- Gross Basis Revenue of $32.6
million, an increase of 138% over Q3 2015
- Adjusted EBITDA of $12.0 million, an 88% increase over
Q3 2015
- Conference call at 8:30 a.m. ET on August 15, 2016
TORONTO, Aug. 15, 2016 /CNW/ - Merus Labs International
Inc. ("Merus" or the "Company") [TSX: MSL,
NASDAQ: MSLI] today announced its financial results for the third
quarter of its 2016 fiscal year.
Corporate Highlights
"We are pleased with our business performance, with overall
sales volumes tracking above expectations," commented Barry Fishman, Chief Executive Officer.
"Our accelerated focus on growth products has gained
momentum, with several interesting possibilities to leverage our 36
country platform and create future organic growth."
Revenue increased to $25.7 million
for fiscal Q3 2016 from $9.5 million
in the prior year quarter. Gross Basis Revenue increased to
$32.6 million for fiscal Q3 2016 from
$13.7 million in fiscal Q3 2015.
Gross Basis Revenue is a non-IFRS measure that adds back the
cost of goods sold and selling expenses associated with revenue
earned from newly acquired products that are in a transition phase
awaiting the transfer of marketing authorizations. Gross
Basis Revenue is used by management to assess product sales
regardless of the transition status of the associated products.
Gross Basis Revenue was considerably higher in fiscal Q3 2016
compared to the prior year quarter as a result of the acquisition
of the nitrates portfolio from UCB in February 2016, the acquisition of the Sanofi
portfolio in March 2016, and the
additions of Salagen and Estraderm in the middle of fiscal Q3
2015.
For fiscal Q3 2016, Merus incurred a net loss of $5.1
million compared to a net loss of $1.8 million for
the prior year period. Earnings before interest, taxes,
depreciation and amortization ("EBITDA") was $7.8
million and adjusted EBITDA, which adds back non-cash share
based compensation expense, foreign exchange and investment
expenses, was $12.0 million. For the
same period last year, EBITDA and adjusted EBITDA were $5.7
million and $6.4 million respectively. The
increase in net loss was primarily attributable to increased
amortization expenses associated with Merus' expanded portfolio of
pharmaceutical products combined with increased general and
administrative expenses, increased selling and marketing expenses
resulting from expanded operations, foreign exchange losses
resulting from a decline in the Euro over the period, and
derivative losses due to the inception of a new interest rate
swap.
Product Sales
Emselex/Enablex
Revenue attributable to Enablex for fiscal Q3 2016 increased
to $5.9 million, an increase of 20% compared to $4.9
million for the same period last year. This increase was
driven by Q3 2015 being a weak quarter as Merus' German partner
reduced purchases to compensate for excess stock at the beginning
of the quarter. In Q3 2016, the Company successfully absorbed
the full impact of the 60% reduction in the maximum reimbursable
price for Enablex in Germany, the
product's largest market, which became effective April 1, 2016. The anticipated volume
upside following this price reduction materialized and according to
IMS, unit volume was 20% above the prior year quarter. Sales
in the UK, Netherlands and
Portugal continue to demonstrate
solid results and on July 1, 2016
Merus launched Emselex in two new markets, the Czech Republic and Hungary.
Sintrom
Gross Basis Revenue for Sintrom increased to $9.6 million for fiscal Q3 2016, compared to
$6.7 million for fiscal Q3
2015. The increase in Gross Basis Revenue is related to
wholesaler buying patterns reflecting both the transfer of
commercial operations from Novartis to Merus, whereby the local
affiliates of Novartis sell their remaining stock to Merus who
subsequently sells it to its customers in the respective
territories, and wholesalers' desire to increase inventory levels
in advance of the planned manufacturing transfer in Spain commencing later this year.
Sintrom sales are expected to normalize in Q4 2016 in line with
historical market demand.
Nitrates Portfolio
Gross Basis Revenue from the newly-acquired nitrates portfolio
was $11.7 million for fiscal Q3 2016
and reflects the first full quarter of sales since the portfolio's
acquisition on February 4,
2016. Cost of goods were higher than expected in the current
period as the Company works through inventory which existed at the
time of acquisition and was required to be purchased at a higher
transfer price as part of the acquisition agreement. This
situation partially continued into fiscal Q3 2016, but newly
produced goods began being purchased at a lower cost during the
quarter.
Sanofi Portfolio
Revenue from the newly acquired Sanofi portfolio in the period
was $2.4 million and reflects the first full quarter of
ownership since its acquisition on March
7, 2016. This revenue has been, and will continue to
be, recorded on a gross basis due to the nature of the Company's
arrangement with Sanofi for the purchase of these products.
