FORT LEE, N.J., July 31 /PRNewswire-FirstCall/ -- Alpharma Inc. , a global specialty pharmaceutical company, announced second quarter 2006 diluted earnings per share (“EPS”) from continuing operations of $0.32 compared to $0.12 in the second quarter of 2005. Including discontinued operations related to the company’s divested generics business, EPS in the second quarter of 2006 was $0.30 versus $0.38 a year ago.
Second quarter 2006 revenues increased $21.6 million or 16% versus 2005 to $159.2 million, driven primarily by 55% revenue growth in the company’s Branded Pharmaceuticals (“BP”) business. Operating income in the second quarter of 2006 was $23.3 million and includes $6.4 million ($0.08 EPS) of one-time charges related to the recent retirement of the company’s Chief Executive Officer, and costs for the retention of senior management and the discontinuance of the company’s performance unit plan; partially offset by an insurance recovery of $1.1 million. Excluding these items, operating income in the second quarter was $29.7 million compared to $22.6 million in 2005 and the operating margin was 18.6% compared to 16.4% in 2005. Research and development spending increased 13% in the quarter primarily due to increased spending related to clinical trials for the company’s next generation abuse- deterrent KADIAN(R) product. Second quarter 2006 results include net interest income of $4.0 million compared to interest expense of $10.9 million in the second quarter of 2005.
“The company’s operations performed solidly in the second quarter, with continued significant year over year growth in our Branded Pharmaceuticals business,” commented newly appointed President, and Chief Executive Officer, Dean Mitchell. “Our ongoing Phase II clinical trial for our abuse-deterrent KADIAN(R) product is on track to conclude late in the third quarter of 2006, and we are targeting commencement of Phase III activity in the fourth quarter of this year. Our API and AH businesses continue to make progress on their new product initiatives with product launches planned for the second half of 2006".
“I joined Alpharma in early July 2006 and am impressed with the company’s strong position in each of its businesses, and the experience of its management team. We are currently undertaking a strategic review in order to design a plan to leverage the company’s strengths and increase shareholder value, and look forward to communicating company direction over the coming months.”
The company generated free cash flow of $14 million in the second quarter and at June 30, 2006, had cash and cash equivalents of $383 million. In January 2006, the company repaid all its outstanding debt and at June 30, 2006 had no outstanding debt.
Second Quarter 2006 Business Review
Branded Pharmaceuticals: Revenues of the company’s branded product, KADIAN(R), increased 55% to $36.3 million in the second quarter of 2006 compared to $23.5 million in 2005. KADIAN(R) revenue growth is primarily due to increased prescription levels.
Second quarter 2006 KADIAN(R) prescriptions(1) grew 24.6% versus the second quarter of 2005, and 1.8% compared to the first quarter of 2006. KADIAN(R) market share in the long-acting opioid market remained stable in the first half of 2006 compared to the fourth quarter of 2005 despite the impact of Medicare Part D and the expanded penetration of generics in competitive products. The company anticipates market share to expand in the second half of 2006 as a result of managed care and targeted physician programs.
Operating margins in the second quarter of 2006 increased to 31.7% from 9.8% in the second quarter of 2005 due primarily to increased volume, partially offset by $2.0 million of increased research and development investment related to line extensions and the abuse-deterrent pain product development programs. Year-to-date incremental spending related to abuse- deterrent pain product development programs was approximately $4 million.
BP continues to target the completion of its Phase II clinical trial for KADIAN(R) NT in late third quarter of 2006, and to commence Phase III activities in the fourth quarter of 2006. The business is also working toward line extensions to its current KADIAN(R) product offering, as well as evaluating complementary products through business development activities.
(1) Source: Monthly Wolters Kluwer Health data
Active Pharmaceutical Ingredients: API second quarter revenues increased 9% to $39.8 million in 2006 compared to $36.4 million in 2005. Revenues increased in 2006 principally due to increased sales of vancomycin, and sales of $4.3 million to the generics business which was divested in 2005. Prior to the sale of the company’s generics business, these sales were intercompany in nature and eliminated in consolidation. These items were partially offset by lower polymyxin revenues. Polymyxin revenues were lower due to the geographic mix of customer orders.
Operating income in the second quarter of 2006 was $11.2 million versus $15.4 million a year ago, and margins in the second quarter of 2006 were 28.1% versus 42.3% a year ago. Margins in the second quarter of 2006, excluding sales to the divested generics business, were 31.3%. The operating income and margin decrease is largely due to the geographic mix of polymyxin volumes.
API is targeting the launch of three new products in non-regulated markets in the second half of 2006: fluticasone, mupirocin acid, and teicoplanin. On June 8, 2006, the company announced that it had reached an agreement with Hisun Pharmaceutical Co., Ltd. that, subject to regulatory approvals, will enable it to double the manufacturing capacity of one of its current major products, vancomycin. Finally, one of this business’s key expansion initiatives is forward integration into the injectable finished product form of several of its APIs, and construction is currently underway at API’s manufacturing site in Copenhagen, Denmark to develop this capacity.
