OSI Pharmaceuticals, Inc. (NASDAQ: OSIP) announced today its
financial results for the Company’s third quarter ended September
30, 2009. The Company reported total revenues from continuing
operations of $111 million for the third quarter of 2009 compared
to revenues of $95 million for the third quarter of 2008, an 18%
increase over the prior year period. Total worldwide net sales of
Tarceva for the three and nine months ended September 30, 2009, as
reported to the Company by its collaborator Roche, were
approximately $301 million and $870 million, respectively.
The Company reported net income from continuing operations of
$17.9 million (or $0.30 per share) for the three months ended
September 30, 2009, compared to $31.4 million (or $0.53 per share)
for the three months ended September 30, 2008. 2009 is the first
year of financial reporting in which OSI has shown a full tax
provision on its earnings. Adjusting for non-cash tax expense (to
reflect OSI’s actual cash tax rate of approximately 3%),
restructuring and other charges related to our consolidation of
U.S. operations, expense related to equity-based compensation,
non-cash interest expense on our convertible notes, and certain
other items detailed in the attached reconciliation of GAAP to
non-GAAP financial measures, the Company reported that non-GAAP net
income from continuing operations increased 27% to $51 million from
$40 million and non-GAAP earnings per share increased 26.5% to
$0.81 from $0.64, for the three months ended September 30, 2009 and
2008, respectively.
Total revenues from continuing operations for the third quarter
of 2009 are comprised of the following key items:
- Tarceva Related Revenues of $89
million for the third quarter of 2009 compared to $81 million for
the third quarter of 2008, based primarily on the following:
- Net revenues from the
unconsolidated joint business for Tarceva of $51 million for the
third quarter of 2009, compared to $46 million in the third quarter
of 2008, arising from the Company's co-promotion arrangement with
Genentech, a wholly-owned member of the Roche Group. The net
revenues are based on total U.S. Tarceva sales of $118 million for
the third quarter of 2009, compared to $110 million in the third
quarter of 2008, as reported to OSI by Roche. Sales for the three
months ended September 30, 2008 were negatively impacted by
approximately $11 million of net reserve adjustments primarily due
to higher than anticipated product returns related to expiring
inventory, and sales for the three months ended September 30, 2009
were negatively impacted by a net reserve adjustment of
approximately $2 million.
- Royalties on product licenses of
$37 million for the third quarter of 2009 compared to $34 million
in the third quarter of 2008 from Roche for sales of Tarceva
outside of the United States. Royalty revenues are based on total
rest of world sales of $183 million for the third quarter of 2009.
As disclosed by Roche, year to date growth in local currencies
(excluding Japan) was approximately 16%, and was 30% in Japan,
compared to the prior year.
- Other Revenues of $23 million
for the third quarter of 2009 compared to $14 million in the third
quarter of 2008, primarily based upon royalties related to
worldwide non-exclusive licensing agreements under the Company's
DP-IV patent portfolio covering the use of DP-IV inhibitors for
treatment of type 2 diabetes. The three months ended September 30,
2009 included a $5 million milestone payment related to a
non-exclusive licensing agreement under the Company’s DP-IV patent
portfolio.
Operating
Expenses
Operating expenses from continuing operations for the third
quarter of 2009 were $71 million compared to $58 million for the
same period last year. Research and development expenses for the
third quarter of 2009 were $39 million compared to $33 million for
the same period last year. The increase was primarily driven by
higher clinical trial expense. The Company also recognized a $5
million in-process research and development charge related to its
recently announced expansion of its drug discovery and
translational research collaboration with AVEO Pharmaceuticals Inc.
Selling, general and administrative expenses for the third quarter
of 2009 were $25 million compared to $22 million for the same
period last year. The Company also recognized restructuring costs
of $1.1 million related to its previously announced plans to
consolidate its U.S. operations onto a single campus at its
recently acquired site in Ardsley, New York.
Taxes and Interest
Expense
Beginning in 2009, the Company is required to report its tax
provision at its full effective tax rate, which is estimated at
approximately 39%. However, the Company expects to continue paying
taxes at the lower alternative minimum tax rates as it continues to
utilize its net operating loss carryforwards (NOLs). In addition to
the 39% tax rate, the income tax provision for the three and nine
months ended September 30, 2009 includes a $3.3 million charge
related to a valuation reserve adjustment as a result of
consolidating operations into a single site. The results also
reflect the retrospective application of Accounting Standards
Codification Subtopic 470-20 which includes guidance for
convertible debt instruments that may be settled in cash upon
conversion, resulting in higher interest expense reported in both
2009 and 2008.
Net Income Including
Discontinued Operations
The Company's net income including results from discontinued
operations was $17.6 million (or $0.30 per share) for the third
quarter of 2009 compared with a net income of $51.6 million (or
$0.87 per share) for the same period last year.
