ADVANZ PHARMA Corp. Announces Fourth Quarter and Fiscal 2018 Results
-- 2018 revenue of $537 million, fourth quarter 2018 revenue of $118
million
-- 2018 net income of $1.5 billion, which includes a $1.9 billion gain on
debt settlement as part of the Company's transaction to realign its
capital structure, completed in the second half of 2018
-- Fourth quarter net loss of $85 million
-- 2018 Adjusted EBITDA(1) of $250 million and fourth quarter 2018 Adjusted
EBITDA(1 )of $53 million
-- Generated cash flow from operations of $142 million in 2018 and
concluded the year with a cash and cash equivalents balance of $224
million
MISSISSAUGA, ON, March 14, 2019 /PRNewswire/ - ADVANZ PHARMA Corp. ("ADVANZ PHARMA" or "the Company") (TSX:ADVZ), an international specialty pharmaceutical company focused on serving the needs of patients and healthcare providers around the world with enhanced access to high quality, niche-established medicines, today announced its financial and operational results for the three and twelve months ended December 31, 2018. All financial references are in U.S. dollars ("USD") unless otherwise noted.
"Our fourth quarter and fiscal 2018 results are in line with our forecasts," said Graeme Duncan, Chief Executive Officer of ADVANZ PHARMA. "Looking forward to the remainder of 2019 and beyond, with our new leadership team, our refined strategic direction, and a far more sustainable capital structure, we are focussed on becoming the leading platform for niche-established medicines, with advanced commercial capabilities throughout Western Europe."
Consolidated Fourth Quarter and Fiscal 2018 Financial and Operational Results
-- Reported fourth quarter revenue of $117.6 million, compared to $150.2
million for the fourth quarter of 2017, and $127.7 million for the third
quarter of 2018.
-- Reported a net loss for the fourth quarter of 2018 of $84.9 million.
-- Reported fourth quarter Adjusted EBITDA(1 )of $52.5 million, compared to
$70.8 million for the fourth quarter of 2017, and $59.0 million for the
third quarter of 2018.
-- Generated cash flows from operating activities of $141.6 million in
2018, compared to $283.2 million in 2017.
-- Recorded impairments in 2018 totalling $57.6 million within the ADVANZ
PHARMA International segment, consisting of $49.6 million of impairments
with respect to intellectual property and in-process research and
development in the fourth quarter of 2018, and previously disclosed,
second quarter of 2018 impairments of $7.9 million.
-- As of December 31, 2018, the Company had a cash and cash equivalents
balance of $224.4 million.
-- Announced today the addition of Elmar Schnee as an advisor and observer
to the Company's Board of Directors. Mr. Schnee has more than 30 years
of senior-level pharmaceutical experience including CEO at Merck Serono,
and Managing Director at UCB Pharma. He is currently serving on the
board of Jazz Pharmaceuticals, Stallergenes Greer, and as the Chairman
of Santhera Pharmaceuticals.
2018 Segment Results
International Segment
ADVANZ PHARMA International segment revenue of $403.7 million for the year ended December 31, 2018 decreased by $61.7 million, or 13%, compared to 2017. A $79.6 million decrease in revenue was partially offset by a $17.8 million increase in revenue as a result of the GBP strengthening against the USD in the first half of 2018.
Declines to revenue attributable to key products during the year, excluding the impact of foreign currency translation, consisted of a $25.5 million decrease from Liothyronine Sodium; a $6.5 million decrease from Trazodone; a $4.3 million decrease from Carbimazole; a $3.8 million decrease from Levothyroxine Sodium; and a $3.3 million decrease from Prochlorperazine Mesilate.
These lower product volumes and revenues are primarily due to ongoing competitive market pressures resulting in market share erosion in the UK market and certain products experiencing product supply challenges during 2018.
The decline in revenue for Liothyronine Sodium is reflective of the impairment charges taken in the second quarter of 2017 on the product rights attributable to Liothyronine Sodium as a result of market competition.
