-- Raises Full-Year Earnings and Adjusted EBITDA Guidance Range and
Lowers Full-Year Net Sales Guidance Range for the Neurology Franchise --
-- Confirms Regulatory Plan to File for FDA Approval of Cosyntropin Depot by Year End --
-- Announces Agreement with PDL BioPharma to Monetize Royalty Stream;
Company Received $20 Million in Cash --
-- Announces Planned Change in Company Name from Depomed to Assertio Therapeutics;
Remains On-Track to Transition to New Corporate Headquarters in Lake Forest, Illinois --
LAKE FOREST, Ill., Aug. 08, 2018 (GLOBE NEWSWIRE) -- Depomed, Inc. (NASDAQ: DEPO) today reported financial results for the quarter ended June 30, 2018 and provided an update on its business performance and strategic initiatives.
“I mentioned on our first-quarter earnings conference call that I expected 2018 to be a very busy and productive year,” said Arthur Higgins, President and CEO of Depomed. “With more than half the year complete, I remain more confident than ever that this will be the case. Today we raised our full-year earnings and adjusted EBITDA guidance and reaffirmed our goal to file for FDA approval for cosyntropin depot by year end. On the commercial side, we’ve stabilized our core neurology brands and are seeing positive sequential total prescription growth for the franchise, but we have more work to do with Gralise. We’ll also be changing our name next week to Assertio Therapeutics -- another tangible sign of the transformation underway at our company.”
Financial Highlights
(1) All non-GAAP measures included in this earnings release are reconciled to the corresponding GAAP measures in the schedules to this earnings release.
Business Highlights
Revenue Summary | ||||||||||||
(in thousands) | ||||||||||||
(unaudited) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Product sales, net: | ||||||||||||
Gralise | $ | 13,815 | $ | 18,122 | 28,642 | 35,722 | ||||||
Cambia | 8,089 | 8,495 | 14,505 | 15,685 | ||||||||
Zipsor | 3,988 | 4,403 | 8,734 | 9,054 | ||||||||
Total neurology product sales, net | 25,892 | 31,020 | 51,881 | 60,461 | ||||||||
Nucynta products (1) | 626 | 63,938 | 18,771 | 120,857 | ||||||||
Lazanda (2) | 320 | 5,274 | 540 | 9,199 | ||||||||
Total product sales, net | 26,838 | 100,232 | 71,192 | 190,517 | ||||||||
Commercialization agreement (3) | ||||||||||||
Royalty income | 31,179 | - | 59,274 | - | ||||||||
Revenue from one-time sale of inventory | - | - | 55,705 | - | ||||||||
Royalties and milestones | 5,257 | 225 | 5,507 | 387 | ||||||||
Total revenues | $ | 63,274 | $ | 100,457 | $ | 191,678 | $ | 190,904 | ||||
(1) The Company transitioned the commercial rights to sell Nucynta to Collegium on January 9, 2018. Nucynta product sales for the three months ended June 30, 2018 relate to sales reserve estimate adjustments. Nucynta product sales for the six months ended June 30, 2018 reflect the Company selling Nucynta during a stub period between January 1st and January 8th, and also includes a $12.5 million benefit related to the release of sales reserves for which the Company is no longer financially responsible. | ||||||||||||
(2) The Company divested Lazanda in November 2017. Product sales for the three and six months ended June 30, 2018 relate to sales reserve estimate adjustments. | ||||||||||||
(3) The commercialization agreement revenues for the six months ended June 30, 2018 includes $59.3 million related to the commercialization rights and facilitation services provided to Collegium and $55.7 million related to the fair value of inventory transferred to Collegium. |
2018 Financial Guidance
(in millions) | Prior 2018 Guidance | Current 2018 Guidance |
Neurology Franchise Net Sales | $120 to $125 million | $105 to $110 million |
GAAP SG&A Expense | $123 to $133 million | $118 to $128 million |
GAAP R&D Expense | $11 to $16 million | $9 to $14 million |
Non-GAAP SG&A Expense | $110 to $120 million | $100 to $110 million |
Non-GAAP R&D Expense | $10 to $15 million | $7 to $12 million |
GAAP Net Loss | ($23) to ($33) million | ($8) to ($18) million |
Non-GAAP Adjusted EBITDA | $125 to $135 million | $145 to $155 million |
GAAP
The Company is raising its full-year net loss guidance to be within the range of ($8) million to ($18) million from the previous range of ($23) million to ($33) million due to revenue from the PDL BioPharma agreement as well as expense savings, partially offset by lower neurology franchise sales and increased opioid-related litigation, investigation and regulatory costs.
