Company Spotlight - Medicis Pharmaceutical Corp. (MRX-NYSE)

More Than Skin Deep?

January 27, 2008 - Medicis Pharmaceutical Corp. (MRX-NYSE) has found a new wrinkle in the pharmaceuticals business. The company sells prescription acne and skin medications in market niches too small for larger drug makers. Medicis' prescription medications and doctor-dispensed products include DYNACIN (oral antibiotic for acne); TRIAZ and ZIANA (topical acne creams); and LOPROX (antifungal). The company also offers dermal aesthetic treatments including RESTYLANE and PERLANE, which smooth facial wrinkles, lines, and contours. Third-party companies handle manufacturing the company's line of nearly 20 products.

Earnings ramped nicely for 2007 with results for the full year expected soon.  Analysts believe eps will be $1.22, up from $.80 in 2006.  For 2008, look for $1.50.  Revenues increased from $349 million in 2006 to
$454 million for 2007.  Projections are for $505 million this year.

But those projections may need revision.  There's a generic form of the company's best selling acne medicine Solodyn, one that generates $242 million in revenues or 46% of sales and accounts for 50% of pretax profits.  The competitor is Impax Laboratories which filed for a generic version approval from the FDA. 

To receive approval a company needs to demonstrate bioequivalency of an existing drug.  That means that the active ingredient in a medication to be absorbed and metabolized works in a comparable amount to the active ingredient in the brand name drug.  Medicis is hoping that recent changes in bioequivalence standards play to its advantage.  If they don't, look for Medicis to negotiate out a settlement with Impax.

There's another concern: the slowing economy.  Since most of what Medicis sells is cosmetic based, it isn't a necessity, like food or drugs for healing.  And Medicis is about to launch a new product, Reloxin, another skincare treatment used to alleviate aging signs and wrinkles.  New products require more marketing and sales costs.  Analysts are looking for Reloxin to be FDA approved by the end of this year or early in 2009.  One analysts believes the new drug could outperform current expectations.

A new advertising campaign is underway, trying to lure customers to try Restylane, a dermal-filler.  The company believes the market is larger than is currently being served and is going direct to consumers with its marketing efforts, hoping they'll ask their doctors about the product.

Another new venture: Medicis is investing in Revance, to the tune of $20 million.  In exchange, Medicis will have a 10% interest in the company that makes a novel topical botulinum toxin type A product, and an option to buy the entire company or exclusively license the drug.  It has also committed to make up to $5 million in further investment.  This alliance will bolster Medicis' aesthetic product pipeline.  Since the application of this product may be done without injection, it should have a much larger market appeal.

Some numbers:  Market cap is $1.5 billion on 56.19 million shares.  Net profit margin is 17.5%.  Current assets are 8 times current liabilities with $766 million in cash out of $845 million of current assets.  Officers and directors own almost 8% of the stock.  There is a small dividend of 12 cents annually for a yield of less than 1%.  The stock hit an all-time high in 2004 at $45.30 (adjusted for stock splits).  With the recent news of Impax filing for the generic drug competitor, the stock is down over 45% from a year ago.

There are several scenarios for this stock, some good, some troublesome.  Many investors have dumped the stock and are waiting on the sidelines to see how Impax impacts Medicis' bottom line.  Others are venturing into the stock now, hoping for the best and looking at other positive developments such as the Revance investment.  Only time will reveal which investors guessed right.

- Company Web site: www.medicis.com

Ted Allrich