(Source: Business Wire)
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.
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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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