These declines to revenue were partially offset by $8.3 million increased revenue from Nitrofurantoin and a $2.4 million increased revenue from Argipressin, as a result of product volume increases. The remaining decrease was primarily due to general competitive market pressures across the segment's product portfolio.
North America Segment
ADVANZ PHARMA North America segment revenue of $133.3 million for 2018 decreased by $27.4 million, or 17%, compared to 2017. The decrease was primarily due to a $14.9 million decrease from Donnatal® as a result of additional competitive pressures that have resulted in a loss of market share; a $5.3 million decrease from Dibenzyline® authorized generic due to product supply challenges; and a $4.1 million decrease from Plaquenil® authorized generic as a result of lower product volumes.
In the fourth quarter of 2018, Donnatal® tablets continued to face pressure from two competitive products. Additionally, during the second quarter of 2018, the Company became aware of the launch of additional non-FDA approved competitive products to Donnatal® elixir, which has resulted in lower product volumes of the elixir in the third and fourth quarters of 2018, compared to the corresponding periods in 2017.
These declines in revenue were partially offset by a $4.8 million increase in revenue from Dibenzyline® due to higher-than-expected product returns in 2017; and a $3.8 million increase in revenue from Orapred®. The remaining decrease was primarily due to general competitive market pressures across the segment's product portfolio.
Pipeline Update
Consistent with ADVANZ PHARMA's prior disclosure, with its leadership and board transition, the Company continues to evaluate the composition of its pipeline of medicines.
For 2019, the Company does not believe that product launches from its pipeline will generate a material amount of revenue. Going forward, the Company intends to expand its product portfolio in order to deliver mid-term value and long-term growth, through pipeline filling, optimization, licencing and development partnerships.
ADVANZ PHARMA intends to focus these initiatives on niche and differentiated generics, complex specialty and value-added medicines.
Consolidated Financial Results
Twelve months ended
(in $000's,
except per
share data)
Dec 31, 2018
Dec 31, 2017
===
Revenue 536,986 626,169
Gross profit 361,097 435,537
Gross profit % 67% 70%
Adjusted gross
profit (1) 361,097 435,848
Adjusted gross
profit % (1) 67% 70%
Total operating
expenses 524,399 1,600,485
Operating income
(loss) for the
year (163,302) (1,164,948)
Income tax
expense
(recovery) 1,440 (36,757)
Net income
(loss) for the
year 1,467,303 (1,590,735)
Earnings (loss)
per share
Basic (2) 93.69 (9,328.57)
Diluted (2) 93.69 (9,328.57)
EBITDA (1) 1,976,271 (953,613)
Adjusted EBITDA
(1) 250,294 315,410
---
Notes:
(1)
Represents a non-IFRS measure. For the relevant definitions and reconciliation to reported results, see "Non-IFRS Financial Measures" section of this press release.
Management believes non-IFRS measures, including Adjusted EBITDA, provide supplementary information to IFRS measures used in assessing the performance of the
business
(2)
2017 amounts have been adjusted for the retrospective effect of the Share Consolidation
Consolidated Results of Operations
Revenue for the year ended December 31, 2018, decreased by $89.2 million, or 14%, respectively compared in 2017. This decrease was due to lower sales from both segments, partially offset on a year-to-date basis by higher foreign exchange rates impacting translated revenues from the ADVANZ PHARMA International segment.
The ADVANZ PHARMA International segment revenue for the year ended December 31, 2018 decreased by $61.7 million, or 13%, due to $79.6 million lower revenue primarily as a result of volume declines on key products including Liothyronine Sodium, Trazodone and Carbimazole, partially offset by higher revenue due to volume increases for Nitrofurantoin and Argipressin, combined with favourable foreign exchange rates positively impacting translated results by $17.8 million.
The ADVANZ PHARMA North America segment revenue for the year ended December 31, 2018 decreased by $27.4 million, or 17%, when compared to 2017, mainly as a result of lower volumes on key products, including Donnatal®, Dibenzyline® authorized generic and Plaquenil® authorized generic, partially offset by higher revenue on certain other products, including Dibenzyline® and Orapred®.
