On November 4, 2019 Endo International plc (NASDAQ: ENDP) reported third-quarter 2019 financial results, including (Press release, Endo Pharmaceuticals, NOV 4, 2019, View Source [SID1234550248]):
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Revenues of $729 million decreased 2% compared to third-quarter 2018 revenues of $745 million.
Branded Pharmaceuticals – Specialty Products revenues increased 18% to $132 million compared to third-quarter 2018 revenues of $112 million.
Sterile Injectables revenues increased 11% to $264 million compared to third-quarter 2018 revenues of $237 million.
Reported loss from continuing operations of $41 million compared to third-quarter 2018 reported loss from continuing operations of $146 million.
Reported diluted net loss per share from continuing operations of $0.18 compared to third-quarter 2018 reported diluted net loss per share from continuing operations of $0.65.
Adjusted income from continuing operations of $138 million compared to third-quarter 2018 adjusted income from continuing operations of $165 million.
Adjusted diluted net income per share from continuing operations of $0.60 compared to third-quarter 2018 adjusted diluted net income per share from continuing operations of $0.71.
Adjusted EBITDA of $321 million compared to third-quarter 2018 adjusted EBITDA of $328 million.
"Endo generated strong operating performance in the third quarter, which was led by continued year-over-year double-digit percentage revenue growth in our Sterile Injectables segment and in the Specialty Products portfolio of our Branded Pharmaceuticals segment, including 29% growth in our XIAFLEX franchise," said Paul Campanelli, President and Chief Executive Officer at Endo. "Additionally, during the quarter, we submitted a Biologics License Application for our CCH for Cellulite product with the FDA and settled the Track 1 opioid litigation cases. We believe that a balanced approach to executing our multi-year strategic plan while being responsive to the current external environment remains appropriate and that we are well-positioned to meet our 2019 financial guidance."
Reported Diluted Net Loss per Share from continuing operations is computed based on weighted average shares outstanding and, if there is income from continuing operations during the period, the dilutive impact of ordinary share equivalents outstanding during the period. In the case of Adjusted Diluted Weighted Average Shares, Adjusted Income from Continuing Operations is used in determining whether to include such dilutive impact.
CONSOLIDATED RESULTS
Total revenues were $729 million in third-quarter 2019 compared to $745 million during the same period in 2018. This decrease was primarily attributable to competitive pressures in the Generic Pharmaceuticals segment and the Established Products portfolio of the Branded Pharmaceuticals segment, partially offset by continued strong growth in the Sterile Injectables segment and the Specialty Products portfolio of the Branded Pharmaceuticals segment.
GAAP loss from continuing operations in third-quarter 2019 was $41 million compared to GAAP loss from continuing operations of $146 million during the same period in 2018. This result was primarily attributable to a decrease in asset impairment charges. GAAP diluted net loss per share from continuing operations in third-quarter 2019 was $0.18 compared to GAAP diluted net loss per share from continuing operations of $0.65 in third-quarter 2018.
Adjusted income from continuing operations in third-quarter 2019 was $138 million compared to $165 million in third-quarter 2018. This decrease was primarily attributable to lower adjusted gross margin in the Generic Pharmaceuticals segment due to a decline in revenue and an unfavorable change in product mix. Adjusted diluted net income per share from continuing operations in third-quarter 2019 was $0.60 compared to $0.71 in third-quarter 2018.
BRANDED PHARMACEUTICALS
Third-quarter 2019 Branded Pharmaceuticals revenues were $217 million compared to $220 million in third-quarter 2018. This decrease was primarily attributable to ongoing generic competition in the Established Products portfolio, offset by continued strong growth in the Specialty Products portfolio.
Specialty Products revenues increased 18% to $132 million in third-quarter 2019 compared to $112 million in third-quarter 2018, primarily driven by the continued strong performance of XIAFLEX. Sales of XIAFLEX increased 29% to $83 million compared to $64 million in third-quarter 2018, primarily attributable to demand growth in both the Peyronie’s Disease and Dupuytren’s Contracture indications driven by continued commercial execution and investment in promotional activities.
