Andrx (NASDAQ:ADRX)
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Andrx Corporation (Nasdaq:ADRX) (Andrx or the Company)
today announced its financial results for the three and nine months
ended September 30, 2005 (the 2005 Quarter and the 2005 Period,
respectively), which are discussed more extensively in Andrx's Form
10-Q being filed today with the U.S. Securities and Exchange
Commission (SEC). Andrx's Form 10-Q is available on the Company's
website at http://www.andrx.com (Investor Relations/SEC filings).
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(in thousands,
except per share amounts) Three Months Ended
September 30, Change
------------------- -----------------
2005 2004 $ %
--------- --------- --------- -------
Total revenues $256,950 $272,286 $(15,336) (5.6%)
Income before income taxes $16,799 $19,034 $(2,235) (11.7%)
Net income $10,870 $11,801 $(931) (7.9%)
Earnings per share
Basic $0.15 $0.16 $(0.01) (6.3%)
Diluted $0.15 $0.16 $(0.01) (6.3%)
Nine Months Ended
September 30, Change
------------------- -----------------
2005 2004 $ %
--------- --------- --------- -------
Total revenues $796,156 $855,045 $(58,889) (6.9%)
Income before income taxes $7,692 $72,430 $(64,738) (89.4%)
Net income $54,205 $44,907 $9,298 20.7%
Earnings per share
Basic $0.74 $0.62 $0.12 19.4%
Diluted $0.74 $0.61 $0.13 21.3%
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Andrx Chief Executive Officer, Thomas P. Rice, said: "We are now
realizing the increasing benefit from the disposition of our brand
business, which occurred earlier this year. Our distribution business
experienced a solid operating quarter within a very competitive
generic environment, which included the launch of generic Allegra(R).
We believe future financial results from our distribution operations
will benefit from new generic launches of significant brand products
losing patent protection in 2006 and 2007. However, this growth may be
tempered by continuing price erosion within the industry."
"During the 2005 third quarter, the FDA placed us in Official
Action Indicated status relating to the FDA's inspection of our Davie,
Florida manufacturing facility and the FDA's issuance of a Form 483
List of Inspectional Observations. The effect of this designation is
that while the FDA reviews our responses to the inspectional
observations and considers whether or not to take any enforcement
action against us, approvals of our submitted ANDAs are being
withheld. However, the Company continues to submit new ANDAs and the
FDA continues to review our applications. We believe we have provided
complete responses to the May 2005 inspectional observations and
anticipate a meeting with the FDA in November to discuss our
responses."
"We have expanded our facilities, upgraded our senior management
team in science and technology, quality assurance, manufacturing
operations, and business development, and improved our manufacturing
and quality systems. The benefit of improving our manufacturing
processes is evidenced by, among other things, the year-over-year
decrease in our production-related write-offs."
Mr. Rice added: "With respect to Biaxin(R) XL, in September a
hearing took place regarding Abbott Laboratories, Inc.'s motion for
preliminary injunction. We are awaiting the court's decision."
"We continue to invest in business development efforts to expand
our generic pipeline, and expect to continue to realize the synergies
between our distribution and generic businesses for both our
internally developed products and generic business development
opportunities. We are in advanced discussions, and anticipate closing
before the end of the year, transactions to access up to 25 ANDAs from
international companies and domestic companies with off-shore
affiliations. This quarter we also established Andrx Therapeutics, our
contract services segment to be led by Steve Glover, Senior Vice
President, which is pursuing the development and manufacturing of
pharmaceutical products for other pharmaceutical companies, including
combination products and controlled-release formulations utilizing our
patented technologies and formulation capabilities."
Highlights for Third Quarter 2005
In the 2005 Quarter, distributed products revenues increased by
3.5% to $163.6 million from the three months ended September 30, 2004
(2004 Quarter), due to new generic product introductions since the
2004 Quarter, partially offset by the overall price declines common to
generic products. Distributed products revenues in the 2005 Quarter
included the reversal of a $2.0 million reserve related to Able
Laboratories, Inc.'s recall of its products, as our return experience
since the recall indicates our exposure is less than originally
anticipated. On a quarterly sequential basis, revenue from distributed
products decreased by 3.1% from $168.8 million for the 2005 second
quarter. Affecting the comparison to the 2005 second quarter, among
other things, is our previously announced discontinuation of the
distribution of certain brand products, which generated $0.9 million
in sales in the 2005 Quarter and $6.1 million in the 2005 second
quarter. In the 2005 Quarter, gross margin on distributed products was
20.3% compared to a gross margin of 17.9% for the 2004 Quarter. The
improvement in the gross margin was primarily attributable to the
impact of higher margins related to a new product introduction, as
well as the reversal of the reserve related to Able's recall.
