APPX App Pharmaceuticals (MM)

APP Pharmaceuticals, Inc. (Nasdaq:APPX), a leading manufacturer of multi-source and branded injectable pharmaceutical products, today reported financial results for the second quarter and six months ended June 30, 2008. As a result of the separation of Abraxis BioScience from APP Pharmaceuticals in the fourth quarter of 2007, APP�s business is reported, for all periods presented, on a continuing operations basis. Second Quarter 2008 Financial Results Net revenues increased 24 percent to $197.9 million, compared with $159.3 million in the second quarter of 2007. Gross profit increased to $94.1 million, compared with $80.2 million in the second quarter of 2007. Excluding $4.2 million for amortization of purchased products, gross profit was $98.3 million, or 50 percent of net revenues, compared with $84.3 million or 53 percent of net revenues, in the second quarter of 2007. Total operating expenses were $40.9 million, compared with $39.6 million in the 2007 second quarter. Research and development expenses were $13.8 million compared with $12.7 million in last year�s second quarter, including costs associated with the technology transfer and start-up of the Puerto Rico manufacturing facility. SG&A expenses were $21.2 million, or 11 percent of net revenues, compared with $22.7 million, or 14 percent of net revenues, in the prior year second quarter. Income from operations increased 31 percent to $53.3 million compared with $40.6 million in the 2007 second quarter. Net interest expense was $13.5 million compared with $4.4 million in the last year�s second quarter, primarily reflecting the increase in borrowing following the separation of Abraxis Bioscience, that was completed in November 2007. Net income was $23.9 million, or $0.15 per diluted share, compared with second quarter 2007 income from continuing operations, net of tax, of $22.8 million or $0.14 per diluted share on a continuing operations basis. The company reported adjusted income from continuing operations of $38.5 million, or $0.24 per diluted share, compared with $36.3 million, or $0.23 per diluted share, in the second quarter of 2007, which in each case excludes Puerto Rico facility pre-launch costs, amortization expense, non-cash stock compensation expense, separation, merger and other non-recurring costs (see table at the end of this release). �In the second quarter, solid revenue growth across our product categories led to our strong financial performance,� said Tom Silberg, APP Pharmaceuticals� president and chief executive officer. �We have revised upward our 2008 financial guidance to reflect strong second quarter results as well as positive trends in our Critical Care and Anesthetic/Analgesic products.� First Six Months of 2008 Financial Results Net revenues increased 15 percent to $346.0 million, compared with $299.6 million for the first six months of 2007. Gross profit was $164.2 million compared with $145.6 million, in the first six months of 2007. Excluding $8.3 million for amortization of purchased products, gross profit was $172.5 million, or 50 percent of net revenues, compared with $153.9 million or 51 percent of net revenues, in the first half of 2007. Total operating expenses were $78.5 million, compared with $75.8 million in the comparable 2007 period. Research and development expenses were $26.2 million compared with $22.6 million in first six months of last year, including Puerto Rico technology transfer costs. SG&A expenses were $42.2 million or 12 percent of net revenues, compared with $44.7 million or 15 percent of net revenues, in the prior year six month period. Income from operations increased 23 percent to $85.7 million compared with $69.8 million in the 2007 six month period. Net interest expense was $29.3 million compared with $8.0 million in the first six months of last year, primarily reflecting the increase in borrowing following the Abraxis Bioscience separation. Net income, for the six months ending June 30, 2008, was $33.0 million, or $0.20 per diluted share, versus income from continuing operations, net of tax, of $36.4 million, or $0.23 per diluted share. The company reported adjusted net income from continuing operations of $60.5 million, or $0.38 per diluted share, compared with $62.6 million, or $0.39 per diluted share, which in each case excludes Puerto Rico facility pre-launch costs, amortization expense, non-cash stock compensation expense, separation, merger and other non-recurring costs (see table at the end of this release). APP currently has approximately 65 product candidates in various stages of development, including 25 ANDAs pending with the FDA, representing approximately $4 billion in 2007 annualized branded sales. Recent Events APP has received FDA final approval for Colistimethate for Injection. Shortly after the end of the quarter, the Company received final approvals and launched additional dosages of Granisetron Hydrochloride Injection. 