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Cornerstone Therapeutics Inc. Reports Fourth Quarter and Fiscal Year 2012 Financial Results


3/14/2013 9:18:16 AM

CARY, NC--(Marketwire - March 14, 2013) -

Cornerstone Therapeutics Inc. (NASDAQ: CRTX), a specialty pharmaceutical company focused on commercializing products for the U.S. hospital and adjacent specialty markets, today announced results for the fourth quarter and full year ended December 31, 2012.

Total net product sales were $116.1 million in 2012 versus $101.3 million reported in 2011, an increase of 15%. For the fourth quarter of 2012, net product sales were $34.9 million versus $18.2 million, up 92%, compared to the fourth quarter of 2011. Net sales from the ZYFLO® family of products amounted to $53.6 million, up 75% year over year. CUROSURF® net sales were $35.0 million, marginally up from the 2011 level. CARDENE® I.V. net sales were $24.8 million for the period from June 26, 2012, the acquisition date, through December 31, 2012.

Net loss in 2012 was $11.9 million, or $(0.46) per diluted share, compared to a net loss of $693,000, or $(0.03) per diluted share, in 2011. Net loss for the fourth quarter of 2012 was $7.0 million, or $(0.26) per diluted share, compared to a net loss of $2.7 million, or $(0.11) per diluted share, in the fourth quarter of 2011. The Company's net loss in the fourth quarter and for the full year resulted primarily from three events: a charitable donation of CARDENE I.V. inventory valued at $11.7 million; a write-off of RETAVASE® inventory valued at $14.6 million; and impairment of our LIXAR® in-process research and development assets valued at $11.5 million offset by a reduction in value of the related contingent payments of $8.8 million.

On a non-GAAP basis, net income for the year was $16.3 million, or $0.59 per diluted share, an increase of 76% from non-GAAP income of $9.2 million, or $0.35 per diluted share, in 2011. Non-GAAP net income for the fourth quarter of 2012 was $6.5 million, or $0.22 per diluted share, compared to a non-GAAP net loss of $1.5 million, or $(0.06) per diluted share, in 2011.

Non-GAAP net income and net income per diluted share exclude stock-based compensation expense, amortization and impairment of product rights, transaction-related expenses, acquisition adjustments related to inventory, the CARDENE I.V. charitable inventory donation, the RETAVASE inventory write-off, the change in acquisition-related contingent payments and the gain on the divestiture of certain product rights.

"In 2012, we executed on our strategy to transition away from our primary-care focused anti-infective business and focus primarily on the hospital and adjacent specialty markets. With the integration of EKR now substantially complete, we are well positioned as a Company for future growth. Additionally, we closed 2012 by extending our CUROSURF licensing agreement with Chiesi which now runs through 2024 and includes supply price and commercial incentives, which we believe will further improve product margin," said Craig A. Collard, Cornerstone's Chief Executive Officer. "We expect to continue this momentum in 2013 by growing revenues organically, bringing the products in our pipeline to market and keeping a keen eye out for licensing and acquisition opportunities that align with our vision for growth."

A breakdown of net revenues by product for the three and 12 months ended December 31, 2012 (in thousands, except percentages) follows:

                                                                            
                Three Months                                                
                   Ended                        Year Ended                  
                December 31,     Change        December 31,       Change    
              --------------- ------------  ----------------- ------------- 
                2012    2011     $      %     2012     2011       $      %  
              ------- ------- ------- ----  -------- -------- -------- ---- 
Net product                                                                 
 sales                                                                      
  CARDENE                                                                   
   I.V.                                                                     
   product                                                                  
   family     $11,293       - $11,293  100% $ 24,807        - $ 24,807  100%
  CUROSURF      8,127   9,450  (1,323) (14)   34,972   34,852      120    - 
  ZYFLO                                                                     
   product                                                                  
   family      15,822   8,361   7,461   89    53,553   30,674   22,879   75 
  AlleRx Dose                                                               
   Pack                                                                     
   products      (282) (2,928)  2,646  (90)   (1,407)  23,263  (24,670)(106)
  Anti-                                                                     
   infective                                                                
   products         -   3,109  (3,109)(100)    3,374   14,387  (11,013) (77)
  Other                                                                     
   products       (33)    192    (225)(117)      781   (1,875)   2,656    - 
              ------- ------- -------       -------- -------- --------      
  Total net                                                                 
   product                                                                  
   sales       34,927  18,184  16,743   92   116,080  101,301   14,779   15 
License and                                                                 
 royalty                                                                    
 agreement                                                                  
 revenues           -      22     (22)(100)        4      121     (117) (97)
              ------- ------- -------       -------- -------- --------      
Net revenues  $34,927 $18,206  16,721   92  $116,084 $101,422   14,662   14 
              ------- ------- -------       -------- -------- --------      
                                                                            

