- Gross Basis Revenue of $30.9
million in fiscal Q1 2017
- Adjusted EBITDA of $10.8
million in fiscal Q1 2017
- Conference call on February 14,
2017 at 8:30 a.m. ET
TORONTO, Feb. 14, 2017 /PRNewswire/ - Merus Labs
International Inc. ("Merus" or the
"Company") [TSX: MSL, NASDAQ: MSLI] announced its financial
results for the first quarter of fiscal 2017.
Corporate Highlights
Adjusted EBITDA was $10.8 million
in fiscal Q1 2017. Solid sales performance was offset by
anticipated increased operating expenses, and resulted in Adjusted
EBITDA that met the Company's expectations.
"The first quarter of 2017 performance met our expectations
and we are on track to executing our plan for the year."
said Barry Fishman, Chief Executive Officer. "Our near-term
priority continues to be optimizing the profitability of our
diverse product line."
Over the past twelve months, Merus has invested in new products,
people, capabilities, systems and the increased working capital
required for its expanded product portfolio. The Company now has a
solid pan-European platform and a high-performing team that is
sharply focused on execution, including the delivery of key cost
and sales optimization initiatives.
Q1 2017 Financial Results
- Revenues increased to $26.1
million for Q1 2017 from $15.9
million for Q1 2016, representing a year-over-year increase
of 64%
- Gross Basis Revenues1 increased to $30.9 million for Q1 2017 from $18.3 million for Q1 2016, representing a
year-over-year increase of 69%
- Net loss increased to $6.3
million for Q1 2017 from $0.9
million for Q1 2016, with $4.3
million of the increase attributable to foreign
exchange
- Adjusted EBITDA1 increased to $10.8 million during Q1 2017 from $8.5 million for Q1 2016, representing a
year-over-year increase of 27%.
1See below under "Non-IFRS Financial Measures" for
a discussion of Gross Basis Revenues and Adjusted EBITDA
and a reference to the reconciliation to the results presented in
the financial statements.
Product Sales
Revenue for the first fiscal quarter of 2017 was $26.1 million, compared to $15.9 million for the same period last year, with
the increase primarily related to new product acquisitions made in
fiscal Q2 2016. Gross Basis Revenue for the first quarter of fiscal
2017 was $30.9 million, a 69%
increase over the first quarter of the prior year. Revenue in the
quarter reflected anticipated wholesaler destocking of Enablex®,
Sintrom® and the Nitrates, but was partially off-set by strong
sales of Salagen® and women's health products. Overall, product
demand was consistent with Company expectations.
Sintrom® Gross Basis Revenue in the quarter of
$5.6 million reflects wholesalers
release of safety stock related to the completion of the first
phase of technology transfer in Spain. The Company expects
Sintrom® inventories to continue to fluctuate over the course of
2017 and normalize at year-end as the remaining phases of
technology transfer are implemented.
Nitrates Gross Basis Revenue was $12.8 million in the quarter as some wholesalers
work through the additional product purchased in fiscal Q4 2016 as
part of the transfer of UCB affiliate inventory directly to Merus
customers. The transfer of the marketing authorizations for
the nitrates portfolio is nearing completion with only eight
countries remaining in transition and only two countries expected
to remain in transition at the end of fiscal Q2. At that
point, essentially all sales will be effectively conducted
by Merus and recorded at full sales value.
Emselex® Gross Basis Revenue was $5.6 million for fiscal Q1 2017, lower than the
previous quarter due to initial inventory purchases in fiscal Q4
2016 to support new market launches. In-market sales in the
Czech Republic were above
expectations as a major competitor lost full reimbursement status.
As well, continued growth in the UK and Portugal and market share gains in
Germany are anticipated to
generate incremental sales over the course of fiscal 2017.
Revenue for Salagen® and the women's health
portfolio were stronger than expected during the quarter as demand
increased due to some competitor back orders and the execution of a
number of supply chain improvements.
Cost of Goods
Cost of goods reported on a Gross Basis
were $13.0 million in the quarter. Gross
margin improved from 55% in Q4 2016 to 58% in Q1 2017 and is
expected to continue to improve over the course of fiscal 2017.
Gross margins for our overall base business are expected to exceed
60% once the Sintrom® manufacturing and active pharmaceutical
ingredient (API) transfers are fully completed, and inventory of
the previous higher cost product is sold in late 2017.
The Company continues to expect Sintrom® related product cost
savings during fiscal 2017 of approximate half of the full
annualized potential of $8 million,
and that by fiscal year end, the technology transfer will be fully
implemented and full savings will be being realized. The Company
has reached a major milestone in the execution of our technology
transfer and started shipping product produced by our contract
manufacturer (with Novartis manufactured active pharmaceutical
ingredient) in Spain, Merus'
largest Sintrom® market.
