FRAZER, Pa., Nov. 2 /PRNewswire-FirstCall/ -- Cephalon, Inc. today reported third-quarter 2006 revenues of $482.3 million, a 56 percent increase compared with third-quarter 2005 revenues of $309.5 million. Adjusted sales for the quarter of $457.2 million exceeded guidance of $425 - 440 million, driven largely by strong sales of PROVIGIL(R) (modafinil) Tablets [C-IV] and ACTIQ(R) (oral transmucosal fentanyl citrate) [C-II]. Basic income per common share for the quarter was $1.58. Excluding amortization expense and certain other items, basic adjusted income per common share was $1.78, a 125 percent increase over the comparable figure of $0.79 in the third quarter of 2005 and exceeding the high end of the guidance range by $0.43.
“We are pleased to report an exceptionally strong third quarter with earnings more than double the third quarter last year led by continued growth in our CNS and pain franchises,” said Frank Baldino Jr., Ph.D., Chairman and CEO. “With the continued growth of PROVIGIL, the successful launch of FENTORA, the anticipated approval of NUVIGIL(TM) and our development of a market for VIVITROL, we are well positioned for strong future growth,” Baldino added.
During the quarter, central nervous system (CNS) franchise adjusted sales increased 40 percent to $212.1 million and pain franchise adjusted sales increased 81 percent to $181.7 million. Adjusted sales of other products were $63.4 million.
Based on these strong results, the company is increasing its guidance for 2006 total adjusted sales from $1.525 - 1.575 billion to $1.660 - 1.675 billion, and basic adjusted income per common share from $4.10 - 4.30 per share to $5.10 - 5.20 per share.
Adjusted sales and basic adjusted income per common share guidance for the full-year 2006 and 2007 is reconciled below and is subject to the assumptions set forth therein.
Cephalon is introducing 2007 sales guidance of $1.675 - 1.725 billion. This includes CNS franchise sales of $900 - 925 million, pain franchise sales of $375 - 400 million and other product sales of $375 - 400 million. SG&A and R&D guidance for 2007 are $680 - 710 million and $310 - 330 million, respectively.
The company also is introducing adjusted net income guidance for 2007 of $279 - 285 million. Cephalon is introducing 2007 basic adjusted income per common share guidance of $4.50 - 4.60.
Cephalon’s management will discuss the company’s third-quarter 2006 performance in a conference call with investors beginning at 5:00 p.m. U.S. EST on Thursday, November 2, 2006. To participate in the conference call, dial +877-707-9632 or +785-830-1914 and refer to conference code number 6913304. Investors can listen to the call live by logging on to the company’s website at http://www.cephalon.com and clicking on “Newsroom,” then “Webcast.” The conference call will be archived and available to investors for one week after the call.
Cephalon, Inc.
Founded in 1987, Cephalon, Inc. is an international biopharmaceutical company dedicated to the discovery, development and marketing of innovative products in four core therapeutic areas: central nervous system, pain, oncology and addiction. Cephalon currently employs approximately 3,000 people in the United States and Europe. U.S. sites include the company’s headquarters in Frazer, Pennsylvania, and offices, laboratories or manufacturing facilities in West Chester, Pennsylvania, Salt Lake City, Utah, and suburban Minneapolis, Minnesota. Cephalon’s European headquarters are located in Maisons-Alfort, France.
The company currently offers several products in the United States: PROVIGIL(R), ACTIQ(R), FENTORA(R) (fentanyl buccal tablet) [C-II], GABITRIL(R)(tiagabine hydrochloride), TRISENOX(R) (arsenic trioxide injection), VIVITROL(R) (naltrexone for extended-release injectable suspension) and numerous products internationally. Full prescribing information on its U.S. products is available at http://www.cephalon.com or by calling 1-800-896-5855.