Use of Non- GAAP Financial
Measures
The accompanying tables contain both GAAP and non-GAAP financial
measures for the periods presented. The non-GAAP measures include
adjusted net income from continuing operations and adjusted
earnings per share from continuing operations, each of which has
directly comparable GAAP equivalents. OSI has provided these
non-GAAP financial measures to adjust for the impact of (i)
equity-based compensation expense, (ii) imputed interest expense
related to the application of Accounting Standards Codification
Subtopic 470-20, which provides guidance for bifurcation of the
conversion feature from the debt component of convertible debt
instruments that may be settled in cash upon conversion, (iii)
amortization of acquired intangible assets, (iv) non-cash tax
expense to adjust OSI’s effective tax rate of approximately 39% to
reflect its actual cash tax rate of approximately 3%, (v) acquired
in-process research and development and (vi) restructuring and
other costs related to consolidation of the Company’s operations
onto a single campus. These items have been adjusted because they
are either non-cash, non-recurring or not otherwise considered to
be core to OSI’s business. Management uses these non-GAAP financial
measures internally to evaluate the performance of the business,
including the allocation of resources as well as the planning and
forecasting of future periods, and believes that these results are
useful to others in analyzing the core operating performance and
trends of OSI for the periods presented. Non-GAAP financial
measures are not prepared in accordance with GAAP and therefore are
not necessarily comparable to the financial results of other
companies. These non-GAAP measures should be considered as a
supplement to, not a substitute for, or superior to, the
corresponding financial measures calculated in accordance with
GAAP.
Conference Call
OSI will host a conference call reviewing the Company's
financial results, product portfolio and business developments on
October 21, 2009 at 5:00PM (Eastern Time). To access the live
webcast or the archive via the Internet, log on to www.osip.com.
Please connect to the Company's website at least 15 minutes prior
to the conference call to ensure adequate time for any software
download that may be needed to access the webcast. Alternatively,
please call 1-888-401-4689 (U.S.) or 1-719-457-2698 (international)
to listen to the call. The conference ID number for the live call
is 9702946. Telephone replay is available approximately two hours
after the call. To access the replay, please call 1-888-203-1112
(U.S.) or 1-719-457-0820 (international). The conference ID number
is 9702946.
About OSI
Pharmaceuticals
OSI Pharmaceuticals is committed to "shaping medicine and
changing lives" by discovering, developing and commercializing
high-quality, novel and differentiated targeted medicines designed
to extend life and improve the quality of life for patients with
cancer and diabetes/obesity. For additional information about OSI,
please visit http://www.osip.com.
This news release contains forward-looking statements. These
statements are subject to known and unknown risks and uncertainties
that may cause actual future experience and results to differ
materially from the statements made. Factors that might cause such
a difference include, among others, OSI's and its collaborators'
abilities to effectively market and sell Tarceva and to expand the
approved indications for Tarceva, OSI’s ability to protect its
intellectual property rights, safety concerns regarding Tarceva,
competition to Tarceva and OSI’s drug candidates from other
biotechnology and pharmaceutical companies, the completion of
clinical trials, the effects of FDA and other governmental
regulation, including pricing controls, OSI's ability to
successfully develop and commercialize drug candidates, and other
factors described in OSI Pharmaceuticals' filings with the
Securities and Exchange Commission.
OSI Pharmaceuticals, Inc. and Subsidiaries Selected Financial
Information Consolidated Statements of Operations
Three
Months Ended September 30, Nine Months Ended
September 30, (In thousands, except per share data)
2009
2008* 2009 2008*
Unaudited
Unaudited
Unaudited
Unaudited
Revenues: Tarceva-related revenues $ 88,735 $ 80,708 $ 257,914 $
251,006 Other revenues 22,712 13,864
46,276 29,955 Total revenues
111,447 94,572 304,190
280,961 Operating expenses: Cost of goods sold 1,607 2,517
6,460 6,748 Research and development 38,546 33,054 111,129 94,009
Acquired in-process research and development 5,000 - 5,000 -
Selling, general and administrative 24,677 22,262 74,065 69,985
Restructuring costs 1,148 - 1,148 - Amortization of intangibles
229 646 693 1,884
