HAMILTON, Bermuda, Nov. 14 /PRNewswire-FirstCall/ -- Warner Chilcott Limited today announced its results for the quarter ended September 30, 2006. Total revenue in the quarter rose to $194.7 million, up 50.9%, from $129.0 million in the prior year quarter driven primarily by new products. The Company reported a net loss of $81.0 million for the quarter compared with a net loss of $73.9 million in the prior year quarter. On September 20, 2006, the Company completed its IPO, selling 70.6 million shares of Class A common stock. After the completion of the IPO and related transactions the Company had one class of shares outstanding, Class A common shares, totaling 250.6 million.
Cash net loss in the quarter was $11.0 million. Our results in the quarter included: $8.5 million of accretion on preferred stock (the preferred stock was either redeemed with the proceeds of the IPO or converted into Class A shares), the buyout of our sponsors’ advisory and monitoring agreement for $27.4 million ($27.4 million after-tax) and $14.7 million ($14.6 million after-tax) of non-cash share-based compensation directly related to the closing of the IPO. Excluding these three items, our adjusted cash net income for the quarter was $39.5 million.
References in this release to “cash net income/(loss)” mean the Company’s U.S. GAAP net income/(loss) adjusted for the after-tax effects of two non-cash items: amortization of intangible assets and amortization (or write-off) of deferred loan costs related to our debt. Reconciliations from the Company’s reported results in accordance with U.S. GAAP to cash net income/(loss) and to adjusted cash net income/(loss) for all periods are presented in the table at the end of this press release.
“We had a strong quarter and are very pleased with our operating results,” said CEO Roger Boissonneault. “Our recently launched products, LOESTRIN(R) 24 FE and TACLONEX(R), contributed to our strong revenue growth. With the completion of the IPO, and our achievements to date in 2006, we have established a solid foundation for continued growth.”
Impact of the IPO
With the proceeds from our IPO, we prepaid $405.0 million of our senior secured bank term loans which resulted in a charge to interest expense of $10.7 million for the write-off of deferred loan costs in the quarter ended September 30, 2006. Also with the IPO proceeds, on October 31, 2006 we redeemed $210.0 million of our 8.75% Senior Subordinated Notes due 2015 at a total redemption price of $228.4 million. The interest premium of $18.4 million as well as an $8.0 million charge for the write-off of deferred loan costs in connection with the redemption of the notes will be included as a component of interest expense in the quarter ended December 31, 2006. Pro forma total indebtedness after the October 31st redemption of the $210.0 million of notes is $1,603.8 million as compared to $2,221.9 million as of June 30, 2006.
Revenue
Revenue in the quarter ended September 30, 2006 increased $65.7 million or 50.9% over the same quarter last year. The increase was driven by sales of LOESTRIN(R) 24 FE, DOVONEX(R) and TACLONEX(R), which together added $65.7 million to the revenue for the quarter. In 2005, the Company promoted DOVONEX(R) for Bristol-Myers and earned $5.0 million of co-promotion revenue in the quarter ended September 30, 2005.
Sales of the Company’s oral contraceptives increased $17.6 million in the third quarter, or 39.5%, compared with the prior year quarter. Beginning in April 2006, LOESTRIN(R) 24 FE became the Company’s top priority in contraception with sales in the current quarter of $15.1 million. During the period from July 2005 and continuing through March 2006, ESTROSTEP(R) was the Company’s top promotional priority in contraception, which resulted in strong growth in filled prescriptions and drove a $5.2 million, or 25.7%, increase in ESTROSTEP(R) net sales in the current quarter. OVCON(R) net sales in the quarter ended September 30, 2006 decreased $2.7 million, or 11.5%, as a result of a decline in filled prescriptions compared with the prior year period due to the July 2005 shift in promotional emphasis to ESTROSTEP(R). Average selling prices in effect for ESTROSTEP(R) and OVCON(R) were approximately 10% higher during the quarter compared with the same quarter in 2005. In September 2006, we launched OVCON(R) 35 FE, a chewable version of our OVCON(R) 35 product. We subsequently changed the trade name of OVCON(R) 35 FE to FEMCON(R) to reduce potential market confusion between our FEMCON(R) brand and OVCON(R) 35.