Salagen
Gross Basis Revenue from Salagen during fiscal Q3 2016 was
$2.1 million, compared to
$0.8 million for fiscal Q3
2015. Fiscal Q3 2015 Salagen results reflect only roughly
half of the fiscal quarter's sales as the product was acquired from
Novartis on May 15, 2015.
Estraderm
Gross Basis Revenue from Estraderm during fiscal Q3 2016 was
$0.25 million, compared to
$0.34 million for fiscal Q3 2015.
Results for Estraderm for fiscal Q3 2015 reflect sales from the
acquisition date of May 15, 2015 to
June 30, 2015. Results for
fiscal Q3 2016 are lower than usual due to the transfer of
commercial operations from Novartis to Merus for the majority of
Estraderm markets during fiscal Q2 2016. Fiscal Q2 2016 sales
reflected the building of initial inventory levels by Merus'
distribution partners and resulted in lower sales in fiscal Q3
2016. Sales are expected to normalize during fiscal Q4
2016.
Vancocin
Revenue from Vancocin for fiscal Q3 2016 declined to
$0.7 million from $0.9 million for fiscal Q3 2015. The
decrease in revenue on a year-over-year basis was due to higher
product returns and an increase in estimated returns provisions on
current sales. Further, sales volume has declined over the
prior year as the market matures and as there have been no recent
significant outbreaks of C. difficile.
Cost of Goods
Gross margin for the quarter was $16.8
million, or 52% of Gross Basis Revenue. There are
several initiatives underway which will improve gross margins on
several products going forward. Reductions in product costs will be
realized this quarter on our nitrates portfolio as transition phase
inventory is utilized and replenished. The Company expects to
complete the technology transfer on Emselex in fiscal 2017 which
will improve Emselex margins. However, as a result of a
longer than anticipated regulatory process, Merus will not realize
the full benefit of the Sintrom technology transfer until fiscal Q3
2017. Sintrom product cost savings will be realized in
phases, starting in fiscal Q4 2016, reaching the full API and
manufacturing transfer savings of over $2
million per quarter by fiscal Q3 2017. The Company
expects total Sintrom product cost savings of $6 million in fiscal 2017.
Operating Expenses
Q3 2016 SG&A expenses were $4.8
million and reflect the increased cost of supporting the
Company's new expanded product portfolio. To accommodate the
increased breadth and complexity of the business, new regulatory,
quality, and supply chain function resources have been added and
some one-time technical services and legal expenses have been
incurred.
Balance Sheet
The Company's balance sheet remains strong, with net debt of
approximately $150 million. Accounts receivable and inventory
increased during the quarter, reflecting the working capital
investments required to integrate Sintrom, Salagen, and Estraderm
as well as to build inventory in advance of the up-coming
manufacturing transfers.
Pipeline
The pipeline remains robust and Merus continues to look at a
wide spectrum of licensing and acquisition opportunities. The
Company is in active discussions on a roughly equal split of legacy
and growth assets.
Fiscal 2016 Guidance
Merus' sales performance and outlook remain consistent with
expectations. Higher than planned expenses during the
second half of the current fiscal year are expected to result in
the Company's fiscal 2016 adjusted EBITDA, without consideration of
additional acquisitions, to be in the $43 to $46 million range. The longer than
expected regulatory process for the Sintrom manufacturing transfer
is the main driver along with some additional one-time and ongoing
expenses related to enhancing the European technical operations
team.
Supplemental Q1 and Q2 Financial Information
As a result of a review by the Ontario Securities Commission,
the Company has provided supplemental information regarding the
Company's results and operations for the three months ended
December 31, 2015 ("Q1") and the
three months ended March 31, 2016
("Q2") in its current MD&A for the three and nine months ended
June 30, 2016 (the "Fiscal Q3 2016
MD&A"). The additional information regarding Q1 and Q2 in
the current MD&A relates to (i) additional information
regarding the "gross basis revenues" for the Company's products on
a product-by-product basis for these periods with an explanation of
"gross basis revenues" as a non-IFRS financial measure; (ii) detail
on the Company's selling and marketing expenses and general and
administrative expenses; (iii) critical accounting policies; and
(iv) financial instruments. The Company has also agreed with
the OSC to file an amended Management's Discussion and Analysis for
the year ended September 30, 2015
which will include supplemental information similar to that
provided in the Fiscal Q3 2016 MD&A. The amended 2015
annual MD&A will be filed no later than August 31, 2016. For more information,
please refer to the Fiscal Q3 2016 MD&A posted on SEDAR at
www.sedar.com.
Conference Call
The Company will hold a conference call on Monday, August 15, 2016 at 8:30 am
ET to discuss the fiscal Q3 2016 results. The conference
call can be accessed by dialing +1-888-241-0551 and entering
conference ID 63659805. International participants may dial
+1-647-427-3415. A replay will be made be available for those
not able to attend live by dialing (855) 859-2056 shortly after the
call.
