NEWS RELEASE
Craigavon, Northern Ireland/Rockaway, NJ 10 February 2004
Galen Holdings PLC
Results for the first quarter ended 31 December 2003
Craigavon, Northern Ireland/Rockaway, New Jersey, USA - February 2004: Galen Holdings PLC ("Galen") (LSE: GAL.L, Nasdaq: GALN), announces its results for the quarter ended 31 December 2003.
Financial Highlights for the Quarter
| Quarter ended 31 December 2003 ($ m) | Quarter ended 31 December 2002 ($ m) | Change (%) |
Revenues | 140.9 | 68.6 | 105% |
Operating Profit1 | 72.9 | 24.9 | 193% |
Adjusted earnings per share1 (Cents) | 30.3 | 12.7 | 139% |
Statutory Operating Profit | 52.8 | 14.4 | 267% |
Statutory earnings per share (Cents) | 19.3 | 7.0 | 176% |
1 Operating profit and adjusted earnings per share, which are the primary performance measures used by management, are presented before amortisation of intangibles and goodwill and exceptional items. Reconciliations of statutory and adjusted items are given in the profit and loss account and Note 2 to the results.
* Earnings per ordinary share, before amortisation of goodwill, intangible assets and exceptional items, increased to 30.3 cents, up 139% over the prior year.
* Operating profit, before amortisation of goodwill and intangibles, rose to $72.9 million (a 52% margin) compared to $24.9 million (a 36% margin) in the same quarter last year, an increase of 193%.
* Total pharmaceutical product revenues increased by 105% to $140.9 million from $68.6 million. Products which performed strongly during the quarter included Sarafem (R), femhrt (R) and Ovcon (R) (see page 3 for breakdown).
* During the quarter, the business generated cash of $47.3 million. Cash at 31 December 2003 was $167.5 million. Net debt at the end of the quarter was $174.1 million.
Business Highlights for the Quarter
* Submitted a New Drug Application (NDA) for Femtrace (TM), an oral estradiol acetate product for the treatment of the symptoms of menopause. The NDA was accepted for filing by the Food and Drug Administration (FDA) in December.
* Sold PDMS, our contract manufacturing division, for $36 million on 2 December 2003.
* Received final approval from the FDA for Ovcon (R) 35 chewable tablets, our successor product to Ovcon (R), which will be protected by a new patent and 3-year Hatch-Waxman exclusivity
* Completed the deployment of our new 186 person sales force (Warner Chilcott Specialty) and associated management to promote Estrostep (R), Sarafem (R), Doryx (R) and Dovonex (R).
Commenting on the results, Roger Boissonneault, Chief Executive, said:
"During the first quarter of our 2004 financial year, the Company has generated revenues in excess of $140 million, illustrating the excellent product portfolio that we have to drive future growth. With our two sales forces now fully in place, we look forward to the rest of 2004 with confidence."
For further information, please contact:
Galen Holdings PLC
David G. Kelly Tel: + 44 (0) 28 3836 3634
Financial Dynamics
Andrew Dowler / Francetta Carr Tel: + 44 (0) 20 7831 3113
For further information on Galen visit:www galenplc com
A conference call will take place at 12.00pm (GMT) today. Please call Mo Noonan on 020 7269 7116 for further details.
Note:
Forward looking statements in this report, including, without limitation, statements relating to Galen's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Galen to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. These factors include, among others, the following: Galen's ability to manage its growth, government regulation affecting the development, manufacture, marketing and sale of pharmaceutical products, customer acceptance of new products, competitive factors in the industries in which Galen operates, the loss of key senior management or scientific staff, exchange rate fluctuations, general economi c and business conditions, and other factors described in filings of Galen with the SEC. Galen undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise.
Commentary on the results for the first quarter 31 December 2003
Sales & Marketing
The Group achieved significant growth in each of its key pharmaceutical products as illustrated by the table below.
PRODUCTS |
Q1 2004 $M's | Q1 2003 $M's | QOQ Growth % |
Oral Contraception |
| ||
Ovcon (R) | 16.2 | 12.4 | 31% |
Estrostep (R) | 12.9 | N/A | N/A |
Loestrin (R) | 10.8 | N/A | N/A |
HRT | |||
Estrace (R) Cream | 13.0 | 10.7 | 21% |
femhrt (R) | 17.2 | N/A | N/A |
Femring (R) | 0.8 | N/A | N/A |
Estrace (R) Tablets | 2.0 | 4.6 | -57% |
Dermatology | |||
Doryx (R) | 15.7 | 13.8 | 14% |
PMDD | |||
Sarafem (R) | 24.6 | N/A | N/A |
Other | |||
U.S. | 8.7 | 8.0 | 9% |
U.K. & INTL. | 19.0 | 19.1 | -1% |
Total | 140.9 | 68.6 | 105% |
For the quarter ended 31 December 2003, product sales were $140.9 million, an increase of 105% over the same quarter last year. This increase was driven largely by those products we added during 2003: Sarafem (R), Estrostep (R), Loestrin (R) and femhrt (R), none of which had revenues in the first quarter of 2003.
