Company Also Announces Agreement in Principle with U.S. Attorney's Office;
Earnings Exceed Company Guidance;
Company Again Increases 2007 Earnings Guidance and Introduces 2008 Guidance
FRAZER, Pa., Nov. 8 /PRNewswire-FirstCall/ -- Cephalon, Inc. (Nasdaq:
CEPH) today reported third quarter 2007 sales of $428.7 million, compared
to adjusted sales of $457.2 million for the third quarter of 2006 and
within the company's previously issued guidance. Basic loss per common
share for the third quarter of 2007 was $4.58. Excluding the settlement
reserve increase, amortization expense and certain other items, basic
adjusted income per common share during the quarter was $1.08, which
compares to $1.71 for the third quarter of 2006 and exceeds the high end of
the company's guidance range of $0.85 to $0.95.
During the third quarter, central nervous system (CNS) franchise sales
increased 9 percent to $230.9 million and the pain franchise reported
strong sales of $121.8 million, a decrease of only 33 percent despite
generic competition to ACTIQ(R). Sales of other products were $76.0
million, an increase of 20 percent over the same period last year.
The company also announced that it has reached an agreement in
principle with the U.S. Attorney's Office in Philadelphia and the U.S.
Department of Justice with respect to the previously disclosed
investigation of the company's sales and marketing practices. The company
expects to pay $425 million as part of a comprehensive settlement of
Federal and related state Medicaid claims. The company has increased its
existing financial reserves for this matter accordingly. In addition, the
company will agree to a single misdemeanor violation of the U.S. Food,
Drug, and Cosmetic Act and will enter into a corporate integrity agreement
with the Office of Inspector General of the U.S. Department of Health and
Human Services. The terms of the settlement are subject to the final
negotiation and execution of definitive agreements. The previously
disclosed investigation by the Connecticut Attorney General is ongoing.
"We are pleased with the strong financial performance we delivered in
the third quarter of 2007," said Frank Baldino, Jr., Ph.D., Chairman and
CEO. "We also are launching this month our latest product, AMRIX(TM), a
once daily extended release muscle relaxant, and are excited about the
continued development of our oncology business with TREANDA(R)."
Dr. Baldino continued, "We look forward to finalizing our settlement
with the U.S. Attorney's Office. We have always taken seriously our
responsibility to conduct our business in accordance with both the letter
and spirit of the law. Over the past few years, we have devoted substantial
resources to continually enhancing our compliance program and have built a
strong foundation for our ongoing compliance efforts."
Based on the strong third quarter financial results announced today,
the company is reiterating its guidance for 2007 total sales of $1.675 -
$1.725
billion, and increasing its basic adjusted income per common share
guidance from $4.40 - $4.50 per share to $4.45 - $4.55 per share.
Basic adjusted income per common share guidance for the full-year 2007
and 2008 is reconciled below and is subject to the assumptions set forth
therein.
Cephalon is introducing 2008 sales guidance of $1.80 - $1.85 billion.
This includes CNS franchise sales of $975 - $1,000 million, pain franchise
sales of $500 - $525 million, which will include sales of AMRIX(TM)
(cyclobenzaprine hydrochloride extended-release capsules), oncology
franchise sales of $110 - $120 million, and other product sales of $190 -
$205 million. SG&A and R&D guidance for 2008 are $710 - $730 million and
$340 - $360 million, respectively.
The company also is introducing adjusted net income guidance for 2008
of $344 - $351 million and 2008 basic adjusted income per common share
guidance of $5.10 - $5.20.
Cephalon's management will discuss the company's third quarter 2007
performance in a conference call with investors beginning at 5:00 p.m. U.S.
EST on Thursday, November 8, 2007. To participate in the conference call,
dial +1-913-981-5543 and refer to conference code number 6083046. Investors
can listen to the call live by logging on to the company's website at
http://www.cephalon.com and clicking on "Investor Information" then "Webcast."
The conference call will be archived and available to investors for one
week after the call.
