Exhibit 99.1
aaiPharmaInc. Reports Third Quarter 2004 Financial Results
Wilmington, North Carolina, November 9, 2004—aaiPharmaInc. (Nasdaq: AAII), a science-based pharmaceutical company, today reported financial results for the quarter ended September 30, 2004. Net revenues for the third quarter of 2004 were $43.2 million, compared to $39.7 million in the third quarter of 2003. The Company recorded a net loss of $33.8 million, or $1.18 per diluted share, compared with a net loss of $9.4 million, or $0.34 per diluted share, in the third quarter of 2003.
Net revenues from the Company’s pharmaceutical product business increased to $15.7 million, compared to $13.7 million in the third quarter of 2003. Product development revenues increased to $4.5 million from $3.5 million in the same period of 2003. Net revenues from the Company’s development services business increased to $23.1 million from $22.5 million in the same period of 2003.
Selling expenses decreased by $3.0 million over the same period in 2003 primarily due to reduced product promotion costs and lower personnel expenses due to the pharmaceutical sales force restructuring. Research and development expenses were $3.1 million in the quarter, primarily related to spending on the Lynxorb™ pain management product (previously referred to as ProSorb-D™) and the Company’s proton pump inhibitor development program. The increase in operating costs and expenses included approximately $13.7 million in restructuring charges and a $5.3 million charge related to the impairment of intangible assets associated with the Company’s Brethine® product due to the introduction of generic competition.
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Exhibit 99.1
Strategic Initiatives Update
During the quarter, the Company conducted a work force reduction intended to rationalize its expense base in relation to its revenue.aaiPharmarecorded a $13.7 million restructuring charge representing severance costs and related employee benefit expenses for those affected by the reduction, separation payments to the Company’s former Chief Executive Officer, and lease costs for facilities and aircraft no longer in use.
Subsequent to the end of the third quarter, the Company entered into an amendment to its senior secured credit facility to, among other things, increase the amount of the term loans by up to $30 million. In addition, the Company made the October 1, 2004 interest payment on its 11.5% Senior Subordinated Notes due 2010.aaiPharmaalso has retained Rothschild Inc. to assist the management team in its ongoing evaluation of potential asset divestitures, including the potential sale of some or all of the assets of the Company’s Pharmaceuticals Division.
“We continue to make substantial progress executing our strategic plans,” said Mr. Timothy R. Wright, interim President and CEO ofaaiPharma. “We remain committed to strengthening the Company’s capital structure and returning to a normal business environment.”
AboutaaiPharmaInc.
aaiPharmaInc. is a science-based pharmaceutical company focused on pain management, with corporate headquarters in Wilmington, North Carolina. With more than 25 years of drug development expertise, the Company is focused on developing and marketing branded medicines in its targeted therapeutic areas.aaiPharma‘s development efforts are focused on developing improved medicines from established molecules through its research and development capabilities. For more information on the Company, including its product development organization AAI Development Services, please visitaaiPharma‘s website atwww.aaipharma.com.
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Exhibit 99.1
Forward-Looking Statements
To the extent that information in this press release contains “forward-looking statements” under federal securities laws, the Company advises that the “forward-looking statements” involve risks and uncertainties that could cause actual results to differ materially, including, without limitation: risks and uncertainties pertaining to the implementation of enhanced internal controls; the pendency and outcome of governmental investigations and pending litigation; the ability of the Company to meet its liquidity needs from operations, borrowings and the proceeds of asset sales, if any; the ability of the Company to execute its business plan, including the marketing of services to other companies and the focus of product marketing and sales efforts on hospitals and pain management centers; changes in pricing or other actions by competitors; the success of our cost reduction initiatives; and general economic conditions.
For more information on these and other factors that may affect the Company’s results, please refer to the Company’s quarterly report on Form 10-Q for the period ended September 30, 2004 and the Company’s other periodic filings with the SEC.
Brethine® is a registered trademark, and Lynxorb™ and ProSorb-D™ are trademarks, ofaaiPharmaLLC.
