Cephalon Reported Financial Results for the Second Quarter of 2011

Sales For The Period Were $730 Million

Basic Income Per Common Share Increased 31 Percent

Aug 02, 2011, 16:10 ET from Cephalon, Inc.

FRAZER, Pa., Aug. 2, 2011 /PRNewswire/ -- Cephalon, Inc. (Nasdaq: CEPH) today reported second quarter 2011 net sales of $730.1 million, a 2 percent increase compared to net sales of $712.4 million for the second quarter of 2010.  Basic income per common share for the period was $1.54 compared to $1.18 for the second quarter of 2010.  Excluding amortization expense and certain other items, adjusted net income for the second quarter of 2011 was $142.6 million, a 14 percent decrease versus the same period in 2010.  Basic adjusted income per common share for the quarter was $1.86, a 15 percent decrease from the $2.20 for the second quarter of 2010.  

Central nervous system (CNS) franchise net sales were $332.3 million during the quarter, a 5 percent decrease compared to the same period last year.  Pain franchise reported net sales of $140.6 million, a 4 percent increase versus second quarter 2010.  Oncology franchise net sales were $158.8 million, a 22 percent increase over the same period last year due to strong net sales of TREANDA® (bendamustine hydrochloride) of $125.8 million.  Sales of other products remained relatively constant at $98.5 million.

During the second quarter 2011 Cephalon recorded net cash provided by operating activities of $74.2 million and ended the period with $997.5 million of cash and cash equivalents.

"We continue to work with both US and European authorities to obtain all necessary regulatory approvals in order to close the transaction with Teva," said Kevin Buchi, Chief Executive Officer.

About Cephalon, Inc.

Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life of individuals around the world. Since its inception in 1987, Cephalon has brought first-in-class and best-in-class medicines to patients in several therapeutic areas. Cephalon has the distinction of being one of the world's fastest-growing biopharmaceutical companies, now among the Fortune 1000 and a member of the S&P 500 Index, employing approximately 4,000 people worldwide. The company sells numerous branded and generic products around the world. In total, Cephalon sells more than 180 products in more than 100 countries. More information on Cephalon and its products is available at http://www.cephalon.com/.

In addition to historical facts or statements of current condition, this press release may contain forward-looking statements. Forward-looking statements provide Cephalon's current expectations or forecasts of future events. These may include statements regarding Teva's proposed acquisition of Cephalon; anticipated scientific progress on its research programs; development of potential pharmaceutical products; interpretation of clinical results; prospects for regulatory approval; manufacturing development and capabilities; market prospects for its products; and other statements regarding matters that are not historical facts. You may identify some of these forward-looking statements by the use of words in the statements such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" or other words and terms of similar meaning. Cephalon's performance and financial results could differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the biotechnology and pharmaceutical industries as well as more specific risks and uncertainties facing Cephalon such as those set forth in its reports on Form 8-K, 10-Q and 10-K filed with the U.S. Securities and Exchange Commission. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements. Furthermore, Cephalon does not intend to update publicly any forward-looking statement, except as required by law. The Private Securities Litigation Reform Act of 1995 permits this discussion.

This press release and/or the financial results attached to this press release include "Adjusted Net Income," "Basic Adjusted Income per Common Share," and "Diluted Adjusted Income Per Common Share," amounts that are considered "non-GAAP financial measures" under SEC rules. As required, we have provided reconciliations of these measures. Additional required information is located in the Form 8-K furnished to the SEC in connection with this press release.

Contacts:

Media:

Investors:

Fritz Bittenbender

Robert (Chip) Merritt

610-883-5855

610-738-6376

fbittenb@cephalon.com

cmerritt@cephalon.com

Natalie deVane

Joseph Marczely

610-727-6536

610-883-5894

ndevane@cephalon.com

jmarczely@cephalon.com

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

REVENUES:

Net sales

$ 730,100

$ 712,435

$ 1,466,102

$ 1,289,116

Other revenues

8,163

14,475

17,274

34,379

738,263

726,910

1,483,376

1,323,495

COSTS AND EXPENSES:

Cost of sales

123,667

170,739

281,650

275,782

Research and development

134,851

101,261

257,164

206,638

Selling, general and administrative

276,068

258,468

526,754

463,109

Change in fair value of contingent consideration

2,600

-

4,401

-

Restructuring charges

4,279

4,581

5,137

5,325

Acquired in-process research and development

-

-

30,000

-

Impairment and (gain) loss on sale of assets

48,408

-

54,056

-

589,873

535,049

1,159,162

950,854

INCOME FROM OPERATIONS

148,390

191,861

324,214

372,641

OTHER INCOME (EXPENSE):

