ABBI Abraxis Bioscience (MM)

Abraxis BioScience, Inc. (NASDAQ:ABBI), an integrated, global biopharmaceutical company, today reported unaudited financial results for the second quarter ended June 30, 2007. Second quarter 2007 revenue increased 50.9 percent to $242.5 million, versus $160.7 million in the second quarter of 2006. Revenue for company-wide, hospital-based products in the second quarter of 2007 was $160.0 million, a 32.7 percent increase from the prior year quarter. For the second quarter of 2007, ABRAXANE� (paclitaxel protein-bound particles for injectable suspension) (albumin-bound) revenue increased 116.7 percent to $78.7 million, including deferred revenue of $9.1 million, versus $36.3 million in the prior year period. Company-wide gross profit for the second quarter of 2007 was $156.9 million, or 64.7 percent of total revenue, as compared to $93.1 million, or 57.9 percent of total revenue, in the same quarter of 2006. The company posted adjusted net income and adjusted net income per diluted share, which, in each case, excludes merger-related items, non-cash stock compensation expense and other items, as follows: � Q2 2007 � � � Q2 2006 Adjusted net income (millions) $41.0 � � � $25.8 Adjusted net income per diluted share $0.26 � � � $0.16 On a reported basis and calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP), the company reported net income and net income per diluted share as follows: � Q2 2007 � � � Q2 2006 Net income/(loss) (millions) $23.1 � � � $(90.8) Net income/(loss) per diluted share $0.14 � � � $(0.57) The attached table provides additional information regarding the basis for the adjusted net income per diluted share calculation, and the rationale for providing such information is included toward the end of this release. �The second quarter of 2007 was a very eventful quarter for Abraxis BioScience. In addition to announcing our proposed separation, we also continued to execute our business strategies for each operating unit. We increased market penetration of ABRAXANE, launched three new hospital-based products, continued to make strides in optimizing our manufacturing operations, and entered into new strategic agreements that have the ability to expand our proprietary pipeline,� said Patrick Soon-Shiong, M.D., chairman and chief executive officer of Abraxis BioScience. Segment Reporting On July 2, 2007, the company announced that its board of directors had approved a plan to separate its proprietary business � Abraxis Oncology and Abraxis Research (the new Abraxis BioScience or �ABI�) � from its hospital-based business � Abraxis Pharmaceutical Products (APP). Until the separation is complete, the company will continue to report in two segments: the ABI segment, which represents the combined operations of the proprietary business; and the APP segment. The ABI segment focuses primarily on the company�s internally developed proprietary product, ABRAXANE, and its proprietary pipeline. The APP segment manufactures and markets one of the broadest portfolios of injectable drugs, including oncology, critical care and anti-infectives, and markets the company�s anesthetic/analgesic products. The attached tables provide additional detail on the operating performance of the segments. ABI Segment ABRAXANE revenue for the second quarter of 2007 increased 116.7 percent to $78.7 million, which included $69.6 million of net sales, versus revenue of $36.3 million in the same period of 2006. Net sales grew 91.7 percent in the second quarter of 2007 versus the same period in 2006. ABRAXANE revenue for the second quarter of 2007 included $9.1 million of recognized deferred revenue resulting from the amortization of the $200 million upfront payment received from AstraZeneca for the co-promotion of ABRAXANE in the United States. Based upon June 2007 NDC and IMS data, ABRAXANE is now the fastest growing taxane in the market and the taxane market leader in metastatic breast cancer across all lines of therapy. According to IMS, ABRAXANE unit demand in the second quarter of 2007 reached its highest unit volume since launch with an increase of 46 percent versus the second quarter of 2006. In addition, based upon June 2007 IntrinsQ data, ABRAXANE is the leading