Warner Chilcott, PLC 2Q Profit Soars on New Products
The acquisition of the global branded prescription pharmaceuticals business ("PGP") of P&G on October 30, 2009 (the "PGP Acquisition") significantly impacted the Company's financial position and results of operations in the quarter ended June 30, 2010, compared to the prior year quarter. The Company reported GAAP net income of $115.3 million, or $0.46 per diluted share, in the quarter ended June 30, 2010, compared with GAAP net income of $56.0 million, or $0.22 per diluted share, in the prior year quarter. Included in cost of sales in the quarter ended June 30, 2010 was an $18.1 million reduction in cost of sales, net of tax, for the reversal of a contingent liability relating to the termination of a contract. Also included in our results for the quarter ended June 30, 2010 was a $9.4 million gain, net of tax, resulting from the Company's distribution during the quarter of certain inventories sold to LEO Pharma A/S ("LEO") in connection with a transaction completed during the third quarter of 2009 (the "LEO Transaction"). Cash net income ("CNI") for the quarter ended June 30, 2010 was $268.8 million compared to $109.2 million in the prior year quarter. Excluding the reversal of the contingent liability described above and the gain relating to the sale of certain inventories in connection with the LEO Transaction, adjusted CNI was $241.2 million, or $0.95 per diluted share.
References in this press release to "cash net income" or "CNI" mean our net income adjusted for the after-tax effects of two non-cash items: amortization (including impairments, if any) of intangible assets and amortization (including write-offs, if any) of deferred loan costs related to our debt. Reconciliations from our reported results in accordance with US GAAP to CNI, adjusted CNI and adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") for all periods are presented in the tables at the end of this press release.
Revenue
Revenue in the quarter ended June 30, 2010 was $815.6 million, an increase of $564.8 million, or 225.2%, over the prior year quarter. In addition to transactions such as the PGP Acquisition, period over period changes in the net sales of our products are a function of a number of factors including changes in: market demand, gross selling prices, sales-related deductions from gross sales to arrive at net sales and the levels of pipeline inventories of our products held by our direct and indirect customers. We use IMS Health, Inc. estimates of filled prescriptions for our products as a proxy for market demand in the U.S.
Net sales of our oral contraceptive products increased $33.0 million, or 44.1%, in the quarter ended June 30, 2010, compared with the prior year quarter. LOESTRIN 24 FE generated revenues of $89.1 million in the quarter ended June 30, 2010, an increase of 53.7%, compared with $58.0 million in the prior year quarter. The increase in LOESTRIN 24 FE net sales was primarily due to an increase in filled prescriptions of 81.1% and higher average selling prices, offset in part by the impact of higher sales-related deductions primarily due to increased utilization of customer loyalty cards and the contraction of pipeline inventories relative to the prior year quarter.
Revenues of ACTONEL were $263.6 million in the quarter ended June 30, 2010. ACTONEL revenues in North America totaled $163.0 million, including $143.5 million in the United States. Filled prescriptions of ACTONEL in the U.S. decreased 22.7% in the quarter ended June 30, 2010 compared to the prior year quarter. In the United States, ACTONEL continues to face market share declines due to the impact of managed care initiatives encouraging the use of generic versions of other products. Generic competition in Canada began to negatively impact our net sales of ACTONEL in the first quarter of 2010 and we expect generic competition in Western Europe to negatively impact our net sales of ACTONEL beginning in the fourth quarter of 2010.