Gross margin (exclusive of license and royalty agreement revenues and amortization of product rights) for 2012 was 63% and remained flat compared to 2011. Cost of product sales for 2012 included $4.2 million of fair value step-up adjustments related to acquired CARDENE I.V. inventory sold during the year, which had a four percentage point negative impact on gross margin.

Selling, general and administrative expenses were relatively flat at $46.4 million in 2012 compared to $45.9 million in 2011. Reductions in certain employee-related costs driven by the divestiture of the anti-infective product rights and respiratory sales force in March 2012 were offset by increases in co-promotion expense and marketed product support related to ZYFLO.

As of December 31, 2012, Cornerstone had $56.3 million in cash and cash equivalents compared to $34.2 million at the end of the third quarter 2012 and $74.0 million at December 31, 2011. The year-over-year decrease primarily represents the $36.4 million of cash-on-hand used to help fund the EKR Therapeutics acquisition, while the sequential increase reflects our strong cash flow from operations.

Conference Call Information

Cornerstone Therapeutics will host a conference call today at 8:30 AM ET to discuss financial results for the three and 12 months ended December 31, 2012. To participate in the live conference call, please dial 888-364-3109 (U.S. callers) or 719-325-2432 (international callers), and provide passcode 4876543. A live webcast of the call will also be available through the Investor Relations section of the Company's website. Please allow extra time prior to the webcast to register, download and install any necessary audio software.

The conference call and the webcast will be archived for 30 days. The telephone replay of the call will be available approximately two hours after completion of the call by dialing 888-203-1112 (U.S. callers) or 719-457-0820 (international callers), and providing passcode 4876543.

About Cornerstone Therapeutics

Cornerstone Therapeutics Inc. (NASDAQ: CRTX), headquartered in Cary, N.C., is a specialty pharmaceutical company focused on commercializing products for the hospital and adjacent specialty markets. Key elements of the Company's strategy are to focus its commercial and development efforts in the hospital and adjacent specialty product sector within the U.S. pharmaceutical marketplace; continue to seek out opportunities to acquire companies, marketed or registration-stage products and late-stage development products that fit within the Company's focus areas; and generate revenues by marketing approved generic products through the Company's wholly-owned subsidiary, Aristos Pharmaceuticals, Inc. For more information, visit www.crtx.com.

Use of Non-GAAP Financial Measures

To supplement the consolidated financial statements presented in accordance with GAAP, the Company uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share. The Company's management regularly uses supplemental non-GAAP financial measures to understand, manage and evaluate its business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from similarly titled non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The additional non-GAAP financial information presented in this press release should be considered in conjunction with, and not as a substitute for, or superior to, the financial information presented in accordance with GAAP (such as operating income (loss), net income (loss) and earnings (loss) per share) and should not be considered measures of the Company's liquidity. These non-GAAP measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.