Gross profit for the year ended December 31, 2018 decreased by $74.4 million, or 17%, compared to 2017 primarily due to the revenue declines described above.
Gross profit percentage for the year ended December 31, 2018 decreased by 3%, compared to 2017, primarily due to a 3% decrease in gross profit percentage within the ADVANZ PHARMA International segment, partially offset by a 1% increase in gross profit percentage within the ADVANZ PHARMA North America segment.
The change in gross profit percentage for both segments is due to a shift in the mix of product sales within each segment.
Operating expenses for the year ended December 31, 2018 decreased by $1.1 billion, or 67%, compared to 2017. Operating expenses were lower primarily due to $1.1 billion lower impairment charges recorded during 2018.
Excluding impairments, operating expenses for the year ended December 31, 2018 increased by $61.1 million, or 15%, compared to 2017.
The increase in operating expenses for the year ended December 31, 2018, excluding impairments, is primarily due to $54.2 million higher restructuring related, acquisition and other costs mainly associated with the Company's recapitalization transaction, which concluded in September 2018, and $24.0 million higher amortization charges on intangible assets, partially offset by $6.2 million lower share based compensation expense and $6.5 million lower general and administrative costs.
General and administrative expenses reflect costs related to salaries and benefits, professional and consulting fees, public company costs, travel, facility leases and other administrative expenditures. General and administrative expenses for the year ended December 31, 2018 decreased by $6.5 million, or 13%, compared to 2017. This decrease is a result of the Company's objective to reduce operating costs across the business, partially offset by unfavourable foreign exchange rate movements impacting translation of general and administrative expenses from the ADVANZ PHARMA International segment.
Selling and marketing expenses reflect costs incurred by the Company for the marketing, promotion and sale of the Company's broad portfolio of products across the Company's segments. Selling and marketing costs for the year ended December 31, 2018 decreased by $1.4 million, or 4%, compared to 2017. The decreases consisted of a $1.5 million, or 6%, decrease within the ADVANZ PHARMA International segment, partially offset by a $0.1 million, or 1%, increase within the North America segment. The decrease within the ADVANZ PHARMA International segment is primarily as a result of lower costs associated with sales promotion and advertising activities, as well as reduced salaries and benefits costs due to lower headcount in the sales and marketing functions. The increase within the ADVANZ PHARMA North America segment is primarily due to higher costs associated with the co-promotion agreement for sales of Donnatal®, partially offset by lower bad debt expenses.
Research and development expenses reflect costs for clinical trial activities, product development, professional and consulting fees and services associated with the activities of the medical, clinical and scientific affairs, quality assurance costs, regulatory compliance and drug safety costs (Pharmacovigilence) of the Company. Research and development costs for the year ended December 31, 2018 decreased by $1.8 million, or 6%, primarily due to refunds of regulatory fees, timing of various non-recurring projects and lower consulting costs related to ongoing projects. These lower research and development costs are partially offset by higher costs associated with validation and stability testing activities within the ADVANZ PHARMA International segment.
Adjusted EBITDA for the year ended December 31, 2018 decreased by $65.1 million, or 21%, compared to 2017. These declines are primarily due to lower sales and gross profits from both segments, partially offset by higher foreign exchange rates impacting translated results. Adjusted EBITDA by segment for the year ended December 31, 2018 was $179.8 million from the ADVANZ PHARMA International segment and $81.6 million from the ADVANZ PHARMA North America segment.
In addition, during the year ended December 31, 2018, the Company incurred $11.1 million of corporate costs related to the Corporate Head Office. Corporate expenses decreased by $9.6 million compared to 2017, primarily due to lower general and administrative expenses, including professional fees incurred and salaries and benefits costs. The reduction in salary and benefit costs is primarily attributable to Company executive costs for the second half of 2018 primarily being recorded within the ADVANZ PHARMA International segment, compared to the Corporate cost center in 2017.
