OSI Pharmaceuticals, Inc. (NASDAQ: OSIP) announced today its
financial results for the first quarter ended March 31, 2010. The
Company reported total revenues from continuing operations of $107
million for the first quarter of 2010, a 14% increase over revenues
of $94 million for the first quarter of 2009. Total worldwide net
sales of Tarceva® (erlotinib) for the first quarter of 2010, as
reported to the Company by its collaborator Roche, were
approximately $308 million, representing a 10% increase in sales
over the first quarter of 2009.
The Company reported net income from continuing operations of
$4.7 million (or $0.08 per share) for the three months ended March
31, 2010, compared to $16.5 million (or $0.28 per share) for the
three months ended March 31, 2009. The decline was due primarily to
$11 million in costs recorded in connection with the unsolicited
tender offer commenced by Astellas Pharma, Inc. in March 2010, and
an $8 million non-operating impairment on the Company’s investment
holding in AVEO Pharmaceuticals, Inc. following that company’s
IPO.
The Company reported that non-GAAP net income from continuing
operations increased to $39.6 million (or $0.63 per share) for the
first quarter of 2010, compared to $36.0 million (or $0.58 per
share) in the first quarter of 2009. The Company adjusted for
non-cash tax expense (to reflect OSI’s actual cash tax rate of
approximately 3%), tender offer related costs, restructuring and
other charges related to our consolidation of U.S. operations in
Ardsley, New York, 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.
Total revenues for the first quarter were comprised of the
following key items:
- Tarceva-related revenues of $92
million in the first quarter of 2010 compared with $84 million for
the same period in 2009, based on the following:
- Net
revenues from the unconsolidated joint business for Tarceva of $52
million for the first quarter of 2010, compared to $49 million in
the first quarter of 2009, 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
$114 million for the first quarter of 2010, compared to $111
million in the first quarter of 2009. First quarter sales in both
2009 and 2010 were impacted by reimbursement challenges relating to
the reset of the “donut hole” for Medicare Part D patients
receiving Tarceva; - Royalties on product licenses of $40 million
for the first quarter of 2010 compared to $34 million in the first
quarter of 2009 from Roche for sales of Tarceva. The royalty
revenues are based on total rest of world sales of $194 million for
the first quarter of 2010, an increase of 16% compared to the $168
million reported in the first quarter of 2009;
- Other revenues of $14 million in
the first quarter of 2010 compared with $10 million for the same
period in 2009, based primarily on the following:
- Royalties
of $13 million in 2010 compared with $9 million in 2009 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, representing an increase of 42% over
the prior year.
Operating
Expenses
Operating expenses from continuing operations for the first
quarter of 2010 were $88 million compared to $62 million for same
period last year, with the increase primarily driven by tender
offer related costs, an increase in research and development
expenses related to the advancement of our clinical pipeline and an
increase in Ardsley-related restructuring and consolidation project
expenses. Research and development expenses for the first quarter
of 2010 were $42 million compared to $35 million for the same
period last year. Selling, general and administrative expenses for
the first quarter of 2010 were $29 million compared to $24 million
for the same period last year. OSI also recognized restructuring
costs of $3 million for the Ardsley project. In 2009, the Company
previously announced plans to consolidate its U.S. operations onto
a single campus in Ardsley, New York. The consolidation project is
on schedule to be completed in 2010. OSI also recorded $11 million
of expenses during the first quarter of 2010 in relation to legal,
consulting and bankers fees associated with the ongoing tender
offer by Astellas Pharma Inc.
Other income (expense) –
net
Included in other income (expense) – net for the first quarter
of 2010 is a $7.9 million impairment charge recorded to reduce the
carrying value of our investment in AVEO Pharmaceuticals, Inc. to
fair market value following its public offering in March 2010.
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 diluted
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)
restructuring and other costs related to consolidation of the
Company’s operations on to a single campus in Ardsley, New York,
(ii) equity-based compensation expense, (iii) imputed interest
expense related to the application of Accounting Standards
Codification Subtopic 470-20, which was effective January 1, 2009,
and 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, (iv) amortization of
acquired intangible assets, (v) non-cash tax expense to adjust
OSI’s effective tax rate of approximately 40% to reflect its actual
cash tax rate of approximately 3%, (vi) non-cash impairment charges
and (vii) costs related to the tender offer by Astellas Pharma,
Inc. for the Company’s shares. 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
April 22, 2010 at 5:00PM (Eastern Time). To access the live webcast
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
1-888-378-4350 (U.S.) or 1-719-457-2710 (international) to listen
to the call. The conference ID number for the live call is 5184529.
