On November 9, 2016 SciClone Pharmaceuticals, reported financial results for the quarter ended September 30, 2016 (Filing, 8-K, SciClone Pharmaceuticals, NOV 9, 2016, View Source [SID1234516725]).

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Revenues: In the third quarter of 2016, SciClone reported revenues of $40.5 million, compared to $42.9 million for the same period in 2015.
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GAAP Diluted EPS: In the third quarter of 2016, SciClone reported GAAP diluted net income per share of $0.19, compared to GAAP diluted net income per share of $0.23 for the same period in 2015.
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Non-GAAP Diluted EPS: In the third quarter of 2016, SciClone reported non-GAAP diluted net income per share of $0.24, compared to $0.26 for the same period in 2015.

Revenues in the third quarter of 2016 were $40.5 million, a $2.4 million or 6% decrease, compared to $42.9 million for the same period in 2015. The decrease in revenue in the third quarter 2016 compared to the same period last year included $1.0 million in revenue related to initial sales of DC Bead recorded in the third quarter of 2015. ZADAXIN revenues were $37.8 million in the third quarter of 2016, a $1.4 million or 3% decrease, compared to $39.2 million for the same period in 2015. The 3% decrease in ZADAXIN revenues for the third quarter of 2016 compared to the same period last year includes a 15% revenue decrease (9% of which was due to a price decrease for ZADAXIN and 6% of which was due to the effects of foreign exchange), partially offset by a 12% increase in ZADAXIN volume sales compared to the same period last year. An agreement with the Company’s exclusive China importer and tier 1 distributer implemented on January 1, 2016, affects a portion of the price decrease which impacts the timing of when SciClone recognizes revenue from sales, but this does not materially impact the total amount of revenue recognized on an annual basis. In the third quarter 2016, ZADAXIN volume sales increased by 12% compared to the same period last year. Promotion services revenues were $1.1 million for the third quarter of 2016, a $0.2 million or 22% increase, compared to $0.9 million in the same period in 2015, reflecting continued strong growth in the Company’s oncology portfolio. For the nine months ended September 30, 2016, revenues were $116.0 million, compared to $114.4 million for the same period last year.

On a GAAP basis, SciClone reported net income in the third quarter of 2016 of $10.1 million, or $0.20 and $0.19 per share on a basic and diluted basis, respectively, compared to net income of $12.0

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million, or $0.24 and $0.23 per share on a basic and diluted basis, respectively, for the same period in 2015. SciClone’s net income for the nine months ended September 30, 2016 was $24.3 million, compared with net income of $16.9 million for the same period in the prior year, or $0.49 and $0.46 per share on a basic and diluted basis, respectively, for the nine months ended September 30, 2016, compared with $0.34 and $0.32 per share on a basic and diluted basis, respectively, for the same period in 2015.

SciClone’s non-GAAP net income in the third quarter of 2016 was $12.7 million, or $0.25 and $0.24 per share on a basic and diluted basis, respectively, compared with non-GAAP net income of $13.4 million, or $0.27 and $0.26 per share on a basic and diluted basis, respectively, for the same period last year. SciClone’s non-GAAP net income for the nine months ended September 30, 2016 was $33.1 million, compared with non-GAAP net income of $36.7 million for the same period in the prior year, or $0.66 and $0.63 per share on a basic and diluted basis, respectively, for the nine months ended September 30, 2016, compared with non-GAAP net income of $0.73 and $0.70 per share on a basic and diluted basis, respectively, for the same period in 2015.

Friedhelm Blobel, PhD, SciClone’s Chief Executive Officer, commented: "We are pleased with our performance in the third quarter and year to date, which is in line with our expectations and reflects the value and continued growth potential of our core business, led by ZADAXIN. ZADAXIN continues to significantly out-perform the growth rate of the China pharmaceuticals market, with double-digit volume growth. The decrease in revenue was in line with our expectations, and predominantly reflects a stabilizing overall growth rate of China’s pharmaceuticals market, in the range of 6%-9%, and pricing pressure at the provincial level. We continue to expect that pricing pressures on revenue in 2016 will be offset, at least in significant part, through sharing of the burden with our China distributor and through our strategies to increase volume. Moreover, we are pleased with the continuing strong cash generation of our business.

"ZADAXIN continues to have significant growth potential as a differentiated, high quality, Western-manufactured brand, and the thymalfasin marketplace demand remains strong. We achieved a major milestone with the initiation and dosing of the first patient in our investigator-initiated clinical trial in sepsis, a major unmet medical need and growth opportunity for ZADAXIN.