Total operating expenses 71,207 58,479
198,495 172,626 Income
from continuing operations 40,240 36,093 105,695 108,335
Other income (expense): Investment income - net 1,624 2,976 5,795
9,670 Interest expense (6,534 ) (6,202 ) (19,319 ) (18,696 ) Other
income (expense) - net (184 ) (518 ) (2,906 )
(2,424 ) Income from continuing operations before
income taxes 35,146 32,349 89,265 96,885 Income tax provision
17,282 987 38,389
2,761 Net income from continuing operations 17,864 31,362
50,876 94,124 Income (loss) from discontinued operations
(298 ) 20,281 (379 ) 5,936 Net
income $ 17,566 $ 51,643 $ 50,497 $ 100,060
Basic and diluted income (loss) per common share:
Basic income (loss) Continuing operations $ 0.31 $ 0.55 $ 0.88 $
1.65 Discontinued operations (0.01 ) 0.35 (0.01 ) 0.10 Net income $
0.30 $ 0.90 $ 0.87 $ 1.75 Diluted income (loss) Continuing
operations $ 0.30 $ 0.53 $ 0.87 $ 1.62 Discontinued operations
(0.00 ) 0.33 (0.01 ) 0.10 Net income $ 0.30 $ 0.87 $ 0.86 $ 1.71
Weighted average shares of common stock outstanding: Basic
shares 57,973 57,437 57,900 57,218 Diluted shares 60,510 60,663
60,492 60,447 Computation of diluted income per share from
continuing operations: Net income from continuing operations
$ 17,864 $ 31,362 $ 50,876 $ 94,124 Add: Interest and issuance
costs related to dilutive convertible debt 495
910 1,486 3,557 Net income from
continuing operations - diluted $ 18,359 $ 32,272 $
52,362 $ 97,681 Basic shares 57,973 57,437
57,900 57,218 Dilutive effect of options and restricted stock 539
1,227 594 821 Dilutive effect of the 2023 Notes 1,998 1,999 1,998
2,408 Dilutive effect of the 2025 Notes - - - - Dilutive effect of
the 2038 Notes - - -
- Diluted shares 60,510 60,663
60,492 60,447
September 30, December 31,
2009
2008
Unaudited
Cash and investments securities (including restricted investments)
$ 542,068 $ 515,511 * The three and nine months ended
September 30, 2008 reflect the retrospective application of ASC
subtopic 470-20 which includes the accounting guidance formerly
known as FSP APB 14-1. OSI Pharmaceuticals, Inc. and
Subsidiaries Reconciliation From Reported Net Income from
Continuing Operations to Non-GAAP Net Income from Continuing
Operations and Reported Dilutive Income Per Share to Non-GAAP
Diluted Income Per Share Unaudited (In thousands, except per share
data)
Three Months Ended September
30,
Nine Months Ended September
30,
2009 2008 2009 2008
Reported diluted income per common share from continuing
operations $ 0.30 $ 0.53 $ 0.87 $ 1.62 Adjustments per common share
0.51 0.11 1.11
0.32 Non-GAAP diluted income per common share from
continuing operations $ 0.81 $ 0.64 $ 1.98 $
1.94 Net income from continuing operations $ 17,864 $
31,362 $ 50,876 $ 94,124 Non-GAAP Adjustments: Site consolidation
related cost: Restructuring costs 1,148 - 1,148 - Net operating
loss valuation allowance adjustment* 3,308 - 3,308 - Accelerated
depreciation on leasehold improvements** 1,205
- 1,205 - Total site
consolidation related costs 5,661 - 5,661 - Equity-based
compensation expense 6,018 5,084 18,497 14,929 Imputed interest
related to the application of ASC 470*** 3,594 3,184 10,490 9,302
Amortization of acquired intangibles 229 646 693 1,884 Non cash tax
expense 13,060 - 32,760 - Acquired in-process research and
development 5,000 - 5,000 - Income tax effect on adjustments
(447 ) (247 ) (963 ) (723 ) Non-GAAP net
income from continuing operations $ 50,979 $ 40,029 $
123,014 $ 119,516 Computation of Non-GAAP
diluted income per common share from continuing operations:
Non-GAAP net income from continuing operations $ 50,979 $ 40,029 $
123,014 $ 119,516 Add: Interest and issuance costs related to
dilutive convertible debt 3,223 3,342
9,669 10,661 Non-GAAP net income from
continuing operations - diluted $ 54,202 $ 43,371 $
132,683 $ 130,177 Computation of Non-GAAP
diluted shares: Basic shares 57,973 57,437 57,900 57,218 Adjustment
to dilutive shares: Dilutive effect of options and restricted stock
539 1,227 594 821 Dilutive effect of the 2023 Notes 1,998 1,999
1,998 2,408 Dilutive effect of the 2025 Notes 3,908 3,908 3,908
3,908 Dilutive effect of the 2038 Notes 2,709
2,709 2,709 2,628 Non-GAAP
dilutive shares 67,127 67,280
67,109 66,983 * Represents a valuation
allowance adjustment included in the tax provision for state and
local net operating losses not expected to be realized as a result
of consolidating operations. ** Represents the impact of
shortening the estimated useful life of leasehold improvements as a
result of our intention to exit certain facilities. *** The
Accounting Standards Codification subtopic 470-20 or ASC subtopic
470-20 includes the accounting guidance for literature formerly
know as FSP APB 14-1.
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