After the disposition of our brand business in March 2005 through
a sales and licensing transaction with First Horizon, Andrx products
revenues exclude revenues from Altoprev(R) and Fortamet(R). Our
participation in the performance of these brand products is now
included in licensing, royalties and other revenues. Sales of these
products were $16.1 million in the 2004 Quarter. Andrx product sales
for the 2005 Quarter include sales of controlled-release,
immediate-release and niche generic products, and other products,
which include our Entex and Anexsia product lines previously reflected
in Andrx brand product revenues. Excluding net sales of Altoprev and
Fortamet for the 2004 Quarter, Andrx products revenues decreased by
$18.5 million to $71.5 million, compared to $90.0 million in the 2004
Quarter. The decrease is primarily due to decreases from our generic
versions of Glucotrol XL(R), supplied by Pfizer, OTC Claritin-D(R) 24,
K-Dur(R) and Glucophage(R). Andrx did not launch any products during
the 2005 Quarter. On a quarterly sequential basis, reported revenues
from Andrx products decreased by 8.8% from $78.3 million primarily due
to decreases from our generic versions of Glucotrol XL, supplied by
Pfizer, Glucophage, OTC Claritin-D 24 and other products previously
reflected as Andrx brand product revenues. Excluding net sales of
Altoprev and Fortamet, Andrx products generated $23.9 million of gross
profit with a gross margin of 33.4% in the 2005 Quarter, compared to
$34.1 million of gross profit with a gross margin of 37.9% in the 2004
Quarter. The $10.2 million decrease in gross profit resulted primarily
from reductions in revenues, partially offset by a $2.4 million
reduction in cost of goods sold as a result of Pfizer's failure to
deliver generic Glucotrol XL 2.5mg in accordance with our supply
agreement. In the 2005 Quarter, we recorded charges directly to cost
of goods sold of $4.1 million in write-offs of pre-launch inventories,
mainly due to $3.4 million in write-offs of our generic version of
Biaxin XL in connection with validation and the commencement of
commercial production activities.
In the 2005 Quarter, licensing, royalties and other revenues
increased to $21.9 million, compared to $8.1 million in the 2004
Quarter primarily due to revenues from First Horizon related to
Andrx's former brand products, which commenced in April 2005. In the
2005 Quarter, based on the results of an external review, we recorded
$3.9 million of revenues on the reversal of sales allowances
previously recorded related to our agreements for generic versions of
Wellbutrin SR(R) 150mg and Zyban(R). In addition, licensing, royalties
and other revenues in the 2005 Quarter include contract R&D services
revenue rendered to Takeda Chemical Industries, Ltd. of $1.3 million.
Licensing, royalties and other revenues in the 2004 Quarter primarily
consisted of royalties on Teva's sale of Impax's generic versions of
Wellbutrin SR 150mg and Zyban, and KUDCo's sale of generic
Prilosec(R). On a quarterly sequential basis, licensing, royalties and
other revenues increased by $8.2 million from $13.7 million.
Selling, general and administrative expenses (SG&A) were $46.2
million for the 2005 Quarter, or 18.0% of total revenues, compared to
$54.2 million, or 19.9% of total revenues for the 2004 Quarter.
Excluding the brand business segment, SG&A expenses were $44.7 million
for the 2005 Quarter, compared to $32.5 million for the 2004 Quarter.
SG&A for the 2005 Quarter includes $9.3 million in charges associated
with the separation agreement with our former Executive Vice
President, General Counsel and Secretary, $7.0 million of which was a
non-cash charge related to his 2001 employment agreement which, upon
his termination, modified the exercise period of his previously issued
stock options. This non-cash charge of $7.0 million was based on the
exercise price of stock options issued prior to the 2001 agreement,
compared to the price of Andrx stock of $64.92 as of the date of the
modification (date of employment agreement). On a quarterly sequential
basis, SG&A expenses excluding the brand business segment increased by
$8.6 million from $36.1 million.
Research and development expenses (R&D) were $10.3 million in the
2005 Quarter, compared to $10.0 million in the 2004 Quarter. On a
quarterly sequential basis, R&D decreased from $11.7 million.
On September 23, 2005, we gave notice that we were terminating our
2002 credit facility, which cost approximately $1.4 million in annual
fees to maintain. The termination was effective October 19, 2005.
Accordingly, in the 2005 Quarter, we wrote-off unamortized debt
issuance costs of $1.2 million as a non-cash charge.
For the 2005 Quarter, we recorded a provision for income taxes of
35%. The 2005 Quarter included the benefit of the resolution of
uncertain tax positions. We continue to expect our effective tax rate
generally to be 38% for the remainder of 2005 excluding any
adjustments made to our tax liabilities as a result of the completion
of the IRS' audits of our 1999 through 2002 tax returns.