As of December 31, 2018, the Company had cash and cash equivalents of $224.4 million and 48,913,490 limited voting shares issued and outstanding.
Conference Call Notification
The Company will hold a conference call on Thursday, March 14, 2019, at 8:30 a.m. ET hosted by senior management. A question-and-answer session will follow the corporate update.
CONFERENCE CALL DETAILS
DATE: Thursday, March 14, 2019
TIME:
8:30 a.m. ET
DIAL-IN NUMBER: (647) 427-7450 or (888)
231-8191
TAPED REPLAY: (416) 849-0833 or (855)
859-2056
REFERENCE NUMBER: 1698824
This call is being webcast and can be accessed by going to:
https://event.on24.com/wcc/r/1936377/2653AF94C7E5BF0704D03628B7D4D622
An archived replay of the webcast will be available by clicking the link above.
About ADVANZ PHARMA
ADVANZ PHARMA is an international specialty pharmaceutical company with a diversified portfolio of more than 200 patented and off-patent products, and sales in more than 90 countries. Going forward, the Company is focused on becoming the leading platform for niche-established medicines, with advanced commercial capabilities throughout Western Europe.
ADVANZ PHARMA operates out of facilities in Mississauga, Ontario and, through its subsidiaries, operates out of facilities in Bridgetown, Barbados; London, England and Mumbai, India.
Non-IFRS Financial Measures
This press release makes reference to certain measures that are not recognized measures under International Financial Reporting Standards ("IFRS"). These non-IFRS measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented by other companies. When used, these measures are defined in such terms as to allow the reconciliation to the closest IFRS measure. These measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute to the Company's financial information reported under IFRS. Management uses non-IFRS measures such as EBITDA, Adjusted EBITDA, and adjusted gross profit to provide investors with supplemental information of the Company's operating performance and thus highlight trends in the Company's core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets, to assess its ability to meet future debt service requirements, in making capital expenditures, and to consider the business's working capital requirements. Readers are cautioned that the non-IFRS measures contained herein may not be appropriate for any other purpose.
Adjusted Gross Profit
As used herein, adjusted gross profit is defined as gross profit adjusted for non-cash fair value increases to the cost of acquired inventory from a business combination. Under IFRS, acquired inventory is required to be written-up to fair value at the date of acquisition. As this inventory is sold the fair value adjustment represents a non-cash cost of sale amount that has been excluded in adjusted gross profit in order to normalize gross profit for this non-cash component.
Three months ended
Twelve months ended
(in $000's) Dec 31, 2018 Dec 31, 2017 Dec 31, 2018 Dec 31, 2017
===
Gross profit per
financial
statements 78,153 100,200 361,097 435,537
Add back: Fair
value
adjustment to
acquired
inventory 311
---
Adjusted gross
profit 78,153 100,200 361,097 435,848
===
EBITDA
EBITDA is defined as net income (loss) from continuing operations adjusted for net interest and accretion expense, income tax expense, depreciation and amortization. Management uses EBITDA to assess the Company's operating performance.
Adjusted EBITDA
Adjusted EBITDA is defined as EBITDA adjusted for certain charges including costs associated with acquisitions, restructuring initiatives, and other costs (which includes onerous contract costs and direct costs associated with contractual terminations), management retention costs, non-operating gains / losses, integration costs, legal settlements (net of insurance recoveries) and related legal costs, non-cash items such as unrealized gains / losses on derivative instruments, share based compensation expense/recovery, fair value changes including purchase consideration and derivative financial instruments, asset impairments, fair value increases to inventory arising from purchased inventory from a business combination, gains / losses from the sale of assets and unrealized gains / losses related to foreign exchange. Management uses Adjusted EBITDA, among other non-IFRS financial measures, as the key metric in assessing business performance when comparing actual results to budgets and forecasts. Management believes Adjusted EBITDA is an important measure of operating performance and cash flow, and provides useful information to investors because it highlights trends in the underlying business that may not otherwise be apparent when relying solely on IFRS measures.