Non-GAAP
The Company is raising its full-year guidance for adjusted EBITDA and lowering its full-year guidance for neurology franchise net sales. The Company is increasing its full-year adjusted EBITDA range to $145 million to $155 million from the previous range of $125 million to $135 million. The increase is primarily related to the $20 million received from the sales of royalties to PDL BioPharma. The Company adjusted guidance for neurology franchise net sales to a range of $105 million to $110 million from the previous range of $120 million to $125 million. The lower range is primarily the result of slower Gralise prescription growth in the first half of the year; however, the majority of the impact is being offset by lower SG&A expenses. This non-GAAP guidance excludes specified items (defined in the tables in this release) such as opioid-related litigation, investigation and regulatory costs of $7 million to $10 million for the full year 2018.
Conference Call and Webcast
Depomed will host a conference call today, Wednesday, August 8, 2018 beginning at 8:30 a.m. ET to discuss its results. This event can be accessed in three ways:
About Depomed
Depomed is a leading specialty pharmaceutical company committed to putting the patient first in everything it does. Depomed is focused on enhancing the lives of patients, families, physicians, providers and payors through the commercialization of products in the areas of pain and neurology, and in the development of drugs in areas of unmet medical need. Depomed currently markets three medicines focused on neuropathic pain and migraine through its Neurology and Pain businesses and its emerging Orphan Specialty Business is focused on orphan drug indications and areas of unmet medical need. To learn more about Depomed, visit www.depomed.com.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
The statements that are not historical facts contained in this release are forward-looking statements that involve risks and uncertainties including, but not limited to, the commercialization of Gralise, CAMBIA, and Zipsor, royalties associated with Collegium’s commercialization of NUCYNTA and NUCYNTA ER, regulatory approval and clinical development of cosyntropin depot, Depomed’s financial outlook for 2018 and expectations regarding financial results and potential business opportunities and other risks detailed in the Company’s Securities and Exchange Commission filings, including the Company’s most recent Annual Report on Form 10-K and most recent Quarterly Report on Form 10-Q. The inclusion of forward-looking statements should not be regarded as a representation that any of the Company’s plans or objectives will be achieved. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Investor and Media Contact:
John B. Thomas
SVP, Investor Relations and Corporate Communications
jthomas@depomed.com
Non-GAAP Financial Measures
To supplement the Company’s financial results presented on a U.S. generally accepted accounting principles (GAAP) basis, the Company has included information about non-GAAP revenue, non-GAAP adjusted earnings, non-GAAP adjusted earnings per share, non-GAAP adjusted EBITDA and other non-GAAP financial measures as useful operating metrics. The Company believes that the presentation of these non-GAAP financial measures, when viewed with results under GAAP and the accompanying reconciliation, provides supplementary information to analysts, investors, lenders, and the Company’s management in assessing the Company’s performance and results from period to period. The Company uses these non-GAAP measures internally to understand, manage and evaluate the Company’s performance, and in part, in the determination of bonuses for executive officers and employees. These non-GAAP financial measures should be considered in addition to, and not a substitute for, or superior to, net income or other financial measures calculated in accordance with GAAP. Non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, non-GAAP measures used by other companies.
