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Company Reiterates 2008 Earnings Guidance and Introduces Q1 2008 Guidance
FRAZER, PA, USA | February 12, 2008 | Cephalon, Inc. (Nasdaq: CEPH) today reported 2007 sales of $1.727 billion, compared to sales of $1.720 billion for 2006, exceeding the company's previously issued guidance. Basic loss per common share for the full year 2007 was $2.88. Excluding the previously announced settlement reserve, amortization expense and certain other items, basic adjusted income per common share for the full year was $4.64, which compares to $5.22 for 2006 and exceeds the high end of the company's earnings guidance range of $4.45 to $4.55.
2007 central nervous system (CNS) franchise sales increased 16 percent to $909.4 million compared to 2006 and the pain franchise reported strong sales of $512.6 million, a decrease of only 22 percent despite a full year of generic competition to ACTIQ(R) (oral transmucosal fentanyl citrate) [C-II]. Sales of other products increased 15 percent to $305.3 million.
"We delivered strong performance across all aspects of our business in 2007. We launched AMRIX, filed three NDAs, introduced three new Phase 1 programs, and delivered greater sales and earnings than expected," said Frank Baldino, Jr., Ph.D., Chairman and CEO. "We believe that 2008 will mark the beginning of a new phase of growth for the company with a full year of AMRIX sales, the potential for approval of TREANDA and expanded indications for FENTORA, and continued progress on the clinical development plan for NUVIGIL. In fact, the NUVIGIL program is already off to a great start with promising results from our first Phase 2 study in the treatment of schizophrenia."
The company is reiterating its guidance for 2008 total sales of $1.80 - $1.85 billion, adjusted net income of $344 - $351 million and its basic adjusted income per common share guidance of $5.10 - $5.20.
Cephalon is introducing first quarter 2008 sales guidance of $435 - $445 million, adjusted net income guidance of $67.7 - $74.5 million and basic adjusted income per common share guidance of $1.00 - $1.10.
Basic adjusted income per common share guidance for both the first quarter 2008 and full-year 2008 is reconciled below and is subject to the assumptions set forth therein.
Cephalon's management will discuss the company's fourth quarter and full year 2007 performance in a conference call with investors beginning at 5:00 p.m. U.S. EST on Tuesday, February 12, 2008. To participate in the conference call, dial +1-913-312-0669 and refer to conference code number 4647168. Investors can listen to the call live by logging on to the company's website at 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. A member of the Fortune 1000, Cephalon currently employs close to 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(R) (cyclobenzaprine hydrochloride extended-release capsules), VIVITROL(R) (naltrexone for extended-release injectable suspension), GABITRIL(R) (tiagabine hydrochloride), and ACTIQ(R). 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 including NUVIGIL for the treatment of schizophrenia; interpretation of clinical results; prospects for regulatory approval, including with respect to TREANDA and NUVIGIL; manufacturing development and capabilities; market prospects for its products; sales, adjusted net income and basic adjusted income per common share guidance for the first quarter and full-year 2008; and other statements regarding matters that are not historical facts. 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," "Adjusted Net Income Guidance, "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 Year Ended
December 31, December 31,
2007 2006 2007 2006
REVENUES:
Sales $439,497 $473,347 $1,727,299 $1,720,172
Other revenues 10,474 11,335 45,339 43,897
449,971 484,682 1,772,638 1,764,069
COSTS AND EXPENSES:
Cost of sales 89,897 88,171 341,867 338,784
Research and development 95,037 129,340 369,115 424,239
Selling, general and
administrative 207,837 219,334 735,799 689,492
Settlement reserve - - 425,000 -
Impairment charge - - - 12,417
Acquired in-process research
and development - 5,000 - 5,000