Net sales of our dermatology products increased $11.7 million, or 10.2%, in the quarter ended June 30, 2010, compared with the prior year quarter. Net sales of DORYX increased $6.1 million, or 13.7%, compared to the prior year quarter, as increases in filled prescriptions of 10.0% and higher average selling prices were offset, in part, by a contraction of pipeline inventories relative to the prior year quarter and increases in sales-related deductions. The increase in sales-related deductions compared to the prior year quarter was primarily due to the increased usage of our customer loyalty card for DORYX 150 mg. DOVONEX and TACLONEX revenues recorded during the quarter ended June 30, 2010 totaled $76.0 million, an increase of $5.6 million as compared to the prior year quarter. As a result of the LEO Transaction and related distribution agreement with LEO, we recorded revenue and cost of sales at distributor margins for all TACLONEX and DOVONEX products during the quarter ended June 30, 2010, which negatively impacted our gross margin percentage. We continued to record revenue and cost of sales from the distribution of the products for LEO during 2010 until LEO assumed responsibility of distribution services effective June 30, 2010.
Net sales of ASACOL in the quarter ended June 30, 2010 were $192.5 million. Revenues in North America totaled $179.1 million, in the quarter ended June 30, 2010, including $174.0 million in the United States. Filled prescriptions of ASACOL in the U.S. decreased 6.5% in the quarter ended June 30, 2010 compared to the prior year quarter.
Cost of Sales (excluding Amortization of Intangible Assets)
Cost of sales increased $61.9 million, or 131.6%, in the quarter ended June 30, 2010 compared with the prior year quarter, primarily due to a 211.0% increase in product net sales and approximately $76.0 million of costs for DOVONEX and TACLONEX products which were distributed at nominal distributor margins under the LEO distribution agreement. This increase was offset in part by an $18.5 million reduction in cost of sales for the reversal of a contingent liability relating to the termination of a contract. Additionally, the increase was offset by a $9.6 million gain relating to the distribution during the quarter of certain inventories sold to LEO in connection with the LEO Transaction. Our gross margin, as a percentage of total revenue, increased from 81.3% in the quarter ended June 30, 2009 to 86.7% in the quarter ended June 30, 2010. Excluding the reduction in cost of sales in connection with the reversal of the contingent liability discussed above ($18.5 million), the impact of the gain from the LEO Transaction ($9.6 million) and the impact of the costs from the LEO distribution agreement ($76.0 million), our gross margin as a percentage of total revenue, excluding revenues under the LEO distribution agreement ($76.0 million), was 91.8%.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses for the quarter ended June 30, 2010 were $280.8 million, an increase of $227.8 million, or 429.6%, from $53.0 million in the prior year quarter. A&P expenses increased $15.9 million, or 151.9%, in the quarter ended June 30, 2010 as compared with the prior year quarter, primarily due to advertising and other promotional spending attributable to the acquired PGP products. Selling and distribution expenses increased $116.4 million, or 573.7%, in the quarter ended June 30, 2010 as compared to the prior year quarter. The increase was primarily due to the Sanofi-Aventis U.S. LLC ("Sanofi") co-promotion expenses of $61.1 million under the Actonel Collaboration Agreement between us and Sanofi, increased headcount resulting from the acquisition of the PGP sales forces as well as new expenses related to the acquired PGP products. G&A expenses increased $95.5 million, or 429.1%, in the quarter ended June 30, 2010, as compared with the prior year quarter. The increase was due in large part to increases in infrastructure costs, compensation expenses and professional and legal fees primarily relating to the PGP Acquisition. Included in G&A expenses in the quarter ended June 30, 2010 were $8.1 million of legal, consulting and other professional fees relating to the PGP Acquisition, expenses payable to P&G under the Transition Services Agreement of $15.9 million, other integration expenses of $11.5 million and severance costs of $2.1 million.
Research and Development ("R&D")
Our investment in R&D for the quarter ended June 30, 2010 was $51.3 million, an increase of $39.4 million, or 329.1%, compared with $11.9 million in the prior year quarter. Included in the quarter ended June 30, 2010 was a $20.0 million up-front payment to Dong-A PharmTech Co. Ltd. ("Dong-A"), resulting from the amendment of our agreement to add the right to develop, and if approved, market, in the U.S. and Canada, Dong-A's udenafil product for the treatment of lower urinary tract symptoms associated with Benign Prostatic Hyperplasia. Excluding this up-front milestone payment, R&D expenses increased $19.4 million compared to the prior year quarter. The increase in R&D expenses in the quarter ended June 30, 2010 relative to the prior year quarter, excluding the above-mentioned milestone payment, was primarily due to costs incurred relating to ongoing clinical studies, the addition of R&D projects from PGP and higher costs associated with an increase in personnel and facilities.