Interest income

1,253

1,300

2,270

3,230

Interest expense

(24,475)

(28,182)

(48,682)

(54,973)

Change in fair value of investments

99,473

-

264,208

-

Other income (expense), net

(26,360)

(9,332)

(29,388)

(16,603)

49,891

(36,214)

188,408

(68,346)

INCOME BEFORE INCOME TAXES

198,281

155,647

512,622

304,295

INCOME TAX EXPENSE

83,089

63,254

185,820

111,565

NET INCOME

115,192

92,393

326,802

192,730

NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST

2,983

(3,329)

2,461

6,899

NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 118,175

$   89,064

$    329,263

$    199,629

BASIC INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.

$       1.54

$       1.18

$          4.32

$          2.66

DILUTED INCOME PER COMMON SHARE ATTRIBUTABLE TO CEPHALON, INC.

$       1.34

$       1.11

$          3.97

$          2.46

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING ATTRIBUTABLE TO

CEPHALON, INC.

76,679

75,192

76,213

75,092

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING-ASSUMING DILUTION

ATTRIBUTABLE TO CEPHALON, INC.

88,303

80,507

82,871

81,223

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)

Three Months Ended

June 30,

2011

2010

GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 118,175

$   89,064

Cost of sales adjustments

(834)

(1)

52,209

(1)

Research and development adjustments

320

(2)

317

(2)

Selling, general and administrative adjustments

24,774

(3)

9,225

(3)

Change in fair value of contingent consideration adjustment

2,600

(4)

Restructuring adjustment

4,279

(5)

4,581

(5)

Impairment and (gain) loss on sale of assets adjustment

48,408

(6)

Interest expense adjustment

16,016

(7)

18,476

(7)

Change in fair value of investments adjustment

(99,473)

(8)

Other (income) expense adjustment

16,483

(9)

5,398

(9)

Income tax adjustment

11,875

(10)

(14,017)

(10)

*Noncontrolling Interest adjustments:

Other revenues

-

-

Research and development

1,214

(2,018)

Selling, general and administrative    

706

200

Interest income

-

-

Interest expense

424

(3)

Other income (expense)

-

1

Income taxes

-

(2,658)

Less amount attributable to noncontrolling interest

(2,344)

4,478

24,448

76,189

ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 142,623

$ 165,253

BASIC ADJUSTED INCOME PER COMMON SHARE

$       1.86

$       2.20

DILUTED ADJUSTED INCOME PER COMMON SHARE

$       1.62

$       2.05

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING

76,679

75,192

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING-ASSUMING DILUTION

88,303

80,507

* Amounts recorded by our Variable Interest Entities that have been excluded from net income attributable to Cephalon, Inc.

Notes to Reconciliation of GAAP Net Income to Adjusted Net Income

(1) To exclude the on-going amortization of acquired intangible assets ($26.9M in 2011: $32.2M in 2010), the reversal of a  royalty accrual related to AMRIX sales milestones that are no longer expected to be payable ($27.8M in 2011), accelerated depreciation related to restructuring ($5.5M in 2010), amortization of inventory revaluation related to Mepha ($5.0M in 2010) and the write-off of modafinil purchase commitments in excess of estimated requirements ($9.4M in 2010).

(2) To exclude accelerated depreciation related to worldwide restructuring ($0.3M in 2011 and 2010).

(3) In 2011, to exclude charges related to the unsolicited proposal we received from Valeant Pharmaceuticals International and the Agreement and Plan of Merger with Teva Pharmaceutical Industries Ltd. ($20.9M), and charges associated with recent acquisitions. In 2010, to exclude charges related to the acquisition of Mepha ($7.9M) and the acquisition of Ception noncontrolling interest ($1.4M).

(4) In 2011, to exclude the change in fair value of the Ception Therapeutics, Inc. ($1.4M), BioAssets Development Company ($0.3M) and Gemin X Pharmaceuticals ($0.9M) contingent consideration.

(5) To exclude costs related to restructurings.

(6) In 2011, to exclude costs related to the impairments of AMRIX ($43.3M) and Mepha in-process research and development ($5.2M).

(7) To exclude imputed interest expense associated with convertible debt.

(8) In 2011, to exclude the change in fair value of our investments in Mesoblast Ltd. ($91.2M) and ChemGenex Pharmaceuticals Ltd. ($8.3M).