taxane in metastatic breast cancer in patient share. ABI segment gross margin for the second quarter of 2007 was 92.2 percent compared to 86.5 percent for the same period in 2006. For the second quarter of 2007, selling and marketing expenses were $35.5 million, or 42.7 percent of revenue, versus $16.7 million, or 41.2 percent of revenue, in the prior year period. The increase was due primarily to additional ABRAXANE costs for commission expense and expanded marketing efforts in North America relating to the co-promotion agreement with AstraZeneca and activities promoting global awareness of ABRAXANE. Research and development expense totaled $15.5 million in the second quarter of 2007 compared with $14.8 million in the prior year period. The company expects research and development spending will increase in the second half of 2007 in connection with the enrollment of patients in the three planned Phase III trials for ABRAXANE. As a result of recent strategic transactions, including the acquisition of the Watson manufacturing facility, the Biocon license agreement, and various academic research collaborations, company-wide research and development expense is now expected to be in the range of $120 million to $130 million in 2007. APP Segment Hospital-based product revenue for the APP segment in the second quarter of 2007 increased 32.6 percent to $159.3 million versus $120.1 million in the same quarter of 2006. Revenue in the second quarter of 2007 included sales of $36.1 million from the anesthetic/analgesic products acquired from AstraZeneca in June 2006, which are grouped under critical care. Based on the temporary, voluntary halt in distribution of certain products which impacted sales in the first half of 2007, revenue for 2007 is now expected to grow by 9 percent to 11 percent over 2006 for this segment. Gross margin for the second quarter of 2007 was 53.4 percent, excluding amortization associated with the purchase of the anesthetic/analgesic products, compared to 55.4 percent in the same quarter of 2006. The decrease in gross margin was primarily a result of higher freight costs associated with higher fuel costs. In the second quarter of 2007, selling and marketing expenses were $4.2 million, or 2.7 percent of revenue, versus $4.1 million, or 3.4 percent of revenue, in the prior year period. Research and development expense totaled $12.9 million for the second quarter of 2007 compared to $6.0 million in the prior year period. The increase was primarily due to the expense associated with the Puerto Rico manufacturing facility. The company expects to begin commercial distribution of product from this facility in the second half of 2007. In May 2007, APP launched Clindamycin Injection, 300mg, 600mg, 900mg and 9g, USP, the generic equivalent of Pfizer�s Cleocin� Phosphate Injection. During and after the close of the quarter, the company received three approvals from the U.S. Food and Drug Administration (FDA). These approvals were for Caffeine Citrate injection, USP, 20 mg/mL, the generic equivalent of Cafcit� Injection, Oxytocin Injection, USP, 30 mL, the generic equivalent of Pitocin� and Fosphenytoin Sodium Injection, 100 mg, 2 mL and 500 mg, 10 mL vials, USP, the generic equivalent of Cerebyx�. Tentative approval for Fosphenytoin was received in April 2007. In addition to the vial sizes of Oxytocin Injection already distributed by APP (3mL and 10 mL), the company will distribute the larger, more convenient size (30 mL fill in a 30 mL vial) in single-use vials with latex-free stoppers. APP expects to commence marketing this product in the third quarter of 2007. In August 2007, the company announced the launch of Doxorubicin Hydrochloride Injection, USP 2mg/mL, the generic equivalent of Adriamycin� PFS. Contracts for this product have already been secured and APP has commenced marketing of Doxorubicin, which is commonly used in the treatment of a wide range of cancers. Including the 26 ANDAs pending with the FDA, representing approximately $1.5 billion in annual branded sales, APP currently has over 60 product candidates in various stages of development. General and Administrative Expenses Company-wide, general and administrative expenses for the second quarter of 