In dermatology, sales for the third quarter increased 247.2% to $80.2 million compared to $23.1 million in the same period of 2005. The January 1, 2006 acquisition of DOVONEX(R) was a significant factor driving the increase in revenue in the quarter. Sales of DOVONEX(R) accounted for $30.9 million of the increase in revenue during the quarter compared with the prior year quarter. In March 2006, we began commercial shipments of TACLONEX(R) which added an additional $19.7 million of revenue to our dermatology portfolio in the quarter ended September 30, 2006, compared with the prior year quarter. Sales of DORYX(R) increased $1.5 million, or 6.6%, in the quarter ended September 30, 2006, compared to the prior year quarter. The increase was the result of higher pricing (approximately 18% compared to the prior year period) offset by a decrease in filled prescriptions. Filled prescriptions for DORYX(R), which had been growing during the period from July 2005 through June 2006, softened during the current quarter (approximately 4% compared to the prior year period) due to decreased promotional emphasis following the April 2006 launch of TACLONEX(R).
Sales of hormone therapy (HT) products decreased $0.5 million, or 1.3%, in the quarter ended September 30, 2006, compared with the prior year quarter. The decrease was primarily attributable to a general decline in our established HT products, offset by sales of FEMTRACE(R). In addition, the Company believes that sales of its HT products in the quarter ended September 30, 2005 were reduced due to contractions in the levels of pipeline inventories.
Sales of the PMDD product, SARAFEM(R), increased $1.4 million, or 20.1%, in the quarter ended September 30, 2006, compared to the prior year quarter due to price increases of approximately 10% and a contraction in the level of pipeline inventories in the prior year quarter compared to the current year, partially offset by a sharp decline in prescription demand.
Cost of Sales (excluding amortization of intangible assets)
Cost of sales increased $17.6 million in the quarter ended September 30, 2006 compared with the same quarter in 2005 primarily due to the 57.0% increase in product net sales. Net sales of DOVONEX(R) and TACLONEX(R) accounted for a significant portion of the increase in product net sales and an even larger portion of the increase in cost of sales in the quarter. The cost of sales for DOVONEX(R) and TACLONEX(R), expressed as a percentage of product net sales, are significantly higher than the cost of sales for the Company’s other products. Cost of sales as a percentage of product net sales increased to 20.1% in the quarter ended September 30, 2006 from 17.4% in the quarter ended September 30, 2005.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses for the quarter ended September 30, 2006 were $99.7 million, an increase of $61.5 million, or 161.3% from $38.2 million in the prior year quarter. Included in the quarter ended September 30, 2006 was $14.7 million of share-based compensation expense representing the impact of the acceleration of the vesting at the time of the IPO of certain restricted shares granted to management in 2005 and immediately vested shares granted to senior management. The current quarter also includes a $27.4 million expense related to the buyout of our sponsor advisory and monitoring agreement and an increase in legal fees.
In addition, the continuation of our promotional activities in support of the launches of LOESTRIN(R) 24 FE and TACLONEX(R) increased SG&A expenses during the quarter. This included another round of direct to consumer advertising for LOESTRIN(R) 24 FE that began in September and will run through early November 2006.
Research and Development (“R&D”) Activities
Investment in R&D totaled $4.8 million in the quarter ended September 30, 2006 compared with $39.3 million in the prior year quarter. Included in the quarter ended September 30, 2005 was $35.0 million representing the Company’s cost to acquire the rights to several line extensions of TACLONEX(R) and other product rights from LEO Pharma.
Net Interest Expense
Net interest expense for the quarter ended September 30, 2006 was $55.7 million, an increase of $16.3 million from $39.4 million in the prior year quarter. Included in the quarter ended September 30, 2006 is $10.7 million relating to the write-off of deferred loan costs associated with the $405.0 million prepayment of our senior secured credit facility with a portion of the proceeds of our IPO. Additionally the increase in interest expense was primarily due to additional borrowings on the senior secured credit facility of $240.0 million used to fund the purchase of DOVONEX(R), the milestone payment for TACLONEX(R) to LEO Pharma and an increase in interest rates on un- hedged variable rate debt.
Tax Rate
The Company operates in five primary tax jurisdictions: the United Kingdom, the United States, the Republic of Ireland, Bermuda and Puerto Rico. The difference between the statutory and effective tax rate for the quarter ended September 30, 2006 was predominantly due to the mix of taxable income among the various tax jurisdictions, a valuation allowance offsetting certain state loss benefits and other U.S. permanent items which result in recording a tax provision on a book loss. In addition, the tax provision includes various one-time items such as IPO-related expenses and adjustments for tax returns filed during the period. The effective income tax rate for interim reporting periods is volatile due to changes in income mix among the various tax jurisdictions in which we operate.