(9) In 2011, to exclude costs and changes in fair value of certain derivative contracts ($16.5M).  In 2010, to exclude losses related to the acquisition of Mepha AG, including a loss on foreign exchange derivative instruments ($2.9M) and a loss on foreign exchange of Swiss Franc acquisition funds ($2.5M).

(10) To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to changes in valuation allowances and other changes in tax assets and liabilities.

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Income to Adjusted Net Income Attributable to Cephalon, Inc.

(Unaudited)

Six Months Ended

June 30,

2011

2010

GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 329,263

$ 199,629

Cost of sales adjustments

28,284

(1)

83,175

(1)

Research and development adjustments

320

(2)

676

(2)

Selling, general and administrative adjustments

25,704

(3)

11,502

(3)

Change in fair value of contingent consideration adjustments

4,401

(4)

-

Restructuring adjustment

5,137

(5)

5,325

(5)

Acquired in-process research and development adjustments

30,000

(6)

-

Impairment and (gain) loss on sale of assets adjustment

54,056

(7)

-

Interest expense adjustment

31,691

(8)

36,055

(8)

Change in fair value of investments adjustments

(264,208)

(9)

-

Other (income) expense adjustment

16,989

(10)

11,567

(10)

Income tax adjustment

39,359

(11)

(38,690)

(11)

*Noncontrolling Interest adjustments:

Other revenues

-

(31)

Research and development

1,417

6,094

Selling, general and administrative    

1,063

3,222

Other income (expense)

-

166

Interest income

-

(7)

Interest expense

723

154

Income taxes

-

(3,848)

Less amount attributable to noncontrolling interest

(3,203)

(5,750)

(28,267)

109,610

ADJUSTED NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 300,996

$ 309,239

BASIC ADJUSTED INCOME PER COMMON SHARE

$       3.95

$       4.12

DILUTED ADJUSTED INCOME PER COMMON SHARE

$       3.63

$       3.81

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING

76,213

75,092

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING-ASSUMING DILUTION

82,871

81,223

* Amounts recorded by our Variable Interest Entities that have been excluded from net income attributable to Cephalon, Inc.

Notes to Reconciliation of GAAP Net Income to Adjusted Net Income

(1) To exclude the on-going amortization of acquired intangible assets ($56.0M in 2011; $58.0M in 2010), the reversal of a royalty accrual related to AMRIX sales milestones that are no longer expected to be payable ($27.8M in 2011), accelerated depreciation related to restructuring ($10.7M in 2010), amortization of inventory revaluation related to Mepha ($5.0M in 2010) and the write-off of modafinil purchase commitments in excess of estimated requirements ($9.4M in 2010).

(2) To exclude accelerated depreciation related to restructuring.

(3) In 2011, to exclude charges related to the unsolicited proposal we received from Valeant Pharmaceuticals International and the Agreement and Plan of Merger with Teva Pharmaceutical Industries Ltd. ($20.9M), and charges associated with recent acquisitions.  In 2010, to exclude charges related to the acquisition of Mepha ($10.1M) and the acquisition of Ception noncontrolling interest ($1.4M).

(4) In 2011, to exclude the change in fair value of the Ception Therapeutics, Inc. ($2.7M), BioAssets Development Company ($0.8M) and Gemin X Pharmaceuticals ($0.9M) contingent consideration.

(5) To exclude costs related to restructurings.

(6) In 2011, to exclude costs related to the acquisition of worldwide license rights to Mesoblast Limited's proprietary technology platform.

(7) In 2011, to exclude costs related to the impairments of AMRIX ($43.3M) and Mepha in-process research and development ($5.2M) and costs associated with our plant to sell our manufacturing facility in Mitry Mory, France ($6.1M), offset by a gain on the sale of our facility in Savigny le Temple, France ($0.4M).

(8) To exclude imputed interest expense associated with convertible debt.

(9) In 2011, to exclude the change in fair value of our investments in Mesoblast Ltd. ($250.8M) and ChemGenex Pharmaceuticals Ltd. ($13.4M).

(10) In 2011, to exclude costs and changes in fair value of certain derivative contracts ($17.0M).  In 2010, to exclude losses related to the acquisition of Mepha AG, including a loss on foreign exchange derivative instruments ($9.1M) and a loss on foreign exchange of Swiss Franc acquisition funds ($2.5M).

(11) To reflect the tax effect of pre-tax adjustments at applicable tax rates and certain other tax adjustments primarily related to; changes in valuation allowances and other changes in tax assets and liabilities.

