Pharmaceutical IPO: Warner Chilcott Files S-1 (WCRX)

by: Evelyn Rubin

Warner Chilcott (Proposed Ticker: WCRX) filed an S-1 on Friday. Formerly a unit of Warner-Lambert Co. before being acquired in 1996, Warner Chilcott was sold to Bain Capital, DLJ Merchant Banking, JP Morgan and T.H. Lee in January 2005 for $3.1 billion. Key details from the SEC filing:

Company Description

We are a leading specialty pharmaceutical company focused on marketing, selling, developing and manufacturing branded prescription pharmaceutical products in women’s healthcare and dermatology in the United States. We have established strong franchises in these two areas through our precision marketing techniques and specialty sales forces of approximately 400 representatives. We believe that our proven product development capabilities, coupled with our ability to execute acquisitions and in-licensing transactions and develop partnerships, such as our relationship with LEO Pharma, will enable us to sustain and grow these franchises.

Our franchises are comprised of complementary portfolios of established branded, development-stage and new products, including our recently launched products, Loestrin 24 Fe and Taclonex. Our women’s healthcare franchise is anchored by our strong presence in the hormonal contraceptive and hormone therapy (“HT”) categories and our dermatology franchise is built on our established positions in the markets for psoriasis and acne therapies. In April 2006, we launched Loestrin 24 Fe, an oral contraceptive with a novel patented 24-day dosing regimen, with the goal of growing the market share position we have achieved with our Ovcon and Estrostep products in the hormonal contraceptive market. We also have a significant presence in the HT market, primarily through our products femhrt and Estrace Cream. In dermatology, our psoriasis product Dovonex enjoys the leading position in the United States for the non-steroidal topical treatment of psoriasis. We strengthened and extended our position in the market for psoriasis therapies with the April 2006 launch of Taclonex, the first once-a-day topical psoriasis treatment that combines betamethasone dipropionate, a corticosteroid, with calcipotriene, the active ingredient in Dovonex. Our product Doryx is the leading branded oral tetracycline in the United States for the treatment of acne. In 2005, we launched Doryx delayed-release tablets.

Key Financial Data

  • Revenue: Pre-acquisition, 2004 revenue for the company was $490.2 million. In the only full year of operations since being taken over by the private equity consortium, revenues were $515 million. Q1 revenues increased from $133.7 million in 2005 to $166.5 million in 2006. General product trends for this period include a 21.9% increase in oral contraceptives (30.8% Q1 06 revenues), 8.2% decline in hormone replacement (20.3% Q1 06 revenue), 157.7% increase in dermatology (37.4% Q1 06 revenue), 13.4% decline in PMDD (6.4% Q1 06 revenue).
  • Margins: Gross profit for the first quarter of 2006 increased 55% over the same period in 2005 to $134.7 million. Gross margins increased from 67.7% to 80.9%.
  • Net Income: Prior to the acquisition, the company was profitable with $151 million in net income for fiscal 2004 (ended September). In the process of the acquisition, the company wrote off $280 million of acquired in-house R&D, and added substantial other acquisition costs resulting in a $556.6 million net loss. Much of this affected the Q1 05 quarter ($368.1 million net loss); for Q1 06, the net loss dropped to $27.3 million. Also in the first quarter of 2006, the company completed the acquisition of U.S. sales and marketing rights to Dovonex ($205.2 million), and had a milestone payment of $40 million for Talconex. To finance these events, $240 million was borrowed.
  • Contractual Commitments: The company has $2.35 billion in contractual commitments, the lion's share of which is 5 year+ senior secured credit facility (see chart from S1). After the IPO, the investors will receive $30 million, and all outstanding stock ($444.7 million) in its subsidiary, Warner Chilcott Holdings Company II, Limited .
  • Key Competitors

    1. Hormonal Contraceptives: Johnson & Johnson (NYSE:JNJ), Schering AG (SHR), Barr Pharmaceuticals (BRL)
    2. Hormone Therapy: Wyeth (WYE), Pfizer (NYSE:PFE), Schering AG (SHR), Barr Pharmaceuticals (BRL)
    3. Doryx: Medicis (MRX) Bradley Pharmaceutical (BDY)
    4. Psoriasis: Galderma Laboratories, Allergan (NYSE:AGN)

    Notable Issues To Watch For

    Hormone Therapy litigation: From the S1, "Approximately 450 product liability suits have been filed against us related to our HT products, femhrt, Estrace, Estrace Cream and medroxyprogesterone acetate. The cases are in the early stages of litigation and we are in the process of analyzing and conducting investigations of the individual complaints."

    Underwriters: Goldman Sachs, JP Morgan, Morgan Stanley, Credit Suisse

    Offering Details: Details are not finalized, but the initial offering size is $1 billion.