Specified Items
Non-GAAP measures presented within this release exclude specified items. The Company considers specified Items to be significant income/expense items not indicative of current operations, including the related tax effect. Specified items include non-cash adjustment to Collegium agreement revenue and cost of sales, release of NUCYNTA and Lazanda sales reserves for products the Company is no longer selling, interest income, interest expense, amortization, acquired in-process research and development and non-cash adjustments related to product acquisitions, stock-based compensation expense, non-cash interest expense related to debt, depreciation, taxes, transaction costs, CEO transition, restructuring costs, certain types of legal settlements, disputes, fees and costs, and to adjust for the tax effect related to each of the non-GAAP adjustments.
Revisions to Specified Items
As a result of the Company’s January 2018 commercialization agreement with Collegium Pharmaceutical, Inc. and December 2017 divestiture of Lazanda® (fentanyl) nasal spray to Slán Medicinal Holdings Limited, the Company no longer commercializes opioids. Management believes that the following types of items are associated with the Company’s historical promotion of opioids and do not reflect the Company’s core business on a go-forward basis: (1) adjustments to net sales related to reserves recorded prior to the Company’s exit of opioid commercialization activities and (2) legal costs and expenses incurred in connection with opioid-related litigation, investigations and regulations. As a result, beginning with the second quarter of 2018, the Company’s list of specified items now includes these categories, which management believes relate to the Company’s historical commercialization of opioid products. Given the timing of the Collegium transaction, which was consummated during the first quarter of 2018, management believes the second quarter of 2018 is the appropriate time to make such an update. Management believes that investors will benefit from the ability to view the profitability of the Company’s current and ongoing business activities without such categories included. This modification does not change how the Company manages these expenses and other items, but better reflects how management evaluates ongoing business activities.
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||
(in thousands, except per share amounts) | ||||||||||||
(unaudited) | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
(unaudited) | (unaudited) | |||||||||||
Revenues: | ||||||||||||
Product sales, net | $ | 26,838 | $ | 100,232 | $ | 71,192 | $ | 190,517 | ||||
Commercialization agreement | 31,179 | - | 114,979 | - | ||||||||
Royalties and milestones | 5,257 | 225 | 5,507 | 387 | ||||||||
Total revenues | 63,274 | 100,457 | 191,678 | 190,904 | ||||||||
Costs and expenses: | ||||||||||||
Cost of sales | 2,753 | 19,725 | 14,797 | 37,499 | ||||||||
Research and development expense | 2,180 | 5,614 | 3,708 | 10,698 | ||||||||
Selling, general and administrative expense | 31,308 | 50,010 | 60,341 | 98,529 | ||||||||
Amortization of intangible assets | 25,444 | 25,735 | 50,888 | 51,470 | ||||||||
Restructuring charges | 5,814 | 3,441 | 14,831 | 3,441 | ||||||||
Total costs and expenses | 67,499 | 104,525 | 144,565 | 201,637 | ||||||||
Income/(loss) from operations | (4,225) | (4,068) | 47,113 | (10,733) | ||||||||
