Alpharma's Soothing Guidance

On Monday, up-and-coming specialty pharma Alpharma (NYSE: ALO  ) revised its 2008 financial guidance, and investors wrongly heckled its newly lowered earnings forecast.

Alpharma's new financial forecast for 2008 calls for it to bring in $0.15 to $0.35 per share from continuing operations, compared to its previous December guidance of $0.30 to $0.50 per share in earnings for 2008. Some of the guidance drop is because the company sold off its active pharmaceutical ingredient business, which investors should have seen coming, but they may be most upset about Alpharma stepping on the SG&A peddle to maximize its sales growth for the year.

Anytime a drugmaker launches a new drug, its financial guidance is going to be less accurate than in other times. Since Alpharma just launched its Flector pain patch in January, it gets a pass in my book on the shaky guidance for 2008, considering that Flector sales are expected to be very strong in 2008. Extrapolating from Alpharma's guidance, it looks like Flector sales are expected to come in anywhere from $92 million to $125 million this year. If Alpharma can hit this target, it would be an extraordinarily great launch for an already-approved compound that it only had to pay $100 million in cash (plus 1 million warrants) to acquire last year.

Just to put Alpharma's Flector guidance in perspective, Endo Pharmaceuticals' (Nasdaq: ENDP  ) Lidoderm pain patch had sales of only $23 million in its first full year on the market in 2000, and $41 million in the following year. While comparing drug launches like this is fraught with potential pitfalls, I'd be remiss if I didn't point out that Lidoderm sales were a whopping $706 million last year.

Some reduced earnings forecasts are worse than others. On the scale of earnings guidance reductions, Alpharma's ranks as one of the most benign because its earnings guidance was reduced thanks to future growth-promoting activities, rather than an unexpected decline in revenue or other negative surprise. With the fast pickup in sales of its new Flector pain patch, Alpharma shares are looking extremely cheap today if it can meet its Flector sales guidance in 2008, and this doesn't even count its other pipeline drug candidates.


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