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED SALES DETAIL

(In thousands)

(Unaudited)

Three Months Ended

%

June 30,

Increase

2011

2010

(Decrease)

United States

Europe

Total

United States

Europe

Total

United States

Europe

Total

Sales:

CNS

Proprietary CNS

    PROVIGIL

$        237,684

$   13,462

$    251,146

$        268,550

$   16,280

$    284,830

(11%)

(17%)

(12%)

    NUVIGIL

58,576

-

58,576

40,968

-

40,968

43

-

43

    GABITRIL

8,765

1,165

9,930

11,118

1,024

12,142

(21)

14

(18)

    Other Proprietary CNS

-

2,608

2,608

-

2,652

2,652

-

(2)

(2)

Generic CNS

-

9,990

9,990

-

8,574

8,574

-

17

17

         CNS

305,025

27,225

332,250

320,636

28,530

349,166

(5)

(5)

(5)

Pain

Proprietary Pain

    FENTORA

41,910

9,516

51,426

38,861

5,661

44,522

8

68

16

Other Proprietary Pain

-

-

-

-

49

49

-

(100)

(100)

Generic Pain

    ACTIQ

14,607

15,387

29,994

14,471

14,067

28,538

1

9

5

    Generic OTFC

6,015

-

6,015

11,535

-

11,535

(48)

-

(48)

    AMRIX

13,554

-

13,554

28,548

-

28,548

(53)

-

(53)

    Generic AMRIX

11,420

-

11,420

-

-

-

100

-

100

    Other Generic Pain

-

28,224

28,224

-

21,556

21,556

-

31

31

         Pain

87,506

53,127

140,633

93,415

41,333

134,748

(6)

29

4

Oncology

Proprietary Oncology

    TREANDA

125,847

-

125,847

99,732

-

99,732

26

-

26

    Other Proprietary Oncology

5,017

21,699

26,716

6,253

18,769

25,022

(20)

16

7

    Generic Oncology

-

6,188

6,188

-

5,704

5,704

-

8

8

         Oncology

130,864

27,887

158,751

105,985

24,473

130,458

23

14

22

Other

Other Proprietary

4,726

1,804

6,530

2,883

1,754

4,637

64

3

41

Other Generic

4,536

87,400

91,936

3,058

90,368

93,426

48

(3)

(2)

         Other

9,262

89,204

98,466

5,941

92,122

98,063

56

(3)

0

$        532,657

$ 197,443

$    730,100

$        525,977

$ 186,458

$    712,435

1%

6%

2%

Six Months Ended

%

June 30,

Increase

2011

2010

(Decrease)

United States

Europe

Total

United States

Europe

Total

United States

Europe

Total

Sales:

CNS

Proprietary CNS

    PROVIGIL

$        481,027

$   28,515

$    509,542

$        513,151

$   34,130

$    547,281

(6%)

(16%)

(7%)

    NUVIGIL

110,608

-

110,608

75,890

-

75,890

46

-

46

    GABITRIL

19,803

2,254

22,057

19,417

2,486

21,903

2

(9)

1

    Other Proprietary CNS

-

4,961

4,961

-

5,658

5,658

-

(12)

(12)

Generic CNS

-

19,765

19,765

-

10,885

10,885

-

82

82

         CNS

611,438

55,495

666,933

608,458

53,159

661,617

0

4

1

Pain

Proprietary Pain

    FENTORA

80,953

16,874

97,827

77,341

9,390

86,731

5

80

13

Other Proprietary Pain

-

61

61

-

108

108

-

(44)

(44)

Generic Pain

    ACTIQ

30,093

28,056

58,149

29,411

32,558

61,969

2

(14)

(6)

    Generic OTFC

15,038

-

15,038

24,314

-

24,314

(38)

-

(38)

    AMRIX

36,586

-

36,586

53,683

-

53,683

(32)

-

(32)

    Generic AMRIX

11,420

-

11,420

-

-

-

100

-

100

    Other Generic Pain

-

52,090

52,090

-

23,698

23,698

-

120

120

         Pain

174,090

97,081

271,171

184,749

65,754

250,503

(6)

48

8

Oncology

Proprietary Oncology

    TREANDA

243,572

-

243,572

180,989

-

180,989

35

-

35

    Other Proprietary Oncology

10,520

41,433

51,953

10,808

38,960

49,768

(3)

6

4

    Generic Oncology

-

12,366

12,366

-

9,858

9,858

-

25

25

         Oncology

254,092

53,799

307,891

191,797

48,818

240,615

32

10

28

Other

Other Proprietary

10,731

4,018

14,749

8,247

1,754

10,001

30

129

47

Other Generic

11,687

193,671

205,358

7,154

119,226

126,380

63

62

62

         Other

22,418

197,689

220,107

15,401

120,980

136,381

46

63

61

$     1,062,038

$ 404,064

$ 1,466,102

$     1,000,405

$ 288,711

$ 1,289,116

6%

40%

14%

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

June 30,

December 31,

2011

2010

CURRENT ASSETS:

  Cash and cash equivalents

$    997,476

$        1,160,239

  Receivables, net

486,519

431,333

  Inventory, net

305,421

291,360

  Deferred tax assets, net

206,895

213,798

  Other current assets

98,272

54,845

      Total current assets

2,094,583

2,151,575

  INVESTMENTS ($505,800 and $155,808 at fair value in 2011 and 2010, respectively)

528,067

168,494

  PROPERTY AND EQUIPMENT, net

507,152

502,856

  GOODWILL

866,272

822,071

  INTANGIBLE ASSETS, net

1,724,246

1,212,387

  DEBT ISSUANCE COSTS

11,829

14,196

  OTHER ASSETS

20,937

20,254

$ 5,753,086

$        4,891,833

CURRENT LIABILITIES:

  Current portion of long-term debt, net

$    672,102

$           651,997

  Accounts payable

120,128

104,477

  Accrued expenses

479,080

460,141

      Total current liabilities

1,271,310

1,216,615

  LONG-TERM DEBT

405,985

391,416

  DEFERRED TAX LIABILITIES, net

237,487

172,589

  OTHER LIABILITIES

303,366

273,438

      Total liabilities

2,218,148

2,054,058

REDEEMABLE EQUITY

153,600

170,183

EQUITY:

Cephalon Stockholders' Equity

  Common stock, $0.01 par value

813

791

  Additional paid-in capital

2,633,913

2,428,450

  Treasury stock, at cost

(225,881)

(225,870)

  Accumulated earnings

576,349

247,086

  Accumulated other comprehensive income

316,649

182,975

      Total Cephalon stockholders' equity

3,301,843

2,633,432

Noncontrolling Interest

79,495

34,160

      Total equity

3,381,338

2,667,592

$ 5,753,086

$        4,891,833

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended

June 30,

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

    Net income

$  326,802

$  192,730

    Adjustments to reconcile net income to net cash provided by operating activities:

          Deferred income tax expense (benefit)

52,156

(18,059)

          Shortfall tax benefits from stock-based compensation

(331)

(559)

          Depreciation and amortization

93,389

106,724

          Stock-based compensation expense

16,950

21,630

          Amortization of debt discount and debt issuance costs

32,776

35,692

          Changes in fair value of investments

(264,208)

-

          Loss (gain) on foreign exchange contracts

(5,089)

9,499

          Impairment and loss (gain) on sale of fixed assets

54,056

-

          Other

23,090

3,752

          Changes in operating assets and liabilities:

              Receivables

(37,532)

(25,581)

              Inventory

5,646

18,985

              Other assets

1,207

9,474

              Accounts payable, accrued expenses and deferred revenues

(11,445)

23,955

              Other liabilities

(65,462)

(189)

              Net cash provided by operating activities

222,005

378,053

CASH FLOWS FROM INVESTING ACTIVITIES:

    Purchases of property and equipment

(28,049)

(22,997)

    Proceeds from sale of property and equipment

818

-

    Cash balance from consolidation of variable interest entity

15,513

-

   Acquisition of Mepha net of cash acquired

(549,463)

   Acquisition of Gemin X, net of cash acquired

(184,198)

   Acquisition of ChemGenex, net of cash acquired

(179,931)

    Purchases of investments

(135,453)

(60)

    (Cash settlements of) proceeds from foreign exchange contracts

7,111

(9,499)

              Net cash used for investing activities

(504,189)

(582,019)

CASH FLOWS FROM FINANCING ACTIVITIES:

    Proceeds from sale of common stock

349

-

    Proceeds from exercises of common stock options

133,703

14,370

    Windfall tax benefits from stock-based compensation

12,060

-

    Acquisition of Ception non-controlling interest

-

(299,289)

    Acquisition of ChemGenex Ltd. non-controlling interest

(6,602)

    Acquisition of treasury stock

-

(33)

    Payments on and retirements of long-term debt

(35,763)

(221,478)

              Net cash provided by (used for) financing activities

103,747

(506,430)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

15,674

(9,793)

NET INCREASE IN CASH AND CASH EQUIVALENTS

(162,763)

(720,189)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

1,160,239

1,647,635

CASH AND CASH EQUIVALENTS, END OF PERIOD

$  997,476

$  927,446

SOURCE Cephalon, Inc.



RELATED LINKS

http://www.cephalon.com