2008 Financial Guidance Total net revenues are expected to be in the range of $800 to $820 million; Gross margin is anticipated to be approximately 51 to 52 percent relative to total net revenues. This excludes $16.4 million in acquired product portfolio amortization and $2.1 million stock compensation; R&D expense is expected to be approximately $25 to $30 million, excluding approximately $25 million associated with technology transfer and capacity optimization of the Puerto Rico manufacturing facility; SG&A expenses are anticipated to be in the range of $75 to $80 million, which excludes expected non-cash stock compensation expense of $6 million and approximately $20 million of merger and separation related expenses; Interest expense is expected to be approximately $60 million; Income tax rate is expected to be approximately 41 percent; Depreciation expense is expected to be approximately $20 to $24 million; Adjusted EBITDA is expected to be $325 to $350 million. Adjustments, as noted above, reflect the exclusion of costs associated with the technical transfer and operational start-up of the Puerto Rico facility, expenses resulting from the separation of Abraxis Bioscience, costs associated with the ongoing Fresenius merger activities, non-cash compensation costs, and miscellaneous non-recurring costs; Adjusted EPS, reported on a consistent basis as Adjusted EBITDA above, is anticipated to be $0.85 to $0.95. Conference Call Information On Friday, August 1, 2008, the company will host a conference call with interested parties beginning at 7 a.m. PT (10 a.m. ET) to review the company�s financial results. The conference call will be available to interested parties through a live audio webcast at www.APPpharma.com and www.thomsonone.com. The call will also be archived and accessible at both sites for six months. Non-GAAP Financial Measures The company believes that its presentation of non-GAAP financial measures, such as adjusted net income, adjusted income from continuing operations, EBITDA and adjusted EBITDA, provides useful supplementary information to investors in understanding the underlying operating performance of the company and facilitates additional analysis by investors. The company also uses non-GAAP financial measures internally for operating, budgeting and financial planning purposes. The non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance calculated in accordance with GAAP. A reconciliation of GAAP net income to adjusted net income for the three and six months ending June 30, 2008 is included with this news release. About APP Pharmaceuticals APP is a specialty drug company that develops, manufactures and markets injectable pharmaceutical products, focusing on oncology, anti-infective and critical care markets. The company is one of the largest producers of injectables, with more than 100 generic products in more than 400 dosage formulations. APP, headquartered in Schaumburg, Illinois, has offices in Canada and manufacturing operations in Illinois, New York and Puerto Rico and is traded on the Nasdaq Global Market under the symbol APPX. For more information about APP and the products it provides, please visit www.APPpharma.com. Forward-Looking Statement The statements contained in this news release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements in this news release include statements regarding our expectations, beliefs, hopes, goals, intentions, initiatives or strategies, including statements regarding financial guidance for 2008, trends in our product lines, and the development and approval of product candidates. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those in the forward- looking statements. These factors include, but are not limited to, the continued market acceptance and demand of new and existing products; the difficulties or delays in developing, testing, obtaining regulatory approval of, and producing and marketing of the company�s products; the impact of competitive products and pricing; the availability and pricing of ingredients used in the manufacture of pharmaceutical products; and the ability to successfully manufacture products in a time-sensitive and cost effective manner. Additional relevant information concerning risks can be found in APP Pharmaceuticals Form 10-K for the year ended December 31, 2007 and other documents it has filed with the Securities and Exchange Commission. The information contained in this news release is as of the date of this release. APP assumes no obligations to update any forward-looking statements contained in this news release as the result of new information or future events or developments. APP Pharmaceuticals, Inc. Consolidated Statements of Operation (unaudited, in thousands, except per share amounts) � � � � Three Months Ended June 30, Six Months Ended June 30, 2008 2007 2008 2007 Net revenues: Critical care $ 113,532 $ 89,579 $ 204,714 $ 174,274 Anti-infective 59,296 50,749 102,256 90,529 Oncology 21,726 14,577 32,747 25,854 Contract manufacturing � 3,364 � � 4,422 � � 6,280 � � 8,938 � Total net revenues 197,918 159,327 345,997 299,595 Cost of sales � 103,771 � � 79,177 � � 181,788 � � 154,008 � Gross profit � 94,147 � � 80,150 � � 164,209 � � 145,587 � Percent to total net revenues 47.6 % 50.3 % 47.5 % 48.6 % � Operating expenses Research and development 13,833 12,678 26,163 22,642 Selling, general and administrative 21,173 22,678 42,193 44,739 Amortization of merger related intangibles 3,857 3,856 7,713 7,712 Separation costs 1,212 352 1,603 704 Merger related costs � 805 � � - � � 805 � � - � Total operating expenses � 40,880 � � 39,564 � � 78,477 � � 75,797 � Percent to total net revenues 20.7 % 24.8 % 22.7 % 25.3 % Income from operations 53,267 40,586 85,732 69,790 Percent to total net revenues 26.9 % 25.5 % 24.8 % 23.3 % Interest expense and other, net � (13,527 ) � (4,377 ) � (29,264 ) � (7,987 ) Income from continuing operations before income tax 39,740 36,209 56,468 61,803 Income tax expense � 15,848 � � 13,417 � � 23,419 � � 25,394 � Income from continuing operations, net of income tax 23,892 22,792 33,049 36,409 Loss from discontinued operations, net of tax � - � � 294 � � - � � (2,208 ) Net income $ 23,892 � $ 23,086 � $ 33,049 � $ 34,201 � � Basic earnings (loss) per share: Continuing operations $ 0.15 � $ 0.14 � $ 0.21 � $ 0.23 � Discontinued operations � - � � - � � - � � (0.02 ) Net income $ 0.15 � $ 0.14 � $ 0.21 � $ 0.21 � � Diluted earnings (loss) per share: Continuing operations $ 0.15 � $ 0.14 � $ 0.20 � $ 0.23 � Discontinued operations � - � � - � � - � � (0.02 ) Net income $ 0.15 � $ 0.14 � $ 0.20 � $ 0.21 � � Weighted - average common shares outstanding: Basic � 160,375 � � 159,384 � � 160,443 � � 159,423 � Diluted � 161,155 � � 160,353 � � 161,287 � � 160,481 � � Selected ratios as a percentage of total net revenues: Research and development 7.0 % 8.0 % 7.6 % 7.6 % Selling, general and administrative 10.7 % 14.2 % 12.2 % 14.9 % � � � APP Pharmaceuticals, Inc. GAAP to Adjusted Earnings from Continuing Operations Reconciliation (unaudited, in thousands, except per share amounts) � � � Adjusted income from continuing operations and adjusted income from continuing operations per diluted share are defined as income from continuing operations and diluted earnings from continuing operations per share, respectively, in each case excluding the impact of, non-cash stock compensation expense, separation related costs, amortization of acquired intangible assets and merger related intangibles and Puerto Rico pre-launch costs. We believe that our presentation of non-GAAP financial measures provides useful supplementary information to investors in understanding our underlying operating performance and facilitates additional analysis by investors. We also use non-GAAP financial measures internally for operating, budgeting and financial planning purposes. The non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance calculated in accordance with GAAP. A reconciliation of GAAP income from continuing operations to adjusted income from continuing operations for the three months and six months ended June 30, 2008 is below: For the three months ended June 30 � � For the six months ended June 30 � 2008 � 2007 2008 � 2007 � Income from continuing operations net of income tax $ 23,892 $ 22,792 $ 33,049 $ 36,409 Stock compensation expense 925 2,129 2,787 4,619 Intangible amortization 2,784 2,616 