Animal Health
Second quarter revenues increased 4% to $82.6 million compared to $79.8 million in 2005. Revenue growth was primarily driven by strong sales in the U.S. livestock market and Europe. Global sales of poultry products in the second quarter of 2006 were comparable to 2005 levels.
Operating income in the second quarter of 2006 was $16.4 million versus $15.4 million a year ago, and margins were 19.9% in the second quarter of 2006 versus 19.3% in the second quarter of 2005. Continued strong margins are a reflection of the strength of global demand for poultry and livestock, as well as the positive impact of productivity programs.
In the first half of 2006, AH launched two new products (Poultry Sulfa and Teat Dip) and is targeting five new product launches for the full year 2006. In 2006, AH targeted fifteen approvals to enable it to sell existing products in new regions to support its program of geographic expansion, and through June 30, 2006 received ten of these approvals, primarily in Latin America, Asia and the Middle East. AH also has received five approvals for new indications and product combinations for existing products versus a full year target of three.
Second Quarter Comparison of Other Consolidated Income Statement Items Related to Continuing Operations
Selling, general and administrative expenses increased $10.5 million to $64.4 million, due primarily to $6.4 million of one-time charges related to the recent retirement of the company’s Chief Executive Officer ($4.4 million), and costs for the retention of senior management and the discontinuance of the company’s performance unit plan ($3.1 million); partially offset by an insurance recovery ($1.1 million). Second quarter 2006 results include $0.6 million of ongoing stock option expense. The company has also increased its operational infrastructure to support its growth initiatives in its business segments.
Research and development expense increased $0.9 million in the quarter due to spending related to Branded Pharmaceuticals new product activity.
Interest income (expense), net was $4.0 million of income in 2006 versus expense of $10.9 million in 2005. The change is due to the repayment of all debt in January 2006, and investment income earned on cash balances in 2006.
Other income (expense), net was $0.3 million of expense in 2006 compared to income of $1.1 million in 2005.
The company’s effective tax rate in the second quarter of 2006 remained at 35%.
2006 Outlook
The company reaffirms its previous guidance of full year 2006 EPS from continuing operations in the range of $1.25 - $1.35. The company continues to expect $15 to $20 million of spending related to abuse-deterrent pain product development programs, with most of this expense concentrated in the second half of 2006. This outlook is based on assumptions outlined in the company’s March 13, 2006 fourth quarter 2005 earnings press release and excludes first quarter 2006 charges related to the prepayment of debt. The outlook includes $13 million ($0.16) of one-time charges related to the recent retirement of the company’s Chief Executive Officer, and costs for the retention of senior management and the discontinuance of the company’s performance unit plan.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding Alpharma’s results as determined by U.S. Generally Accepted Accounting Principles (GAAP), the company also discloses certain non-GAAP information which management utilizes in its analysis of its business and which it believes also provides useful information to investors. Within this press release, the company has disclosed the impact one-time charges and other items on the results of operations. The company discloses these items to assist the reader in understanding the impact of these items on the company’s financial results and the earnings generated by operations that the company believes can be more meaningfully compared with prior periods and forecasts.
Statements made in this release include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, including those relating to future financial expectations, involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. The 2006 outlook assumes no material adverse event contemplated by the risk factors described in the Company’s SEC filings. Information on other significant potential risks and uncertainties not discussed herein may be found in the Company’s filings with the Securities and Exchange Commission including its Form 10-K for the year ended December 31, 2005.
Alpharma press releases are also available at our website: http://www.alpharma.com.
The company’s Business Conduct Guidelines are available on the company’s website at www.Alpharma.com by clicking first on the “About Alpharma” tab and then on the “Our Business Guidelines” tab, and in print, without charge, to any Stockholder requesting a copy in writing to “Investor Relations” at the company’s offices in Fort Lee, New Jersey.
Alpharma Inc. is a global specialty pharmaceutical company with leadership positions in products for humans and animals. Alpharma is presently active in more than 60 countries. Alpharma has a growing branded franchise in the chronic pain market with its morphine-based extended release KADIAN(R) product. In addition, Alpharma is among the world’s leading producers of several specialty pharmaceutical-grade bulk antibiotics and is internationally recognized as a leading provider of pharmaceutical products for poultry and livestock.
If you would like to receive Alpharma press releases via email please contact: investorrelations@alpharma.com.
Alpharma management will hold a conference call to discuss second quarter 2006 results at 8:30 A.M Eastern Daylight Time on Tuesday, August 1, 2006. A presentation which management will refer to on the call is available at www.Alpharma.com. The call will be open to all interested parties and may be accessed by using the following information:
CONFERENCE CALL ACCESS Domestic Dial In: (800) 374-0147 International Dial In: (706) 634-5431 Conference ID: 2908802
Investors can access the call in a “listen only” mode via the Internet at http://www.streetevents.com or http://www.companyboardroom.com.