During third-quarter 2019, Endo also submitted a Biologics License Application to the U.S. Food and Drug Administration for its Collagenase Clostridium Histolyticum (CCH) product for the treatment of cellulite.
STERILE INJECTABLES
Third-quarter 2019 Sterile Injectables revenues were $264 million, an increase of 11% compared to $237 million in third-quarter 2018. This increase reflects the continued strong growth of VASOSTRICT and ADRENALIN, as well as strong growth of APLISOL, reflecting wholesalers’ restocking following a temporary supply shortage.
GENERIC PHARMACEUTICALS
Third-quarter 2019 Generic Pharmaceuticals revenues were $218 million, a decrease of 15% compared to $258 million in third-quarter 2018. This performance was primarily attributable to increased competitive pressure on certain generic products. Partially offsetting the decrease was the contribution of certain product launches including, among others, colchicine tablets, the authorized generic of Colcrys. During third-quarter 2019, the Generic Pharmaceuticals segment launched four products.
INTERNATIONAL PHARMACEUTICALS
Third-quarter 2019 International Pharmaceuticals revenues were $30 million, which was flat versus third-quarter 2018. This quarter benefited from delayed competition which Endo expects to materialize in the near-term.
2019 FINANCIAL GUIDANCE
Endo is updating its financial guidance for the 12 months ending December 31, 2019, narrowing the expected ranges regarding revenue, adjusted diluted net income per share from continuing operations, and Adjusted EBITDA. The Company now estimates:
Total revenues to be between $2.86 billion and $2.89 billion compared to previous guidance of $2.76 billion to $2.96 billion;
Adjusted diluted net income per share from continuing operations to be between $2.10 and $2.25 compared to previous guidance of $2.00 to $2.25; and
Adjusted EBITDA to be between $1.26 billion and $1.30 billion compared to previous guidance of $1.24 billion to $1.34 billion.
The Company’s 2019 non-GAAP financial guidance is based on the following assumptions:
Adjusted gross margin of approximately 64.7% to 65.7% compared to previous guidance of 65.0% to 66.0%;
Adjusted operating expenses as a percentage of revenue to be approximately 25.0% compared to 24.5% to 25.0%;
Adjusted interest expense of approximately $540 million compared to $550 million to $560 million;
Adjusted effective tax rate of approximately 16.5% compared to 17.5% to 18.5%; and
Adjusted diluted weighted average shares outstanding of approximately 234 million.
BALANCE SHEET, LIQUIDITY AND OTHER UPDATES
As of September 30, 2019, the Company had approximately $1.5 billion in unrestricted cash; debt of $8.4 billion; net debt of approximately $6.9 billion and a net debt to adjusted EBITDA ratio of 5.3.
Third-quarter 2019 cash provided by operating activities was $33 million, compared to $22 million of net cash used in operating activities during third-quarter 2018.
CONFERENCE CALL INFORMATION
Endo will conduct a conference call with financial analysts to discuss this press release on November 5, 2019 at 7:30 a.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 1186004. Please dial in 10 minutes prior to the scheduled start time.
A replay of the call will be available from November 5, 2019 at 10:30 a.m. ET until 10:30 a.m. ET on November 8, 2019 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 1186004.
A simultaneous webcast of the call can be accessed by visiting View Source In addition, a replay of the webcast will be available on the Company website for one year following the event.
Products included within Other Specialty are NASCOBAL Nasal Spray and AVEED. Beginning with our first-quarter 2019 reporting, TESTOPEL, which was previously included in Other Specialty, has been reclassified and is now included in the Established Products portfolio for all periods presented.
Products included within Other Established include, but are not limited to, LIDODERM, VOLTAREN Gel, EDEX, FORTESTA Gel and TESTIM, including the authorized generics of FORTESTA Gel and TESTIM.