Interest and other income | 67 | 282 | 296 | 532 | ||||||||
Loss on prepayment of senior notes | - | (5,364) | - | (5,364) | ||||||||
Interest expense | (17,010) | (17,758) | (35,078) | (37,882) | ||||||||
(Provision for)/benefit from income taxes | 120 | 249 | 445 | 47 | ||||||||
Net income/(loss) | $ | (21,048) | $ | (26,659) | $ | 12,776 | $ | (53,400) | ||||
Basic net income/(loss) per share | $ | (0.33) | $ | (0.43) | $ | 0.20 | $ | (0.86) | ||||
Diluted net income/(loss) per share | $ | (0.33) | $ | (0.43) | $ | 0.20 | $ | (0.86) | ||||
Basic shares used in calculation | 63,719 | 62,532 | 63,611 | 62,331 | ||||||||
Dilued shares used in calculation | 63,719 | 62,532 | 64,107 | $ | 62,331 |
CONSOLIDATED CONDENSED BALANCE SHEETS | ||||||
(in thousands) | ||||||
(unaudited) | ||||||
June 30, | December 31, | |||||
2018 | 2017 | |||||
Cash, cash equivalents and marketable securities | $ | 57,233 | $ | 128,089 | ||
Accounts receivable | 42,149 | 72,482 | ||||
Inventories | 4,977 | 13,042 | ||||
Property and equipment, net | 11,113 | 13,024 | ||||
Intangible assets, net | 742,985 | 793,873 | ||||
Prepaid and other assets | 53,738 | 18,107 | ||||
Total assets | $ | 912,195 | $ | 1,038,617 | ||
Accounts payable | $ | 3,144 | $ | 14,732 | ||
Income tax payable | - | 126 | ||||
Interest payable | 12,282 | 13,220 | ||||
Accrued liabilities | 29,434 | 60,496 | ||||
Accrued rebates, returns and discounts | 80,172 | 135,828 | ||||
Senior notes | 301,581 | 357,220 | ||||
Convertible notes | 278,457 | 269,510 | ||||
Contingent consideration liability | 967 | 1,613 | ||||
Other liabilities | 14,952 | 16,364 | ||||
Shareholders’ equity | 191,206 | 169,508 | ||||
Total liabilities and shareholders’ equity | $ | 912,195 | $ | 1,038,617 |
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP ADJUSTED EBITDA | ||||||||||||||||
(in thousands) | ||||||||||||||||
(unaudited) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
GAAP net income/(loss) | $ | (21,048 | ) | $ | (26,659 | ) | $ | 12,776 | $ | (53,400 | ) | |||||
Commercialization agreement revenues (1) | 3,198 | - | (49,288 | ) | - | |||||||||||
Commercialization agreement cost of sales (1) | - | - | 6,200 | - | ||||||||||||
Nucynta sales reserve (2) | - | - | (10,711 | ) | - | |||||||||||
Nucynta and Lazanda revenue reserves (3) | (946 | ) | - | (540 | ) | - | ||||||||||
Managed care dispute reserve | - | - | - | 4,742 | ||||||||||||
Expenses for opioid-related litigation, investigations and regulations (4) | 2,220 | - | 3,047 | - | ||||||||||||
Intangible amortization related to product acquisitions | 25,444 | 25,735 | 50,888 | 51,470 | ||||||||||||
Contingent consideration related to product acquisitions | (260 | ) | (863 | ) | (462 | ) | (5,332 | ) | ||||||||
Stock-based compensation | 2,970 | 3,403 | 4,946 | 6,959 | ||||||||||||
Interest income | (70 | ) | (56 | ) | (164 | ) | (260 | ) | ||||||||
Interest expense | 17,010 | 22,673 | 35,078 | 42,245 | ||||||||||||
Depreciation | 1,454 | 608 | 2,929 | 1,234 | ||||||||||||
Provision for (benefit from) income taxes | (120 | ) | (249 | ) | (445 | ) | (47 | ) | ||||||||
Restructuring and other costs (5) | 6,974 | 3,441 | 15,299 | 3,441 | ||||||||||||
Other costs | (31 | ) | 253 | 178 | 2,529 | |||||||||||
Non-GAAP adjusted EBITDA | $ | 36,795 | $ | 28,286 | $ | 69,731 | $ | 53,581 | ||||||||
(1) Adjustment for the non-cash value assigned to inventory transferred to Collegium. | ||||||||||||||||