2007, excluding selling and marketing expenses, were $33.4 million, or 13.8 percent of revenue, versus $22.5 million, or 14.0 percent of revenue, for the same period in 2006. General and administrative expenses are expected to be in the range of $215 million to $225 million in 2007, excluding ABRAXANE commissions to AstraZeneca and separation related costs. Separation related costs for the second quarter of 2007 were $4.0 million, representing direct professional fees and transaction related costs associated with the proposed separation of the proprietary business. Clinical Development Update ABRAXANE is currently under active review in Australia, Russia, China, India and the European Union by their respective regulatory agencies. In Japan, ABRAXANE development is underway in partnership with Taiho Pharmaceuticals, the leading domestic oncology company in that country. In the second quarter of 2007, the company initiated two of four planned Phase I/II trials with nab-docetaxel (ABI-008). These two Phase I/II trials will evaluate the safety, tolerability and anti-tumor activity of nab-docetaxel for the treatment of hormone refractory prostate cancer and metastatic breast cancer. Clinical studies for nab-rapamycin (ABI-009) are expected to begin in the second half of 2007. The company has confirmed with the FDA its clinical development plan for nab-17AAG (ABI-010) and plans to submit an IND in the second half of 2007. Abraxis anticipates filing an IND for nab-thiocolchicine dimer (ABI-011) in 2008. The company currently expects that the worldwide head-to-head Phase III registration trial comparing weekly ABRAXANE to every three week Taxotere for the treatment of first-line metastatic breast cancer will begin in the second half of 2007. The non-small cell lung cancer and melanoma Phase III trials for ABRAXANE are also expected to begin in the second half of 2007. Subsequent to the close of the quarter, the company has announced various agreements that are part of the ongoing execution of the Abraxis strategy to work closely with innovative, cutting edge scientists to discover new chemical entities and to maximize the opportunity to utilize its nab technology and the gp60 receptor-mediated cell signal transduction pathway. Abraxis has completed strategic partnerships or licensing arrangements with the Buck Institute for Age Research, the California NanoSystems Institute at UCLA, Dana-Farber Cancer Institute, University of British Columbia, University of Maryland, University of Southern California, Cenomed, Inc. and Biocon Limited. Conference Call Information On Thursday, August 9 2007, the company will host a conference call with interested parties beginning at 8:30 a.m. PDT/11:30 a.m. EDT to review its results of operations for the second quarter of 2007. The conference call may be heard by interested parties through a live audio Internet broadcast at www.abraxisbio.com and www.earnings.com. For those unable to listen to the live broadcast, a playback of the webcast will be available at both websites for approximately six months beginning shortly after the conclusion of the call. Non-GAAP Financial Measures Adjusted net income per diluted share is a non-GAAP financial measure comprised of reported diluted earnings per share excluding the impact of merger-related non-cash amortization of intangible assets, direct merger and transaction-related costs, non-cash stock compensation expense, minority interests, non-cash amortization of acquired intangible assets, and separation-related costs. The company believes that its presentation of non-GAAP financial measures 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, 2007 and June 30, 2006 is included with this press release. About ABRAXANE The U.S. Food and Drug Administration approved ABRAXANE� for Injectable Suspension (paclitaxel protein-bound particles for injectable suspension) (albumin-bound) in January 2005 for the treatment of breast cancer after failure of combination chemotherapy for metastatic disease or relapse within six months of adjuvant chemotherapy. Prior therapy should have included an anthracycline unless clinically contraindicated. For the full prescribing information for ABRAXANE� please visit www.abraxane.com. About