Sepracor has posted a better-than-expected set of financials for the first-quarter profit despite a decline in sales for its top two products, the sleep drug Lunesta and the asthma treatment Xopenex.

Net income fell 35.1% to $12.2 million, or $0.11 per share, though the figures include the effects of a $39.8 million charge connected to a US distribution agreement signed with Nycomed for the latter’s ciclesonide, the active ingredient in both the asthma treatment Alvesco and Omnaris AQ nasal spray for allergic rhinitis. Also contributing to the earnings decline a $9.5 million milestone payment to Bial as part of its $175 million licensing deal for the Portuguese firm’s late-stage anti-epileptic compound BIA 2-093 (eslicarbazepine).

Revenues slipped just over 2% to $320.8 million, and the firm’s biggest-seller, its Xopenex (levalbuterol) fell almost 6% to $160 million. The insomnia drug Lunesta (eszopiclone) declined 8% to $135.6 million, while Brovana (arformoterol) for chronic obstructive pulmonary disease,which was launched in April last year, brought in $9.9 million. Royalties from out-licensed antihistamine products, which include Schering-Plough's Clarinex (desloratadine), Sanofi-Aventis' Allegra (fexofenadine) and UCB's Xyzal/Xusal (levocetirizine), were up over 50% to $15.2 million.

Analysts were pretty pleased with the performance, partly by the way Sepracor controlled its costs but more significantly because of the settlement of a patent lawsuit it has reached with Arrow Group’s Breath subsidiary concerning Xopenex. Under the terms of the settlement, Breath agreed to pay Sepracor a double-digit royalty on gross profits from sales of its generic formulations of the drug which should hit the market in 2012.

Cowen and Co analyst Ian Sanderson issued a research note saying that Sepracor shares have 20%-25% upside relative to the market this year, “despite slowing Lunesta and Xopenex trends”.

Sepracor pays $50 million for Oryx
Staying with the Arrow Group, Sepracor also announced that it is buying one of the latter’s units, Oryx Pharmaceuticals, a deal which will expand its operations in Canada.

Under the terms of the agreement, Oryx's shareholders will receive $50 million (approximately 2.5 times projected 2008 sales) and possibly up to $20 million more if it meets various regulatory milestones. The transaction is expected to close on June 1.

Oryx currently markets 14 drugs to physician specialists and hospitals within Canada, including Novartis’ epilepsy drug Trileptal (oxcarbazepine) and Abbott Laboratories’ cholesterol drug Niaspan (niacin). It also has, to date, a 100% success rate on product approvals in Canada.

Sepracor chief executive Adrian Adams said the deal with the firm’s aim of “developing a commercial footprint in the strategically important Canadian pharmaceutical market”. Submissions of Lunesta, Brovana and eslicarbazepine for marketing approval in Canada are being planned.