"We made considerable progress in advancing our development portfolio. During the third quarter, we announced a regional licensing agreement with Soligenix, Inc, for SGX942, a novel first-in-class therapy being developed for oral mucositis. We also announced that the first patient had been dosed in the Phase 1 proof-of-concept trial of PT-112 in Taiwan, a novel anticancer agent in-licensed from Phosplatin Therapeutics. SGX942 and PT-112 are valuable additions to our development portfolio, offering opportunities to participate in the Chinese Class 1 regulatory pathway including local manufacturing, and with the potential to meaningfully expand our oncology business in China and adjacent markets for the future.

"The healthcare reform movement in China continues to offer opportunities for SciClone to grow our marketed product portfolio and to advance our development pipeline of high quality, differentiated medicines. We remain confident about our prospects for near-term growth and maximizing long-term value creation."

For the third quarter of 2016, sales and marketing (S&M) expenses were $13.3 million, compared with $15.1 million for the same period in 2015. The decrease in S&M for the third quarter of 2016,

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compared to the same period in 2015, is primarily related to decreases in sales and marketing events and lower DC Bead-related launch costs. For the nine months ended September 30, 2016, S&M expenses were $40.1 million, compared with $39.7 million, for the same period last year.

For the third quarter of 2016, research and development (R&D) expenses were $3.3 million, compared with $1.0 million of R&D expenses for the same period of 2015. For the third quarter of 2016 and 2015, we recorded $0.3 million and zero, respectively, related to in-license arrangements with certain licensees and $2.8 million and $1.0 million, respectively, related to R&D expenses for clinical and preclinical R&D activities with certain licensees. For the nine months ended September 30, 2016, R&D expenses were $9.5 million, compared with $8.7 million, for the same period last year.

For the third quarter of 2016, general and administrative (G&A) expenses were $7.9 million, compared with $7.3 million for the same period in 2015. For the nine months ended September 30, 2016, G&A expenses were $23.5 million, compared with $20.8 million for the same period last year. G&A was higher for both the third quarter and nine-month periods of 2016, compared to the same periods of 2015, related to legal costs in connection with the Company’s ongoing strategic review and stock-based compensation expenses.

For the third quarter of 2016, SciClone’s income tax expense was $1.1 million, compared with $0.6 million for the same period in 2015. Income tax expense was lower in the third quarter of 2015 related to the restructuring of the Company’s China business. For the nine months ended September 30, 2016, income tax expense was $2.6 million, compared with $0.6 million, for the same period last year, and included a $1.3 million uncertain tax provision for our China operations from 2013 to 2015.

As of September 30, 2016, cash and cash equivalents totaled $130.1 million, compared to $101.4 million as of December 31, 2015, excluding the $12.8 million of restricted cash held in escrow as of December 31, 2015 for the SEC settlement which was released and paid in February 2016.

SciClone has presented non-GAAP information above as the Company believes this non-GAAP information is useful for investors, taken in conjunction with SciClone’s GAAP financial statements, because management uses such information internally for its operating, budgeting and financial planning purposes. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of SciClone’s operating results as reported under GAAP. The non-GAAP calculations and reconciliation are provided in the accompanying table titled "Reconciliation of GAAP to Non-GAAP Net Income" except that for the non-GAAP EPS referenced in "2016 Non-GAAP Earnings Guidance Revised Upward" below, the Company is unable to provide a quantitative reconciliation of its forward-looking estimate of non-GAAP EPS to a forward-looking estimate of GAAP EPS because certain information needed to make a reasonable forward-looking estimate of GAAP EPS for the full fiscal year 2016 is difficult to predict and estimate and is often dependent on future events which may be uncertain or outside of the Company’s control, for example, milestone payments.

2016 Non-GAAP Earnings Guidance Revised Upward

Based on the continued volume growth of ZADAXIN and implementation of effective operating cost controls, SciClone is revising upwards its projected non-GAAP earnings per share on a fully diluted basis to be in the range of $0.78 to $0.82, up from the previously expected range of $0.70 to $0.74 for

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the year. The Company continues to project its 2016 revenue to be in the range of $158 million to $163 million.

The Company’s outlook for 2016 continues to be influenced by several factors, including the overall growth rate of the China pharmaceuticals market, anticipated pricing pressure at the provincial level and higher R&D expenses as it continues to advance its pipeline products toward commercialization. The Company further expects that pricing pressures on revenue in 2016 will be offset, at least in significant part, through sharing of the burden with its China distributors and potentially through volume increases.