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Endo Reports Second-Quarter 2017 Financial Results

DUBLIN, Aug. 8, 2017 /PRNewswire/ --

  • Second-quarter 2017 reported (GAAP) consolidated net loss of $1,397 million, including $775 million to increase the mesh product liability accrual primarily related to the resolution of virtually all known U.S. mesh product liability claims
  • Company updates 2017 financial guidance to reflect the previously announced Somar divestiture, OPANA® ER withdrawal and manufacturing network restructuring
  • Company reports $725 million of impairment charges relating primarily to market and competitive factors impacting certain products, its manufacturing network restructuring, Somar divestiture and the market withdrawal of OPANA® ER

Endo International plc (NASDAQ: ENDP) today reported second-quarter 2017 financial results, including:

  • Revenues of $876 million, a 5 percent decrease compared to second-quarter 2016 revenues of $921 million.
  • Reported net loss from continuing operations of $696 million compared to second-quarter 2016 reported net income from continuing operations of $390 million.
  • Reported diluted loss per share from continuing operations of $3.12 compared to second-quarter 2016 reported diluted earnings per share from continuing operations of $1.75.
  • Adjusted income from continuing operations of $207 million, an 8 percent increase compared to second-quarter 2016 adjusted income from continuing operations of $192 million.
  • Adjusted diluted EPS from continuing operations of $0.93, an 8 percent increase compared to second-quarter 2016 adjusted diluted EPS from continuing operations of $0.86.

"We are very pleased to report another solid quarter of operating performance, with impressive contributions from our core growth areas. Sterile Injectables and Branded Specialty Products continue to perform well, as each unit again achieved strong double-digit growth," said Paul Campanelli, President and CEO of Endo. This performance provides evidence of the progress we are making on the strategic priorities we outlined earlier this year.

"In addition to solid quarterly execution, we continue to make significant progress across an array of strategic initiatives, including settling mesh litigation, divesting Litha, signing a definitive agreement to divest Somar, and the restructuring of our manufacturing network. Through these actions, we continue to position Endo to compete and succeed in the future," Mr. Campanelli added.

FINANCIAL PERFORMANCE






















(in thousands, except per share amounts)























Three Months Ended June 30,




Six Months Ended June 30,




2017


2016


Change


2017


2016


Change

Total Revenues

$

875,731



$

920,887



(5)

%


$

1,913,331



$

1,884,426



2

%

Reported (Loss) Income from Continuing Operations

$

(696,020)



$

389,812



NM



$

(861,443)



$

301,049



NM


Reported Diluted Weighted Average Shares

223,158



222,863



%


223,086



223,021



%

Reported Diluted (Loss) Income per Share from Continuing Operations

$

(3.12)



$

1.75



NM



$

(3.86)



$

1.35



NM


Adjusted Income from Continuing Operations

$

207,201



$

192,341



8

%


$

482,446



$

433,072



11

%

Adjusted Diluted Weighted Average Shares1

223,785



222,863



%


223,560



223,021



%

Adjusted Diluted EPS from Continuing Operations

$

0.93



$

0.86



8

%


$

2.16



$

1.94



11

%

CONSOLIDATED RESULTS

Total revenues decreased by 5 percent to $876 million in second-quarter 2017 compared to the same period in 2016 primarily due to generic competition adversely impacting the Branded Established Products portfolio. GAAP net loss from continuing operations in second-quarter 2017 was $696 million compared to GAAP net income from continuing operations of $390 million during the same period in 2016. This decrease was primarily attributable to charges associated with the Company's manufacturing network restructuring; after-tax impairment charges associated with market and competitive factors impacting certain products' revenues, the pending Somar divestiture and the market removal of OPANA® ER; and second-quarter 2016 recognition of certain net tax benefits. GAAP net loss per share from continuing operations for the second-quarter 2017 was $3.12, compared to diluted GAAP EPS from continuing operations of $1.75 in second-quarter 2016.

Adjusted income from continuing operations in second-quarter 2017 increased by 8 percent to $207 million compared to second-quarter 2016. This increase was driven primarily by improved adjusted gross margin, which resulted, in part, from strong revenue growth in Sterile Injectables and Branded Specialty Products, as well as lower operating expenses. Adjusted EPS from continuing operations in second-quarter 2017 increased 8 percent to $0.93 compared to second-quarter 2016.

