FHRX First Horizon Pharmaceutical (MM)

First Horizon Pharmaceutical Corporation (NASDAQ:FHRX): Third Quarter 2005 results include: -- Net revenues of $58.7 million, an increase of 41% over third quarter 2004 -- Net income of $10.6 million, an increase of 43% over third quarter 2004 -- Diluted earnings per share of $0.26 versus diluted earnings per share of $0.18 cents in the third quarter 2004, an increase of 44% -- Earnings before interest, taxes, depreciation and amortization (EBITDA, a non GAAP measure) of $22.1 million, an increase of 43% over third quarter 2004 Guidance for full year 2005: -- Net revenues of between $211 million and $215 million -- Diluted earnings per share of between $0.93 and $0.96 Guidance for full year 2006 (based solely on existing product portfolio): -- Net revenues of between $265 million and $275 million -- Diluted earnings per share of between $1.15 and $1.20 First Horizon Pharmaceutical Corporation (NASDAQ:FHRX), a specialty pharmaceutical company, today announced results for the third quarter and nine months ended September 30, 2005. Net revenues for the third quarter of 2005 were $58.7 million compared with $41.6 million for the quarter ended September 30, 2004. Net income for the quarter ended September 30, 2005 was $10.6 million, or $0.26 per diluted share, compared with net income of $7.4 million, or $0.18 per diluted share for the third quarter of 2004. Cost of revenues was $8.8 million for the third quarter of 2005, producing gross margins of 85%, compared with gross margins of 79% for the third quarter of 2004. Selling, general and administrative expenses were $26.5 million for the third quarter of 2005 compared with $16.7 million for the quarter ended September 30, 2004. The increase in selling, general and administrative expenses resulted primarily from the costs associated with adding more than 100 sales representatives in the second quarter of 2005, the launch costs for Triglide, and an increase in royalty and commission expenses related to the increased revenues. The Company's financial results for the third quarter of 2005 also included the launch of Triglide, which commenced in July 2005. For the nine months ended September 30, 2005, net revenues increased 36% to $149.5 million from $109.6 million for the nine months ended September 30, 2004. Net income for the first nine months of 2005 increased 46% to $26.2 million, or $0.65 per diluted share, compared with net income of $18.0 million, or $0.45 per diluted share for the nine months ended September 30, 2004. Cost of revenues was $23.3 million for the first nine months of 2005, producing a gross margin of 84%, compared with $21.3 million with a gross margin of 81% for the first nine months of 2004. Selling, general and administrative expenses were $68.2 million for the nine months ended September 30, 2005, compared with $46.3 million for the nine months ended September 30, 2004. First Horizon's CEO and President, Patrick Fourteau, commented, "We are pleased with our results for the third quarter. The continued growth of Sular, the performance of our recently acquired products, and the continued success of our prenatal line of vitamins contributed to the solid performance. Triglide has been well received in the marketplace and we believe the uptake of the product will be dependent on our ability to penetrate managed care. The recent addition of Triglide to Medco Health and another national Pharmacy Benefit Manager bodes well for the growth of Triglide moving forward." Cardiology Products Net revenues of the Company's Cardiology products were $43.8 million, or 75% of net revenues, for the third quarter of 2005 compared with $23.2 million, or 56% of net revenues, for the third quarter of 2004. New prescriptions of Sular increased 18.0% and total prescriptions increased 16.3% for the third quarter of 2005 compared with the third quarter of 2004 (Source: IMS Health's National Prescription Audit Plus(TM) data). Fortamet captured a 1.3% market share of new prescriptions and a 1.1% market share of total prescriptions of the metformin market as of September 2005. Altoprev captured a 0.4% market share of new prescriptions and a 0.5% market share of total prescriptions of the statin market as of September 2005 (Source: IMS Health's National Prescription Audit Plus(TM) data). The Company launched Triglide in July 2005. Triglide captured a 0.7% market share of the fibrate market new prescriptions and 0.3% market share of its total prescriptions as of September 2005 (Source: IMS Health's National Prescription Audit Plus(TM) data). Women's Health Products Net revenues of the Company's Women's Health products, which currently include the Prenate line and Ponstel were approximately $10.1 million, or 17% of net revenues, for the quarter ended September 30, 2005, compared with $6.7 million, or 16% of net revenues, for the quarter ended September 30, 2004. The leveling off of Women's Health revenues for third quarter 2005 compared to the second quarter 2005 is attributed in part to the normal product life cycle of Prenate Elite, which was launched in April 2004 and in part to our increased sales emphasis on Triglide. Prenate Elite, the only prescription prenatal vitamin with Metafolin, garnered approximately 378,000 total prescriptions in the third quarter and captured a 13.7% market share of prenatal multi-vitamins new prescriptions and 14.4% market share of prenatal