The non-GAAP financial measures reflect adjustments for stock-based compensation expense, amortization and impairment of product rights, transaction-related expenses, acquisition adjustments related to inventory, its CARDENE I.V. charitable inventory donation, its RETAVASE inventory write-off, changes in acquisition-related contingent payments, and the gain on the divestiture of certain product rights. Transaction-related expenses consist of (1) costs incurred to complete product or company acquisitions or other strategic transactions, including due diligence and legal, consulting and other related fees; (2) integration costs related to the Company's completed transactions; and (3) transaction-related fees associated with transactions that are not consummated. The Company excludes these items from its non-GAAP measures because it believes that their exclusion provides an additional means to assess the extent to which the Company's efforts and execution of its strategy are reflected in its operating results. In particular, stock-based compensation expense is excluded primarily because it is a non-cash expense that is determined based on subjective assumptions; amortization and impairment of product rights are excluded because they are not reflective of the cash-settled expenses incurred related to product sales; and the transaction-related expenses, acquisition adjustments related to inventory, its CARDENE I.V. charitable inventory donation, its RETAVASE inventory write-off, changes in acquisition contingent payments, and the Company's gain on the divestiture of certain product rights are excluded because management believes they have no direct correlation to current operating results. Management believes that these non-GAAP measures, when shown in conjunction with the corresponding GAAP measures, enhance investors' and management's overall understanding of the Company's current financial performance and its prospects for the future.

The non-GAAP measures are subject to inherent limitations because (1) they do not reflect all of the expenses associated with the results of operations as determined in accordance with GAAP and (2) the exclusion of these items involved the exercise of judgment by management. Even though the Company has excluded stock-based compensation expense, amortization and impairment of product rights, transaction-related expenses, acquisition adjustments related to inventory, CARDENE I.V. charitable inventory donation, RETAVASE inventory write-off, changes in acquisition-related contingent payments, and the gain from the divestiture of product rights from the non-GAAP financial measures, stock-based compensation is an integral part of the Company's compensation structure, the acquisition of additional companies and/or product rights and the divestiture of the Company's anti-infective product rights are an important part of its business strategy, transaction-related expenses, whether or not the transaction is successfully closed, may be significant cash expenses and the disposition of its assets other than through product sales has a negative impact on the Company's results of operations and cash flows.

Safe Harbor Statement

Statements in this press release regarding the progress and timing of our product development programs and related trials; our future opportunities; our strategy, future operations, anticipated financial position, future revenues and projected costs; our management's prospects, plans and objectives; and any other statements about management's future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Any statements that are not statements of historical fact (including, without limitation, statements containing the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "target," "will," "would" and similar expressions) should also be considered to be forward-looking statements.

There are a number of important factors that could cause our actual results or events to differ materially from those indicated by such forward-looking statements, including risks relating to our "critical accounting estimates"; our ability to develop and maintain the necessary sales, marketing, supply chain, distribution and manufacturing capabilities to commercialize our products; our ability to replace the revenues from products we no longer market; the adverse impact of returns of previously sold inventory; patient, physician and third-party payer acceptance of our products as safe and effective therapeutic products; our heavy dependence on the commercial success of a relatively small number of currently marketed products; our ability to maintain regulatory approvals to market and sell our products; our ability to obtain FDA approval to manufacture, market and sell our products and product candidates, including our lixivaptan compound, LIXAR (formerly referred to as CRTX 080), and RETAVASE; our ability to successfully and effectively launch our Hydrocodone Polistirex and Chlorpheniramine Polistirex Extended Release Suspension product (formerly referred to as CRTX 067); our ability to enter into additional strategic licensing, product acquisition, collaboration or co-promotion transactions on favorable terms, if at all; our ability to manage and control unknown liabilities in connection with any acquisitions; our ability to successfully manage growth or integrate acquired businesses and operations; our ability to maintain compliance with NASDAQ listing requirements; adverse side effects experienced by patients taking our products; difficulties relating to clinical trials, including difficulties or delays in the completion of patient enrollment, data collection or data analysis; the results of preclinical studies and clinical trials with respect to our product candidates and whether such results will be indicative of results obtained in later clinical trials; our ability to develop and commercialize our product candidates before our competitors develop and commercialize competing products; our ability to satisfy FDA and other regulatory requirements; our substantial indebtedness and debt covenants; and our ability to obtain, maintain and enforce patent and other intellectual property protection for our products and product candidates and the other factors described in Item 1A (Risk Factors) of our Annual Report on Form 10-K filed with the SEC on March 6, 2012, Item 1A (Risk Factors) in our Quarterly Report on Form 10-Q filed with the SEC on November 8, 2012 and in our subsequent filings with the SEC. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

