ST. LOUIS, June 16 /PRNewswire-FirstCall/ -- KV Pharmaceutical Company , a fully integrated specialty pharmaceutical company that develops, manufactures, acquires and markets technology distinguished branded and generic/non-branded prescription pharmaceutical products, today reported results for the fourth quarter and fiscal year ended March 31, 2008, marking its 13th consecutive year of record revenues.
Marc S. Hermelin, Chairman of the Board and Chief Executive Officer stated, “KV had a strong fiscal 2008 with each of the Company’s principal business units reporting record revenues and improved gross margins. We continued to exhibit a robust generic and branded pipeline during fiscal 2008, evidenced by our 16 ANDA’s filed, five generic product approvals from the FDA, the launch of Evamist(TM) and progress towards the pending approval for Gestiva(TM). Our branded business, Ther-Rx, continued to benefit from our leading women’s health products. ETHEX’s outstanding full year revenue growth of 56.1% was achieved through the approval, launch and contribution of two first-to-file strengths of Metoprolol Succinate Extended-Release Tablets.
“Overall, we believe KV is well positioned in both businesses for future growth and profitability. We remain positive about the Company’s overall prospects from existing products as well as anticipated new product introductions.”
Update on Timing of Fiscal Form 10-K Filing
As a result of unanticipated observations regarding an internal control deficiency, the Company now expects to file its Form 10-K and 10-Q’s for fiscal 2008 before June 27, 2008. Late in the week of June 9th, the Company concluded that a previously noted deficiency in an internal control, related to the accounting for some customer rebate programs, was a material weakness. Accordingly, this has required additional work to complete the assessment of internal control over financial reporting to be included in the fiscal 2008 Form 10-K. The Company expects there will be no impact from this material weakness on the financial information reported herein.
Fourth Quarter Review
Revenues
Net revenues for the three months ended March 31, 2008 increased 27.0% to $153.0 million compared to $120.5 million for the fourth quarter of fiscal 2007. Revenue growth during the quarter was primarily attributed to:
ETHEX reported fourth quarter sales of $90.6 million, an increase of 38.3%, or $25.1 million over the fourth quarter of fiscal 2007. ETHEX revenue growth during the quarter was primarily due to:
Excluding Metoprolol, sales of other ETHEX products decreased approximately $9.7 million in the fourth quarter compared to the fourth quarter of the prior year due to the following:
For the first nine months of fiscal 2008, sales of the ETHEX cough/cold product line increased by $3.8 million, compared with the first nine months of fiscal 2007.
For the full year, ETHEX experienced a decrease in sales of its cough/cold products of $4.1 million. The Company has decided to discontinue the majority of these ETHEX cough/cold products due to the FDA hold initiated during March 2008 and our decision not to seek ANDA approvals for these products.
Ther-Rx
Ther-Rx reported fourth quarter sales of $57.1 million, an increase of 13.7%, or $6.9 million over the fourth quarter of fiscal 2007. Ther-Rx revenue growth during the quarter was primarily due to:
Operating expenses for fiscal 2008 also included purchased in-process research and development expenses of $17.5 million recorded in connection with product acquisitions, $7.5 million of which was recorded in the fourth quarter.
Inventory and Related Charges
Net income for both the fiscal fourth quarter and full fiscal year 2008 included a write-down of $5.5 million related to inventories of certain cough/cold products previously marketed by ETHEX and subject to the hold initiated by the FDA in March 2008 for which the Company is not pursuing or planning to pursue regulatory approvals due to other higher priority pipeline opportunities. These products generated approximately $37.6 million in fiscal 2008 sales. In addition, the results include an accrual of $0.9 million for both the fourth quarter and full year related to the Company’s estimated costs for a recall of certain lots of morphine sulfate 30 mg and 60 mg extended-release tablets.
Ther-Rx Corporation - Outstanding Performance Highlighted by Women’s Health Franchise
Since its launch, Evamist(TM), marketed by Ther-Rx’s approximately 330 professional sales representatives, has continued to show increasing prescription trends, on track with Company expectations and comparing favorably to prior analogous product launches. Total prescriptions are trending to more than 2,000 per month based on recent weekly data. In addition, the product is receiving positive feedback from physicians and patients alike. The Company believes that Evamist(TM) will be a positive contributor to Ther-Rx net revenues during fiscal 2009.
This agreement gives KV full U.S. and worldwide marketing rights to Gestiva(TM) (17-alpha hydroxyprogestrone caproate) upon approval of the pending New Drug Application (NDA). The NDA for Gestiva(TM) is currently before the FDA, pending approval for use in the prevention of preterm birth in women with a history of at least one spontaneous preterm delivery (i.e., less than 37 weeks), who are pregnant with a singleton pregnancy. The FDA issued an “approvable” letter for Gestiva(TM) in October 2006, and the Company expects a final approval in late 2008. The FDA has granted an Orphan Drug designation for Gestiva(TM), which will provide seven years of marketing exclusivity upon approval and launch.