In addition, for those unable to participate at the time of the call, a rebroadcast will be available following the call from August 1, 2006 at 12:00 PM Eastern Daylight Time until August 8, 2006 at midnight. The rebroadcast may be accessed on the Internet at http://www.streetevents.com or by telephone using the following information:
REBROADCAST ACCESS Domestic Dial In: (800) 642-1687 International Dial In: (706) 645-9291 Participant Code: 2908802 Alpharma Inc. Consolidated Statement of Operations (In thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Total revenue $159,196 $137,639 $318,176 $261,732 Cost of sales 63,194 53,713 125,991 104,128 Gross profit 96,002 83,926 192,185 157,604 Selling, general and administrative expenses 64,401 53,938 125,605 103,055 Research and development 8,304 7,378 16,297 13,961 Operating income 23,297 22,610 50,283 40,588 Interest income (expense), net 4,002 (10,908) 6,829 (24,363) (Loss) on extinguishment of debt -- (19,415) (1,884) Other income (expense), net (265) 1,065 391 188 Income from continuing operations, before income taxes 27,034 12,767 38,088 14,529 Provision for income taxes 9,462 6,338 13,331 19,812 Income (loss) from continuing operations 17,572 6,429 24,757 (5,283) Discontinued operations, net of taxes: Income from discontinued operations -- 13,597 1,531 34,123 Gain (loss) from disposals (1,278) -- 23,440 -- Income (loss) from discontinued operations (1,278) 13,597 24,971 34,123 Net income $ 16,294 $ 20,026 $ 49,728 $ 28,840 Average common shares outstanding: Basic 53,944 52,377 53,733 52,366 Diluted 54,477 52,627 54,276 52,597 Earnings (loss) per common share: Basic Income (loss) from continuing operations $ 0.33 $ 0.12 $ 0.46 $ (0.10) Income (loss) from discontinued operations $ (0.03) $ 0.26 $ 0.47 $ 0.65 Net Income $0.30 $ 0.38 $ 0.93 $ 0.55 Diluted Income (loss) from continuing operations $ 0.32 $ 0.12 $ 0.46 $ (0.10) Income (loss) from discontinued operations $ (0.02) $ 0.26 $ 0.46 $ 0.65 Net Income $ 0.30 $ 0.38 $ 0.92 $ 0.55 Dividends per common share $ 0.045 $ 0.045 $ 0.09 $ 0.09 ALPHARMA INC. Operating Results by Segment (Unaudited) (in millions) Three Months Ended June 30, Revenues Operating income (loss) 2006 2005 2006 2005 Branded Pharmaceuticals $ 36.3 $ 23.5 $11.5 $ 2.3 Operating Margin 31.7% 9.8% Active Pharmaceutical Ingredients 39.8 36.4 11.2 15.4 Operating Margin 28.1% 42.3% Animal Health 82.6 79.8 16.4 15.4 Operating Margin 19.9% 19.3% Unallocated and Eliminations 0.5 (2.1) (15.8) (10.5) Total $159.2 $137.6 $23.3 $22.6 Operating Margin 14.6% 16.4% ALPHARMA INC. Operating Results by Segment (Unaudited) (in millions) Six Months Ended June 30, Revenues Operating income (loss) 2006 2005 2006 2005 Branded Pharmaceuticals $ 68.9 $ 41.9 $19.3 $ 3.0 Operating Margin 28.0% 7.2% Active Pharmaceutical Ingredients 85.0 71.4 27.7 29.9 Operating Margin 32.6% 41.9% Animal Health 164.3 154.3 33.4 29.2 Operating Margin 20.3% 18.9% Unallocated and Eliminations 0.0 (5.8) (30.1) (21.5) Total $318.2 $261.7 $50.3 $40.6 Operating Margin 15.8% 15.5% ALPHARMA INC. Consolidated Condensed Balance Sheet (In thousands) June 30, 2006 (unaudited) December 31, 2005 Cash and cash equivalents $ 383,392 $ 800,010 Other current assets 239,038 237,037 Non-current assets 570,910 586,336 Total assets $1,193,340 $1,623,383 Current liabilities, excluding debt $ 165,947 $ 248,588 Total debt -- 416,669 Deferred taxes and other non-current liabilities 41,811 40,048 Stockholders’ equity 985,582 918,078 Total liabilities and stockholders’ equity $1,193,340 $1,623,383
Alpharma Inc.
CONTACT: Kathleen Makrakis, VP, Investor Relations, +1-201-228-5085,kathleen.makrakis@alpharma.com
Web site: http://www.alpharma.com/