In addition to historical facts or statements of current condition, this press release may contain forward-looking statements. Forward-looking statements provide Cephalon’s current expectations or forecasts of future events. These may include statements regarding anticipated scientific progress on its research programs; development of potential pharmaceutical products; interpretation of clinical results; prospects for regulatory approval; manufacturing development and capabilities; market prospects for its products; guidance for adjusted sales, adjusted net income and basic adjusted income per common share for the third quarter and full-year 2006; and guidance for sales, adjusted net income, SG&A, R&D and basic adjusted income per common share for full-year 2007; and other statements regarding matters that are not historical facts, including the Company’s progress in executing its long-term diversification strategy and the opportunities presented therein and the outlook for strong growth in the future. You may identify some of these forward-looking statements by the use of words in the statements such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” or other words and terms of similar meaning. Cephalon’s performance and financial results could differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the biotechnology and pharmaceutical industries as well as more specific risks and uncertainties facing Cephalon such as those set forth in its reports on Form 8-K, 10-Q and 10-K filed with the U.S. Securities and Exchange Commission. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements. Furthermore, Cephalon does not intend to update publicly any forward-looking statement, except as required by law. The Private Securities Litigation Reform Act of 1995 permits this discussion.
This press release and/or the financial results attached to this press release include “Adjusted Sales,” “Adjusted Net Income (Loss),” “Basic Adjusted Income (Loss) per Common Share,” “Diluted Adjusted Income (Loss) Per Common Share,” “Adjusted Sales Guidance,” “Basic Adjusted Income per Common Share Guidance,” and “Adjusted Net Income Guidance,” amounts that are considered “non-GAAP financial measures” under SEC rules. As required, we have provided reconciliations of these measures. Additional required information is located in the Form 8-K furnished to the SEC in connection with this press release. CEPHALON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended September 30, 2006 GAAP Adjustments “Adjusted” REVENUES: Sales $470,513 $(13,273)(1) $457,240 Other revenues 11,820 11,820 482,333 (13,273) 469,060 COSTS AND EXPENSES: Cost of sales 62,356 62,356 Research and development 81,012 (3,368)(2) 77,644 Selling, general and administrative 157,490 (5,368)(3) 152,122 Depreciation and amortization 29,849 (20,804)(4) 9,045 Acquired in-process research and development - - - 330,707 (29,540) 301,167 INCOME FROM OPERATIONS 151,626 16,267 167,893 OTHER INCOME (EXPENSE): Interest income 7,046 7,046 Interest expense (4,749) (4,749) Gain on early extinguishment of debt - - Other income (expense), net 895 895 3,192 - 3,192 INCOME BEFORE INCOME TAXES 154,818 16,267 171,085 INCOME TAX EXPENSE 59,077 4,102 (5) 63,179 NET INCOME $95,741 $12,165 $107,906 BASIC INCOME PER COMMON SHARE $1.58 $1.78 DILUTED INCOME PER COMMON SHARE $1.43 $1.61 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 60,762 60,762 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION 67,072 67,072 Three Months Ended September 30, 2005 GAAP Adjustments “Adjusted” REVENUES: Sales $294,371 $294,371 Other revenues 15,165 15,165 309,536 $- 309,536 COSTS AND EXPENSES: Cost of sales 37,629 37,629 Research and development 91,934 91,934 Selling, general and administrative 