Operating Expenses
Operating expenses (marketing and selling and general and
administrative expenses, net of the settlement of all Factive®
related claims) were $7.1 million or 23% of Gross
Basis Revenue. Operating expenses in the quarter reflect
some non-recurring spending on compliance related activities
related to the transition to a new service provider. This
transition is expected to be completed in fiscal Q2 2017 and the
financial benefits of this transition will start to be realized in
second half of fiscal 2017.
The Company settled all outstanding Factive® related litigation
claims, which was Merus' only litigation matter. The cost of this
settlement has been included in General & Administrative
expenses but excluded from adjusted EBITDA. The Company is
currently not party to any legal proceedings.
During the quarter the Company changed accounting policies with
respect to logistics costs (consistent with industry practices) and
reclassified them from operating expenses to cost of goods. This
change has no impact on EBITDA or Adjusted EBITDA.
Balance Sheet
Working capital (inventory plus receivables, less payables)
reached $26.0 million in fiscal Q1
2017 compared to $13.7 million twelve months prior. The
Company's strong operating cash flow continues to be temporarily
constrained as we build working capital and aggressively de-lever.
At the end of fiscal Q1 2017 the Company temporarily secured an
increase in its revolving credit line facility and relaxed related
covenants on its senior secured debt in order to increase financial
flexibility for 2017. The Company expects working
capital to reach peak levels during fiscal Q2 2017 and free cash
flow to start to increase during the second half of 2017. The
Company's net debt, as at December 31,
2016 was $139.5 million.
At the end of fiscal Q1 2017, the Company had a leverage ratio
of approximately 3.0, and as Merus de-levers its balance sheet,
this ratio is expected to decrease below 2.0 during the next twelve
months, without consideration of new
acquisitions.
The amortization period and method for several product rights
were revised to reflect Management's estimate of a longer than
originally planned useful life for the asset. This change resulted
in decreased non-cash expenses of approximately $1.3 million in the fiscal first quarter, but had
no impact on EBITDA or Adjusted EBITDA.
Fiscal 2017 Guidance
The Company reiterates that fiscal 2017 Adjusted EBITDA is
expected to be in the range of $44 to $48
million. Merus is planning for a stronger second half in
fiscal 2017, where approximately 55% of annual Adjusted EBITDA is
expected. As the Company realizes the benefit of several key profit
enhancing initiatives, fiscal Q4 2017 Adjusted EBITDA is expected
to be approximately 25% higher than the first quarter of fiscal
2017.
The Company's fiscal 2017 guidance reflects an expected
$4 million savings from the Sintrom®
technology transfer, incremental operating profit from new launches
of Emselex® and a reduction in ongoing operating expenses
(primarily in the regulatory and compliance area). These
initiatives drive improved second half of fiscal 2017 performance,
with some one-time costs incurred in the first half of fiscal
2017.
The Company's fiscal 2017 focus is on operational effectiveness:
optimizing sales, streamlining expenses, re-assessing our debt
structure, and enhancing the Company's systems and processes.
Merus Strategy
The Company's strategy is to profitably grow our business by
acquiring prescription products that are well established, with
good margins and predictable cash flow, and to complement
our legacy product line with specialist prescribed growth
products.
Product Pipeline
Merus' business development is currently focused on targeting
select assets where our investment to build the market with key
prescribers is spread over a number of years, and organic growth is
generated. The Company's legacy portfolio provides steady cash
flow that can be used to help fund growth product acquisitions.
These two elements naturally balance each other.
Future new product acquisitions will leverage the Company's
pan-European and select market platform. The Company, over the
next few years, plans to evolve into a sharp focus on two to three
core therapeutic categories to leverage Merus' scalable business
model, and drive growth.
Conference Call
The Company will hold a conference call on February
14, 2017 at 8:30am ET to discuss fiscal Q1 2017
results. The conference call can be accessed by
dialing 416 764 8688 in Toronto, 1 888 390 0546 in North America, and entering conference ID
03788914. International participants please dial +1 416 764
8688. A replay will be made be available for those not able
to attend live by dialing 1 888 390 0541, playback passcode
788914 #, 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 platform across Europe, Canada and select other markets to deliver
value.
Non-IFRS Financial Measures
The terms "Gross Basis Revenues", "EBITDA" and "adjusted EBITDA"
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. 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.
EBITDA and adjusted EBITDA are important measurements that allow
the Company 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, one-time
legal settlement costs 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 Annual 2016 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 may constitute 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, the Company's cost reduction efforts 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, 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 the
year ended September 30, 2016 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 we undertake no obligation to
update or revise the statements.
SOURCE Merus Labs Inc.