ICOS Icos

ICOS Corporation (Nasdaq:ICOS) today released its financial results for the three months ended March 31, 2006 and summarized recent events. "ICOS is off to a strong start in 2006," stated Paul Clark, ICOS Chairman and CEO. "Cialis continues to gain market share. In March 2006, Cialis captured 25.8% share of U.S. total prescriptions, an increase of 4.0 percentage points of share since March 2005(1). In February 2006, Cialis held 34.0% aggregate market share in Europe, Canada and Mexico, an increase of 4.7 percentage points of share since February 2005(2)." Lilly ICOS(3) posted solid profitability, in the 2006 first quarter, as a result of continued sales growth and reduced selling, general and administrative expenses. For the three months ended March 31, 2006, Lilly ICOS reported net income of $65.0 million, a $106.7 million improvement compared to the net loss of $41.7 million reported for the 2005 first quarter. Worldwide sales of Cialis totaled $222.7 million during the 2006 first quarter, a 48% increase compared to the first quarter of 2005. 2006 first quarter sales of Cialis in North America and Europe were $167.3 million, a 50% increase compared to the same period in 2005, when it is estimated that U.S. wholesalers reduced inventory levels by approximately $27 million. In February 2006, Cialis was the market share leader in eleven countries, including France, where it has been the market leader for 14 consecutive months. In Portugal, Cialis became the market leader in January 2006 and captured 41.4% share of tablets from wholesalers to pharmacies in February 2006(4). Other countries where Cialis is the market leader include Saudi Arabia, South Africa and Venezuela. 2006 First Quarter Financial Results ICOS' 2006 first quarter adjusted net income (a non-GAAP measure equal to reported net loss before stock-based compensation expense) was $7.2 million ($0.11 per share)(5), compared to the net loss of $46.4 million ($0.73 per share) reported for the 2005 first quarter. For the 2006 first quarter, ICOS reported a net loss of $0.7 million ($0.01 per share), compared to a proforma net loss of $54.1 million ($0.85 per share) for the 2005 first quarter. ICOS adopted the new accounting requirements related to expensing stock-based compensation (FAS 123R) beginning January 1, 2006. The accompanying Schedules 2, 4 and 5 include additional information regarding the impact of this accounting change. Our 50% share of Lilly ICOS' earnings was $32.6 million in the first quarter of 2006, compared to equity in losses of $20.7 million in the first quarter of 2005. The $53.3 million improvement reflects growth in sales of Cialis around the world, planned reductions in marketing and selling costs, and the impact on Lilly ICOS of an approximate $27 million estimated aggregate reduction of U.S. wholesaler inventories of Cialis during the 2005 first quarter. ICOS Corporation's total revenue was $18.7 million in the first quarter of 2006, compared to $13.8 million in the first quarter of 2005. Collaboration revenue from Lilly ICOS totaled $15.0 million in the 2006 first quarter, compared to $10.4 million in the first quarter of 2005. The increase primarily reflects incremental research and development activities performed by ICOS personnel on behalf of Lilly ICOS and reimbursable costs for 40 contract (non-employee) sales representatives retained to promote Cialis in the U.S. beginning in January 2006. Total operating expenses were $51.7 million for the three months ended March 31, 2006, compared to proforma $47.2 million for the three months ended March 31, 2005. Marketing and selling expenses were $13.6 million for the three months ended March 31, 2006, compared to proforma $11.6 million for the three months ended March 31, 2005. The increase primarily reflects incremental costs for the aforementioned contract sales representatives. At March 31, 2006, we had cash, cash equivalents, investment securities and associated interest receivable of $170.5 million. -0- *T (1) IMS National Prescription Audit Plus(TM), March 2006. (2) IMS Health, IMS MIDAS (based on PDE5 inhibitor tablets from wholesalers to pharmacies), February 2006. (3) Lilly ICOS LLC (Lilly ICOS) is a 50/50 joint venture between ICOS