-Financial Tables to Follow-
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Exhibit 99.1
aaiPharma Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| Net revenues: | ||||||||||||||||
| Product sales | $ | 15,684 | $ | 13,664 | $ | 61,898 | $ | 78,428 | ||||||||
| Product development (royalties and fees) | 4,481 | 3,524 | 14,522 | 11,231 | ||||||||||||
| Development services | 23,054 | 22,512 | 72,529 | 65,124 | ||||||||||||
| 43,219 | 39,700 | 148,949 | 154,783 | |||||||||||||
| Operating costs and expenses: | ||||||||||||||||
| Direct costs (excluding depreciation and royalty expense): | ||||||||||||||||
| Product sales (includes product rights amortization of $3,972, $2,969, $11,916 and $8,906) | 10,404 | 10,955 | 35,494 | 37,817 | ||||||||||||
| Development services | 12,749 | 12,614 | 42,248 | 37,390 | ||||||||||||
| Total direct costs | 23,153 | 23,569 | 77,742 | 75,207 | ||||||||||||
| Selling expenses | 6,021 | 9,071 | 30,122 | 25,006 | ||||||||||||
| General and administrative expenses | 9,479 | 9,793 | 35,319 | 31,112 | ||||||||||||
| Research and development | 3,134 | 5,367 | 13,847 | 15,441 | ||||||||||||
| Depreciation | 2,367 | 1,912 | 6,404 | 5,747 | ||||||||||||
| Professional fees — internal inquiry | 769 | — | 9,072 | — | ||||||||||||
| M.V.I. contingent payment/(gain on sale) | (1,567 | ) | — | (8,112 | ) | — | ||||||||||
| Restructuring charges | 13,719 | — | 17,119 | — | ||||||||||||
| Royalty expense | 357 | 325 | 1,366 | 452 | ||||||||||||
| Intangible asset impairment | 5,250 | — | 5,250 | — | ||||||||||||
| Total operating costs and expenses | 62,682 | 50,037 | 188,129 | 152,965 | ||||||||||||
| (Loss) income from operations | (19,463 | ) | (10,337 | ) | (39,180 | ) | 1,818 | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest, net | (9,469 | ) | (5,140 | ) | (23,866 | ) | (15,621 | ) | ||||||||
| Loss from extinguishment from debt | — | — | (6,229 | ) | — | |||||||||||
| Other | (275 | ) | (122 | ) | (2,111 | ) | 21 | |||||||||
| (9,744 | ) | (5,262 | ) | (32,206 | ) | (15,600 | ) | |||||||||
| Loss before income taxes | (29,207 | ) | (15,599 | ) | (71,386 | ) | (13,782 | ) | ||||||||
| Provision for (benefit from) income taxes | 4,583 | (6,207 | ) | 4,758 | (5,414 | ) | ||||||||||
| Net loss | $ | (33,790 | ) | $ | (9,392 | ) | $ | (76,144 | ) | $ | (8,368 | ) | ||||
| Basic loss per share: | $ | (1.18 | ) | $ | (0.34 | ) | $ | (2.67 | ) | $ | (0.30 | ) | ||||
| Weighted average shares outstanding | 28,586 | 27,810 | 28,558 | 27,664 | ||||||||||||
| Diluted loss per share: | $ | (1.18 | ) | $ | (0.34 | ) | $ | (2.67 | ) | $ | (0.30 | ) | ||||
| Weighted average shares outstanding | 28,586 | 27,810 | 28,558 | 27,664 | ||||||||||||
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Exhibit 99.1
aaiPharma Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| September 30, | December 31, | |||||||
| 2004 | 2003 | |||||||
ASSETS | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 7,143 | $ | 8,785 | ||||
| Accounts receivable, net | 6,799 | 32,614 | ||||||
| Work-in-progress | 11,279 | 12,503 | ||||||
| Inventories, net | 13,509 | 14,693 | ||||||
| Deferred tax assets | 10,456 | 19,184 | ||||||
| Prepaid and other current assets | 10,335 | 10,398 | ||||||
| Total current assets | 59,521 | 98,177 | ||||||
| Property and equipment, net | 56,126 | 57,236 | ||||||
| Goodwill, net | 13,154 | 13,361 | ||||||
| Intangible assets, net | 282,843 | 351,315 | ||||||
| Other assets | 14,225 | 14,508 | ||||||
