ROCKAWAY, N.J., Nov. 11 /PRNewswire/ -- Warner Chilcott Holdings Company III, Limited today announced its unaudited financial results for the quarter and nine months ended September 30, 2005. The Company began commercial operations on January 5, 2005 when it acquired Warner Chilcott PLC. The Company's fiscal year ends on December 31. The financial information presented for the quarter and nine months ended September 30, 2004 reflects the results of operations of the predecessor company, Warner Chilcott PLC.
The Company reported a net loss of $65.5 million in the quarter ended September 30, 2005 compared with net income of $33.2 million in the prior year quarter. Operating results for the quarter include the impact of increased amortization and net interest expense resulting from the closing of the acquisition of the Company and the related financings. Revenue in the quarter totaled $129.0 million compared with $125.4 million in the prior year quarter.
For the nine months ended September 30, 2005, the Company reported a net loss of $469.4 million compared with net income of $109.0 million in the prior year period. During the nine month period in 2005, the Company recorded a number of expenses directly related to the closing of the acquisition including: transaction expenses of $36.0 million, $7.8 million of transaction related operating expenses, $280.7 million representing the write-off of the estimated fair value of acquired in-process research and development projects and $22.4 million representing the increased value of our opening inventory recorded through the allocation of the acquisition purchase price and reflected in cost of sales. Operating results for the nine months ended September 30, 2005 also include the impact of increased amortization and net interest expense resulting from the closing of the acquisition of the Company and the related financings. For the nine months ended September 30, 2005, total revenue increased to $376.8 million from $365.5 million in the prior year period.
References in this release to adjusted EBITDA for the quarter and nine months ended September 30, 2005 mean our earnings before interest, taxes, depreciation and amortization as defined in the indenture governing the Company's 8-3/4% Senior Subordinated Notes due 2015. Adjusted EBITDA for the nine months ended September 30, 2004 excludes profits associated with sales of certain divested LOESTRIN(R) branded oral contraceptive products, which were sold in March of 2004. A reconciliation of our GAAP reported results to adjusted EBITDA for the quarters and nine months ended September 30, 2005 and 2004 is presented in the table at the end of this press release. Adjusted EBITDA decreased 0.8% to $68.7 million for the quarter ended September 30, 2005 and increased 6.4% to $202.4 million for the nine months ended September 30, 2005 compared with the same periods in 2004.
CEO Roger Boissonneault said "On July 1st we realigned our sales forces in anticipation of the expected launch of DOVOBET(R) (calcipotriol / betamethasone dipropionate) for psoriasis. Despite this potential disruption, we sustained strong momentum within our oral contraception franchise with both OVCON(R) and ESTROSTEP(R) posting excellent gains in new prescriptions in the quarter compared with the prior year. We now have a dedicated specialty sales force focused on dermatologists to fully support the promotion of the launch of DOVOBET(R)."
For the quarter ended September 30, 2005, total revenue was $129.0 million, an increase of 2.9% from $125.4 million in the year ago quarter. Excluding $7.0 million of non-strategic and low margin contract manufacturing revenue included in the current year quarter and $7.7 million in the prior year quarter, our revenue increased 3.7%. For the nine-month period, total revenue increased 3.1% to $376.8 million. Excluding contract manufacturing revenue in both years, and excluding sales of LOESTRIN(R) in the prior year period, our revenue growth was 4.3%.
A significant factor affecting revenue in the quarter and nine month periods was the contraction of inventories of our products held by our customers. In early 2005 we entered into new distribution agreements with two of our major customers. During the quarters ended June 30 and September 30, 2005, these customers substantially reduced their investment in inventories of our products. We estimate that the contraction of these customers' pipeline inventory of our products reduced our net sales by approximately $7.5 million and $16.5 million in the quarter and nine months ended September 30, 2005 respectively. The products most impacted by the new distribution agreements were DORYX(R), OVCON(R), ESTROSTEP(R) and FEMHRT(R). We believe that wholesale pipeline inventories of our products as of September 30, 2005 were reduced to a level such that the majority of the net sales impact of the two new agreements is now behind us.