U.S. GENERIC PHARMACEUTICALS

During second-quarter 2017, the U.S. Generic Pharmaceuticals segment launched neostigmine methylsulfate injection following approval of its Abbreviated New Drug Application (ANDA) by the U.S. Food and Drug Administration (FDA). The Company also received FDA approval of its ANDA for vigabatrin for oral solution and expects to launch the product in the third-quarter of 2017.

Second-quarter 2017 U.S. Generic Pharmaceuticals results include:

  • Revenues of $563 million, virtually unchanged from second-quarter 2016, as decline in the Generics Base business was substantially offset by strong growth in Sterile Injectables and New Launches and Alternative Dosages.
  • Sterile Injectables increased 27 percent compared to second-quarter 2016; this increase was driven primarily by VASOSTRICT® and ADRENALIN®.
  • The Generics Base business decreased 34 percent compared to second-quarter 2016; this decrease primarily resulted from the impact on second-quarter 2017 related to 2016 competitive events and previously announced product discontinuances.

U.S. BRANDED PHARMACEUTICALS

During second-quarter 2017, the FDA requested that Endo voluntarily withdraw OPANA® ER from the market. After careful consideration and consultation with the FDA, the Company announced it would voluntarily remove the product from the market. In an effort to minimize treatment disruption for patients and allow patients sufficient time to seek guidance from their healthcare professionals, the Company has agreed with the FDA to cease shipments to customers by September 1, 2017.

Second-quarter 2017 U.S. Branded Pharmaceuticals results include:

  • Revenues of $245 million, a 15 percent decrease compared to second-quarter 2016; this decrease was primarily attributable to generic competition adversely impacting the Company's established products portfolio, including VOLTAREN® Gel, LIDODERM® and OPANA® ER , along with the divestiture of STENDRA®.
  • Specialty Products increased 16 percent in second-quarter 2017 versus the same period in 2016, driven by strong performance from XIAFLEX®, SUPPRELIN® LA and AVEED®. Sales of XIAFLEX®, our flagship Branded product, increased 18 percent compared to second-quarter 2016; this increase was primarily attributable to strong volume growth.

INTERNATIONAL PHARMACEUTICALS

Endo's previously announced sale of its South African business, Litha Healthcare Group, to Acino Pharma AG closed on July 3, 2017. Also in July, the Company announced it had entered into a definitive agreement to sell its Mexican subsidiary, Somar, to Advent International. The transaction is expected to close in the beginning of the fourth quarter of 2017, subject to customary conditions, including the expiration or termination of any waiting periods under applicable laws.

Second-quarter 2017 International Pharmaceuticals revenues were $67 million, virtually unchanged from the same period in 2016.

2017 FINANCIAL GUIDANCE

For the full twelve months ended December 31, 2017, at current exchange rates, Endo is providing updated guidance on revenue, GAAP and adjusted diluted income (loss) per share from continuing operations and adjusted EBITDA from continuing operations, along with certain assumptions used in determining these measures, to reflect the planned divestiture of Somar, the market removal of OPANA® ER and the recently announced manufacturing network restructuring. The Company estimates:

  • Total revenues to be between $3.38 billion to $3.53 billion;
  • Reported diluted GAAP loss per share from continuing operations to be between $4.76 and $4.46;

The Company's 2017 non-GAAP financial guidance is based on the following assumptions:

  • Adjusted gross margin of approximately 62.5% to 63.5%;
  • Adjusted operating expenses as a percentage of revenues of approximately 22.5%;
  • Adjusted effective tax rate of approximately 14.0%; and
  • Adjusted diluted EPS from continuing operations assumes full-year adjusted diluted shares outstanding of approximately 224 million shares.

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

As of June 30, 2017, the Company had $617 million in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.7 billion and a net debt to adjusted EBITDA ratio of 4.3.