About Merus Labs
Merus Labs is a specialty pharmaceutical company focused on
acquiring and optimizing legacy and growth products. The Company
leverages its expertise and scalable commercial platform
in Europe, Canada and select other markets to
deliver value.
Non-IFRS Financial Measures
The Company uses the terms "Gross Basis Revenues", "EBITDA" and
"adjusted EBITDA" which are non-IFRS measures that do not have any
standardized meaning under IFRS and therefore may not be comparable
to similar measures presented by other companies.
Gross Basis Revenues is a non-IFRS measure that the Company
defines as revenue that it would have received had it held title to
and sold its products directly to its customers during a transition
period following the transfer of a newly acquired product from the
original owner to the Company. During this transition period,
the Company's revenues, as presented in its financial statements,
reflect a "profit transfer" amount that the Company receives from
the original owner which does not reflect the underlying sales
value of the product to the ultimate customers. Gross Basis
Revenues are calculated from revenues, as reflected in the
Company's financial statements, by adding back the cost of goods
sold and selling expenses that are associated with the revenues as
reported by the original owner. This information is provided
in order to allow investors to understand the actual underlying
revenues for the recently acquired products in order that they can
be comparable to other products and future periods.
The Company believes EBITDA and adjusted EBITDA are important
measurements that allow it to assess the operating performance of
its ongoing business on a consistent basis without the impact of
amortization and impairment expenses, debt service obligations and
other non-operating items. The Company excludes amortization and
impairment expenses because their level depends substantially on
non-operating factors such as the historical cost of intangible
assets. The Company defines EBITDA as earnings before interest
expense, taxes, depreciation and amortization (including impairment
charges). Adjusted EBITDA is the same measure with additional
adjustments for non-cash stock based compensation), foreign
exchange gains or losses, investment income or expense, and
acquisition costs.
The Company's method for calculating Gross Basis Revenues,
EBITDA and adjusted EBITDA may differ from that used by other
issuers and, accordingly, this measure may not be comparable to
Gross Basis Revenues, EBITDA and adjusted EBITDA used by other
issuers. See the Company's Fiscal Q3 016 MD&A for a
reconciliation of these measures to their respective nearest IFRS
measures. Management's discussion and analysis, containing a full
analysis of financial results, is available on EDGAR
(www.sec.gov/edgar.shtml) and on SEDAR (www.sedar.com).
Future-Oriented Financial Information
To the extent any forward-looking statements in this press
release constitutes future-oriented financial information or
financial outlooks within the meaning of securities laws, such
information is being provided to demonstrate the potential
financial performance of Merus and readers are cautioned that this
information may not be appropriate for any other purpose and that
they should not place undue reliance on such future-oriented
financial information and financial outlooks. Future-oriented
financial information and financial outlooks, as with
forward-looking information generally, are, without limitation,
based on the assumptions and subject to the risks set out below
under "Forward-Looking Statements".
Forward-Looking Statements
Certain statements contained in this press release may
constitute "forward-looking statements" within the meaning of the
United States Private Securities Litigation Reform Act of 1995 and
applicable Canadian securities legislation. Forward-looking
statements include statements relating to the Company's future
business and operating plans, guidance as to EBITDA and adjusted
EBITDA for future financial periods, the future pricing of the
Company's products, the Company's ability to acquire future
products, the Company's ability to secure financing to complete
acquisitions, and the Company's future results of operations
(including, without limitation, statements with respect to revenue,
EBITDA and Adjusted EBITDA). Such statements involve assumptions
relating to the Company's business, including government regulation
of the pricing of the Company's products, the competitive
environment of the Company's products, the stability of foreign
exchange rates and the availability of prospective acquisition
targets. Although the Company's management believes that the
assumptions underlying these forward-looking statements are
reasonable, they may prove to be incorrect. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors that may cause the Company's actual results to be
materially different from any future results expressed or implied
by these statements, including the guidance provided in this press
release. Such factors include the following: general economic and
business conditions, changes in demand for Merus' products,
changes in competition, the ability of Merus to integrate
acquisitions or complete future acquisitions (including the
Acquisition), Merus' ability to complete any financing,
interest rate fluctuations, currency exchange rate fluctuations,
dependence upon and availability of qualified personnel and changes
in government regulation. Investors should refer to the Company's
MD&A, Annual Information Form and Annual Report on 40-F for a
more comprehensive discussion of the risks that are material to the
Company and its business. In light of these and other
uncertainties, the forward-looking statements included in this
press release should not be regarded as a representation
by Merus that Merus' plans, objectives and guidance
will be achieved. These forward-looking statements speak only as of
the date of this press release, and the Company undertakes no
obligation to update or revise the statements.
SOURCE Merus Labs Inc.