Sales of our key products in the quarter, oral contraceptives OVCON(R) (+$5.2 million, +27.6%) and ESTROSTEP(R) (+$4.0 million, +24.3%) increased due to strong prescription demand in the quarter relative to the prior year quarter. A modest expansion of ESTROSTEP(R) pipeline inventories in the prior year quarter had the effect of reducing the net sales growth rate in comparison with that period. Sales of our oral antibiotic for acne, DORYX(R), increased $6.5 million (+39.4%) in the quarter compared with the prior year in part due to increased wholesale pipeline inventories of the product resulting from an increase in the size of the DORYX(R) trade package implemented as part of the conversion to our new, Delayed-Release Tablet version of the product. Total prescriptions for DORYX(R) in the quarter increased slightly in comparison with the same quarter in the prior year after having been down slightly in the first six months of the year. Sales of our hormone therapy products in the quarter declined $4.2 million or 10.3% compared with the prior year. FEMHRT(R) declined by $2.1 million, the result of a continued decline of prescription volumes offset in part by price increases. ESTRACE(R) TABLETS declined $2.3 million mainly due to a contraction of pipeline inventories relative to the prior year quarter. Sales of our PMDD product, SARAFEM(R), declined $7.2 million in the quarter compared with the prior year due to the combination of an increase in substitution coupled with a significant contraction of pipeline inventories in the quarter relative to the prior year. Revenue under our contract to co-promote DOVONEX(R) was $5.0 million, a $2.0 million increase over the prior year quarter.
Gross Profit on Product Net Sales
Gross profit margins on product sales in the quarter declined to 82.6% compared with 86.4% in the prior year quarter. Factors contributing to the decline in our gross profit margin on product sales in the quarter were the change in our source of supply for our OVCON(R) 35 product, the mix of products sold relative to the prior year and unfavorable manufacturing overhead variances recognized during the quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the quarter ended September 30, 2005 increased $0.3 million compared with the prior year. Included in the prior year quarter were $3.2 million of expenses incurred by the predecessor company directly attributable to the transaction by which we acquired the company in January of 2005. Included in the current year quarter is a $1.3 million management fee to the Company's equity sponsor group. Excluding these charges, SG&A expenses increased by $2.1 million in the quarter compared with the prior year quarter due to increased field force costs and the timing of advertising and promotional programs. The increase in sales force costs reflects a greater number of active sales territories in the current year quarter and increased compensation costs (both base salaries and incentives) in relation to the prior year quarter.
Research and Development Activities
Investment in research and development totaled $39.3 million in the quarter compared with $7.3 million in the prior year quarter. Our product development activities are mainly focused on improvements to our existing products. Included in the September 2005 quarter was a $35.0 million charge reflecting our cost to acquire exclusive rights to several DOVOBET(R) line extensions currently in development by LEO Pharma for the U.S. market. Excluding the $35.0 million amount, the decrease in research and development costs compared with the prior year periods reflects the timing of expenses for product development projects. We currently expect our investment in research and development for the full year 2005, excluding the investment in the expanded arrangement with LEO Pharma, to be between $21.0 million and $23.0 million.
Product Development Update
We are awaiting FDA action with respect to several products in our development pipeline. The FDA action date for DOVOBET(R) is in mid January 2006, and the action date for our LOESTRIN(R) 24-day product is in mid February 2006. We currently expect to launch both products in the first half of calendar 2006.
Interest expense increased to $39.8 million in the quarter ended September 30, 2005 compared with $1.7 million in the prior year quarter. The increase reflects the costs associated with the incremental debt incurred by the Company to complete the acquisition of Warner Chilcott in January 2005.
The Company's effective tax rate for the quarter ended September 30, 2005 was 4.8% versus 33.2% in the prior year quarter. The Company's effective tax rate for the nine months ended September 30, 2005 was 1.7% versus 31.4 % in the prior year period. The change in the effective rate for the nine months ended September 30, 2005 versus the prior year period is principally the result of non-deductible acquired in-process research and development costs recorded in connection with the Acquisition. There is a valuation allowance related to U.K. deferred tax assets recorded for loss carryforwards since the Company currently believes it is likely that these loss carryforwards will not be realized in the future.
Additionally, the effective tax rate is impacted by changes to the Company's organization and structure implemented at the closing of the acquisition. The Company is a Bermuda holding company with significant operating subsidiaries in the United States, Puerto Rico, Ireland and the United Kingdom. The Predecessor was a U.K. domiciled entity. We expect our effective tax rate in 2005 and beyond to be substantially less than the rates for periods prior to the acquisition.
Balance Sheet and Cash Flows
At September 30, 2005 the Company's cash and cash equivalents totaled $26.9 million and funded debt outstanding totaled $1,993.0 million with no borrowings outstanding under the Company's revolving credit facility. The Company generated $9.9 million of cash from operating activities in the quarter ended September 30, 2005 and used $22.0 million of cash in operations in the nine months ended September 30, 2005. The $35.0 million payable to LEO Pharma to acquire the rights to DOVOBET(R) line extensions under development was included in accounts payable as of September 30, 2005. This amount was paid in October 2005, at which time, the Company borrowed $20.0 million under its revolving credit facility.