Amortization of Intangible Assets
Amortization of intangible assets in the quarters ended June 30, 2010 and 2009 was $157.2 million and $57.0 million, respectively. The increase in amortization expense in the quarter ended June 30, 2010 compared to the prior year quarter was due primarily to the amortization of intellectual property assets acquired in the PGP Acquisition which accounted for $120.0 million of the amortization expense in the 2010 period. We expect amortization expense to continue to be significantly higher in 2010, in relation to 2009, as a result of the PGP Acquisition.
Net Interest Expense
Net interest expense for the quarter ended June 30, 2010 was $43.1 million, an increase of $27.9 million, or 183.6%, from $15.2 million in the prior year quarter. The increase in net interest expense in the quarter ended June 30, 2010 was primarily due to an increase in the amount of our outstanding indebtedness under our senior secured credit facilities which was incurred to fund the PGP Acquisition relative to our total outstanding indebtedness in the prior year period.
Net Income, CNI and Adjusted CNI
For the quarter ended June 30, 2010, we reported net income of $115.3 million, or $0.46 per diluted share, CNI of $268.8 million, and adjusted CNI of $241.2 million, or $0.95 per diluted share. Earnings per share figures are based on 253.0 million diluted ordinary shares outstanding. In calculating CNI, we add back the after-tax impact of the amortization (including impairments, if any) of intangible assets and the amortization (including write-offs, if any) of deferred loan costs. These items are tax-effected at the estimated marginal rates attributable to them. In the quarter ended June 30, 2010, the marginal tax rate associated with the amortization of intangible assets was 6.3% and the marginal tax rate for amortization (including write-offs) of deferred loan costs was 9.8%. Adjusted CNI for the quarter ended June 30, 2010 represents CNI as further adjusted to exclude (1) an $18.1 reduction in cost of sales, net of tax, for the reversal of the contingent liability discussed above and (2) a $9.4 million gain, net of tax, relating to the sale of certain inventories in connection with the LEO Transaction.
Liquidity, Balance Sheet and Cash Flows
As of June 30, 2010, our cash and cash equivalents totaled $296.7 million and our total debt outstanding was $2,491.3 million. We generated $119.9 million of cash from operating activities in the quarter ended June 30, 2010, compared with $124.5 million of cash from operating activities in the prior year quarter.
2010 Financial Guidance
Based on our second quarter results and current outlook for the remainder of 2010, we are affirming our full year 2010 financial guidance previously released on July 30, 2010 in connection with our proposed leveraged recapitalization and special cash dividend transaction.
Please refer to our website at www.wcrx.com for certain information regarding the tax treatment of the proposed special cash dividend.
Investor Conference Call
The Company is hosting a conference call open to all interested parties, on Friday, August 6, 2010 beginning at 8:00 AM EST. The number to call within the United States and Canada is (877) 354-4056. Participants outside the United States and Canada should call (678) 809-1043. A replay of the conference call will be available for two weeks following the call and can be accessed by dialing (800) 642-1687 from within the United States and Canada or (706) 645-9291 from outside the United States and Canada. The passcode for the replay ID number is 90072579.