As of September 30, 2005, we had $401 million in cash, cash
equivalents and investments available for sale, and $486 million of
working capital. Deferred revenues were $102 million, primarily due to
cash received from our transactions with Takeda and First Horizon.
Capital expenditures were $8.5 million in the 2005 Quarter and
$21.6 million in the 2005 Period, compared to $73.2 million for the
2004 Period.
Webcast
Investors will have the opportunity to listen to management's
discussion of this release in a conference call to be held on November
8, 2005, at 8:00 am Eastern Time. This call is being webcast and can
be accessed at Andrx's website http://www.andrx.com. The webcast will
be available for replay.
About Andrx Corporation
We are a pharmaceutical company that:
-- develops, manufactures and commercializes generic versions of
controlled-release, niche and immediate-release pharmaceutical
products, including oral contraceptives;
-- distributes pharmaceutical products, primarily generics, which
have been commercialized by others, as well as our own,
primarily to independent pharmacies, pharmacy chains and
physicians' offices; and
-- develops and manufactures pharmaceutical products for other
pharmaceutical companies, including combination products and
controlled-release formulations utilizing our patented
technologies and formulation capabilities.
Forward-looking statements (statements which are not historical
facts) in this report are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. For this
purpose, any statements contained herein or which are otherwise made
by or on behalf of Andrx that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, words such as "may," "will," "to,"
"plan," "expect," "believe," "anticipate," "intend," "could,"
"should," "would," "estimate," or "continue" or the negative or other
variations thereof or comparable terminology are intended to identify
forward-looking statements. Investors are cautioned that all
forward-looking statements involve risk and uncertainties, including
but not limited to, what sanctions, if any, FDA may seek following its
decision to place us in OAI status, including without limitation
sanctions relating to any failure to comply with cGMP requirements and
if and when the "hold" on our ANDA approvals will be lifted; business
interruption due to hurricanes or other events outside of our control;
our dependence on a relatively small number of products; licensing
revenues; the timing and scope of patents issued to our competitors;
the timing and outcome of patent, antitrust and other litigation and
future product launches; whether we will be awarded any marketing
exclusivity period and, if so, the precise dates thereof; whether
additional pre-launch inventory write-offs will be required;
government regulation generally; competition; manufacturing
capacities, safety issues, output and quality processes; our ability
to develop and successfully commercialize new products; the loss of
revenues from existing products; development and marketing expenses
that may not result in commercially successful products; our inability
to obtain, or the high cost of obtaining, licenses for third party
technologies; our ability to meet the supply and manufacturing
requirements of the First Horizon agreement; the consolidation or loss
of customers; our relationship with our suppliers; the success of our
joint ventures; difficulties in integrating, and potentially
significant charges associated with, acquisitions of technologies,
products and businesses; our inability to obtain sufficient supplies
and/or active pharmaceuticals from key suppliers; the impact of sales
allowances; product liability claims; rising costs and limited
availability of product liability and other insurance; recent
management changes and the potential loss of senior management and
other key personnel; failure to comply with environmental laws; the
absence of certainty regarding the receipt of required regulatory
approvals or the timing or terms of such approvals; our ability to
commercialize all of our pre-launch inventory. Actual results may
differ materially from those projected in a forward-looking statement.
We are also subject to other risks detailed herein or detailed from
time to time in our 2004 10-K or in our other SEC filings. Subsequent
written and oral forward-looking statements attributable to us or to
persons acting on our behalf are expressly qualified in their entirety
by the cautionary statements set forth in our 2004 10-K and in our
other SEC filings.
Readers are cautioned not to place reliance on these
forward-looking statements, which are valid only as of the date they
were made. We undertake no obligation to update or revise any
forward-looking statements to reflect new information or the
occurrence of unanticipated events or otherwise, except as required by
law.
This release and additional information about Andrx Corporation is
also available on the Internet at: http://www.andrx.com.