Legal Action Regarding OVCON(R) 35 Agreements with Barr
On November 7, 2005, the FTC and 21 States plus the District of Columbia filed suit against the Company and certain of its subsidiaries in the United States District Court for the District of Columbia. The suits allege that the Company's agreements with Barr relating to OVCON(R) 35 constitute unfair competition under Section 5 of the FTC Act and Section 1 of the Sherman Act and seek an injunction to remove the agreements' exclusivity provisions. The FTC is not seeking monetary remedies, however, the States and the District of Columbia are seeking monetary damages including civil penalties, other equitable relief and costs. Although it is impossible to predict with certainty the outcome of any litigation, the Company is confident in the merits of its defense and does not anticipate an unfavorable outcome. In any event, the Company does not believe that the outcome of this litigation will have a material adverse effect on the Company's overall financial position although it could be material to future results of operations or cash flows in any one accounting period.
The Company will host an investor meeting, open to all interested parties, on Tuesday, November 15, 2005 beginning at 9:00 AM EST. The meeting will take place at the InterContinental Hotel, 111 East 48th Street, NY, NY. The Company's Chief Executive Officer, Roger Boissonneault, and Chief Financial Officer, Paul Herendeen will present an overview of the Company and its financial results for the quarter and nine months ended September 30, 2005. To attend, please contact Marilou Hahn via email (firstname.lastname@example.org). Space is limited. Parties unable to attend may listen to the presentation live via web cast by registering at http://www.wsw.com/webcast/wcrx. The presentation will be available for replay on the web for at least 90 days.
Warner Chilcott is a leading U.S. specialty pharmaceutical company focused on marketing, developing and manufacturing branded prescription products in the women's healthcare and dermatology therapeutic categories.
Forward Looking Statements
This press release contains forward-looking statements, including statements concerning our operations, our economic performance and financial condition, and our business plans and growth strategy and product development efforts. These statements constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "may," "might," "will," "should," "estimate," "project," "plan," "anticipate," "expect," intend," "outlook," "believe" and other similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties.
The following represent some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by our forward-looking statements: our substantial indebtedness and the potential impact of that indebtedness on our operations, financial results and business planning; competitive factors in the industry in which we operate, including the development of generic products that compete with our branded pharmaceutical products; production or regulatory problems with third party manufacturers upon whom we may rely for some of our products; government regulation affecting the development, manufacture, marketing and sale of pharmaceutical products, including our ability and the ability of companies with whom we do business to obtain necessary regulatory approvals; our ability to manage the growth of our business, including our manufacturing facility in Fajardo, Puerto Rico, and the integration of new businesses and products; pricing pressures from government sponsored health systems and importation of drugs from Canada and the continued consolidation of the distribution network through which we sell our products, including wholesale drug distributors and the growth of large retail drug store chains; our ability to implement our business strategy and achieve anticipated cost savings in a timely and effective manner; our ability to successfully identify, develop, acquire or license new products, obtain regulatory approval and customer acceptance of those products, and continued customer acceptance of our existing products; our ability to protect our intellectual property; an increase in litigation, including product liability claims and patent litigation; the perceived health effects of hormone therapy products; and other risks detailed from time-to-time in our financial statements and other investor communications.
We caution you that the foregoing list of important factors is not exclusive. In addition, in light of these risks and uncertainties, the matters referred to in our forward-looking statements may not occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as may be required by law.
Reconciliation of Adjusted EBITDA to GAAP Earnings
To supplement its consolidated condensed financial statements presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company is providing this summary to show the computation of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) taking into account certain unusual, non-recurring or non-operating charges that were taken in the quarters and nine months ended September 30, 2005 and 2004. The computation of adjusted EBITDA for the quarter and nine months ended September 30, 2005 are based on the definition of "EBITDA" in the indenture governing the Company's 83/4% Senior Subordinated Notes due 2015. The computation for the nine months ended September 30, 2004 also eliminates the pre-tax profits generated by the Company in the period from the sale of the LOESTRIN(R) products that were divested in March of 2004. The Company believes that the adjusted EBITDA information presented provides useful information to both management and investors concerning the approximate impact of the above items. The Company also believes that including the effect of these items allows management and investors to better compare the Company's financial performance from period-to-period, and to better compare the Company's financial performance with that of its competitors. The presentation of this additional information is not meant to be considered in isolation of, or as a substitute for, results prepared in accordance with GAAP.
Financial Report for the Quarter and Nine Months Ended September 30, 2005
Copies of the Company's financial report for the quarter and nine months ended September 30, 2005 will be available on request beginning November 14, 2005. Requests for the report should be e-mailed to email@example.com.
CONTACT: Paul Herendeen, Executive Vice President and CFO of Warner Chilcott, +1-973-442-3369, firstname.lastname@example.org
Web site: http://www.wclabs.com/ http://www.wsw.com/webcast/wcrx
COPYRIGHT 2005 PR Newswire Association LLC
COPYRIGHT 2005 Gale Group