About 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 has delivered a seven-year compound annual
growth rate (CAGR) through 2006 greater than 75% and 2006 revenue of $1.760
billion. A member of the Fortune 1000, 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's proprietary products in the United States include:
PROVIGIL(R) (modafinil) Tablets [C-IV], FENTORA(R) (fentanyl buccal tablet)
[C-II], TRISENOX(R) (arsenic trioxide), AMRIX, VIVITROL(R) (naltrexone for
extended-release injectable suspension), GABITRIL(R) (tiagabine
hydrochloride), and ACTIQ(R) (oral transmucosal fentanyl citrate) [C-II].
The company also markets 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, including with respect to TREANDA; manufacturing development and
capabilities; market prospects for its products, including with respect to
AMRIX; sales, adjusted net income and basic adjusted income per common
share guidance for 2007 and 2008; and other statements regarding matters
that are not historical facts, including the Company's position and
expected performance in 2007 and 2008, the final resolution or outcome of
the ongoing investigations by the U.S. Attorney's Office and the Office of
the Connecticut Attorney General and the final amount of any settlement
and/or fines related thereto, and the relative strength of the foundation
for the Company's ongoing compliance efforts. 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 Net Income," "Basic Adjusted Income per Common
Share," "Basic Adjusted Income per Common Share Guidance," and "Diluted
Adjusted Income Per Common Share," 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 Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
REVENUES:
Sales $428,729 $470,513 $1,287,802 $1,246,825
Other revenues 9,692 11,820 34,865 32,562
438,421 482,333 1,322,667 1,279,387
COSTS AND EXPENSES:
Cost of sales 82,258 83,160 251,970 250,613
Research and development 93,527 86,439 274,078 294,899
Selling, general and
administrative 186,456 161,108 527,962 470,158
Settlement reserve 369,000 - 425,000 -
Impairment charge - - - 12,417
731,241 330,707 1,479,010 1,028,087
INCOME (LOSS) FROM OPERATIONS (292,820) 151,626 (156,343) 251,300
OTHER INCOME (EXPENSE):
Interest income 8,868 7,046 23,485 16,736
Interest expense (5,660) (4,749) (15,272) (13,523)
Write-off of deferred debt
issuance costs - - - (13,105)
Gain on extinguishment of
debt 5,319 - 5,319 -
Gain on sale of investment - - 5,791 -
Other income (expense), net 2,493 895 3,747 (116)
11,020 3,192 23,070 (10,008)
INCOME (LOSS) BEFORE INCOME
TAXES (281,800) 154,818 (133,273) 241,292
INCOME TAX EXPENSE 24,963 59,077 102,613 91,567
NET INCOME (LOSS) $(306,763) $95,741 $(235,886) $149,725
BASIC INCOME (LOSS) PER
COMMON SHARE $(4.58) $1.58 $(3.55) $2.48
DILUTED INCOME (LOSS) PER
COMMON SHARE $(4.58) $1.43 $(3.55) $2.17
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 66,931 60,762 66,398 60,415
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING-
ASSUMING DILUTION 66,931 67,072 66,398 68,921
Certain reclassifications of prior year amounts have been made to
conform to the current year presentation. Amounts reported in prior periods
as amortization are included now as a component of cost of sales; amounts
previously reported as depreciation (other than depreciation related to
facilities used in the production of commercial inventory and previously
included in cost of sales) are included as a component of research and
development or selling, general and administrative, as appropriate.
CEPHALON, INC. AND SUBSIDIARIES
Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income
(Unaudited)
Three Months Ended
September 30,
2007 2006
GAAP NET INCOME (LOSS) $(306,763) $95,741
Sales adjustments - (13,273)(6)
Cost of sales adjustments 22,255 (1) 20,804 (1)
Research and development adjustments 15,000 (2) - (8)
Selling, general and administrative
adjustments - 2,000 (7) (8)
Settlement reserve 369,000 (3) -
Gain on extinguishment of debt (5,319)(4) -
Income taxes (21,693)(5) (1,278)(5) (8)
379,243 8,253
ADJUSTED NET INCOME $72,480 $103,994
BASIC ADJUSTED INCOME PER COMMON SHARE $1.08 $1.71
DILUTED ADJUSTED INCOME PER COMMON SHARE $0.92 $1.55
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 66,931 60,762
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-ASSUMING DILUTION 79,030 67,072
Notes to Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income
(1) To exclude the on-going amortization of acquired intangible assets.