Corporation and Eli Lilly and Company, that is marketing Cialis(R), in North America and Europe, for the treatment of erectile dysfunction (ED). (4) IMS Health, IMS MIDAS (based on PDE5 inhibitor tablets from wholesalers to pharmacies), February 2006. (5) 2006 reported net loss of $0.653 million ($0.01 per share) plus stock-based compensation expense of $7.811 million, equals adjusted net income of $7.158 million ($0.11 per share). *T Financial Guidance On February 7, 2006, ICOS stated that it expected 2006 worldwide sales of Cialis between $860 million and $900 million. ICOS now anticipates that 2006 worldwide sales of Cialis will be near the upper end of that range. Based on this revenue outlook, ICOS now expects Lilly ICOS' 2006 net income to be near the upper end of the $210 million to $240 million range previously communicated. Consistent with our improved outlook for Lilly ICOS, ICOS now expects its 2006 net loss to be near the lower end of the $5.0 million ($0.08 per share) to $25.0 million ($0.39 per share) net loss range previously communicated. ICOS Corporation, a biotechnology company headquartered in Bothell, Washington, is dedicated to bringing innovative therapeutics to patients. Through Lilly ICOS LLC, ICOS is marketing its first product, Cialis (tadalafil), for the treatment of erectile dysfunction. ICOS is working to develop treatments for serious unmet medical needs such as benign prostatic hyperplasia, hypertension, pulmonary arterial hypertension, cancer and inflammatory diseases. Except for historical information contained herein, this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that may cause our results and the timing and outcome of events to differ materially from those expressed in or implied by the forward-looking statements, including risks associated with product commercialization, research and clinical development, regulatory approvals, manufacturing, collaboration arrangements, liquidity, competition, intellectual property claims, litigation and other risks detailed in our latest Quarterly Report on Form 10-Q and our other public filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent our judgment as of the date of this release. We undertake no obligation to publicly update any forward-looking statements. The biotechnology and pharmaceutical businesses are risky and there can be no assurance that any of our products or product candidates will achieve commercial success or that competing therapies will not pre-empt market opportunities that might exist for any of our products or product candidates. Conference Call As previously announced, today, beginning at 4:30 p.m. Eastern Time, ICOS will host a conference call to review 2006 first quarter financial results and related matters, including financial guidance and plans for 2006. The conference call can be accessed as a webcast at www.icos.com, in the Investor/Events section, or by telephone, using the Passcode 824479, live at 612-288-0329, or as a replay at 320-365-3844. The webcast will be available until May 11, 2006 at 5:30 pm Eastern Time. The telephone replay will be available until May 5, 2006 at 8:00 pm Eastern Time. -- Selected financial data follows-- -0- *T ICOS Corporation and Subsidiaries Schedule 1 - SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) (unaudited) Three Months Ended March 31, ----------------------------- 2005 ------------------ Proforma As 2006 (a) Reported -------- --------- --------- Condensed Consolidated Statements of Operations: Revenue: Lilly ICOS collaboration $ 14,976 $ 10,360 $ 10,360 Contract manufacturing 3,751 2,474 2,474 Co-promotion services - 950 950 -------- -------- -------- Total revenue 18,727 13,784 13,784 -------- -------- -------- Equity in earnings (losses) of Lilly ICOS 32,636 (20,679) (20,679) -------- -------- -------- Operating expenses: Research and development 25,819 25,551 22,213 Marketing and selling 13,556 11,588 10,434 Cost of contract manufacturing 3,790 2,142 1,851 General and administrative 8,567 7,912 5,005 -------- -------- -------- Total operating expenses 51,732 47,193 39,503 -------- -------- -------- Operating loss (369) (54,088) (46,398) Other income (expense): Interest expense (1,704) (1,704) (1,704) Interest and other