103,253 103,253 Depreciation and amortization 22,346 (15,451)(4) 6,895 Acquired in-process research and development 5,500 (5,500)(6) - 260,662 (20,951) 239,711 INCOME FROM OPERATIONS 48,874 20,951 69,825 OTHER INCOME (EXPENSE): Interest income 7,247 7,247 Interest expense (7,494) (7,494) Gain on early extinguishment of debt 2,085 (2,085)(7) - Other income (expense), net (38) (38) 1,800 (2,085) (285) INCOME BEFORE INCOME TAXES 50,674 18,866 69,540 INCOME TAX EXPENSE 21,331 2,105 (5) 23,436 NET INCOME $29,343 $16,761 $46,104 BASIC INCOME PER COMMON SHARE $0.51 $0.79 DILUTED INCOME PER COMMON SHARE $0.50 $0.78 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 58,064 58,064 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION 59,398 59,408 CEPHALON, INC. AND SUBSIDIARIES Notes to Reconciliation of GAAP Net Income to “Adjusted” Net Income Three Months Ended September 30, 2006 and September 30, 2005 (1) To exclude the U.S. Department of Defense (“DoD”) Tricare program reversal as a result of the September 2006 ruling. (2) To exclude charges related to the net impact of the adoption of the new stock compensation accounting rules (representing half of the total stock option compensation expense recorded based on the employees’ compensation allocation). (3) To exclude charges associated with the settlement of the PROVIGIL patent litigation with Carlsbad Technology, Inc. in August 2006 ($2.0 million) and the net impact of the adoption of the new stock compensation accounting rules ($3.4 million, representing half of the total stock option compensation expense recorded based on the employees’ compensation allocation). (4) To exclude the on-going amortization of acquired intangible assets. (5) To reflect the tax effect of pre-tax adjustments at the applicable tax rates and certain other tax adjustments primarily related to changes in valuation allowances and other changes in liabilities. (6) To exclude in-process research and development charges. (7) To exclude the gain on early extinguishment of debt related to the repurchase of $511.7 million of our 2.5% convertible subordinated notes due December 2006. CEPHALON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Nine Months Ended September 30, 2006 GAAP Adjustments “Adjusted” REVENUES: Sales $1,246,825 $(13,273)(1) $1,233,552 Other revenues 32,562 32,562 1,279,387 (13,273) 1,266,114 COSTS AND EXPENSES: Cost of sales 189,848 (8,610)(2) 181,238 Research and development 279,765 (56,554)(3) 223,211 Selling, general and administrative 460,068 (21,541)(4) 438,527 Depreciation and amortization 85,989 (60,765)(5) 25,224 Impairment charge 12,417 (12,417)(6) - Acquired in-process research and development - - - 1,028,087 (159,887) 868,200 INCOME (LOSS) FROM OPERATIONS 251,300 146,614 397,914 OTHER INCOME (EXPENSE): Interest income 16,736 16,736 Interest expense (13,523) (13,523) Write-off of deferred debt issuance costs (13,105) 13,105 (7) - Gain on early extinguishment of debt - - Other income (expense), net (116) (116) (10,008) 13,105 3,097 INCOME (LOSS) BEFORE INCOME TAXES 241,292 159,719 401,011 INCOME TAX EXPENSE 91,567 52,847 (8) 144,414 NET INCOME (LOSS) $149,725 $106,872 $256,597 BASIC INCOME (LOSS) PER COMMON SHARE $2.48 $4.25 DILUTED INCOME (LOSS) PER COMMON SHARE $2.17 $3.72 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 60,415 60,415 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION 68,921 68,921 Nine Months Ended September 30, 2005 GAAP Adjustments “Adjusted” REVENUES: Sales $833,588 $833,588 Other revenues 41,900 41,900 875,488 $- 875,488 COSTS AND EXPENSES: Cost of sales 114,093 114,093 Research and development 255,591 255,591 Selling, general and administrative 302,904 302,904 Depreciation and amortization 61,151 (42,178)(5) 