(2) To exclude the recognition of a milestone related to the FDA's
acceptance of our NDA filing for TREANDA(R) (bendamustine HCl).
(3) To exclude the additional reserve established for the agreement in
principle reached with the U.S. Attorney's Office in Philadelphia.
(4) To exclude the forgiveness of a mortgage loan by the Pennsylvania
Industrial Development Board ("PIDA").
(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 tax assets and
liabilities.
(6) To exclude the U.S. Department of Defense ("DoD") Tricare program
reversal as a result of the U.S. Court of Appeals September 2006
ruling.
(7) To exclude charges associated with the settlement of the PROVIGIL
patent litigation.
(8) Amounts shown no longer exclude the impact of Financial Accounting
Standards Board Statement No. 123(R) "Share Based Payment" ("SFAS
123(R)"). The earnings press release issued on November 2, 2006
reflected adjustments of $3.4 million in each of Research and
development and Selling, general and administrative expenses and $2.8
million in Income tax expense related to SFAS 123(R).
CEPHALON, INC. AND SUBSIDIARIES
Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income
(Unaudited)
Nine Months Ended
September 30,
2007 2006
GAAP NET INCOME (LOSS) $(235,886) $149,725
Sales adjustments - (13,273)(7)
Cost of sales adjustments 64,236 (1) 69,375 (1)
Research and development adjustments 41,500 (2) 45,000 (2) (11)
Selling, general and administrative
adjustments - 9,987 (8) (11)
Settlement reserve 425,000 (3) -
Impairment charge - 12,417 (9)
Write-off of deferred debt issuance
costs - 13,105 (10)
Gain on extinguishment of debt (5,319)(4) -
Gain on sale of investment (5,791)(5) -
Income taxes (40,459)(6) (44,060)(6) (11)
479,167 92,551
ADJUSTED NET INCOME $243,281 $242,276
BASIC ADJUSTED INCOME PER COMMON
SHARE $3.66 $4.01
DILUTED ADJUSTED INCOME PER COMMON
SHARE $3.09 $3.52
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 66,398 60,415
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-ASSUMING DILUTION 78,814 68,921
Notes to Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income
(1) In 2007, to exclude the on-going amortization of acquired intangible
assets. In 2006, to exclude the reserve for SPARLON capitalized
inventory costs ($8.6 million) and the on-going amortization of
acquired intangible assets ($60.8 million).
(2) In 2007, to exclude charges related to payments for several research
and development collaborations ($26.5 million) and the recognition of
a milestone related to the FDA's acceptance of our NDA filing for
TREANDA ($15.0 million). In 2006, to exclude charges related to
payments for several research and development collaborations.
(3) To exclude the reserve established for the agreement in principle
reached with the U.S. Attorney's Office in Philadelphia.
(4) To exclude the forgiveness of a mortgage loan by the PIDA.
(5) To exclude the pre-tax gain related to the sale of certain
investments.
(6) 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 tax assets and
liabilities.
(7) To exclude the DoD Tricare program reversal as a result of the U.S.
Court of Appeals September 2006 ruling.
(8) To exclude charges associated with the settlement of the PROVIGIL
patent litigation ($6.0 million) and employee severance costs
associated with the European integration and restructuring ($4.0
million).
(9) To exclude charges related to the impairment of an intangible asset.
(10) To exclude the write-off of deferred debt issuance costs related to
the Zero Coupon convertible subordinated notes.
(11) Amounts shown no longer exclude the impact of SFAS 123(R). The
earnings press release issued on November 2, 2006 reflected
adjustments of $11.6 million in each of Research and development and
Selling, general and administrative expenses and $8.8 million in
Income tax expense related to SFAS 123(R).