Abraxis BioScience, Inc. Abraxis BioScience, Inc. is an integrated global biopharmaceutical company dedicated to meeting the needs of critically ill patients. The company develops, manufactures and markets one of the broadest portfolios of injectable products and leverages revolutionary technology such as its nab� platform to discover and deliver breakthrough therapeutics that transform the treatment of cancer and other life-threatening diseases. The first FDA approved product to use this nab platform, ABRAXANE�, was launched in 2005 for the treatment of metastatic breast cancer. Abraxis trades on the NASDAQ Global Market under the symbol ABBI. For more information about the company and its products, please visit www.abraxisbio.com. FORWARD-LOOKING STATEMENTS The statements contained in this press 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 press release include statements regarding our expectations, beliefs, hopes, goals, intentions, initiatives or strategies, including statements regarding the proposed separation of the proprietary product business from the hospital-based business, the clinical development plan, and the timing and scope of clinical studies and trials, for ABRAXANE and product candidates, including nab-docetaxel, nab-rapamycin, nab-17AAG and nab-thiocolchicine dimer, and anticipated research and development and general and administrative expenses. 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, without limitation, the inability to obtain a favorable private letter ruling from the IRS on the tax-free nature of the transactions; risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention; the inability to recognize the benefits of the transactions contemplated by the separation of the businesses; the fact that results from pre-clinical studies may not be predictive of results to be obtained in other pre-clinical studies or future clinical trials; delays in commencement and completion of clinical studies or trials, including slower than anticipated patient enrollment and adverse events occurring during the clinical trials; decisions by regulatory authorities regarding whether and when to approve ABRAXANE or product candidates for various indications as well as their decisions regarding labeling and other matters that could affect the availability or commercial potential of ABRAXANE and other products and product candidates; unexpected safety, efficacy or manufacturing issues with respect to ABRAXANE or product candidates; the need for additional data or clinical studies for ABRAXANE or product candidates; regulatory developments (domestic or foreign) involving the company�s manufacturing facilities; the market adoption and demand of ABRAXANE and other products, the costs associated with the ongoing launch of ABRAXANE; research and development associated with the nab technology platform; the impact of pharmaceutical industry regulation; the impact of competitive products and pricing; the availability and pricing of ingredients used in the manufacture of pharmaceutical products; the ability to successfully manufacture products in a time-sensitive and cost effective manner; the acceptance and demand of new pharmaceutical products; and the impact of patents and other proprietary rights held by competitors and other third parties. Additional relevant information concerning risks can be found in the company�s Annual Report on Form 10-K for the year ended December 31, 2006 and in other documents it has filed with the Securities and Exchange Commission. The information contained in this press release is as of the date of this release. Abraxis assumes no obligations to update any forward-looking statements contained in this press release as the result of new information or future events or developments. Taxotere� is a registered trademark of Sanofi Aventis. Cleocin� and Cerebyx� are registered trademarks of Pfizer Inc. Cafcit� is a registered trademark of Mead Johnson and Company Adriamycin� is a registered trademark of Bedford Laboratories, a division of Boehringer Ingelheim GmbH Pitocin� is a registered trademark of Parkedale Pharmaceuticals Inc. Abraxis BioScience, Inc. Consolidated Statements of Operation (unaudited, in thousands, except