Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=221101
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Akorn Inc. stocks tumble after disappointing Q1 earnings released

by Katie Peralta
May 7, 2013


AKORN_REVISED

Katie Peralta/Medill

Akorn Inc. has seen a fluctuation in earnings (red) in recent years. As earnings declined 17.7 percent in 2012, CEO Raj Rai's total compensation also fell sharply, by 73.7 percent (blue), because he received no stock options in 2012 after nearly $3 million in options in 2011.

Akorn Inc.’s stock plunged more than 7 percent Tuesday as the generic-pharmaceutical manufacturer reported record high first quarter revenue but disappointing earnings, causing the company to lower its full-year guidance.

The Lake-Forest, Ill.-based company reported net income of $10.8 million, or 10 cents per share, 4 cents short of the expectation of analysts polled by Yahoo Inc.  

The earnings tripled year-ago profit of $3.1 million, or 3 cents per share.

 

The company reported a record high consolidated revenue of $73.9 million, up 43 percent over 2012 first quarter when the revenue was $51.7 million.

Management blamed its unsatisfactory earnings on sluggish sales of new products like progesterone capsules as well as losses from the unexpected shutdown of its Somerset, N.J., plant after Hurricane Sandy.

The company lowered full-year revenue guidance 10 percent to $305 to $315 million, down from its prior guidance of $325 million to $335 million. Revenue last year totaled $256.2 million.  

“From our vantage point, this is a setback and a very modest one at that,” Needham & Co. LLC analyst Elliot Wilbur said in a written statement. “The model is hardly broken nor is there any significant discernable impairment in overall franchise value.”

Akorn’s stock price plummeted more than 15 percent before recovering half that deficit to close at $14.02, down $1.13, but analysts like Wilbur, who forecasts $500 million in revenue by 2015, maintained a generally positive outlook.

“Akorn is one of the few acquirable assets remaining in the specialty generic arena and guess what? Everybody from Actavis to Mylan, Sandoz, Valeant and now even Endo want in,” Wilbur said.

The drug manufacturer’s management acknowledged the slump but looked forward.  

“I know we have hit a bump in the road, but we are determined to get back on track during the second quarter of this year,” CEO Raj Rai said in a conference call, adding later that a bounce-back expected in new products is a priority.

“I’m not saying that we’re not going to look at acquisition opportunities, but I think the bigger priority

 . . . and the focus is to get back on track with sales but, we’ll look at any opportunity that comes along,” he said.

First quarter R&D spending, in line with the company’s guidance, was $6 million, up $3.1 million from last year, due in part to establishing and staffing a new R&D center in Mount Vernon, Ill., which the company anticipates will support 35 to 40 abbreviated new drug applications per year.

Akorn management attributed its sales jump to strong performance in its Indian markets as well as growth of established products like its flagship brand TheraTears.

“We believe the company can be generating close to $500 million in revenue in 2015 which, in our mind, puts asset value at north of $25 per share,” stated Wilbur, whose firm maintains its “buy” rating.