5,523 5,234 Separation, merger and other non-recurring costs 1,933 217 2,185 435 Amortization of purchased product rights 2,538 2,538 5,076 5,076 Puerto Rico pre-launch costs � 6,396 � 5,982 � 11,893 � 10,857 Adjusted income from continuing operations $ 38,468 $ 36,275 $ 60,513 $ 62,630 � Adjusted income from continuing operations per diluted share $ 0.24 $ 0.23 $ 0.38 $ 0.39 � Weighted - average common shares outstanding diluted � 161,155 � 160,354 � 161,287 � 160,481 � Income from continuing operations per diluted share $ 0.15 $ 0.14 $ 0.21 $ 0.23 Stock compensation expense 0.01 0.01 0.02 0.03 Intangible amortization 0.02 0.02 0.03 0.03 Separation, merger and other non-recurring costs 0.01 0.00 0.01 0.00 Amortization of purchased product rights 0.01 0.02 0.03 0.03 Puerto Rico pre-launch costs � 0.04 � 0.04 � 0.08 � 0.07 Adjusted income from continuing operations per diluted share $ 0.24 $ 0.23 $ 0.38 $ 0.39 � � � APP Pharmaceuticals, Inc. Reconciliation of Income from Continuing Operations to Adjusted EBITDA Three and Six Months Ended June 30, 2008 (unaudited, in thousands) � � � We define adjusted EBITDA from continuing operations as income from continuing operations, excluding the impact of depreciation and amortization, interest expense net of interest income and other income, income tax expense, non-cash stock-based compensation expense, separation related costs and pre-launch costs associated with Puerto Rico manufacturing facility. We use adjusted EBITDA from continuing operations to provide meaningful supplemental information to investors in understanding the underlying operating performance of the business and facilitate additional analysis by investors. We believe that adjusted EBITDA from continuing operations can assist management and investors in assessing the financial operating performance and underlying strength of our core business. Adjusted EBITDA from continuing operations is not a recognized term under GAAP and should not be considered in isolation of, or as a substitute for, the information prepared and presented in accordance with GAAP. Because not all companies calculate adjusted EBITDA from continuing operations identically, our definition of adjusted EBITDA from continuing operations may not be comparable to similarly titled measures of other companies. � For the three months ended June 30 � � For the six months ended June 30 2008 � 2007 2008 � 2007 � Income from continuing operations net of income tax $ 23,892 $ 22,792 $ 33,049 $ 36,409 Depreciation 4,766 4,385 9,258 8,060 Amortization 8,009 8,347 16,004 16,696 Interest expense, net of interest income 13,633 4,376 29,878 7,986 Provision for income taxes from continuing operations � 15,848 � 13,417 � 23,419 � 25,394 EBITDA from continuing operations 66,148 53,317 111,608 94,545 � Stock-based compensation expense 1,498 3,448 4,513 7,480 Puerto Rico pre-launch costs, net of depreciation 6,409 6,104 11,356 11,079 Separation, merger and other non-recurring costs � 3,130 � 352 � 3,539 � 704 Adjusted EBITDA from continuing operations $ 77,185 $ 63,221 $ 131,016 $ 113,808 � � � APP Pharmaceuticals, Inc. Consolidated Condensed Balance Sheets (In thousands) � � June 30, � � December 31, 2008 2007 Assets (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 73,890 $ 31,788 Accounts receivable, net of allowances 73,387 85,209 Inventories 169,680 149,191 Prepaid expenses and other current assets 13,792 13,531 Current receivables from related parties - 6,996 Income tax receivable 1,471 - Deferred income taxes � 16,020 � � 17,109 � Total current assets 348,240 303,824 Property, plant and equipment, net 131,476 132,528 Intangible assets, net of accumulated amortization 447,949 463,154 Goodwill 160,239 160,239 Deferred financing costs and other non-current assets, net � 17,159 � � 17,842 � Total assets $ 1,105,063 � $ 1,077,587 � � Liabilities and stockholders' deficit Current liabilities: Accounts payable $ 38,285 $ 36,502 Accrued liabilities 35,952 45,595 Current payable from related parties 1,024 - Fair value of interest rate swap 2,084 - Short term portion of long term debt � 11,250 � � 5,000 � Total current liabilities � 88,595 � � 87,097 � � Long-term debt 986,250 995,000 Deferred income taxes, non-current 67,064 71,011 Other non-current liabilities � 4,841 � � 4,250 � Total liabilities 1,146,750 1,157,358 � Total stockholders' deficit � (41,687 ) � (79,771 ) Total liabilities and stockholders' deficit $ 1,105,063 � $ 1,077,587 