The Company
Warner Chilcott is a leading specialty pharmaceutical company currently focused on the gastroenterology, women's healthcare, dermatology and urology segments of the North American and Western European pharmaceuticals markets. The Company is a fully integrated company with internal resources dedicated to the development, manufacturing and promotion of its products. WCRX-F
Forward Looking Statements
This press release contains forward-looking statements, including statements concerning the proposed recapitalization plan, our operations, our economic performance and financial condition, and our business plans and growth strategy and product development efforts. These statements constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "may," "might," "will," "should," "estimate," "project," "plan," "anticipate," "expect," "intend," "outlook," "believe" and other similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. The following represent some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by our forward-looking statements: our substantial indebtedness; competitive factors in the industry in which we operate (including the approval and introduction of generic or branded products that compete with our products); our ability to protect our intellectual property; a delay in qualifying any of our manufacturing facilities that produce our products or production or regulatory problems with either third party manufacturers or API suppliers upon whom we may rely for some of our products or our own manufacturing facilities; pricing pressures from reimbursement policies of private managed care organizations and other third party payors, government sponsored health systems, the continued consolidation of the distribution network through which we sell our products, including wholesale drug distributors and the growth of large retail drug store chains; the loss of key senior management or scientific staff; adverse outcomes in our outstanding litigation or an increase in the number of litigation matters to which we are subject; government regulation, including domestic and foreign health care reform, affecting the development, manufacture, marketing and sale of pharmaceutical products, including our ability and the ability of companies with whom we do business to obtain necessary regulatory approvals; our ability to manage the growth of our business by successfully identifying, developing, acquiring or licensing new products at favorable prices and marketing such new products; our ability to obtain regulatory approval and customer acceptance of new products, and continued customer acceptance of our existing products; changes in tax laws or interpretations that could increase our consolidated tax liabilities; our ability to realize the anticipated opportunities from the PGP Acquisition; the other risks identified in our periodic filings including our Annual Report on Form 10-K for the year ended December 31, 2009, and from time-to-time in our public filings, financial statements and other investor communications.
We caution you that the foregoing list of important factors is not exclusive. In addition, in light of these risks and uncertainties, the matters referred to in our forward-looking statements may not occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as may be required by law.
Reconciliations to GAAP Net Income
CNI
To supplement its condensed consolidated financial statements presented in accordance with US GAAP, the Company provides a summary to show the computation of CNI and Adjusted CNI. CNI is defined as the Company's GAAP net income adjusted for the after-tax effects of two non-cash items: amortization (including impairments, if any) of intangible assets and amortization (including write-offs, if any) of deferred loan costs related to the Company's debt. Adjusted CNI represents CNI as further adjusted to exclude one-time impacts from the LEO Transaction, the PGP Acquisition and the income from the reversal of a contingent liability relating to the termination of a contract. The Company believes that the presentation of CNI and Adjusted CNI provides useful information to both management and investors concerning the approximate impact of the above items. The Company also believes that considering the effect of these items allows management and investors to better compare the Company's financial performance from period-to-period, and to better compare the Company's financial performance with that of its competitors. The presentation of this additional information is not meant to be considered in isolation of, or as a substitute for, results prepared in accordance with US GAAP.
Adjusted EBITDA
To supplement its condensed consolidated financial statements presented in accordance with US GAAP, the Company provides a summary to show the computation of adjusted EBITDA taking into account certain charges that were taken during the quarters ended June 30, 2010 and 2009. The computation of adjusted EBITDA is based on the definition of EBITDA contained in the Company's senior secured credit facilities.
WARNER CHILCOTT PUBLIC LIMITED COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands of U.S. dollars, except per share amounts) (Unaudited) | |||||
Quarter Ended | Six Months Ended | ||||
June-30-10 | June-30-09 | June-30-10 | June-30-09 | ||
REVENUE: | |||||
Product net sales | $ 763,737 | $ 245,565 | $ 1,473,193 | $ 484,589 | |
Other revenue | 51,873 | 5,251 | 103,719 | 12,216 | |
Total revenue | 815,610 | 250,816 | 1,576,912 | 496,805 | |
COSTS & EXPENSES: | |||||
Cost of sales (excludes amortization of intangible assets) | 108,756 | 46,962 | 326,192 | 95,712 | |
Selling, general and administrative |
Related links
| ||||