CEPHALON, INC. AND SUBSIDIARIES
"ADJUSTED" CONSOLIDATED SALES DETAIL *
(In thousands)
(Unaudited)
Three Months Ended
September 30,
2007
United
States Europe Total
Sales:
PROVIGIL $202,202 $14,904 $217,106
GABITRIL 12,952 881 13,833
CNS 215,154 15,785 230,939
ACTIQ 45,946 10,007 55,953
Generic OTFC 32,689 - 32,689
FENTORA 33,193 - 33,193
Pain 111,828 10,007 121,835
Other 19,291 56,664 75,955
$346,273 $82,456 $428,729
2006
United
States Europe Total
Sales:
PROVIGIL $186,568 $11,081 $197,649
GABITRIL 13,729 723 14,452
CNS 200,297 11,804 212,101
ACTIQ 174,147 7,585 181,732
Generic OTFC - - -
FENTORA - - -
Pain 174,147 7,585 181,732
Other 13,292 50,115 63,407
$387,736 $69,504 $457,240
%
Increase
(Decrease)
United
States Europe Total
Sales:
PROVIGIL 8% 35% 10%
GABITRIL (6%) 22% (4%)
CNS 7% 34% 9%
ACTIQ (74%) 32% (69%)
Generic OTFC 100% 0% 100%
FENTORA 100% 0% 100%
Pain (36%) 32% (33%)
Other 45% 13% 20%
(11%) 19% (6%)
Nine Months Ended
September 30,
2007
United
States Europe Total
Sales:
PROVIGIL $593,394 $39,171 $632,565
GABITRIL 39,814 6,268 46,082
CNS 633,208 45,439 678,647
ACTIQ 157,097 28,638 185,735
Generic OTFC 97,562 - 97,562
FENTORA 101,224 - 101,224
Pain 355,883 28,638 384,521
Other 53,867 170,767 224,634
$1,042,958 $244,844 $1,287,802
2006
United
States Europe Total
Sales:
PROVIGIL $494,047 $29,219 $523,266
GABITRIL 41,291 3,510 44,801
CNS 535,338 32,729 568,067
ACTIQ 452,175 19,213 471,388
Generic OTFC - - -
FENTORA - - -
Pain 452,175 19,213 471,388
Other 41,661 152,436 194,097
$1,029,174 $204,378 $1,233,552
%
Increase
(Decrease)
United
States Europe Total
Sales:
PROVIGIL 20% 34% 21%
GABITRIL (4%) 79% 3%
CNS 18% 39% 19%
ACTIQ (65%) 49% (61%)
Generic OTFC 100% 0% 100%
FENTORA 100% 0% 100%
Pain (21%) 49% (18%)
Other 29% 12% 16%
1% 20% 4%
* For both the three and nine months ended September 30, 2006, 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 by $6.9
million, $0.9 million and $5.5 million, respectively.
CEPHALON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
September 30, December 31,
2007 2006
CURRENT ASSETS:
Cash and cash equivalents $661,982 $496,512
Investments 69,101 25,212
Receivables, net 302,748 270,045
Inventory, net 93,399 85,239
Deferred tax assets, net 204,140 184,518
Other current assets 34,626 47,278
Total current assets 1,365,996 1,108,804
PROPERTY AND EQUIPMENT, net 481,508 453,010
GOODWILL 476,605 467,167
INTANGIBLE ASSETS, net 839,255 793,037
DEFERRED TAX ASSETS, net 103,284 118,192
OTHER ASSETS 132,056 105,287
$3,398,704 $3,045,497
CURRENT LIABILITIES:
Current portion of long-term debt $1,237,285 $1,023,312
Accounts payable 74,528 90,586
Accrued expenses 685,864 263,478
Total current liabilities 1,997,677 1,377,376
LONG-TERM DEBT 4,373 224,992
DEFERRED TAX LIABILITIES, net 66,864 72,491
OTHER LIABILITIES 103,982 61,178
Total liabilities 2,172,896 1,736,037
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value 693 678
Additional paid-in capital 1,899,761 1,780,749
Treasury stock, at cost (151,196) (151,068)
Accumulated deficit (668,310) (425,256)
Accumulated other comprehensive income 144,860 104,357
Total stockholders' equity 1,225,808 1,309,460
$3,398,704 $3,045,497
Certain reclassifications of prior year amounts have been made to
conform to the current year presentation. The NUVIGIL(R) (armodafinil)
[C-IV] inventory balance of $89.1 million as of December 31, 2006 has been
reclassified from inventory to other assets, as we do not presently intend
to launch NUVIGIL commercially until around 2010.