Second-quarter 2017 cash provided by operating activities was $173 million, compared to $604 million of net cash provided by operating activities in the comparable 2016 period. The 2016 period benefited from the receipt of a significant federal income tax refund that did not reoccur to the same extent in the 2017 period. Mesh-related payments also decreased in second-quarter 2017 compared to the 2016 period based on timing.

The Company recently announced that it has reached agreements to resolve virtually all known U.S. mesh product liability claims. Endo agreed to make installment payments beginning in the fourth-quarter of 2017 and continuing through the fourth-quarter of 2019. The Company increased its mesh product liability accrual by $775 million which is expected to cover approximately 22,000 U.S. mesh claims, as well as all known international mesh product liability claims and other mesh-related matters.

During second-quarter 2017, the Company recorded total combined pre-tax, non-cash asset impairment charges of $725 million, which primarily consisted of intangible asset impairment charges of $477 million and goodwill impairment charges of $206 million, including the following items:

  • $501 million of non-restructuring goodwill and intangible asset impairments related to its U.S. Generic and Branded Pharmaceuticals segments, which included the market withdrawal of OPANA® ER and $115 million of goodwill and other intangible assets related to the Company's planned Somar sale.
  • As part of its recently announced manufacturing network restructuring initiative, the Company will be ceasing operations and closing its manufacturing and distribution facilities in Huntsville, Alabama. The Company recorded an impairment charge of $90 million related to intangible assets and property, plant and equipment associated with the planned closure.

As previously announced, the Company expects to pay approximately $60 million in cash related to the manufacturing network restructuring over the next 12 to 18 months. As a result of these restructuring actions, Endo expects to redeploy as an investment into its core growth areas approximately $55 million to $65 million in annual net run rate pre-tax cost savings that it expects to realize by the fourth quarter of 2018.

CONFERENCE CALL INFORMATION

Endo will conduct a conference call with financial analysts to discuss this press release today at 8:30 a.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 45397076. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from August 8, 2017 at 11:30 a.m. ET until 11:59 p.m. ET on August 22, 2017 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 45397076.

A simultaneous webcast of the call can be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available until 11:59 p.m. ET on August 22, 2017. The replay can be accessed by clicking on the Investor Relations section of the Endo website.

FINANCIAL SCHEDULES

The following table presents Endo's unaudited Total Revenues for the three and six months ended June 30, 2017 and 2016 (in thousands):


Three Months Ended June 30,


Percent Growth


Six Months Ended June 30,


Percent Growth


2017


2016



2017


2016


U.S. Generic Pharmaceuticals:












U.S. Generics Base

$

218,935



$

331,095



(34)

%


$

455,082



$

678,524



(33)

%

Sterile Injectables

160,597



126,245



27

%


311,946



249,934



25

%

New Launches and Alternative Dosages

183,780



108,018



70

%


518,267



220,290



135

%

Total U.S. Generic Pharmaceuticals

$

563,312



$

565,358



%


$

1,285,295



$

1,148,748



12

%

U.S. Branded Pharmaceuticals:












Specialty Products:












XIAFLEX®

$

50,077



$

42,419



18

%


$

99,602



$

86,464



15

%

SUPPRELIN® LA

23,649



21,211



11

%


42,830



38,463



11

%

Other Specialty (1)

36,745



31,973



15

%


72,773



64,942



12

%

Total Specialty Products

$

110,471



$

95,603



16

%


$

215,205



$

189,869



13

%

Established Products:












OPANA® ER

$

31,582



$

38,554



(18)

%


$

67,300



$

83,224



(19)

%

PERCOCET®

30,889



35,708



(13)

%


61,834



69,301



(11)

%

VOLTAREN® Gel

20,270



27,290



(26)

%


34,544



63,037



(45)

%

LIDODERM®

11,678



27,039



(57)

%


24,854



46,751



(47)

%

Other Established (2)

40,298



64,148



(37)

%


91,610



144,973



(37)

%

Total Established Products

$

134,717



$

192,739



(30)

%


$

280,142



$

407,286



(31)

%

Total U.S. Branded Pharmaceuticals (3)

$

245,188



$

288,342



(15)

%


$

495,347



$

597,155



(17)

%

Total International Pharmaceuticals

$

67,231



$

67,187



%


$

132,689



$

138,523



(4)