multi-vitamins total prescriptions (Source: IMS Health's National Prescription Audit Plus(TM) data). OptiNate captured a 8.1% market share of the EFA prenatal vitamin market for new prescriptions and 7.6% market share of its total prescriptions as of September 2005 (Source: IMS Health's National Prescription Audit Plus(TM) data). Development We continued to increase our development efforts, spending $1.4 million in the third quarter of 2005 compared to $0.5 million in third quarter of 2004 and expect to continue increasing development expenditures going forward. As a result of our development efforts, we expect to commence clinical trials of our Sular line extension in early 2006. Outlook Full Year 2005 - First Horizon expects full year 2005 revenues to be in the range of $211 million to $215 million and diluted earnings per share to be in the range of $0.93 to $0.96. Full Year 2006 - First Horizon expects full year 2006 revenues to be in the range of $265 million to $275 million and diluted earnings per share to be in the range of $1.15 to $1.20. This approximates a 25% increase in revenues and earnings per share on a year over year basis. Our 2006 projections, which are based solely on sales of the products in our current portfolio, anticipate investments of 3% to 5% of net revenues into research and development, and a sales force of approximately 525 sales representatives. The 2006 earnings projections do not include the requirement to incur stock compensation expense in 2006. Conference Call First Horizon will host a conference call on Wednesday, October 26, 2005, beginning at 5:00 p.m. Eastern Daylight Time to discuss the financial results. Analysts, investors and other interested parties are invited to participate by visiting the Company's website, www.fhrx.com, and entering the Investor Relations page. You may also dial in to the conference call. The dial-in numbers are (800) 573-4840 for domestic callers and (617) 224-4326 for international callers. All callers should use passcode 64151068 to gain access to the conference call. Please plan to dial-in or log on at least ten minutes prior to the designated start time so management can begin promptly. First Horizon Background First Horizon Pharmaceutical Corporation is a specialty pharmaceutical company that markets, sells and develops prescription products with a primary focus on cardiology and women's health. First Horizon has a portfolio that includes 15 branded prescription products of which 8 are actively promoted to high-prescribing physicians through its nationwide sales force of approximately 470 representatives. First Horizon's web site address is: www.fhrx.com. Please visit First Horizon's website for full prescribing information on First Horizon's products. Safe Harbor Statement This press release contains forward-looking statements (in addition to historical facts) that are subject to risks and uncertainties that could cause actual results to materially differ from those described. Although we believe that the expectations expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. With respect to such forward-looking statements, we seek the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include, without limitation: -- We may not attain expected revenues and earnings; -- The 60 mg Altoprev product is currently experiencing manufacturing issues. If the issues cannot be resolved, our ability to acquire the product for sale and sampling will be adversely affected; -- If we are unsuccessful in obtaining third party payor contracts for our products, we may experience reductions in sales levels and may fail to reach anticipated sales levels; -- If demand for our products exceeds our initial expectations or the ability of our suppliers to provide demand-meeting quantities of product and samples, our future ability to sell these products could be adversely impacted; -- The potential growth rate for our promoted products may be limited by slower growth for the class of drugs to which our promoted products belong and unfavorable clinical studies about such class of drugs; -- Strong competition exists in the sale of our promoted products, which could adversely affect expected growth of our promoted products' sales or increase our costs to sell our promoted products; -- We may not be able to protect our competitive position for our promoted products from patent infringers; -- Sales of our Tanafed and Robinul products have been adversely affected by the introduction of knock-off and generic products, respectively; -- An issued FDA notice may cause us to incur increased expenses and adversely affect our ability to continue to market and sell our Tanafed products; -- We may incur unexpected costs in integrating new products into our operations; -- We may be unable to develop or market line extensions for our products including Sular, Triglide and Fortamet, or, even if developed, obtain patent protection for our line extensions. Further, introductions by us of line extensions of our existing products may require that we make unexpected changes in our estimates for future product returns and reserves for obsolete inventory. If these risks occur, our operating results would be adversely affected; -- Our licensor/supplier can terminate our rights to commercialize Nitrolingual and the 60 dose size of this product has not yet met our expectation; -- An adverse ruling by one of the taxing jurisdictions in