18,973 Impairment charge - - Acquired in-process research and development 295,615 (295,615)(9) - 1,029,354 (337,793) 691,561 INCOME (LOSS) FROM OPERATIONS (153,866) 337,793 183,927 OTHER INCOME (EXPENSE): Interest income 19,559 19,559 Interest expense (19,311) (19,311) Write-off of deferred debt issuance costs - - Gain on early extinguishment of debt 2,085 (2,085)(10) - Other income (expense), net 1,983 1,983 4,316 (2,085) 2,231 INCOME (LOSS) BEFORE INCOME TAXES (149,550) 335,708 186,158 INCOME TAX EXPENSE 43,477 18,278 (8) 61,755 NET INCOME (LOSS) $(193,027) $317,430 $124,403 BASIC INCOME (LOSS) PER COMMON SHARE $(3.33) $2.14 DILUTED INCOME (LOSS) PER COMMON SHARE $(3.33) $2.04 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 58,035 58,035 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-ASSUMING DILUTION 58,035 63,149 CEPHALON, INC. AND SUBSIDIARIES Notes to Reconciliation of GAAP Net Income (Loss) to “Adjusted” Net Income Nine Months Ended September 30, 2006 and September 30, 2005 (1) To exclude the DoD Tricare program reversal as a result of the September 2006 ruling. (2) To exclude the reserve for SPARLON capitalized inventory costs. (3) To exclude charges related to payments for several product development collaborations ($45.0 million) and the net impact of the adoption of the new stock compensation accounting rules ($11.6 million, representing half of the total stock option compensation expense recorded based on the employees’ compensation allocation). (4) To exclude charges associated with the settlement of the PROVIGIL patent litigation ($6.0 million), employee severance costs associated with the European integration and restructuring ($4.0 million) and the net impact of the adoption of the new stock compensation accounting rules ($11.6 million, representing half of the total stock option compensation expense recorded based on the employees’ compensation allocation). (5) To exclude the on-going amortization of acquired intangible assets. (6) To exclude charges related to the impairment of an intangible asset. (7) To exclude the write-off of deferred debt issuance costs related to the Zero Coupon convertible subordinated notes. (8) To reflect the tax effect of pre-tax adjustments at the applicable tax rates and certain other tax adjustments primarily related to changes in valuation allowances and other changes in liabilities. (9) To exclude in-process research and development charges related to the acquisition of Salmedix ($130.1 million), VIVITROL ($160.0 million) and other ($5.5 million). (10) To exclude the gain on early extinguishment of debt related to the repurchase of $511.7 million of our 2.5% convertible subordinated notes due December 2006. CEPHALON, INC. AND SUBSIDIARIES “ADJUSTED” CONSOLIDATED SALES DETAIL (In thousands) (Unaudited) Three Months Ended September 30, 2006 United States Europe Total Sales: PROVIGIL $186,568 $11,081 $197,649 GABITRIL 13,729 723 14,452 CNS Disorders 200,297 11,804 212,101 Pain 174,147 7,585 181,732 Other 13,292 50,115 63,407 $387,736 $69,504 $457,240 Three Months Ended September 30, 2005 United States Europe Total Sales: PROVIGIL $126,387 $8,103 $134,490 GABITRIL 15,178 1,333 16,511 CNS Disorders 141,565 9,436 151,001 Pain 95,485 4,759 100,244 Other 15,575 27,551 43,126 $252,625 $41,746 $294,371 % Increase (Decrease) United States Europe Total Sales: PROVIGIL 48% 37% 47% GABITRIL (10%) (46%) (12%) CNS Disorders 41% 25% 40% Pain 82% 59% 81% Other (15%) 82% 47% 53% 66% 55%
NOTE: Amounts exclude the impact of the DoD Tricare program reversal of $13.3 million which reduced GAAP U.S. sales of PROVIGIL, GABITRIL and ACTIQ (Pain) by $6.9 million, $0.9 million and $5.5 million, respectively, for both the three and nine months ended September 30, 2006.
