story often enough so that all members of an adoption sequence cycle have an opportunity to be convinced and to begin using a product. They try to remember (and remind their sales force) that they become bored with a sales story a lot more rapidly than their customers do -- so the sales force probably thinks a story is stale well before the intended audience has been penetrated as fully as it needs to be. The company tries to mix it up by putting new promotional themes into cycle about every 4-6 weeks so that, even if the story is substantially the same, the sales rep has a new opportunity to present it with fresh graphics or some fresh clinical conclusions. Yet, with all this, they still think it takes 12 months for the story to resonate and to get the degree of penetration they want to see. If products are less significant, for example in an acquisition where their mission is just sustaining sales or mentioning a product as the 3rd, 4th, or 5th item in a detail, they might be able to introduce new products on a more rapid pace. But, in terms of major introductions, they think it would not be prudent to have them more frequently than once a year.
The company has great confidence in their research and development program and in the ability of that program to yield additional products for the company to introduce in this fiscal year and beyond. While expenditure levels, as a percentage of sales, have remained relatively constant the actual dollars being spent in research has increased rather significantly. They continue to see approximately the same level of spending against R&D, but have a strong sense that many of the projects they have been working on have reached a point in their development and progression where the company can feel confident about market prospects and hopefully playing important new roles in product categories that they compete in presently as well as some new categories where they would like to compete.
They also continue to look at acquisition opportunities as well as ability to work with those companies that have specialty in developing and technology areas so that they can try to effect collaborative arrangements where the technology or product is marketed and sold by Medicis. That is an area they think they can look to for some significant achievement in this fiscal year.
They completed FY 1996 with a strong feeling of satisfaction that they had made a lot of progress in their objective of becoming the nation's leading dermatological concern. They obviously have a long way to go, there is a lot of road in front of them in terms of market dollars and market share. They look forward to continued strong progression, increased market share for their brands, the introduction of new products, and continuing to enjoy efficiencies from an operations management point of view. That will have the effect of keeping their G&A costs relatively static even on increasing revenue bases and hopefully improve corporate margins even further. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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