per share amounts) � Three Months Ended June 30, Six Months Ended June 30, � 2007 � � 2006 � � 2007 � � 2006 � Hospital-based products Critical care $ 90,256 $ 47,978 $ 175,188 $ 93,252 Anti-infective 50,749 53,782 90,529 106,628 Oncology 14,577 16,302 25,854 30,146 Contract manufacturing � 4,422 � � 2,547 � � 8,938 � � 4,195 � Total hospital-based products 160,004 120,609 300,509 234,221 Abraxane revenue 78,669 36,301 149,551 66,443 Research revenue and other � 3,871 � � 3,829 � � 4,645 � � 4,603 � Net revenue 242,544 160,739 454,705 305,267 Cost of sales � 85,680 � � 67,677 � � 167,764 � � 125,757 � Gross profit � 156,864 � � 93,062 � � 286,941 � � 179,510 � Percent to net revenue 64.7 % 57.9 % 63.1 % 58.8 % � Operating expenses Research and development 30,642 22,222 57,522 46,566 Selling, general and administrative 73,176 43,315 141,362 74,212 Amortization of merger related intangibles 13,509 11,258 27,018 11,258 Merger-related in-process research and development charge - 105,777 - 105,777 Other merger related costs - 18,628 - 24,267 Separation related costs 4,046 - 5,403 - Equity income in Drug Source Company � (1,190 ) � (307 ) � (1,671 ) � (783 ) Total operating expenses � 120,183 � � 200,893 � � 229,634 � � 261,297 � Percent to net revenue 49.6 % 125.0 % 50.5 % 85.6 % Income from operations 36,681 (107,831 ) 57,307 (81,787 ) Percent to net revenue 15.1 % -67.1 % 12.6 % -26.8 % Interest expense (5,097 ) (1,790 ) (8,973 ) (5,055 ) Interest income and other 764 1,246 1,326 2,340 Minority interests � - � � (2,041 ) � - � � (11,383 ) Income (loss) before income taxes 32,348 (110,416 ) 49,660 (95,885 ) Income tax expense (benefit) � 9,262 � � (19,629 ) � 15,459 � � (6,982 ) � Net income (loss) $ 23,086 � $ (90,787 ) $ 34,201 � $ (88,903 ) � Net income (loss) per common share: Basic $ 0.14 � $ (0.57 ) $ 0.21 � $ (0.56 ) Diluted $ 0.14 � $ (0.57 ) $ 0.21 � $ (0.56 ) � Weighted - average common shares outstanding: Basic � 159,384 � � 158,765 � � 159,423 � � 158,643 � Diluted � 160,354 � � 158,765 � � 160,481 � � 158,643 � � � � The composition of stock-based compensation included above is as follows: � Cost of sales $ 767 $ 786 $ 1,536 $ 1,514 Research and development 2,263 1,438 5,842 1,593 Selling, general and administrative 4,321 3,269 9,693 5,118 Other merger related stock compensation � - � � 8,999 � � - � � 8,999 � Total stock-based compensation $ 7,351 � $ 14,492 � $ 17,071 � $ 17,224 � Abraxis BioScience, Inc. GAAP to Adjusted Net Income Reconciliation (unaudited, in thousands, except per share amounts) � Adjusted net income and adjusted net income per diluted share are defined as reported net income and reported diluted earnings per share, respectively, in each case excluding the impact of merger-related non-cash amortization of intangible assets, direct merger and separation related costs, non-cash stock compensation expense, minority interests and non-cash amortization of acquired intangible assets. 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 net income to adjusted net income for each of the three and six-month periods ending June 30, 2007 and 2006 is below: � Three Months Ended June 30, Six Months Ended June 30, � 2007 � 2006 � � 2007 � 2006 � � Reported net income (loss) $ 23,086 $ (90,787 ) $ 34,201 $ (88,903 ) Merger related items In-process research and development charge - 105,777 - 105,777 Sale of inventory written up to fair-market value - 4,817 - 4,817 Intangible amortization 8,342 6,952 16,684 6,952 Other merger related costs - 11,503 - 14,985 Separation related costs � 2,498 � - � � 3,336 � - � Total merger related costs 10,840 129,049 20,020 132,531 Stock compensation (SFAS 123R) 4,539 3,392 10,541 5,079 Minority interests - 2,041 - 11,383 Amortization of purchased product rights 2,538 - 5,076 - Merger related income tax benefit � - � (17,884 ) � - � (17,884 ) Adjusted net income $ 41,003 $ 25,811 � $ 69,838 $ 42,206 � � Adjusted net income per diluted share $ 0.26 $ 0.16 � $ 0.44 $ 0.26 � � Weighted - average common shares outstanding diluted � 160,354 � 158,765 � � 160,481 � 158,643 � � Reported net income (loss) per diluted share $ 0.14 $ (0.57 ) $ 0.21 $ (0.56 ) Merger related items In-process research and development charge - 0.67 - 0.67 