income 1,420 1,718 1,718 -------- -------- -------- Net loss $ (653) $(54,074) $(46,384) ======== ======== ======== Net loss per common share - basic and diluted $ (0.01) $ (0.85) $ (0.73) ======== ======== ======== Weighted average common shares outstanding - basic and diluted 64,320 63,799 63,799 ======== ======== ======== Condensed Consolidated Balance Sheets: March 31, Dec. 31, 2006 2005 -------- -------- Cash, cash equivalents, investment securities and interest receivable $170,524 $162,782 Receivable from Lilly ICOS 15,515 14,300 Investment in Lilly ICOS 33,394 35,497 Property and equipment, net 18,111 17,995 Deferred financing costs and other 10,952 11,193 -------- -------- Total assets $248,496 $241,767 ======== ======== Current liabilities $ 20,760 $ 22,387 Convertible subordinated debt 278,650 278,650 Stockholders' deficit (50,914) (59,270) -------- -------- Total liabilities and stockholders' deficit $248,496 $241,767 ======== ======== (a) Effective January 1, 2006, we adopted FAS 123R and began expensing all stock-based compensation. 2005 proforma amounts reflect our results of operations as if we had applied the provisions of FAS 123R beginning January 1, 2005. See also accompanying Schedules 2, 4 and 5. ICOS Corporation and Subsidiaries Schedule 2 - CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) 2006 2005 Proforma (a) -------- ------------------- Q1 Q1 Q2 --------- --------- --------- Revenue: Lilly ICOS collaboration $ 14,976 $ 10,360 $ 12,693 Contract manufacturing 3,751 2,474 3,502 Co-promotion services - 950 1,893 -------- -------- -------- Total revenue 18,727 13,784 18,088 -------- -------- -------- Equity in income (losses) of Lilly ICOS 32,636 (20,679) (689) -------- -------- -------- Operating expenses: Research and development 25,819 25,551 24,514 Marketing and selling 13,556 11,588 11,652 Cost of contract manufacturing 3,790 2,142 3,596 General and administrative 8,567 7,912 8,292 -------- -------- -------- Total operating expenses 51,732 47,193 48,054 -------- -------- -------- Operating loss (369) (54,088) (30,655) Other income (expense): Interest expense (1,704) (1,704) (1,705) Interest and other income 1,420 1,718 1,723 -------- -------- -------- Net loss $ (653) $(54,074) $(30,637) ======== ======== ======== Net loss per common share - basic and diluted $ (0.01) $ (0.85) $ (0.48) ======== ======== ======== Weighted average common shares outstanding - basic and diluted 64,320 63,799 63,941 ======== ======== ======== 2005 Proforma (a) ------------------------------- Q3 Q4 TOTAL ---------- --------- ---------- Revenue: Lilly ICOS collaboration $ 13,628 $13,374 $ 50,055 Contract manufacturing 5,347 4,722 16,045 Co-promotion services 1,791 676 5,310 -------- ------- --------- Total revenue 20,766 18,772 71,410 -------- ------- --------- Equity in income (losses) of Lilly ICOS 10,038 30,849 19,519 -------- ------- --------- Operating expenses: Research and development 24,516 26,276 100,857 Marketing and selling 11,938 11,779 46,957 Cost of contract manufacturing 4,726 5,013 15,477 General and administrative 8,676 8,257 33,137 -------- ------- --------- Total operating expenses 49,856 51,325 196,428 -------- ------- --------- Operating loss (19,052) (1,704) (105,499) Other income (expense): Interest expense (1,704) (1,704) (6,817) Interest and other income 1,426 1,350 6,217 -------- ------- --------- Net loss $(19,330) $(2,058) $(106,099) ======== ======= ========= Net loss per common share - basic and diluted $ (0.30) $ (0.03) $ (1.66) ======== ======= ========= Weighted average common shares outstanding - basic and diluted 64,075 64,167 63,996 ======== ======= ========= (a) Effective January 1, 2006, we adopted FAS 123R and began expensing all stock-based compensation. 