(2) Represents a $12.5 million benefit related to the release of sales reserves for which the Company is no longer financially responsible, net of $1.8 million in royalties payable to Grunenthal. | ||||||||||||||||
(3) Removal of the impact of revenue reserve adjustment estimates consistent with opioid-related litigation and investigation expense treatment. | ||||||||||||||||
(4) Legal costs/expenses related to opioid-related litigation, investigations and regulations pertaining to the Company's historical commercialization of opioid products. | ||||||||||||||||
(5) Restructuring and other costs represents non-recurring costs associated with the Company's restructuring and headquarters relocation and CEO transition. |
RECONCILIATION OF GAAP NET INCOME/(LOSS) TO NON-GAAP ADJUSTED EARNINGS | ||||||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
(unaudited) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
GAAP net income/(loss) | $ | (21,048 | ) | $ | (26,659 | ) | $ | 12,776 | $ | (53,400 | ) | |||||
Commercialization agreement revenues (1) | 3,198 | - | (49,288 | ) | - | |||||||||||
Commercialization agreement cost of sales (1) | - | - | 6,200 | - | ||||||||||||
Nucynta sales reserve (2) | - | - | (10,711 | ) | - | |||||||||||
Non-cash interest expense on debt | 4,537 | 6,124 | 8,947 | 10,774 | ||||||||||||
Nucynta and Lazanda revenue reserves (3) | (946 | ) | - | (540 | ) | - | ||||||||||
Managed care dispute reserve | - | - | - | 4,742 | ||||||||||||
Expenses for opioid-related litigation, investigations and regulations (4) | 2,220 | - | 3,047 | - | ||||||||||||
Intangible amortization related to product acquisitions | 25,444 | 25,735 | 50,888 | 51,470 | ||||||||||||
Contingent consideration related to product acquisitions | (260 | ) | (863 | ) | (462 | ) | (5,332 | ) | ||||||||
Stock-based compensation | 2,970 | 3,403 | 4,946 | 6,959 | ||||||||||||
Restructuring and other costs (5) | 6,974 | 3,441 | 15,304 | 3,441 | ||||||||||||
Valuation allowance on deferred tax assets | - | 7,534 | - | 15,102 | ||||||||||||
Other costs | (31 | ) | 253 | 178 | 2,529 | |||||||||||
Income tax effect of non-GAAP adjustments (6) | (8,888 | ) | (13,519 | ) | (16,661 | ) | (26,403 | ) | ||||||||
Non-GAAP adjusted earnings | $ | 14,170 | $ | 5,449 | $ | 24,624 | $ | 9,882 | ||||||||
Add interest expense of convertible debt, net of tax (7) | 1,703 | 1,348 | 3,406 | 2,695 | ||||||||||||
Numerator | $ | 15,873 | $ | 6,797 | $ | 28,030 | $ | 12,577 | ||||||||
Shares used in calculation (7) | 82,201 | 81,400 | 82,039 | 81,719 | ||||||||||||
Non-GAAP adjusted earnings per share | $ | 0.19 | $ | 0.08 | $ | 0.34 | $ | 0.15 | ||||||||
(1) Adjustment for the non-cash value assigned to inventory transferred to Collegium. | ||||||||||||||||
(2) Represents a $12.5 million benefit related to the release of sales reserves for which the Company is no longer financially responsible, net of $1.8 million in royalties payable to Grunenthal. | ||||||||||||||||
(3) Removal of the impact of revenue adjustment estimates consistent with opioid-related litigation and investigation expense treatment. | ||||||||||||||||
(4) Legal costs/expenses related to opioid-related litigation, investigations and regulations pertaining to the Company's historical commercialization of opioid products. | ||||||||||||||||
(5) Restructuring and other costs represents non-recurring costs associated with the Company's restructuring and headquarters relocation and CEO transition. | ||||||||||||||||
