Adams Coughs Up Some Profits

I struggled for a period last winter trying to free myself from a nasty cough. After being dragged to the local pharmacy by slightly annoyed coworkers, I stood baffled before a wall of cough, cold, and flu remedies. Among these offerings were products from Adams Respiratory Therapeutics (NASDAQ:ARXT), sold under the brand Mucinex.

Adams yesterday reported quarterly earnings of $0.17 per share. While some companies choke on market expectations, Adams' numbers were easy to swallow, as analysts had projected earnings of only $0.17 per share. Revenue for the quarter was $52.8 million, an increase of 35% over last year's sales. The June-ending quarter is typically the weakest for Adams, being the farthest removed the cough, cold, and flu season, which is the company's most lucrative.

Adams primary business is providing over-the-counter cough and cold remedies with a focus on those containing the expectorant guaifenesin. Mucinex is sold through drugstore chains like Walgreen's (NYSE:WAG) and CVS (NYSE:CVS). This highly competitive and crowded cough, cold, and flu market contains many strong brands. The company competes directly with the likes of Wyeth's (NYSE:WYE) Robitussin, and Johnson & Johnson's (NYSE:JNJ) Tylenol Cold and Flu. Adams attempts to separate itself from the field by offering a patented high-dose guaifenesin formulation, but this product has recently come under challenge by a recent ANDA filing that exposes it to generic competition in the future.

Future product offerings are expected to include a line of children's remedies. Also intriguing is that Adams has a license and supply agreement for the drug Erdosteine and is sponsoring a phase 2b clinical trial to seek its U.S. approval. Erdosteine is already marketed in Europe and Asia for chronic bronchitis and pulmonary disorder (COPD).

Adams has been public for only a little over a year. The company has used the proceeds from the offering to buy back manufacturing operations, increase product offerings, including the purchase of the Delsym line, expand development, and improve customer awareness via advertising. When investing in a mature and competitive market, I like to look for a company with an innovative new offering or a clear competitive advantage. Adams looks to have successfully laid the groundwork for sustained future operations, but it's difficult to see a strong enough differentiation between Adams' products and those of its competitors. Even I wound up purchasing a drugstore-branded knockoff of Robitussin containing guaifenesin. Also, it's also hard to meaningfully compare the current operating results to past results that were loaded with one-time charges related to becoming a public entity. I'm content to sit on the sidelines for a time to see how the company pulls it all together moving forward, but I think this one is worth keeping an eye on.

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Fool contributor Ralph Casale, known on the discussion boards as HelicalZz, never sneezes at opportunities to make phlegm-related puns. He owns shares of Johnson & Johnson but holds no financial position in any other firm mentioned. The Motley Fool has a disclosure policy.