| Total assets | $ | 425,869 | $ | 534,597 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt | $ | — | $ | 4,000 | ||||
| Accounts payable | 21,515 | 21,879 | ||||||
| Customer advances | 13,775 | 17,630 | ||||||
| Accrued wages and benefits | 6,840 | 5,320 | ||||||
| Interest payable | 10,271 | 5,511 | ||||||
| Deferred product revenue | 10,632 | 45,664 | ||||||
| Other accrued liabilities | 37,524 | 11,133 | ||||||
| Total current liabilities | 100,557 | 111,137 | ||||||
| Long-term debt, less current portion | 323,700 | 338,844 | ||||||
| Deferred tax liability | — | 2,246 | ||||||
| Other liabilities | 18 | 7,647 | ||||||
| Stockholders’ equity: | ||||||||
| Common stock | 29 | 28 | ||||||
| Paid-in capital | 91,622 | 88,049 | ||||||
| Accumulated deficit | (92,451 | ) | (16,307 | ) | ||||
| Accumulated other comprehensive income | 2,533 | 3,197 | ||||||
| Deferred compensation | (139 | ) | (244 | ) | ||||
| Total stockholders’ equity | 1,594 | 74,723 | ||||||
| Total liabilities and stockholders’ equity | $ | 425,869 | $ | 534,597 | ||||
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Exhibit 99.1
aaiPharma Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2004 | 2003 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (76,144 | ) | $ | (8,368 | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | 18,320 | 14,653 | ||||||
| Intangible asset impairment, net of tax | 5,250 | — | ||||||
| Write-off of deferred financing and other costs | 6,229 | — | ||||||
| Gain from asset sale | (39,113 | ) | — | |||||
| Other | 237 | 138 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 25,731 | (1,570 | ) | |||||
| Work-in-progress | 1,083 | (4,520 | ) | |||||
| Inventories | (1,824 | ) | (90 | ) | ||||
| Deferred tax assets | 8,728 | — | ||||||
| Prepaid and other assets | (5,889 | ) | 273 | |||||
| Accounts payable | (318 | ) | (1,420 | ) | ||||
| Customer advances | (3,768 | ) | 4,158 | |||||
| Interest payable | 4,760 | 4,566 | ||||||
| Deferred product revenue | (35,032 | ) | 45,198 | |||||
| Accrued wages and benefits and other accrued liabilities | 26,067 | (9,080 | ) | |||||
| Net cash (used in) provided by operating activities | (65,683 | ) | 43,938 | |||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (5,475 | ) | (9,867 | ) | ||||
| Proceeds from sales of property and equipment | 97 | 508 | ||||||
| Product line disposals (acquisitions) | 92,944 | (6,050 | ) | |||||
| Other | (199 | ) | (334 | ) | ||||
| Net cash provided by (used in) investing activities | 87,367 | (15,743 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from long-term borrowings | 147,500 | — | ||||||
| Payments on long-term borrowings | (164,000 | ) | (29,500 | ) | ||||
| (Payments on) proceeds from interest rate swaps, net | (10,203 | ) | 2,191 | |||||
| Proceeds from stock option exercises | 3,678 | 2,819 | ||||||
| Other | (292 | ) | 805 | |||||
| Net cash used in financing activities | (23,317 | ) | (23,685 | ) | ||||
| Net (decrease) increase in cash and cash equivalents | (1,633 | ) | 4,510 | |||||
| Effect of exchange rate changes on cash | (9 | ) | 68 | |||||
| Cash and cash equivalents, beginning of period | 8,785 | 6,532 | ||||||
| Cash and cash equivalents, end of period | $ | 7,143 | $ | 11,110 | ||||
| Supplemental information, cash paid for: | ||||||||
| Interest | $ | 17,868 | $ | 13,520 | ||||
| Income taxes | $ | 5,923 | $ | 6,152 | ||||
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