Individual products presented above represent the top two performing products in each product category for either the three or nine months ended September 30, 2019 and/or any product having revenues in excess of $25 million during any quarterly period in 2019 or 2018.
Products included within Other Sterile Injectables include ephedrine sulfate injection and others.
SUPPLEMENTAL FINANCIAL INFORMATION
To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures. For additional information on the Company’s use of such non-GAAP financial measures, refer to Endo’s Current Report on Form 8-K furnished today to the U.S. Securities and Exchange Commission, which includes an explanation of the Company’s reasons for using non-GAAP measures.
The tables below provide reconciliations of certain of our non-GAAP financial measures to their most directly comparable GAAP amounts. Refer to the "Notes to the Reconciliations of GAAP and Non-GAAP Financial Measures" section below for additional details regarding the adjustments to the non-GAAP financial measures detailed throughout this Supplemental Financial Information section.
Reconciliation of Adjusted Income from Continuing Operations (non-GAAP)
The following table provides a reconciliation of our Loss from continuing operations (GAAP) to our Adjusted income from continuing operations (non-GAAP) for the three and nine months ended September 30, 2019 and 2018 (in thousands):
Reconciliation of Other Adjusted Income Statement Data (non-GAAP)
The following tables provide detailed reconciliations of various other income statement data between the GAAP and non-GAAP amounts for the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share data):
Notes to the Reconciliations of GAAP and Non-GAAP Financial Measures
Notes to certain line items included in the reconciliations of the GAAP financial measures to the Non-GAAP financial measures for the three and nine months ended September 30, 2019 and 2018 are as follows:
Adjustments for amortization of commercial intangible assets included the following (in thousands):
To exclude adjustments for inventory step-up.
Adjustments for upfront and milestone-related payments to partners included the following (in thousands):
To exclude charges reflecting adjustments to excess inventory reserves related to our various restructuring initiatives.
Adjustments for retention and separation benefits and other restructuring included the following (in thousands):
To exclude adjustments to our accruals for litigation-related settlement charges and certain settlement proceeds related to suits filed by our subsidiaries.
Adjustments for acquisition and integration items primarily relate to various acquisitions.
To exclude the impact of changes in the fair value of contingent consideration liabilities resulting from changes to our estimates regarding the timing and amount of the future revenues of the underlying products and changes in other assumptions impacting the probability of incurring, and extent to which we could incur, related contingent obligations.
To exclude the gain on the extinguishment of debt associated with our March 2019 refinancing.
Other miscellaneous during the three and nine months ended September 30, 2019 includes $14.1 million in Operating expenses for a premium associated with an extended reporting period endorsement on an expiring insurance program and $17.5 million in Other non-operating expenses for contract termination costs incurred as a result of certain product discontinuation activities in our International Pharmaceuticals segment.
Adjusted income taxes are calculated by tax effecting adjusted pre-tax income and permanent book-tax differences at the applicable effective tax rate that will be determined by reference to statutory tax rates in the relevant jurisdictions in which the Company operates. Adjusted income taxes include current and deferred income tax expense commensurate with the non-GAAP measure of profitability.
To exclude the results of the businesses reported as discontinued operations, net of tax.
Calculated as Net (loss) income from continuing operations divided by the applicable weighted average share number. The applicable weighted average share numbers are as follows (in thousands):
Depreciation and amortization per the Adjusted EBITDA reconciliations do not include certain depreciation amounts reflected in other lines of the reconciliations,
including Acquisition-related and integration costs and Retention and separation benefits and other restructuring.
To exclude Other expense (income), net per the Condensed Consolidated Statements of Operations.
Reconciliation of Net Debt Leverage Ratio (non-GAAP)
The following table provides a reconciliation of our Net loss (GAAP) to our Adjusted EBITDA (non-GAAP) for the twelve months ended September 30, 2019 (in thousands) and the calculation of our Net Debt Leverage Ratio (non-GAAP):