CEPHALON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(235,886) $149,725
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Deferred income tax expense 8,750 64,112
Shortfall tax benefits from stock-based
compensation (222) -
Depreciation and amortization 101,206 94,828
Amortization of debt issuance costs 180 387
Write-off of debt issuance costs
associated with convertible subordinated
notes - 13,105
Stock-based compensation expense 34,940 32,436
Gain on extinguishment of debt (5,319) -
Gain on sale of investment (5,791) -
Loss on disposals of property and
equipment 2,873 2,368
Impairment charge - 12,417
Changes in operating assets and
liabilities:
Receivables (26,218) (30,818)
Inventory (1,881) 15,761
Other assets (28,552) (43,731)
Accounts payable and
accrued expenses 380,776 (45,820)
Other liabilities 49,465 (13,580)
Net cash provided by
operating activities 274,321 251,190
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment (70,887) (97,122)
Acquisition of intangible assets (99,152) (115,000)
Proceeds from sale of investment 12,291 -
Sales and (purchases) of
available-for-sale investments, net (43,186) 242,660
Net cash provided by (used for)
investing activities (200,934) 30,538
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of
common stock options 74,375 112,794
Windfall tax benefits from
stock-based compensation 9,934 21,912
Acquisition of treasury stock (128) (433)
Payments on and retirements of long-term
debt (2,902) (2,528)
Net cash provided by financing activities 81,279 131,745
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 10,804 11,830
NET INCREASE IN CASH AND CASH EQUIVALENTS 165,470 425,303
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 496,512 205,060
CASH AND CASH EQUIVALENTS, END OF PERIOD $661,982 $630,363
CEPHALON, INC. AND SUBSIDIARIES
Reconciliation of Projected GAAP Basic Income (Loss) per Common Share
to Basic Adjusted Income Per Common Share Guidance
(Unaudited)
Twelve Months Twelve Months
Ended Ended
December 31, 2007 December 31, 2008
Projected GAAP basic income (loss) per
common share $(3.08)-- $(2.98) $4.13 -- $4.23
Amortization of current intangibles $1.35 -- $1.35 $1.52 -- $1.52
Research and development adjustments $0.62 -- $0.62 $- -- $-
Settlement reserve $6.38 -- $6.38 $- -- $-
Gain on extinguishment of debt $(0.08)-- $(0.08) $- -- $-
Gain on sale of investment $(0.09)-- $(0.09) $- -- $-
Tax effect of pre-tax adjustments at
the applicable tax rates * $(0.65)-- $(0.65) $(0.55)--$(0.55)
Basic adjusted income per common share
guidance $4.45 -- $4.55 $5.10 -- $5.20
* For the twelve months ended December 31, 2007, we have not yet
recognized a tax benefit for the settlement reserve due to the uncertainty
associated with the tax treatment of any potential settlement.
The company's 2007 guidance is being issued based on certain
assumptions including:
-- Adjusted effective tax rate of approximately 36 to 37 percent; and
-- Weighted average number of common shares outstanding of 66.6 million
shares for the twelve months ended December 31, 2007.
The company's 2008 guidance is being issued based on certain
assumptions including:
-- Entrance into the market of an additional generic version of ACTIQ by
mid-2008;
-- Approval of TREANDA and mid-2008 launch;
-- Reduction of interest income by $20 million resulting from payment of
the settlement with the U.S. Attorney's Office;
-- Adjusted effective tax rate of approximately 36 to 37 percent; and
-- Weighted average number of common shares outstanding of 67.5 million
shares for the twelve months ended December 31, 2008.
SOURCE Cephalon, Inc.
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Related links:
http://www.cephalon.com
http://www.prnewswire.com/comp/134563.html/
CONTACT:
Media: Sheryl Williams, +1-610-738-6493,
swilliam@cephalon.com, or Investors: Robert (Chip) Merritt,
+1-610-738-6376, cmerritt@cephalon.com, both of Cephalon, Inc.
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