The Company believes that Gestiva(TM) marks an exciting and important extension to Ther-Rx’s growing women’s health franchise and expects the product to be accretive to KV’s earnings in the first 12 months following its launch.
ETHEX Corporation - ANDA Approvals Result in Record Fiscal Year Performance
Product Launches
During fiscal 2008, ETHEX Corporation received FDA approval and launched five new ANDA products including:
Despite the near-term impact of the removal of a substantial portion of KV’s cough/cold products from the ETHEX product line-up and the recent FDA approval of a competitive product entry into the generic Micro-K(R) marketplace, a substantial product currently marketed by ETHEX, the Company believes ETHEX will continue to post revenue growth during fiscal 2009. Factors which could contribute to fiscal 2009 performance include:
Acquisition and Licensing Updates
Fiscal 2008 was an outstanding year for the Company’s commercial development and licensing activities. For fiscal 2008, the Company:
Auction Rate Securities
At March 31, 2008, we had invested $83.9 million in principal amount of auction rate securities (“ARS”). Our investments in ARS represent interests in collateralized debt obligations supported by pools of student loans, the principal of which is guaranteed by the U.S. Government.
With the liquidity issues experienced in global credit and capital markets, the ARS held by us at March 31, 2008 experienced failed auctions beginning in February 2008 as the amount of securities submitted for sale exceeded the amount of purchase orders. Given the failed auctions, our ARS are illiquid until there is a successful auction. We cannot predict how long the current imbalance in the auction rate market will continue. The estimated fair value of our ARS holdings at March 31, 2008 was $81.5 million, which reflected a $2.4 million difference from the principal value of $83.9 million. Although the ARS continue to pay interest according to their stated terms, we have recorded the unrealized loss of $1.6 million (net of tax) as a reduction to shareholders’ equity in accumulated other comprehensive loss, reflecting adjustments to the ARS holdings that we have concluded represent a temporary decline in value.
We historically have classified ARS as short-term marketable securities in our consolidated balance sheet. Because our ARS are illiquid until a successful auction for them occurs, we have reclassified the $81.5 million of ARS from short-term marketable securities to non-current investment securities as of March 31, 2008. We believe that as of March 31, 2008, based on our current cash, cash equivalents and marketable securities balances of $126.9 million and our current borrowing capacity under our credit facility of $290.0 million, the current lack of liquidity in the auction rate market will not have a material impact on our ability to fund our operations or interfere with the our external growth plans.
Fiscal 2009 Potential Growth Factors
The Company expects that the operating and product pipeline momentum experienced in fiscal 2008 will continue during fiscal 2009.
Marc S. Hermelin, Chairman of the Board and Chief Executive Officer, stated: “We believe fiscal 2009 will be another dynamic year for KV. Our revenue growth should be achieved through the continued benefits of all four strengths of our Metoprolol product line as well as the expected launch of between eight to ten new products from ETHEX and Ther-Rx combined. We also expect to benefit from our diversified ANDA submission pipeline at ETHEX of 16 new filings, as well as seven ANDA approvals for ETHEX. The approval and launch of Gestiva(TM) is also expected during fiscal 2009 which will further broaden Ther-Rx’s growing women’s health franchise.”
Update Concerning Settlement of Derivative Litigation
The Company has previously disclosed that it has reached an agreement in principle to resolve the pending derivative litigation pending in U.S. District Court for the Eastern District of Missouri. On June 3, 2008, Judge Henry E. Autry issued an order granting preliminary approval to the settlement as fair and reasonable subject to a final fairness determination after notice of the settlement is provided to KV shareholders who may then object if they wish to do so. Stockholders may file objections to the settlement no later than July 25, 2008. The court will conduct a fairness hearing on August 26,
2008 and then will make a final decision whether to approve or not approve the settlement as fair and reasonable.
Notice of the settlement, explaining its terms and conditions is being mailed to all stockholders of record as of May 23, 2008. Any stockholder requesting a copy of this Notice may contact KV Investor Relations, at 2503 South Hanley Road, St. Louis, Missouri 63144, or call 314/645-6600, ext. 2222 or via KV’s website, www.kvpharmaceutical.com.
About KV Pharmaceutical Company
KV Pharmaceutical Company is a fully integrated specialty pharmaceutical company that develops, manufactures and markets and acquires technology-distinguished branded and generic/non-branded prescription pharmaceutical products. The Company markets its technology-distinguished products through ETHEX Corporation, a national leader in pharmaceuticals that compete with branded products, and Ther-Rx Corporation, its emerging branded drug subsidiary.