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 for the
replay is 5184529.
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 March 31, (In thousands,
except per share data)
2010 2009
Unaudited Unaudited
Revenues: Tarceva-related revenues $ 92,357 $ 83,856 Other revenues
14,221 9,821 Total revenues
106,578 93,677 Operating expenses: Cost of
goods sold 2,624 2,194 Research and development 41,952 35,436
Selling, general and administrative 29,090 24,201 Restructuring
costs 3,108 - Tender offer related costs 10,646 - Amortization of
intangibles 218 228 Total operating
expenses 87,638 62,059 Operating
income from continuing operations 18,940 31,618 Other income
(expense): Investment income - net 1,380 2,214 Interest expense
(5,292 ) (6,815 ) Other income (expense) - net (7,118 )
38 Income from continuing operations before
income taxes 7,910 27,055 Income tax provision 3,166
10,551 Net income from continuing operations 4,744
16,504 Income (loss) from discontinued operations-net of tax
107 (104 ) Net income $ 4,851 $ 16,400
Basic and diluted income (loss) per common share: Basic
income (loss) Continuing operations $ 0.08 $ 0.29 Discontinued
operations 0.00 (0.00 ) Net income $ 0.08 $ 0.28 Diluted income
(loss) Continuing operations $ 0.08 $ 0.28 Discontinued operations
0.00 (0.00 ) Net income $ 0.08 $ 0.28 Weighted average
shares of common stock outstanding: Basic shares 58,719 57,818
Diluted shares 59,535 60,630 Computation of diluted income
per share from continuing operations: Net income from
continuing operations $ 4,744 $ 16,504 Add: Interest and issuance
costs related to dilutive convertible debt-net of tax -
495 Net income from continuing operations -
diluted $ 4,744 $ 16,999 Basic shares 58,719
57,818 Dilutive effect of stock options and restricted stock 816
814 Dilutive effect of the 2023 Notes - 1,998
Diluted shares 59,535 60,630
March 31, December 31,
2010 2009
Unaudited Cash and investments securities
(including restricted investments) $ 532,821 $ 471,895
OSI Pharmaceuticals, Inc. and Subsidiaries
Reconciliation From Reported Net
Income from Continuing Operations to Non-GAAP Net Income from
Continuing Operations andReported Diluted Income Per Share to
Non-GAAP Diluted Income Per Share
Unaudited (In thousands, except per share data)
Three Months
Ended March 31, 2010 2009 Reported
diluted income per common share from continuing operations $ 0.08 $
0.28 Adjustments per common share 0.55 0.30
Non-GAAP diluted income per common share from continuing
operations $ 0.63 $ 0.58 Net income from
continuing operations $ 4,744 $ 16,504 Non-GAAP Adjustments: Site
consolidation-related costs: Restructuring costs 3,108 -
Accelerated depreciation on leasehold improvements* 1,204
- Total site consolidation-related costs 4,312
- Equity-based compensation expense 6,506 6,183 Imputed interest
related to the application of ASC 470 2,935 3,448 Amortization of
acquired intangibles 218 228 Non-cash tax expense 2,996 9,848
Tender offer related costs 10,646 - Non-operating impairments 7,937
- Income tax effect on adjustments (700 ) (256 )
Non-GAAP net income from continuing operations $ 39,594 $
35,955 Computation of Non-GAAP diluted income per
common share from continuing operations: Non-GAAP net income from
continuing operations $ 39,594 $ 35,955 Add: Interest and issuance
costs related to dilutive convertible debt-net of tax 2,298
1,490 Non-GAAP net income from continuing
operations - diluted $ 41,892 $ 37,445
Computation of Non-GAAP diluted shares: Basic shares 58,719 57,818
Adjustment to dilutive shares: Dilutive effect of options and
restricted stock 816 814 Dilutive effect of the 2023 Notes 1,209
1,998 Dilutive effect of the 2025 Notes 3,908 3,908 Dilutive effect
of the 2038 Notes 2,167 - Non-GAAP
dilutive shares 66,819 64,538
* Represents the impact of shortening the estimated
useful lives of leasehold improvements as a result of our intention
to exit certain facilities.
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