(6) Calculated by taking the pre-tax non-GAAP adjustments and applying the statutory tax rate. | ||||||||||||||||
(7) The Company uses the if-converted method to compute diluted earnings per share with respect to its convertible debt. |
RECONCILIATION OF GAAP NET LOSS PER SHARE TO NON-GAAP ADJUSTED EARNINGS PER SHARE | ||||||||||||||||
(unaudited) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
GAAP net income/(loss) per share | $ | (0.33 | ) | $ | (0.43 | ) | $ | 0.20 | $ | (0.86 | ) | |||||
Conversion from basic shares to diluted shares | 0.07 | 0.10 | (0.05 | ) | 0.20 | |||||||||||
Commercialization agreement revenues | 0.04 | - | (0.60 | ) | - | |||||||||||
Commercialization agreement cost of sales | - | - | 0.08 | - | ||||||||||||
Nucynta sales reserve | - | - | (0.13 | ) | - | |||||||||||
Non-cash interest expense on debt | 0.06 | 0.08 | 0.11 | 0.13 | ||||||||||||
Nucynta and Lazanda revenue reserves | (0.01 | ) | - | (0.01 | ) | - | ||||||||||
Managed care dispute reserve | - | - | - | 0.06 | ||||||||||||
Expenses for opioid-related litigation, investigations and regulations | 0.03 | - | 0.04 | - | ||||||||||||
Intangible amortization related to product acquisitions | 0.31 | 0.32 | 0.62 | 0.63 | ||||||||||||
Contingent consideration related to product acquisitions | (0.00 | ) | (0.01 | ) | (0.01 | ) | (0.07 | ) | ||||||||
Stock based compensation | 0.04 | 0.04 | 0.06 | 0.09 | ||||||||||||
Restructuring and other costs | 0.08 | 0.05 | 0.18 | 0.06 | ||||||||||||
Valuation allowance on deferred tax assets | - | 0.09 | - | 0.18 | ||||||||||||
Income tax effect of non-GAAP adjustments | (0.11 | ) | (0.17 | ) | (0.20 | ) | (0.32 | ) | ||||||||
Add interest expense of convertible debt, net of tax | 0.02 | 0.02 | 0.04 | 0.03 | ||||||||||||
Non-GAAP adjusted earnings per share | $ | 0.19 | $ | 0.08 | $ | 0.34 | $ | 0.15 |
RESTATED FIRST QUARTER NON-GAAP ADJUSTED EBITDA
(in thousands)
(unaudited)
Restated Q1 2018 Non-GAAP Adjusted EBITDA | |||
Three Months Ended March 31, | |||
2018 | 2017 | ||
GAAP net income / (loss) reported at Q1 | $ 33,824 | (1) | $ (26,741) |
Non-GAAP Adjusted EBITDA reported at Q1 | $ 31,807 | (1) | $ 25,295 |
Specified Items | $ 1,077 | (2) | - |
Non-GAAP Adjusted EBITDA Restated | $ 32,884 | n/a | |
(1) For a full reconciliation of GAAP Net Income/(loss) to Non-GAAP Adjusted EBITDA, as originally disclosed by the Company in its earnings release for the fiscal quarter ended March 31, 2018, please see Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10, 2018. | |||
(2) To ensure consistency and comparability, we have recast our previously provided Non-GAAP Adjusted EBITDA results for the fiscal quarter ended March 31, 2018 to apply our new definition of specified items to such calculation. | |||
FULL-YEAR 2018 NON-GAAP GUIDANCE RECONCILATION
(in millions)
(unaudited)
Full Year 2018 Guidance | |||||||||||
Earnings(1) | R&D | SG&A | |||||||||
Low End | High End | Low End | High End | Low End | High End | ||||||
GAAP | ($8) | ($18) | $9 | $14 | $118 | $128 | |||||
Specified Items(2) | $153 | $173 | ($2) | ($2) | ($18) | ($18) | |||||
Non-GAAP | $145 | $155 | $7 | $12 | $100 | $110 | |||||
(1) GAAP Earnings guidance refers to GAAP Net Loss and Non-GAAP Earnings Guidance refers to Non-GAAP Adjusted EBITDA. | |||||||||||
(2) For purposes of this forward-looking reconciliation, a description of the categories of specified items included in this reconciliation are detailed in the tables above. |