In addition, the statements in this press release reflect our expectations and beliefs only as of the date of this release. We anticipate that subsequent events and developments will cause our expectations and beliefs to change. However, while we may elect to update these forward-looking statements publicly at some point in the future, we specifically disclaim any obligation to do so, whether as a result of new information, future events or otherwise, except as may be required by law. Our forward-looking statements do not reflect the potential impact of any acquisitions, mergers, dispositions, business development transactions, joint ventures or investments that we may make or enter into. These forward-looking statements should not be relied upon as representing our views as of any date after the date of this release.

Trademarks

LIXAR®, ZYFLO CR® and ZYFLO® are registered trademarks of Cornerstone Therapeutics Inc. CARDENE® I.V. and RETAVASE® are registered trademarks of EKR Therapeutics, Inc., Cornerstone Therapeutics' wholly-owned subsidiary. CUROSURF® is owned by Chiesi Farmaceutici S.p.A. and is licensed to Cornerstone Therapeutics for sales and marketing purposes in the United States.

                                                                            
                       CORNERSTONE THERAPEUTICS INC.                        
               CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS                
              (In thousands, except share and per share data)               
                                                                            
                            Three Months Ended                              
                               December 31,         Year Ended December 31, 
                         ------------------------  ------------------------ 
                             2012         2011         2012         2011    
                                (Unaudited)                                 
Net revenues             $    34,927  $    18,206  $   116,084  $   101,422 
Costs and expenses:                                                         
  Cost of product sales                                                     
   (exclusive of                                                            
   amortization of                                                          
   product rights)            10,595        8,640       42,579       37,823 
  Selling, general and                                                      
   administrative             13,659        9,764       46,404       45,877 
  Research and                                                              
   development                   544          252        4,273        1,624 
  Amortization of                                                           
   product rights              4,155        3,591       17,929       14,368 
  Change in acquisition-                                                    
   related contingent                                                       
   payments                  (10,322)           -      (11,896)           - 
  Transaction-related                                                       
   expenses                      410          467        8,354          467 
  Other operating                                                           
   expenses, net              37,271            -       35,779        2,500 
                         -----------  -----------  -----------  ----------- 
    Total costs and                                                         
     expenses                 56,312       22,714      143,422      102,659 
                         -----------  -----------  -----------  ----------- 
Loss from operations         (21,385)      (4,508)     (27,338)      (1,237)
Other expenses, net:                                                        
  Interest expense, net       (1,697)          (7)      (3,496)        (128)
  Other expense, net             (84)           -         (299)           - 
                         -----------  -----------  -----------  ----------- 
    Total other expenses      (1,781)          (7)      (3,795)        (128)
                         -----------  -----------  -----------  ----------- 
Loss before income taxes     (23,166)      (4,515)     (31,133)      (1,365)
Benefit from income                                                         
 taxes                        16,207        1,766       19,245          672 
                         -----------  -----------  -----------  ----------- 
Net loss                 $    (6,959) $    (2,749) $   (11,888) $      (693)
                         ===========  ===========  ===========  =========== 
                                                                            
Comprehensive loss       $    (6,959) $    (2,749) $   (11,888) $      (693)
                         ===========  ===========  ===========  =========== 
                                                                            
Net loss per share,                                                         
 basic                   $     (0.26) $     (0.11) $     (0.46) $     (0.03)
                         ===========  ===========  ===========  =========== 
Net loss per share,                                                         
 diluted                 $     (0.26) $     (0.11) $     (0.46) $     (0.03)
                         ===========  ===========  ===========  =========== 
Weighted-average common                                                     
 shares, basic            26,334,106   25,797,763   26,115,266   25,684,593 
                         ===========  ===========  ===========  =========== 
Weighted-average common                                                     
 shares, diluted          26,334,106   25,797,763   26,115,266   25,684,593 
                         -----------  -----------  -----------  ----------- 
                                                                            
                                                                            
                                                                            
                        CORNERSTONE THERAPEUTICS INC.                       
                         CONSOLIDATED BALANCE SHEETS                        
               (In thousands, except share and per share data)              
                                                                            