Sale of inventory written up to fair-market value - 0.03 - 0.03 Intangible amortization 0.05 0.04 0.10 0.04 Other merger related costs - 0.07 - 0.09 Separation related costs � 0.02 � - � � 0.02 � - � Total merger related costs 0.07 0.81 0.12 0.83 Stock compensation (SFAS 123R) 0.03 0.02 0.07 0.03 Minority interests - 0.01 - 0.07 Amortization of purchased product rights 0.02 - 0.04 - Merger related income tax benefit � - � (0.11 ) � - � (0.11 ) Adjusted net income per diluted share $ 0.26 $ 0.16 � $ 0.44 $ 0.26 � Abraxis BioScience, Inc. GAAP to Adjusted Pretax Income Reconciliation (unaudited, in thousands) � Three Months Ended June 30, Six Months Ended June 30, � 2007 � 2006 � � 2007 � 2006 � � Reported pretax income (loss) $ 32,348 $ (110,416 ) $ 49,660 $ (95,885 ) Pretax merger related items In-process research and development charge - 105,777 - 105,777 Sale of inventory written up to fair-market value - 7,800 - 7,800 Intangible amortization 13,509 11,258 27,018 11,258 Other merger related costs - 18,628 - 24,267 Separation related costs � 4,046 � - � � 5,403 � - � Total pretax merger related costs 17,555 143,463 32,421 149,102 Stock compensation (SFAS 123R) 7,351 5,493 17,071 8,225 Minority interests - 2,041 - 11,383 Amortization of purchased product rights � 4,110 � - � � 8,220 � - � Adjusted pretax income $ 61,364 $ 40,581 � $ 107,372 $ 72,825 � Abraxis BioScience, Inc. Reconciliation of Net Income to Adjusted EBITDA Three months ended June 30, 2007 and 2006 (unaudited, in thousands) � We define Adjusted EBITDA as net income, excluding the impact of depreciation and amortization, interest expense net of interest income and other income, income tax expense, stock-based compensation expense, merger costs, merger related in-process research and development charge, separation related costs, minority interests, equity in net income of Drug Source Company, LLC and pre-launch costs associated with Puerto Rico manufacturing facility. We use Adjusted EBITDA 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 can assist management and investors in assessing the financial operating performance and underlying strength of our core business. Adjusted EBITDA 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 identically, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. � Three Months Ended June 30, Six Months Ended June 30, � 2007 � � 2006 � � 2007 � � 2006 � � Net income (loss) $ 23,086 $ (90,787 ) $ 34,201 $ (88,903 ) Depreciation and amortization 24,831 24,410 48,891 28,939 Interest expense (net of interest and other income) 4,618 544 8,091 2,715 Income tax expense (benefit) 9,262 (19,629 ) 15,459 (6,982 ) Merger related in-process research and development charge (1) - 105,777 - 105,777 Stock-based compensation expense (2) 7,351 5,493 17,071 8,225 Merger costs (1) - 18,628 - 24,267 Separation related costs (4) 4,046 - 5,403 - Puerto Rico pre-launch costs (3) 6,897 2,777 12,096 2,787 Minority interests - (2,041 ) - (11,383 ) Equity income in Drug Source Company, LLC � (1,190 ) � (307 ) � (1,671 ) � (783 ) Adjusted EBITDA $ 78,901 � $ 44,865 � $ 139,541 � $ 64,659 � � (1) Represents one-time costs, not including amortization, associated with the 2006 merger. (2) Amounts included in stock compensation expense could be settled in cash. (3) Represents pre-launch costs associated with Puerto Rico manufacturing facility acquired in March 2007. (4) Represents separation related costs associated with separating hospital-based business from proprietary business. Abraxis BioScience, Inc. Consolidated Statements of Operating Highlights By Segment Three months ended June 30, 2007 and 2006 (unaudited, in thousands) � The company is comprised of Abraxis Pharmaceutical Products, Abraxis Oncology and Abraxis Research.��Beginning in the fourth quarter of 2006, we re-aligned our segment presentation to better reflect how the business is managed.��We report our business in two segments: the ABI segment, representing the combined operations of Abraxis Oncology and Abraxis Research; and the APP segment, representing the hospital-based operations.��The ABI segment focuses primarily on our internally developed proprietary product, Abraxane, and our proprietary pipeline.