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Andrx Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues:
Distributed products $163,615 $158,123 $512,161 $494,945
Andrx products 71,476 106,050 242,225 319,293
Licensing, royalties and
other 21,859 8,113 41,770 40,807
--------- --------- --------- ---------
Total revenues 256,950 272,286 796,156 855,045
--------- --------- --------- ---------
Operating expenses:
Cost of goods sold 185,929 190,912 586,723 590,820
Selling, general and
administrative 46,223 54,177 148,063 155,841
Research and development 10,324 9,995 34,117 32,498
Other - - 26,316 7,800
--------- --------- --------- ---------
Total operating expenses 242,476 255,084 795,219 786,959
--------- --------- --------- ---------
Income from operations 14,474 17,202 937 68,086
Other income (expense):
Equity in earnings of joint
ventures 885 1,286 2,624 3,553
Interest income 3,265 1,221 7,226 2,658
Interest expense (665) (675) (1,935) (1,867)
Write-off of unamortized
issuance costs upon
termination of credit
facility (1,160) - (1,160) -
--------- --------- --------- ---------
Income before income
taxes 16,799 19,034 7,692 72,430
Provision (benefit) for income
taxes 5,929 7,233 (46,513) 27,523
--------- --------- --------- ---------
Net income $10,870 $11,801 $54,205 $44,907
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Earnings per share:
Basic $0.15 $0.16 $0.74 $0.62
========= ========= ========= =========
Diluted $0.15 $0.16 $0.74 $0.61
========= ========= ========= =========
Weighted average shares of
common stock outstanding:
Basic 73,343 72,809 73,195 72,690
========= ========= ========= =========
Diluted 73,648 73,487 73,632 73,581
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Andrx Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
Sept. 30, Dec. 31,
2005 2004
----------- ---------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $73,931 $42,290
Short-term investments available-for-sale, at
market value 217,211 44,815
Accounts receivable, net of allowance for
doubtful accounts of $5,690 and $4,703 at
September 30, 2005 and December 31, 2004,
respectively 162,362 144,025
Inventories 182,387 197,304
Deferred income tax assets 74,440 57,883
Assets held for sale - 49,120
Prepaid and other current assets 19,327 23,502
----------- ---------
Total current assets 729,658 558,939
Long-term investments available-for-sale, at
market value 110,290 122,962
Property, plant and equipment, net 283,958 284,105
Goodwill 7,665 7,665
Other intangible assets, net 6,233 7,106
Other assets 10,325 8,936
----------- ---------
Total assets $1,148,129 $989,713
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $137,846 $105,715
Accrued expenses and other liabilities 105,915 136,169
Liabilities held for sale - 3,489
----------- ---------
Total current liabilities 243,761 245,373
Deferred income tax liabilities 35,708 34,605
Deferred revenue 101,645 10,974
----------- ---------
Total liabilities 381,114 290,952
----------- ---------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock; $0.001 par value,
1,000 shares authorized; none issued and
outstanding - -
Common stock; $0.001 par value, 200,000 shares
authorized; 73,389 and 72,924 shares issued and
outstanding at September 30, 2005 and December
31, 2004, respectively 73 73
Additional paid-in capital 531,139 507,934
Restricted stock units, net (15,074) (6,471)
Retained earnings 252,079 197,874
Accumulated other comprehensive loss, net of
income tax benefit (1,202) (649)
----------- ---------
Total stockholders' equity 767,015 698,761
----------- ---------
Total liabilities and stockholders'
equity $1,148,129 $989,713
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Andrx Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended
September 30,
-------------------
2005 2004
--------- ---------
Cash flows from operating activities:
Net income $54,205 $44,907
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26,495 25,296
Provision for (recoveries of) doubtful accounts 2,454 (552)
Non-cash impairment charges 28,195 18,035
Write-off of unamortized issuance costs upon
termination of credit facility 1,160 -
Non-cash compensation expense related to stock
options 7,048 -
Amortization of restricted stock units, net 2,339 1,087
Amortization of deferred revenue (4,329) (79)
Equity in earnings of joint ventures (2,624) (3,553)
Deferred income tax (benefit) provision (13,887) 7,249
Change in liabilities for uncertain tax
positions (32,793) 20,274
Income tax benefit on exercises of stock
options and restricted stock units 1,490 1,949
Changes in operating assets and liabilities:
Accounts receivable (20,791) 5,892
Inventories 29,498 (34,885)
Prepaid and other assets (3,052) 8,900
Income tax (payments) refunds (5,979) 639
Current liabilities 36,505 7,326
Deferred revenue 10,000 -
--------- ---------
Net cash provided by operating
activities 115,934 102,485
--------- ---------
Cash flows from investing activities:
Purchases of investments available-for-sale (592,786) (384,445)
Maturities and sales of investments available-
for-sale 432,184 321,459
Purchases of property, plant and equipment, net (21,593) (73,187)
Proceeds from the sale and licensing of certain
assets and rights 85,000 -
Distributions from joint ventures 4,212 4,279
Refund of deposit for product rights 10,000 -
Payment for product rights (4,500) (5,000)
--------- ---------
Net cash used in investing activities (87,483) (136,894)
--------- ---------
Cash flows from financing activities:
Proceeds from issuances of common stock in
connection with exercises of stock options 3,882 5,048
Proceeds from issuances of common stock in
connection with the employee stock purchase plan 838 1,140
Principal payments on capital lease obligations (1,530) (672)
--------- ---------
Net cash provided by financing
activities 3,190 5,516
--------- ---------
Net increase (decrease) in cash and
cash equivalents 31,641 (28,893)
Cash and cash equivalents, beginning of period 42,290 67,498
--------- ---------
Cash and cash equivalents, end of period $73,931 $38,605
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