The table below sets forth the reconciliation of net income (loss) to EBITDA and to Adjusted EBITDA for the three and twelve month periods ended December 31, 2018, and December 31, 2017.
Three months ended
Twelve months ended
(in $000's)
Dec 31, 2018
Dec 31, 2017
Dec 31, 2018
Dec 31, 2017
===
Net income (loss) for
the period (84,930) (431,773) 1,467,303 (1,590,735)
Interest and accretion
expense 26,675 222,941 257,655 506,794
Interest income (592) (5,127) (2,229) (61,302)
Income taxes (1,918) (7,804) 1,440 (36,757)
Depreciation 397 475 1,720 1,962
Amortization of
intangible assets 59,811 51,162 250,382 226,425
---
EBITDA (557) (170,126) 1,976,271 (953,613)
===
Impairment 49,625 207,662 57,560 1,194,765
Fair value adjustment
to acquired inventory 311
Restructuring related,
acquisition and other 3,156 21,129 100,972 46,778
Share-based
compensation expense 1,389 285 2,537 8,711
Fair value loss on
purchase
consideration and
derivatives 41,983 425 110,986
Foreign exchange
(gain) loss 722 881 6,100 1,551
Unrealized foreign
exchange (gain) loss (1,804) (9,848) 38,257 (72,891)
Gain on debt and
purchase
consideration
settlement (21,188) (1,931,828) (21,188)
---
Adjusted EBITDA 52,531 70,778 250,294 315,410
===
Notice Regarding Trademarks
This press release includes trademarks that are protected under applicable intellectual property laws and are the property of ADVANZ PHARMA or its affiliates or its licensors. Solely for convenience, the trademarks of ADVANZ PHARMA, its affiliates and/or its licensors referred to in this press release may appear with or without the ® or TM symbol, but such references or the absence thereof are not intended to indicate, in any way, that the Company or its affiliates or licensors will not assert, to the fullest extent under applicable law, their respective rights to these trademarks. Any other trademarks used in this press release are the property of their respective owners.
Notice regarding future-oriented financial information:
To the extent any forward-looking statements or forward-looking information in this press release or in statements made during the earnings conference call constitute future-oriented financial information or financial outlooks within the meaning of applicable securities laws, such information is being provided to demonstrate the potential financial performance of the Company 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 (collectively, "FOFI"), as with forward-looking statements and forward-looking information generally, are, without limitation, based on the assumptions and subject to the risks set out below under "Notice Regarding Forward-Looking Statements", a number of which are beyond the Company's control. In addition, the following is summary of the significant assumptions underlying the FOFI contained in the Company's earnings disclosure:
-- prescription trends;
-- pricing for the Company's products;
-- future market demand trends;
-- mix of sales to government and non-government customers;
-- gross profits for each product;
-- foreign currency rates, including translation between the U.S. dollar
and the pound sterling;
-- inventory levels;
-- operating cost estimates;
-- ability to develop and market future product launches;
-- anticipated timing of future product launches;
-- cost to develop future products;
-- anticipated timing to exit markets;
-- operating cost synergies realized; and
-- annual cost of current tax by jurisdiction
The FOFI do not purport to present the Company's financial condition in accordance with IFRS, and there can be no assurance that the assumptions made in preparing the FOFI will prove accurate. It is expected that there will be differences between actual and forecasted results, and the differences may be material, including due to the occurrence of unforeseen events occurring subsequent to the preparation of the FOFI. The inclusion of the FOFI in the earnings disclosure should not be regarded as an indication that ADVANZ PHARMA considers the FOFI to be a reliable prediction of future events, and the FOFI should not be relied upon as such.
Risks and other factors related to FOFI include those risks and other factors referenced in this press release as well as in ADVANZ PHARMA's filings with the Canadian Securities Administrators and the Securities and Exchange Commission, including (a) the factors described under the heading "Forward-looking Statements" in ADVANZ PHARMA's Management's Discussion and Analysis dated March 14, 2019, for the period ended December 31, 2018 and (b) the factors described under the heading "Risk Factors" in the Company's Annual Information Form dated March 15, 2019.