��The APP segment manufactures and markets one of the broadest portfolio of injectable drugs, including oncology, critical care and anti-infectives and markets our anesthetic and analgesic products.��Prior year's segment information has been reclassified to conform with the current year presentation.��Information regarding these two segments is summarized below. � Segment APP ABI Unallocated Costs(1) Total Three months ended June 30, 2007 Hospital-based products $ 159,327 $ 677 $ - $ 160,004 Abraxane revenue - 78,669 - 78,669 Research revenue and other � - � � 3,871 � � - � � 3,871 � Net revenue 159,327 83,217 - 242,544 Cost of sales � 74,317 � � 6,487 � � 4,876 � � 85,680 � Gross profit 85,010 76,730 (4,876 ) 156,864 Percent to net revenue 53.4 % 92.2 % 64.7 % Operating expenses: Research and development 12,898 15,481 2,263 30,642 Selling and marketing 4,236 35,530 - 39,766 Equity income in Drug Source Company � - � � (1,190 ) � - � � (1,190 ) Total operating expenses � 17,134 � � 49,821 � � 2,263 � � 69,218 � Pretax segment operating income (loss) (2) $ 67,876 � $ 26,909 � $ (7,139 ) $ 87,646 � Percent to net revenue 42.6 % 32.3 % 36.1 % � Depreciation and amortization $ 12,056 $ 10,579 $ 2,196 $ 24,831 Capital expenditures $ 8,492 $ 829 $ 634 $ 9,955 � Three months ended June 30, 2006 Hospital-based products $ 120,115 $ 494 $ - $ 120,609 Abraxane revenue - 36,301 - 36,301 Research revenue � - � � 3,829 � � - � � 3,829 � Net revenue 120,115 40,624 - 160,739 Cost of sales � 53,620 � � 5,471 � � 8,586 � � 67,677 � Gross profit 66,495 35,153 (8,586 ) 93,062 Percent to net revenue 55.4 % 86.5 % 57.9 % Operating expenses: Research and development 5,994 14,790 1,438 22,222 Selling and marketing 4,050 16,745 - 20,795 Equity income in Drug Source Company � - � � (307 ) � - � � (307 ) Total operating expenses � 10,044 � � 31,228 � � 1,438 � � 42,710 � Pretax segment operating income (2) $ 56,451 � $ 3,925 � $ (10,024 ) $ 50,352 � Percent to net revenue 47.0 % 9.7 % 31.3 % � Depreciation and amortization $ 13,299 $ 9,763 $ 1,348 $ 24,410 Capital expenditures $ 5,867 $ 2,054 $ 13,933 $ 21,854 Abraxis BioScience, Inc. Consolidated Statements of Operating Highlights By Segment (continued) Six months ended June 30, 2007 and 2006 (unaudited, in thousands) � Segment APP ABI Unallocated Costs(1) Total Six months ended June 30, 2007 Hospital-based products $ 299,595 $ 914 $ - $ 300,509 Abraxane revenue - 149,551 - 149,551 Research revenue and other � - � � 4,645 � � - � � 4,645 � Net revenue 299,595 155,110 - 454,705 Cost of sales � 144,379 � � 13,630 � � 9,755 � � 167,764 � Gross profit 155,216 141,480 (9,755 ) 286,941 Percent to net revenue 51.8 % 91.2 % 63.1 % Operating expenses: Research and development 23,075 28,605 5,842 57,522 Selling and marketing 7,772 68,100 - 75,872 Equity income in Drug Source Company � - � � (1,671 ) � - � � (1,671 ) Total operating expenses � 30,847 � � 95,034 � � 5,842 � � 131,723 � Pretax segment operating income (loss) (2) $ 124,369 � $ 46,446 � $ (15,597 ) $ 155,218 � Percent to net revenue 41.5 % 29.9 % 34.1 % � Depreciation and amortization $ 23,277 $ 21,212 $ 4,402 $ 48,891 Capital expenditures $ 48,699 $ 2,180 $ 1,119 $ 51,998 � Six months ended June 30, 2006 Hospital-based products $ 233,727 $ 494 $ - $ 234,221 Abraxane revenue - 66,443 - 66,443 Research revenue � - � � 4,603 � � - � � 4,603 � Net revenue 233,727 71,540 - 305,267 Cost of sales � 106,112 � � 10,331 � � 9,314 � � 125,757 � Gross profit 127,615 61,209 (9,314 ) 179,510 Percent to net revenue 54.6 % 85.6 % 58.8 % Operating expenses: Research and development 9,919 35,054 1,593 46,566 Selling and marketing 7,115 28,535 - 35,650 Equity income in Drug Source Company � - � � (783 ) � - � � (783 ) Total operating expenses � 17,034 � � 62,806 � � 1,593 � � 81,433 � Pretax segment operating income (loss) (2) $ 110,581 � $ (1,597 ) $ (10,907 ) $ 98,077 � Percent to net revenue 47.3 % -2.2 % 32.1 % � Depreciation and amortization $ 15,991 $ 10,461 $ 2,487 $ 28,939 Capital expenditures $ 10,819 $ 3,056 $ 17,633 $ 31,508 � (1) Segment costs not allocated for the three months ended June 30, 2007 included $4.1 million for the amortization of the purchase price in connection with AstraZeneca product purchase and $0.8 million of