(PRX) Par Pharmaceutical Restructures Branded Business

Par Pharmaceutical Companies, Inc. (PRX) is in for a strategic assessment as it announced restructuring plans for its branded drugs segment, Strativa Pharmaceuticals. The company will reduce its workforce by about 100 people as a result of the restructuring, which is expected to drive the Strativa business to profitability. The workforce reduction will help Par Pharma focus on its products, Megace ES and Nascobal.

Consequently, in the second quarter of 2011, Par Pharma will incur one-time non-cash charges along with severance costs. The restructuring initiative is expected to generate operating expense savings of $8-$12 million for the rest of 2011.

The company believes this initiative will boost Strativa to profitability in the near term.

We expect the restructuring program to benefit the company, which witnessed a 20.9% drop in revenues in the first quarter of fiscal 2011. The company recorded revenues of $233.0 million in the first quarter, down from the year-ago figure of $291.9 million. Lower sales of the company’s generic products primarily led to the decline.

Sales of Par Pharma’s branded products, Megace ES (down 4.7% to $4.9 million) and Nascobal B12 Nasal Spray (down 18.8% to $3.9 million), too, experienced a sequential decline.

Our Take

We currently have a Neutral recommendation on Par Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. We note that the company currently has around 30 Abbreviated New Drug Applications (ANDA) pending approval with the FDA. Twelve of these are expected to be first-to-file opportunities, representing branded sales of about $8.0 billion.

We believe that even though competition has depleted, sales of several generic products including the company’s generic version of AstraZeneca’s (AZN) Toprol XL, Oravig and Zuplenz (both launched in the second half of 2010) as well as propafenone and amlodipine/benazepril (both launched in the first quarter of 2011) will help drive the top line.

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