392,771 441,845 1,871,781 1,469,932
INCOME (LOSS) FROM OPERATIONS 57,200 42,837 (99,143) 294,137
OTHER INCOME (EXPENSE):
Interest income 9,331 8,702 32,816 25,438
Interest expense (4,561) (5,399) (19,833) (18,922)
Debt exchange expense - (48,122) - (48,122)
Write-off of deferred debt
issuance costs - - - (13,105)
Gain on extinguishment of debt - - 5,319 -
Gain on sale of investment - - 5,791 -
Other income (expense), net 2,884 (1,056) 6,631 (1,172)
7,654 (45,875) 30,724 (55,883)
INCOME (LOSS) BEFORE INCOME
TAXES 64,854 (3,038) (68,419) 238,254
INCOME TAX EXPENSE 20,672 1,871 123,285 93,438
NET INCOME (LOSS) $44,182 $(4,909) $(191,704) $144,816
BASIC INCOME (LOSS) PER COMMON
SHARE $0.66 $(0.08) $(2.88) $2.39
DILUTED INCOME (LOSS) PER
COMMON SHARE $0.56 $(0.08) $(2.88) $2.08
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 67,187 61,783 66,597 60,507
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING-
ASSUMING DILUTION 78,734 61,783 66,597 69,672
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
December 31,
2007 2006
GAAP NET INCOME (LOSS) $44,182 $(4,909)
Cost of sales adjustments 26,306 (1) 20,958 (1)
Research and development adjustments 2,000 (2) 35,500 (2) (7)
Selling, general and administrative
adjustments 11,191 (3) - (7)
Acquired in-process research and
development - 5,000 (5)
Debt exchange expense - 48,122 (6)
Income taxes (18,149)(4) (30,831)(4) (7)
21,348 78,749
ADJUSTED NET INCOME $65,530 $73,840
BASIC ADJUSTED INCOME PER COMMON SHARE $0.98 $1.20
DILUTED ADJUSTED INCOME PER COMMON
SHARE $0.83 $1.00
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 67,187 61,783
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-ASSUMING DILUTION 78,734 73,633
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 charges related to payments for several research and
development collaborations.
(3) To exclude charges related to certain employee severance costs ($7.2
million) and a significant one-time charitable contribution ($4.0
million).
(4) 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.
(5) To exclude the write-off of other acquired in-process research and
development.
(6) To exclude the debt exchange expense associated with the December 2006
exchanges of $337.0 million of zero coupon convertible subordinated
notes and $100.0 million of 2% senior subordinated convertible notes.
(7) 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 February 12, 2007
reflected adjustments of $3.7 million in each of Research and
development and Selling, general and administrative expenses and $2.9
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)
Year Ended
December 31,
2007 2006
GAAP NET INCOME (LOSS) $(191,704) $144,816
Sales adjustments - (13,273)(8)
Cost of sales adjustments 90,542 (1) 90,333 (1)
Research and development adjustments 43,500 (2) 80,500 (2) (13)
Selling, general and administrative
adjustments 11,191 (3) 9,987 (3) (13)
Settlement reserve 425,000 (4) -
Impairment charge - 12,417 (9)
Acquired in-process research and
development - 5,000 (10)
Debt exchange expense - 48,122 (11)
Write-off of deferred debt issuance
costs - 13,105 (12)
Gain on extinguishment of debt (5,319)(5) -
Gain on sale of investment (5,791)(6) -
Income taxes (58,608)(7) (74,891)(7) (13)
500,515 171,300
ADJUSTED NET INCOME $308,811 $316,116
BASIC ADJUSTED INCOME PER COMMON SHARE $4.64 $5.22
DILUTED ADJUSTED INCOME PER COMMON
SHARE $3.92 $4.54
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 66,597 60,507
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING-ASSUMING DILUTION 78,684 69,672
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 ($81.7 million).
(2) In 2007, to exclude charges related to payments for several research
and development collaborations ($28.5 million) and the recognition of
a milestone related to the FDA's acceptance of our NDA filing for
TREANDA(R) (bendamustine HCl) ($15.0 million). In 2006, to exclude
charges related to payments for several research and development
collaborations.
(3) In 2007, to exclude charges related to certain employee severance
costs ($7.2 million) and a significant one-time charitable
contribution ($4.0 million). In 2006, 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).