2005 proforma amounts reflect our results of operations as if we had applied the provisions of FAS 123R beginning January 1, 2005. ICOS Corporation and Subsidiaries Schedule 3 - SUMMARIZED OPERATING RESULTS OF LILLY ICOS LLC (in thousands) (unaudited) 2006 2005 --------- ------------------ Q1 Q1 Q2 --------- --------- -------- Revenue: Product sales, net United States $ 82,537 $ 42,744 $ 71,118 Europe 67,586 56,264 60,925 Canada and Mexico 17,151 12,186 13,839 -------- --------- -------- 167,274 111,194 145,882 Royalties 11,088 7,790 9,010 -------- -------- -------- Total revenue 178,362 118,984 154,892 -------- -------- -------- Expenses: Cost of sales (a) 13,382 9,752 11,934 Selling, general and administrative 86,517 137,027 126,232 Research and development 13,502 13,874 18,413 -------- -------- -------- Total expenses 113,401 160,653 156,579 -------- -------- -------- Net income (loss) $ 64,961 $(41,669) $ (1,687) ======== ======== ======== ICOS Corporation's share of net income (loss) $ 32,636 $(20,679) $ (689) ======== ======== ======== 2005 ----------------------------- Q3 Q4 TOTAL --------- --------- --------- Revenue: Product sales, net United States $ 77,438 $ 81,615 $272,915 Europe 61,992 65,311 244,492 Canada and Mexico 14,727 18,575 59,327 -------- -------- -------- 154,157 165,501 576,734 Royalties 8,172 8,997 33,969 -------- -------- -------- Total revenue 162,329 174,498 610,703 -------- -------- -------- Expenses: Cost of sales (a) 12,378 13,200 47,264 Selling, general and administrative 112,152 84,416 459,827 Research and development 18,035 15,494 65,816 -------- -------- -------- Total expenses 142,565 113,110 572,907 -------- -------- -------- Net income (loss) $ 19,764 $ 61,388 $ 37,796 ======== ======== ======== ICOS Corporation's share of net income (loss) $ 10,038 $ 30,849 $ 19,519 ======== ======== ======== (a) Cost of sales includes $103 per month of license fee amortization applicable only to Eli Lilly and Company's interest in Lilly ICOS. ICOS Corporation and Subsidiaries Schedule 4 - TOTAL STOCK-BASED COMPENSATION EXPENSE (in thousands) (unaudited) The following table presents stock-based compensation expense for 2006 as reported, 2005 as reported and 2005 proforma as if ICOS had applied FAS 123R during that year. 2006 2005 ------ --------------------------------------- Q1 Q1 Q2 Q3 Q4 Total ------- ------- ------- ------- ------- -------- As reported Stock options $6,487 $ - $ - $ - $ - $ - Restricted shares 1,121 - - 946 1,167 2,113 Restricted stock units 203 - - - - - ------ ------ ------ ------ ------ ------- 7,811 - - 946 1,167 2,113 ------ ------ ------ ------ ------ ------- Proforma adjustments Stock options - 7,690 8,012 7,876 7,679 31,257 Restricted shares - - - - - - Restricted stock units - - - - - - ------ ------ ------ ------ ------ ------- - 7,690 8,012 7,876 7,679 31,257 ------ ------ ------ ------ ------ ------- Total (2006 as reported; 2005 proforma) Stock options 6,487 7,690 8,012 7,876 7,679 31,257 Restricted shares 1,121 - - 946 1,167 2,113 Restricted stock units 203 - - - - - ------ ------ ------ ------ ------ ------- $7,811 $7,690 $8,012 $8,822 $8,846 $33,370 ====== ====== ====== ====== ====== ======= ICOS Corporation and Subsidiaries Schedule 5 - ALLOCATION OF TOTAL STOCK-BASED COMPENSATION EXPENSE (in thousands) (unaudited) The following table presents the allocation of stock-based compensation expense for 2006 as reported, 2005 as reported and 2005 proforma as if ICOS had applied FAS 123R during that year. 2006 2005 ------ --------------------------------------- Q1 Q1 Q2 Q3 Q4 Total ------- ------- ------- ------- ------- -------- As reported Research and development $3,178 $ - $ - $ 487 $ 602 $ 1,089 Marketing and selling 1,064 - - 96 116 212 Cost of contract manufacturing 282 - - 45 70 115 General and administrative 3,287 - - 318 379 697 ------ ------ ------ ------ ------ ------- 7,811 - - 946 1,167 2,113 ------ ------ ------ ------ ------ ------- Proforma adjustments Research and development - 3,338 3,219 3,081 2,930 12,568 Marketing and selling - 1,154 1,103 1,067 1,054 4,378 Cost of contract manufacturing - 291 365 376 417 1,449 General and administrative - 2,907 3,325 3,352 3,278 12,862 ------ ------ ------ ------ ------ ------- - 7,690 8,012 7,876 7,679 31,257 ------ ------ ------ ------ ------ ------- Total (2006 as reported; 2005 proforma) Research and development 3,178 3,338 3,219 3,568 3,532 13,657 Marketing and selling 1,064 1,154 1,103 1,163 1,170 4,590 Cost of contract manufacturing 282 291 365 421 487 1,564 General and administrative 3,287 2,907 3,325 3,670 3,657 13,559 ------ ------ ------ ------ ------ ------- $7,811 $7,690 $8,012 $8,822 $8,846 $33,370 ====== ====== ====== ====== ====== ======= *T