Nine Months Ended September 30, 2006 United States Europe Total Sales: PROVIGIL $494,047 $29,219 $523,266 GABITRIL 41,291 3,510 44,801 CNS Disorders 535,338 32,729 568,067 Pain 452,175 19,213 471,388 Other 41,661 152,436 194,097 $1,029,174 $204,378 $1,233,552 Nine Months Ended September 30, 2005 United States Europe Total Sales: PROVIGIL $338,529 $26,009 $364,538 GABITRIL 54,023 4,562 58,585 CNS Disorders 392,552 30,571 423,123 Pain 282,105 11,904 294,009 Other 36,319 80,137 116,456 $710,976 $122,612 $833,588 % Increase (Decrease) United States Europe Total Sales: PROVIGIL 46% 12% 44% GABITRIL (24%) (23%) (24%) CNS Disorders 36% 7% 34% Pain 60% 61% 60% Other 15% 90% 67% 45% 67% 48%
NOTE: Amounts exclude the impact of the DoD Tricare program reversal of $13.3 million which reduced GAAP U.S. sales of PROVIGIL, GABITRIL and ACTIQ (Pain) by $6.9 million, $0.9 million and $5.5 million, respectively, for both the three and nine months ended September 30, 2006.
CEPHALON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) September 30, December 31, 2006 2005 CURRENT ASSETS: Cash and cash equivalents $630,363 $205,060 Investments 37,619 279,030 Receivables, net 234,675 199,086 Inventory, net 164,664 137,886 Deferred tax assets, net 170,131 187,436 Other current assets 43,937 40,339 Total current assets 1,281,389 1,048,837 PROPERTY AND EQUIPMENT, net 391,846 323,830 GOODWILL 472,152 471,051 INTANGIBLE ASSETS, net 799,756 742,874 DEFERRED TAX ASSETS, net 164,919 200,629 OTHER ASSETS 17,498 31,985 $3,127,560 $2,819,206 CURRENT LIABILITIES: Current portion of long-term debt $933,494 $933,160 Accounts payable 63,492 53,699 Accrued expenses 245,011 291,744 Total current liabilities 1,241,997 1,278,603 LONG-TERM DEBT 762,404 763,097 DEFERRED TAX LIABILITIES, net 87,228 110,703 OTHER LIABILITIES 58,764 54,632 Total liabilities 2,150,393 2,207,035 STOCKHOLDERS’ EQUITY: Common stock, $0.01 par value 608 584 Additional paid-in capital 1,333,340 1,166,166 Treasury stock, at cost (17,558) (17,125) Accumulated deficit (420,347) (570,072) Accumulated other comprehensive income 81,124 32,618 Total stockholders’ equity 977,167 612,171 $3,127,560 $2,819,206 CEPHALON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $149,725 $(193,027) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred income tax expense 64,112 27,931 Tax benefit from stock- based compensation - 3,956 Depreciation and amortization 94,828 70,966 Amortization of debt issuance costs 387 6,521 Write-off of debt issuance costs associated with Zero Coupon convertible subordinated notes 13,105 - Stock-based compensation expense 32,436 7,631 Non-cash gain on early extinguishment of debt - (4,549) Loss on disposals of property and equipment 2,368 949 Impairment charge 12,417 - Acquired in-process research and development - 130,615 Changes in operating assets and liabilities, net of effect from acquisitions: Receivables (30,818) 43,347 Inventory (22,837) (37,084) Other assets (5,133) 910 Accounts payable, accrued expenses and deferred revenues (45,820) 21,671 Other liabilities (13,580) (11,428) Net cash provided by operating activities 251,190 68,409 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (97,122) (63,951) Acquisition of Salmedix, net of cash acquired - (130,733) Acquisition of TRISENOX - (69,722) Acquisition of intangible assets (115,000) (2,652) Sales and (purchases) of investments, net 242,660 (14,113) Net cash provided by (used for) investing activities 30,538 (281,171) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercises of common stock options 112,794 2,247 Windfall tax benefits from stock-based compensation 21,912 - Acquisition of treasury stock (433) (32) Payments on and retirements of long-term debt (2,528) (501,958) Net proceeds from issuance of convertible subordinated notes - 891,949 Proceeds from sale of warrants - 217,071 Purchase of convertible note hedge - (382,261) Net cash provided by financing activities 131,745 227,016 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 11,830 (3,222) NET INCREASE IN CASH AND CASH EQUIVALENTS 425,303