For further information about KV Pharmaceutical Company, please visit the Company’s corporate website at www.kvpharmaceutical.com.
Non-GAAP Disclosure
A reconciliation of GAAP (Generally Accepted Accounting Principles) earnings per diluted Class A share to adjusted non-GAAP earnings per diluted Class A share is presented below. We believe this information is useful for understanding the changes in results between prior and current year periods, because the write-off included in the reconciliation is a charge resulting from the Company’s investment in acquiring new products and does not directly relate to the Company’s underlying operations on an on-going basis. Earnings and earnings per diluted share for the three months and year ended March 31, 2008, shown in the accompanying reconciliations are presented on a non-GAAP basis. These reconciliations may not be comparable to other companies or more useful than a GAAP presentation.
Note: The Company believes this information is useful for understanding the changes in results between prior and current year periods because the above noted write-off is a charge resulting from the Company’s investment in acquiring a new product and does not directly relate to the Company’s underlying operations on an on-going basis. The above reconciliation may not be comparable to other companies or more useful than a GAAP presentation.
Note: The Company believes this information is useful for understanding the changes in results between prior and current year periods because the above noted write-off is a charge resulting from the Company’s investment in acquiring new products and does not directly relate to the Company’s underlying operations on an on-going basis. The above reconciliation may not be comparable to other companies or more useful than a GAAP presentation.
Safe Harbor
The information in this release may contain various forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 (“PSLRA”) and which may be based on or include assumptions concerning KV’s operations, future results and prospects. Such statements may be identified by the use of words like “plans”, “expect”, “aim”, “believe”, “projects”, “anticipates”, “commit”, “intend”, “estimate”, “will”, “should”, “could” and other expressions that indicate future events and trends.
All statements that address expectations or projections about the future, including without limitation, statements about the Company’s anticipated SEC filings, strategy or expectations for growth or growth trends, product development, product launches, regulatory filings or approvals, prescription trends, market position, market share increases, acquisitions, existence and duration of regulatory exclusivities, expected duration of ARS illiquidity, revenues, expenditures, contributions, profitability and other financial results, are forward-looking statements.
All forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the “safe harbor” provisions, KV provides the following cautionary statements identifying important economic, competitive, political and technology factors, which among others, could cause actual results or events to differ materially from those set forth or implied by the forward-looking statements and related assumptions.
Such factors include (but are not limited to) the following: (1) changes in the current and future business environment, including interest rates and capital and consumer spending; (2) the difficulty of predicting FDA approvals, including timing, and that any period of exclusivity may not be realized; (3) acceptance and demand for new pharmaceutical products; (4) the impact of competitive products and pricing, including as a result of so-called authorized-generic drugs; (5) new product development and launch, including the possibility that any product launch may be delayed or that product acceptance may be less than anticipated; (6) reliance on key strategic alliances; (7) the availability of raw materials and/or products manufactured for the Company under contract manufacturing arrangements with third parties; (8) the regulatory environment, including regulatory agency and judicial actions and changes in applicable law or regulations; (9) fluctuations in revenues; (10) the difficulty of predicting international regulatory approval, including timing; (11) the difficulty of predicting the pattern of inventory movements by the Company’s customers; (12) the impact of competitive response to the Company’s sales, marketing and strategic efforts; (13) risks that the Company may not ultimately prevail in litigation, including challenges to our patents; (14) actions by the Securities and Exchange Commission and the Internal Revenue Service with respect to the Company’s stock option grants and accounting practices; (15) actions by the NYSE Regulation, Inc. with respect to the continued listing of the Company’s stock on the New York Stock Exchange; (16) risks that the Company may not ultimately prevail in litigation, including challenges to our intellectual property rights by actual or potential competitors or to our ability to market generic products due to brand company patents; (17) completion of the Company’s quarterly reports on Form 10-Q for the first, second and third quarters of fiscal 2008 and annual report on Form 10-K for the full fiscal year ended March 31, 2008; (18) the possibility that KV’s current estimate of the financial effect of the recall described above could prove to be incorrect; (19) whether any of the product recalls result in litigation, agency action or material damages; and (20) the risks detailed from time-to-time in the Company’s filings with the Securities and Exchange Commission.
This discussion is by no means exhaustive, but is designed to highlight important factors that may impact the Company’s outlook. We are under no obligation to update any of the forward-looking statements after the date of this release.
CONTACT: Catherine M. Biffignani, Vice President, Investor Relations, KV
Pharmaceutical Company, +1-314-645-6600
Web site: http://www.kvpharmaceutical.com//