(4) To exclude the reserve established for the agreement in principle
reached with the U.S. Attorney's Office in Philadelphia.
(5) To exclude the forgiveness of a mortgage loan by the Pennsylvania
Industrial Development Board.
(6) To exclude the pre-tax gain related to the sale of certain
investments.
(7) 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.
(8) 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.
(9) To exclude charges related to the impairment of an intangible asset.
(10) To exclude the write-off of other acquired in-process research and
development.
(11) To exclude the debt exchange expense associated with the December
2006 exchanges of $337.0 million of zero coupon convertible
subordinated notes and $100.0 million of 2% senior subordinated
convertible notes.
(12) To exclude the write-off of deferred debt issuance costs related to
the Zero Coupon convertible subordinated notes.
(13) Amounts shown no longer exclude the impact of SFAS 123(R). The
earnings press release issued on February 12, 2007 reflected
adjustments of $15.3 million in each of Research and development and
Selling, general and administrative expenses and $11.7 million in
Income tax expense related to SFAS 123(R).
CEPHALON, INC. AND SUBSIDIARIES
"ADJUSTED" CONSOLIDATED SALES DETAIL *
(In thousands)
(Unaudited)
Three Months Ended
December 31,
2007
United
States Europe Total
Sales:
PROVIGIL $208,245 $11,237 $219,482
GABITRIL 10,828 400 11,228
CNS 219,073 11,637 230,710
ACTIQ 42,310 12,027 54,337
Generic OTFC 31,471 - 31,471
FENTORA 33,912 - 33,912
AMRIX 8,401 - 8,401
Pain 116,094 12,027 128,121
Other 15,396 65,270 80,666
$350,563 $88,934 $439,497
Three Months Ended
December 31,
2006
United
States Europe Total
Sales:
PROVIGIL $190,838 $13,833 $204,671
GABITRIL 12,805 806 13,611
CNS 203,643 14,639 218,282
ACTIQ 100,882 8,039 108,921
Generic OTFC 46,630 - 46,630
FENTORA 29,250 - 29,250
AMRIX - - -
Pain 176,762 8,039 184,801
Other 14,423 55,841 70,264
$394,828 $78,519 $473,347
%
Increase
(Decrease)
United
States Europe Total
Sales:
PROVIGIL 9% (19%) 7%
GABITRIL (15%) (50%) (18%)
CNS 8% (21%) 6%
ACTIQ (58%) 50% (50%)
Generic OTFC (33%) 0% (33%)
FENTORA 16% 0% 16%
AMRIX 100% 0% 100%
Pain (34%) 50% (31%)
Other 7% 17% 15%
(11%) 13% (7%)
Year Ended
December 31,
2007
United
States Europe Total
Sales:
PROVIGIL $801,639 $50,408 $852,047
GABITRIL 50,642 6,668 57,310
CNS 852,281 57,076 909,357
ACTIQ 199,407 40,665 240,072
Generic OTFC 129,033 - 129,033
FENTORA 135,136 - 135,136
AMRIX 8,401 - 8,401
Pain 471,977 40,665 512,642
Other 69,263 236,037 305,300
$1,393,521 $333,778 $1,727,299
Year Ended
December 31,
2006
United
States Europe Total
Sales:
PROVIGIL $684,885 $43,052 $727,937
GABITRIL 54,096 4,316 58,412
CNS 738,981 47,368 786,349
ACTIQ 544,886 27,252 572,138
Generic OTFC 54,801 - 54,801
FENTORA 29,250 - 29,250
AMRIX - - -
Pain 628,937 27,252 656,189
Other 56,084 208,277 264,361
$1,424,002 $282,897 $1,706,899
%
Increase
(Decrease)
United
States Europe Total
Sales:
PROVIGIL 17% 17% 17%
GABITRIL (6%) 54% (2%)
CNS 15% 20% 16%
ACTIQ (63%) 49% (58%)
Generic OTFC 135% 0% 135%
FENTORA 362% 0% 362%
AMRIX 100% 0% 100%
Pain (25%) 49% (22%)
Other 23% 13% 15%
(2%) 18% 1%
* For the year ended December 31, 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)
December 31, December 31,
2007 2006
CURRENT ASSETS:
Cash and cash equivalents $818,669 $496,512
Investments 7,596 25,212
Receivables, net 276,776 270,045
Inventory, net 99,098 85,239
Deferred tax assets, net 176,619 184,518
Other current assets 43,267 47,278