Balance Sheet and Cash Flows
At September 30, 2006, the Company’s cash and cash equivalents totaled $287.9 million and funded debt outstanding totaled $1,813.8 million with no borrowings outstanding under the Company’s revolving credit facility. The Company used $10.6 million of cash in operating activities in the quarter ended September 30, 2006 compared with cash provided by operations of $9.9 million in the quarter ended September 30, 2005. Cash used in operations in the quarter ended September 30, 2006 was impacted by the $27.4 million buyout of our sponsor advisory and monitoring agreement. Capital expenditures in the quarter totaled $3.0 million and included continued investments in the Fajardo, Puerto Rico manufacturing facility and the completion of the implementation of a corporate-wide enterprise resource planning system.
Investor Conference Call
The Company will host a conference call, open to all interested parties, on Tuesday, November 14th, 2006 beginning at 8:00 AM EST. The number to call within the United States and Canada is (877) 809-2546. Participants outside the United States and Canada should call (706) 634-9509. The conference ID number is 1929762. A replay of the conference call will be available from two hours after the call through midnight EST November 28, 2006 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 Company
Warner Chilcott is a leading U.S. specialty pharmaceutical company focused on developing, manufacturing, marketing and selling branded prescription products in the women’s healthcare and dermatology therapeutic categories. WCRX-F
Forward Looking Statements
This press release contains forward-looking statements, including statements concerning 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; our ability to protect our intellectual property; a delay in qualifying our manufacturing facility to produce our products or production or regulatory problems with either third party manufacturers upon whom we may rely for some of our products or our own manufacturing facility; 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; an increase in litigation, including product liability claims and patent litigation; government regulation 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 successfully complete the implementation of a company-wide enterprise resource planning system without disrupting our business; our ability to manage the growth of our business by successfully identifying, developing, acquiring or licensing and marketing new products, obtain regulatory approval and customer acceptance of those products, and continued customer acceptance of our existing products; and other risks detailed from time-to-time in our 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.
Reconciliation of Adjusted Cash Net Income/(Loss) to GAAP Earnings
To supplement its condensed consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company is providing a summary to show the computation of adjusted cash net income/(loss) to add back certain noncash and one-time or nonrecurring charges. The Company believes that the presentation of adjusted cash net income/(loss) 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 GAAP.
WARNER CHILCOTT LIMITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands of U.S. dollars) (Unaudited) Quarter Ended Nine Months Ended Sep-30-06 Sep-30-05 Sep-30-06 Sep-30-05 REVENUE: Product net sales $194,668 $123,999 $548,099 $360,838 Other revenue - 5,044 - 15,977 Total revenue 194,668 129,043 548,099 376,815 COSTS & EXPENSES: Cost of sales (excludes amortization) 39,186 21,624 108,204 77,507 Selling, general and administrative 99,671 38,168 198,978 121,401 Research and development 4,794 39,304 19,451 52,088 Amortization of intangible assets 63,151 59,400 185,125 180,100 Acquired in-process R&D - - - 280,700 Transaction costs - - - 35,975 Interest income (1,721) (393) (2,506) (1,050) Interest expense 57,387 39,795 149,286 107,758 Accretion on preferred stock of subsidiary 8,484 8,374 26,190 23,010 (LOSS) BEFORE TAXES (76,284) (77,229) (136,629) (500,674) Provision (benefit) for income taxes 4,744 (3,328) 8,361 (8,265) NET (LOSS) (81,028) (73,901) (144,990) (492,409) Preferential distribution to Class L shareholders 20,891 20,785 65,112 56,952 Net (loss) attributable to Class A shareholders $(101,919) $(94,686) $(210,102) $(549,361) Earnings (Loss) per share: Class A - Basic & Diluted $(0.95) $(1.07) $(2.20) $(6.23) Class L - Basic $2.20 $1.95 $6.33 $5.35 Class L - Diluted $2.20 $1.95 $6.33 $5.34 RECONCILIATION TO CASH NET INCOME/(LOSS): Net (loss) $(81,028) $(73,901) $(144,990) $(492,409) + Amortization of intangible assets, net of tax 58,007 54,168 169,779 164,143 + Amortization of deferred loan costs, net of tax 12,008 2,257 16,593 6,317 Cash net income (loss) $(11,013) $(17,476) $41,382 $(321,949) Non-recurring, one-time charges included above (net of tax): + Accretion on preferred stock of subsidiary 8,484 8,374 26,190 23,010 + Sponsors’ management fee buyout in SG&A 27,423 - 27,423 - + Non-cash share-based compensation 14,586 - 14,586 - + Expenses related to the Acquisition - - - 341,853 ADJUSTED CASH NET INCOME/(LOSS) $39,480 $(9,102) $109,581 $42,914 WARNER CHILCOTT LIMITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars) (Unaudited) As of As of September 30, December 31, 2006 2005 ASSETS Current assets: Cash & cash equivalents $287,910 $11,502 Accounts receivable, net 50,419 29,765 Inventories 59,421 31,398 Prepaid expenses & other current assets 52,842 46,900 Total current assets 450,592 119,565 Property, plant and equipment, net 44,863 37,102 Intangible assets, net 1,594,857 1,519,847 Goodwill 1,260,777 1,260,777 Other non-current assets 56,920 80,924 TOTAL ASSETS $3,408,009 $3,018,215 LIABILITIES Current liabilities: Accounts payable $19,335 $17,629 Accrued expenses & other current liabilities 111,848 114,054 Current portion of long-term debt 222,299 14,000 Total current liabilities 353,482 145,683 Other liabilities: Long-term debt, excluding current portion 1,591,526 1,975,500 Other non-current liabilities 128,675 128,597 Total liabilities 2,073,683 2,249,780 Preferred stock in subsidiary - 435,925 SHAREHOLDERS’ EQUITY 1,334,326 332,510 TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY $3,408,009 $3,018,215 WARNER CHILCOTT LIMITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands of U.S. dollars) (Unaudited) Quarter Ended Nine Months Ended Sep-06 Sep-05 Sep-06 Sep-05 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $(81,028) $(73,901) $(144,990) $(492,409) Adjustments to reconcile net (loss) to net cash provided by/(used in) operating activities: Depreciation 2,033 771 5,006 2,035 Amortization of intangible assets 63,151 59,400 185,125 180,100 Acquired in-process research & development 0 0 0 280,700 Amortization of debt finance costs 13,505 2,702 19,019 7,563 Stock compensation expense 15,051 1,778 16,076 3,727 Accretion of preferred stock in subsidiary 8,484 8,374 26,190 23,010 Changes in assets and liabilities: (Increase)/decrease in accounts receivable, prepaid and other assets (18,249) 2,760 (26,342) (4,297) (Increase)/decrease in inventories (11,859) (7,076) (28,023) 8,037 (Decrease)/increase in accts payable, accrued & other liab’s (6,015) 46,026 (3,307) 23,710 Increase/(decrease) in income taxes and other, net 4,361 (30,903) 3,052 (54,128) Net cash (used in)/ provided by operating activities $(10,566) $9,931 $51,806 $(21,952) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of intangible assets (7,200) (7,200) (260,136) (21,600) Purchase of business, net of cash acquired 0 0 0 (2,922,555) Proceeds from sale of fixed assets 0 0 0 48 Capital expenditures (2,992) (2,049) (11,374) (4,266) Net cash (used in) investing activities $(10,192) $(9,249) $(271,510) $(2,948,373) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under bank term credit facility 0 0 240,000 1,400,000 Proceeds from issuance of senior subordinated notes 0 0 0 600,000 (Repayments) on predecessor long-term debt 0 0 0 (195,000) (Repayments) under senior secured credit term loan facility (408,075) (3,500) (415,675) (7,000) Borrowings under revolving credit facilities 64,600 0 84,600 20,000 (Repayment) of revolving credit facilities (64,600) 0 (84,600) (20,000) Proceeds from share capital issue, net of expenses 1,005,682 0 1,005,682 880,029 Proceeds from issuance of preferred stock 0 0 0 402,822 Purchase of treasury stock (6,330) 0 (6,330) 0 Purchase of preferred stock in subsidiary (327,164) 0 (327,164) 0 Payments for debt finance costs 0 (962) 0 (83,624) Other 164 2 (401) 0 Net cash provided by/ (used in) financing activities 264,277 (4,460) 496,112 2,997,227 Net increase/(decrease) in cash and cash equivalents $243,519 $(3,778) $276,408 $26,902
Warner Chilcott
CONTACT: Rochelle Fuhrmann, Investor Relations, of Warner Chilcott,Rockaway, NJ, USA, +1-973-442-3281, rfuhrmann@wcrx.com
Web site: http://www.warnerchilcott.com//