                                                                            
                                                 December 31,   December 31,
                                                     2012           2011    
Assets                                                                      
Current assets:                                                             
  Cash and cash equivalents                     $      56,250  $      73,968
  Accounts receivable, net                             14,368         11,894
  Inventories, net                                     11,384          9,419
  Prepaid expenses                                      3,343          3,753
  Income tax receivable                                 4,094          1,900
  Deferred tax asset                                    1,614              2
  Acquisition-related current assets                   11,134          5,618
  Other current assets                                    379            494
                                                -------------  -------------
    Total current assets                              102,566        107,048
                                                -------------  -------------
Property and equipment, net                             1,310          1,574
Product rights, net                                   232,111        106,960
Goodwill                                               33,356         15,218
Amounts due from related parties                            -             38
Deferred tax asset, less current portion                    -            523
Other assets                                               32            953
                                                -------------  -------------
    Total assets                                $     369,375  $     232,314
                                                =============  =============
                                                                            
Liabilities and Stockholders' Equity                                        
Current liabilities:                                                        
  Accounts payable                              $      12,439  $       5,526
  Accrued expenses                                     37,379         34,993
  Acquisition-related contingent payments               6,846              -
  Deferred revenue                                          -          1,428
  Acquisition-related current liabilities               9,636          6,618
  Other current liabilities                               525             90
                                                -------------  -------------
    Total current liabilities                          66,825         48,655
                                                -------------  -------------
Acquisition-related contingent payments, less                               
 current portion                                       26,362          8,800
Long-term debt                                         89,540              -
Deferred tax liability                                 15,683              -
Other long-term liabilities                             4,792             56
                                                -------------  -------------
    Total liabilities                                 203,202         57,511
                                                -------------  -------------
                                                                            
Stockholders' equity                                                        
  Preferred stock - $0.001 par value, 5,000,000                             
   shares authorized; no shares issued and                                  
   outstanding                                              -              -
  Common stock - $0.001 par value, 90,000,000                               
   shares authorized; 26,348,470 and 25,803,864                             
   shares issued and outstanding as of December                             
   31, 2012 and December 31, 2011, respectively            26             26
  Additional paid-in capital                          167,461        163,203
  (Accumulated deficit) retained earnings              (1,314)        11,574
                                                -------------  -------------
    Total stockholders' equity                        166,173        174,803
                                                -------------  -------------
    Total liabilities and stockholders' equity  $     369,375  $     232,314
                                                -------------  -------------
                                                                            
                                                                            
                                                                            
                       CORNERSTONE THERAPEUTICS INC.                        
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                               (In thousands)                               
                                                  Year Ended December 31,   
                                               ---------------------------- 
                                                    2012           2011     
                                               -------------  ------------- 
Cash flows from operating activities                                        
Net loss                                       $     (11,888) $        (693)
Adjustments to reconcile net loss to net cash                               
 provided by operating activities:                                          
  Amortization and depreciation                       18,660         14,896 
  Amortization of debt costs                              51              - 
  Provision for prompt payment discounts               3,474          3,448 
  Provision for other receivables                      1,457              - 
  Provision for inventory allowances                   1,277            209 
  Acquisition accounting adjustment on                                      
   inventory                                           4,178              - 
  CARDENE I.V. charitable inventory donation          11,662              - 
  RETAVASE inventory write-off                        14,586              - 
  Gain on sale of product rights                      (1,969)             - 
  Loss on disposal of property and equipment             299              - 
  Change in acquisition-related contingent                                  
   payments                                          (11,896)             - 
  Impairment of product rights                        11,500          2,500 
  Stock-based compensation                             2,961          2,207 
  Deferred revenue                                    (1,428)       (55,766)
  Benefit from deferred income taxes                 (16,062)          (388)
Changes in operating assets and liabilities:                                
  Accounts receivable                                  1,453         61,134 
  Inventories                                         (2,007)         5,546 
  Prepaid expenses and other assets                      231          8,528 
  Accounts payable, accrued expenses, and                                   
   other liabilities                           

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