which we operate could adversely impact our operating results; -- A small number of customers account for a large portion of our sales and the loss of one of them, or changes in their purchasing patterns, could result in substantially reduced sales substantially and adversely impacting our financial results; -- If third-party payors do not adequately reimburse patients for our products, doctors may not prescribe them; -- We rely on operational data obtained from IMS, an industry accepted data source. IMS data may not accurately reflect actual prescriptions (for instance, we believe IMS data does not capture all product prescriptions from some non-retail channels); -- An adverse judgment in the securities class action litigation in which we and certain current and former directors and executive officers are defendants could have a material adverse effect on our results of operations and liquidity; -- If we fail to obtain, or encounter difficulties in obtaining, regulatory approval for new products or new uses of existing products, or if our development agreements are terminated, we will have expended significant resources for no return; -- Our business and products are highly regulated. The regulatory status of some of our products makes these products subject to increased competition and other risks, and we run the risk that we, or third parties on whom we rely, could violate the governing regulations; -- If generic competitors that compete with any of our products are introduced our revenues may be adversely affected; and -- Some unforeseen difficulties may occur. This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included herein. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements and risk factors included in our other filings with the Securities and Exchange Commission. The Company's product names are trademarks, in some cases registered, of the Company. -0- *T FIRST HORIZON PHARMACEUTICAL CORPORATION Condensed Consolidated Statement of Operations (Unaudited, in thousands, except per share amounts) For the For the Quarter Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Net revenues $ 58,718 $ 41,559 $ 149,491 $ 109,567 Operating costs and expenses: Cost of revenues 8,768 8,895 23,290 21,295 Selling, general and administrative 26,480 16,699 68,240 46,287 Depreciation and amortization 6,217 4,330 16,322 12,600 Research and development 1,399 479 2,285 1,023 --------- --------- --------- --------- Total operating costs and expenses 42,864 30,403 110,137 81,205 --------- --------- --------- --------- Operating income 15,854 11,156 39,354 28,362 Other income (expense), net (126) 463 (535) 769 --------- --------- --------- --------- Income before provision for income taxes 15,728 11,619 38,819 29,131 Provision for income taxes 5,094 4,184 12,593 11,140 --------- --------- --------- --------- Net income $ 10,634 $ 7,435 $ 26,226 $ 17,991 ========= ========= ========= ========= Net income per common share: Basic $ 0.30 $ 0.21 $ 0.75 $ 0.50 ========= ========= ========= ========= Diluted $ 0.26 $ 0.18 $ 0.65 $ 0.45 ========= ========= ========= ========= Weighted average common shares outstanding: Basic 35,119 35,767 35,071 35,870 ========= ========= ========= ========= Diluted 42,548 43,521 42,569 42,205 ========= ========= ========= ========= FIRST HORIZON PHARMACEUTICAL CORPORATION Condensed Consolidated Balance Sheets (Unaudited, in thousands) Sept. 30, Dec. 31, 2005 2004 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 14,658 $ 36,586 Marketable securities 83,183 160,636 Accounts receivable, net 32,504 23,833 Inventories 33,013 15,824 Other current assets 20,628 16,438 --------- --------- Total current assets 183,986 253,317 --------- --------- Property and equipment, net 5,385 5,110 Other assets: Intangibles, net 321,502 229,953 Other assets 4,438 10,104 --------- --------- Total other assets 325,940 240,057 --------- --------- Total assets $ 515,311 $ 498,484 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 9,390 $ 14,569 Accrued expenses 16,203 20,508 --------- --------- Total current liabilities 25,593 35,077 --------- --------- Long-term liabilities: Convertible debt 150,000 150,000 Other long-term liabilities 6,703 4,998 --------- --------- Total liabilities 182,296 190,075 --------- --------- Stockholders' equity: Common stock 36 36 Additional paid-in capital 289,703 288,335 Retained earnings 69,541 43,315 Deferred compensation (215) -- Accumulated other comprehensive loss (2,860) (87) Treasury stock (23,190) (23,190) --------- --------- Total stockholders' equity 333,015 308,409 --------- --------- Total liabilities and stockholders' equity $ 515,311 $ 498,484 ========= ========= FIRST HORIZON PHARMACEUTICAL CORPORATION Reconciliation of EBITDA(1) (Unaudited, in thousands) For the For the Quarter Nine Months Ended Ended Sept. 30, Sept. 30, 2005 2005 --------- --------- Net income as reported (GAAP) $ 10,634 $ 26,226 Add: Other expense, net 126 535 Add: Provision for income taxes 5,094 12,593 Add: Depreciation and amortization 6,217 16,322 --------- --------- Earnings before interest, taxes, depreciation and amortization $ 22,071 $ 55,676 ========= ========= (1) The Company believes that EBITDA is a meaningful non-GAAP financial measure as an earnings-derived indicator that may approximate cash flow. EBITDA, as defined and presented by the Company, may not be comparable to similar measures reported by other companies. *T