stock compensation expense, both included in cost of sales, and $2.3 million of stock compensation expense included in research and development. For the three months ended June 30, 2006, $7.8 million of inventory step-up of amortization and $0.8 million of stock compensation expense was not allocated in cost of sales and $1.4 million of stock compensation expense was not allocated to research and development. Segment costs not allocated for the six months ended June 30, 2007 included $8.2 million for the amortization of the purchase price in connection with AstraZeneca product purchase and $1.6 million of stock compensation expense, both included in cost of sales, and $5.9 million of stock compensation expense included in research and development. For the six months ended June 30, 2006, $7.8 million of inventory setup amortization and $1.5 million of stock compensation expense was not allocated in cost of sales and $1.6 million of stock compensation expense was not allocated to research and development. Additionally, depreciation and amortization expense, capital expenditures and long lived assets related to corporate activities were not allocated to the segments. (2) General and administrative expense, merger related costs and amortization, interest income, interest expense and other, minority interest and income tax expense were not allocated to the segments. See "Reconciliation of Operating Income By Segment to Consolidated Statements of Operation" included herein. Abraxis BioScience, Inc. Reconciliation of Operating Income by Segment to Consolidated Statements of Operation (unaudited, in thousands) � Three Months Ended June 30, Six Months Ended June 30, � 2007 � � 2006 � � 2007 � � 2006 � Segment operating income (loss) from above: APP segment $ 67,876 $ 56,451 $ 124,369 $ 110,581 ABI segment 26,909 3,925 46,446 (1,597 ) Segment costs not allocated � (7,139 ) � (10,024 ) � (15,597 ) � (10,907 ) 87,646 50,352 155,218 98,077 General and administrative expense (33,410 ) (22,520 ) (65,490 ) (38,562 ) Amortization of merger related intangibles (13,509 ) (117,035 ) (27,018 ) (117,035 ) Other merger related costs - (18,628 ) - (24,267 ) Separation related costs � (4,046 ) � - � � (5,403 ) � - � Income from operations 36,681 (107,831 ) 57,307 (81,787 ) Interest expense (5,097 ) (1,790 ) (8,973 ) (5,055 ) Interest income and other 764 1,246 1,326 2,340 Minority interests - (2,041 ) - (11,383 ) Income tax (expense) benefit � (9,262 ) � 19,629 � � (15,459 ) � 6,982 � Net income (loss) $ 23,086 � $ (90,787 ) $ 34,201 � $ (88,903 ) Abraxis BioScience, Inc. Consolidated Condensed Balance Sheets (In thousands) � June 30, December 31, � 2007 � � 2006 � Assets (Unaudited) Current assets: Cash and cash equivalents $ 38,556 $ 39,297 Accounts receivable, net of allowances for doubtful accounts 93,607 84,684 Inventories 231,622 218,280 Prepaid expenses and other current assets 13,569 15,570 Deferred income taxes � 87,124 � � 78,955 � Total current assets 464,478 436,786 Property, plant and equipment, net 258,877 217,819 Investment in Drug Source Company, LLC 7,397 5,504 Intangible assets, net of accumulated amortization 703,713 738,440 Goodwill 401,600 401,600 Non-current receivables from related parties 39 39 Other non-current assets, net of accumulated amortization � 25,925 � � 25,320 � Total assets $ 1,862,029 � $ 1,825,508 � � Liabilities and stockholders' equity Current liabilities: Accounts payable $ 59,880 $ 65,471 Accrued liabilities 78,524 61,428 Income tax payable 9,944 80,054 Deferred revenue 39,225 39,225 Minimum royalties payable 943 1,017 Notes payable � 69,487 � � 72,248 � Total current liabilities � 258,003 � � 319,443 � � Long-term debt 220,000 165,000 Deferred income taxes, non-current 146,152 142,563 Long-term portion of deferred revenue 138,597 158,135 Other non-current liabilities � 5,816 � � 7,006 � Total liabilities 768,568 792,147 � Stockholders' equity: Common stock 166 166 Additional paid-in capital 1,110,278 1,085,196 Retained earnings 38,268 4,483 Accumulated other comprehensive income 2,490 1,257 Less treasury stock � (57,741 ) � (57,741 ) Total stockholders' equity � 1,093,461 � � 1,033,361 � Total liabilities and stockholders' equity $ 1,862,029 � $ 1,825,508 