The Company anticipates that its Management's Discussion and Analysis will be available online at www.sedar.com on March 14, 2019, and that its Annual Information Form will be available online at www.sedar.com on or about March 15, 2019.
(1 )Management uses non-IFRS measures such as EBITDA, Adjusted EBITDA, adjusted net income, and adjusted gross profit to provide a supplemental measure of operating performance. Please refer to the "Non-IFRS Measures" section of this press release for further information.
Notice Regarding Forward-looking Statements and Information:
This news release includes forward?looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and forward?looking information within the meaning of Canadian securities laws, regarding ADVANZ PHARMA and its business, which may include, but are not limited to, statements with respect to the release date of ADVANZ PHARMA's financial results and ADVANZ PHARMA becoming the leading platform for niche established medicines, with advanced commercial capabilities throughout Western Europe, statements with respect to ADVANZ PHARMA's long-term growth strategy and refined strategic direction, ADVANZ PHARMA's outlook for 2019, ADVANZ PHARMA's intention to expand its product portfolio in order to deliver mid-term value and long-term growth through pipeline filling, optimization, licencing and development partnerships, ADVANZ PHARMA's financial performance (including the performance of its operating segments), ADVANZ PHARMA's new leadership team, and the ability of ADVANZ PHARMA to execute and deliver on business plans and growth strategies. Often, but not always, forward?looking statements and forward?looking information can be identified by the use of words such as "plans", "is expected", "expects", "scheduled", "intends", "contemplates", "anticipates", "believes", "proposes" or variations (including negative and grammatical variations) of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Such statements are based on the current expectations of ADVANZ PHARMA's management, and are based on assumptions and subject to risks and uncertainties. Although ADVANZ PHARMA's management believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect. The forward?looking events and circumstances discussed in this news release may not occur by certain dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting ADVANZ PHARMA, including risks associated with ADVANZ PHARMA's securities, increased indebtedness and leverage, ADVANZ PHARMA's growth, risks associated with the use of ADVANZ PHARMA's products, the inability to generate cash flows, revenues and/or stable margins, the inability to repay debt and/or satisfy future obligations, risks associated with a delay in releasing ADVANZ PHARMA's financial statements (which could result in a default under ADVANZ PHARMA's debt agreements and a violation of applicable laws), ADVANZ PHARMA's outstanding debt, risks associated with the geographic markets in which ADVANZ PHARMA operates and/or distributes its products, risks associated with distribution agreements, the pharmaceutical industry and the regulation thereof, regulatory investigations, the failure to comply with applicable laws, economic factors, market conditions, risks associated with growth and competition, the failure to obtain regulatory approvals, the equity and debt markets generally, general economic and stock market conditions, risks associated with fluctuations in exchange rates (including, without limitation, fluctuations in currencies), political risks (including changes to political conditions), risks associated with the United Kingdom's exit from the European Union (including, without limitation, risks associated with regulatory changes in the pharmaceutical industry, changes in cross?border tariff and cost structures and the loss of access to the European Union global trade markets), risks related to patent infringement actions, the loss of intellectual property rights, risks and uncertainties detailed from time to time in ADVANZ PHARMA's filings with the Securities and Exchange Commission and the Canadian Securities Administrators, and many other factors beyond the control of ADVANZ PHARMA. Although ADVANZ PHARMA has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward?looking statements and information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward?looking statement or information can be guaranteed. Except as required by applicable securities laws, forward?looking statements and information speak only as of the date on which they are made and ADVANZ PHARMA undertakes no obligation to publicly update or revise any forward?looking statement or information, whether as a result of new information, future events, or otherwise.
View original content:http://www.prnewswire.com/news-releases/advanz-pharma-corp-announces-fourth-quarter-and-fiscal-2018-results-300812221.html
SOURCE ADVANZ PHARMA Corp.