Total current assets 1,422,025 1,108,804
PROPERTY AND EQUIPMENT, net 500,396 453,010
GOODWILL 476,515 467,167
INTANGIBLE ASSETS, net 817,828 793,037
DEFERRED TAX ASSETS, net 160,134 118,192
OTHER ASSETS 129,371 105,287
$3,506,269 $3,045,497
CURRENT LIABILITIES:
Current portion of long-term debt $1,237,169 $1,023,312
Accounts payable 91,437 90,586
Accrued expenses 677,184 263,478
Total current liabilities 2,005,790 1,377,376
LONG-TERM DEBT 3,788 224,992
DEFERRED TAX LIABILITIES, net 56,540 72,491
OTHER LIABILITIES 138,084 61,178
Total liabilities 2,204,202 1,736,037
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value 700 678
Additional paid-in capital 1,934,965 1,780,749
Treasury stock, at cost (158,173) (151,068)
Accumulated deficit (624,128) (425,256)
Accumulated other comprehensive income 148,703 104,357
Total stockholders' equity 1,302,067 1,309,460
$3,506,269 $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)
Year Ended
December 31,
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(191,704) $144,816
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Deferred income tax
expense (benefit) (958) 28,064
Shortfall tax benefits from
stock-based compensation (360) -
Debt exchange expense - 48,122
Depreciation and amortization 141,358 126,531
Amortization of debt issuance
costs 241 493
Write-off of debt issuance costs
associated with convertible
subordinated notes - 13,105
Stock-based compensation expense 46,695 42,807
Gain on extinguishment of debt (5,319) -
Gain on sale of investment (5,791) -
Loss on disposals of property and
equipment 3,346 3,292
Impairment charge - 12,417
Changes in operating assets and
liabilities:
Receivables (601) (63,932)
Inventory (6,023) 22,640
Other assets (54,967) (7,033)
Accounts payable and
accrued expenses 382,898 (19,764)
Other liabilities 76,041 (31,641)
Net cash provided by
operating activities 384,856 319,917
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (96,867) (159,917)
Acquisition of intangible assets (107,246) (115,850)
Proceeds from sale of investment 12,291 -
Sales and (purchases) of
available-for-sale investments, net 18,876 255,391
Net cash used for
investing activities (172,946) (20,376)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of common
stock options 93,900 143,491
Windfall tax benefits from stock-based
compensation 13,993 27,189
Acquisition of treasury stock (7,105) (4,418)
Payments on and retirements of long-term
debt (3,853) (188,886)
Net cash provided by (used for)
financing activities 96,935 (22,624)
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 13,312 14,535
NET INCREASE IN CASH AND CASH EQUIVALENTS 322,157 291,452
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 496,512 205,060
CASH AND CASH EQUIVALENTS, END OF YEAR $818,669 $496,512
CEPHALON, INC. AND SUBSIDIARIES
Reconciliation of Projected GAAP Basic Income per Common Share
to Basic Adjusted Income Per Common Share Guidance
(Unaudited)
Three Months Twelve Months
Ended Ended
March 31, 2008 December 31, 2008
Projected GAAP basic income per common
share $0.74 - $0.84 $4.04 - $4.14
Amortization of current intangibles $0.42 - $0.42 $1.68 - $1.68
Tax effect of pre-tax adjustments at
the applicable tax rates $(0.16)- $(0.16) $(0.62)- $(0.62)
Basic adjusted income per common share
guidance $1.00 - $1.10 $5.10 - $5.20
The company's 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 three months ended March 31, 2008 and for the twelve
months ended December 31, 2008, respectively.
SOURCE: Cephalon
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