%

Total Revenues

$

875,731



$

920,887



(5)

%


$

1,913,331



$

1,884,426



2

%

The following table presents unaudited Condensed Consolidated Statement of Operations data for the three and six months ended June 30, 2017 and 2016 (in thousands, except per share data):


Three Months Ended June 30,


Six Months Ended June 30,


2017


2016


2017


2016

TOTAL REVENUES

$

875,731



$

920,887



$

1,913,331



$

1,884,426


COSTS AND EXPENSES:








Cost of revenues

539,401



632,218



1,208,363



1,320,923


Selling, general and administrative

155,555



193,070



332,795



371,425


Research and development

40,869



50,589



83,878



92,281


Litigation-related and other contingencies, net

(2,600)



5,259



(1,664)



10,459


Asset impairment charges

725,044



39,951



929,006



169,576


Acquisition-related and integration items

4,190



48,171



15,070



60,725


OPERATING LOSS FROM CONTINUING OPERATIONS

$

(586,728)



$

(48,371)



$

(654,117)



$

(140,963)


INTEREST EXPENSE, NET

121,747



111,919



233,746



228,712


LOSS ON EXTINGUISHMENT OF DEBT

51,734





51,734




OTHER (INCOME) EXPENSE, NET

(6,709)



5,175



(8,746)



3,268


LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX

$

(753,500)



$

(165,465)



$

(930,851)



$

(372,943)


INCOME TAX BENEFIT

(57,480)



(555,277)



(69,408)



(673,992)


(LOSS) INCOME FROM CONTINUING OPERATIONS

$

(696,020)



$

389,812



$

(861,443)



$

301,049


DISCONTINUED OPERATIONS, NET OF TAX

(700,498)



(46,216)



(708,903)



(91,324)


CONSOLIDATED NET (LOSS) INCOME

$

(1,396,518)



$

343,596



$

(1,570,346)



$

209,725


Less: Net income attributable to noncontrolling interests



18





16


NET (LOSS) INCOME ATTRIBUTABLE TO ENDO INTERNATIONAL PLC

$

(1,396,518)



$

343,578



$

(1,570,346)



$

209,709


NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—BASIC:








Continuing operations

$

(3.12)



$

1.75



$

(3.86)



$

1.35


Discontinued operations

(3.14)



(0.21)



(3.18)



(0.41)


Basic

$

(6.26)



$

1.54



$

(7.04)



$

0.94


NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—DILUTED:








Continuing operations

$

(3.12)



$

1.75



$

(3.86)



$

1.35


Discontinued operations

(3.14)



(0.21)



(3.18)



(0.41)


Diluted

$

(6.26)



$

1.54



$

(7.04)



$

0.94


WEIGHTED AVERAGE SHARES:








Basic

223,158



222,667



223,086



222,485


Diluted

223,158



222,863



223,086



223,021


The following table presents unaudited Condensed Consolidated Balance Sheet data at June 30, 2017 and December 31, 2016 (in thousands):


June 30, 2017


December 31, 2016

ASSETS




CURRENT ASSETS:




Cash and cash equivalents

$

616,534



$

517,250


Restricted cash and cash equivalents

364,796



282,074


Accounts receivable

580,123



992,153


Inventories, net

489,752



555,671


Assets held for sale

166,190



116,985


Other current assets

57,620



125,326


Total current assets

$

2,275,015



$

2,589,459


TOTAL NON-CURRENT ASSETS

10,003,075



11,685,650


TOTAL ASSETS

$

12,278,090



$

14,275,109


LIABILITIES AND SHAREHOLDERS' EQUITY




CURRENT LIABILITIES:




Accounts payable and accrued expenses, including legal settlement accruals

$

2,143,167



$

2,470,016


Liabilities held for sale

44,367



24,338


Other current liabilities

39,413



140,391


Total current liabilities

$

2,226,947



$

2,634,745


LONG-TERM DEBT, LESS CURRENT PORTION, NET

8,251,289



8,141,378


OTHER LIABILITIES

990,748



797,397


TOTAL SHAREHOLDERS' EQUITY

...

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