However, sales growth for those key products for which there are comparables i.e. Ovcon (R), Estrace (R) Cream and Doryx (R), remained strong with Ovcon (R) showing growth of 31% and Estrace (R) Cream 21%. The rate of growth in Doryx (R) slowed to 14% which we attribute to the fact that the promotion for this product was moved from our more experienced sales force to the new Warner Chilcott Specialty sales force. We would expect this growth rate to pick up again during the year. Of the newly acquired products, Sarafem (R) and femhrt (R) performed well during the quarter, with revenues of $24.6 million and $17.2 million respectively. During the past twelve months we made significant investment in the creation of our 186 person Warner Chilcott Specialty sales force. With two (Warner Chilcott Women's Healthcare and Warner Chilcott Specialty) sales forces and new product management teams now in place, we look forward to realizing the full potential of our existing, newly acquired and interna lly developed products.
During the quarter we also commenced in earnest the promotion of Dovonex (R) for mild to moderate psoriasis. We are excited by the potential for this product and for the follow-on product, Dovobet (R), which was developed by LEO Pharma and is currently available in 24 countries.
Margins
The gross margin for the quarter was 84.2% compared to 77.7% in the same quarter last year. The evolution of our product mix towards higher margin products has contributed to this improvement.
Selling, general and administrative costs were $38.7 million in the quarter, an increase of 69% over the same quarter last year. While this quarter contained some direct-to-consumer advertising costs associated with the Femring (R) launch, most of these costs were expensed in the fourth quarter of the 2003 financial year and we expect that SG & A costs will stabilize at this level now that our two sales forces are fully deployed.
Operating profit, before amortisation of goodwill and intangibles, was $72.9 million, an increase of 193% over the same quarter last year. This represents an operating margin of 52%, compared to 36% a year ago. The higher operating margin illustrates the efficiency of the business model we have adopted, focused on branded products in the U.S.
Research & Development
Research and development costs were $6.9 million for the quarter ended 31 December 2003, an increase of 26% over the same quarter last year.
Our ongoing commitment to investing in new products in our core therapeutic categories continues to deliver results. Last year we received final approval for two NDAs and we are pleased to announce that our NDA for Femtrace (TM), our oral estradiol acetate product for the treatment of menopause, was accepted for filing by the FDA in December. We also continue to progress with NDAs for a new Doryx (R) product and Metroring (TM) a vaginal ring containing metronidozole for the treatment of bacterial vaginosis.
Liquidity
Cash generated from operations during the quarter ended 31 December 2003 was $47.3 million, compared to $22.7 million in the same quarter last year, an increase of 108%. Cash on hand was $167.5 million at the end of the quarter and net debt was $174.1 million.
Unaudited results for the period ended 31 December 2003
Consolidated profit and loss account - UK GAAP
Unaudited Quarter ended 31 December | Audited Year ended 30 September | ||
2003 | 2002 | 2003 | |
$'000 | $'000 | $'000 | |
Turnover | 140,852 | 68,643 | 432,262 |
Cost of sales | 22,306 | 15,328 | 77,152 |
Gross profit | 118,546 | 53,315 | 355,110 |
Net operating expenses | |||
Selling, general and administrative expenses | 38,727 | 22,937 | 139,471 |
Research and development | 6,874 | 5,437 | 28,685 |
Goodwill amortisation | 5,800 | 5,763 | 23,479 |
Intangibles amortisation | 14,309 | 4,752 | 38,530 |
Total net operating expenses | 65,710 | 38,889 | 230,165 |
Operating profit | |||
Before amortisation of goodwill and intangibles | 72,945 | 24,941 | 186,954 |
Goodwill amortisation | (5,800) | (5,763) | (23,479) |
Intangibles amortisation | (14,309) | (4,752) | (38,530) |
Total operating profit | 52,836 | 14,426 | 124,945 |
Investment income | 269 | 2,484 | 3,188 |
Profit on ordinary activities before interest | 53,105 | 16,910 | 128,133 |
Interest payable and similar charges | 4,115 | 1,660 | 11,752 |
Profit on ordinary activities before taxation | 48,990 | 15,250 | 116,381 |
Tax on profit on ordinary activities | 13,453 | 2,479 | 22,345 |
Profit on ordinary activities after taxation | 35,537 | 12,771 | 94,036 |
Dividends | - | - | 10,804 |
Retained profit for the financial period | 35,537 | 12,771 | 83,232 |
Earnings per share (cents) | 19.3 | 7.0 | 51.2 |
Diluted earnings per share (cents) | 19.1 | 6.9 | 51.0 |
Adjusted earnings per share (cents) | 30.3 | 12.7 | 85.2 |
Adjusted diluted earnings per share (cents) | 29.9 | 12.7 | 84.8 |
Unaudited results for the period ended 31 December 2003
Consolidated balance sheet - UK GAAP
Unaudited 31 December | Audited 30 September | ||
2003 | 2002 | 2003 | |
$'000 | $'000 | $'000 | |
Fixed assets | |||
Intangible assets | 1,430,705 | 730,018 | 1,450,586 |
Tangible assets | 29,104 | 63,019 | 62,094 |
1,459,809 | 793,037 | 1,512,680 | |
Current assets | |||
Stocks | 33,247 | 26,165 | 32,808 |
Debtors | 66,329 | 37,715 | 48,866 |
Cash at bank and in hand | 167,500 | 331,251 | 89,073 |
267,076 | 395,131 | 170,747 | |
Creditors: amounts falling due within one year | 227,284 | 72,098 | 221,027 |
Net current assets | 39,792 | 323,033 | (50,280) |
Total assets less current liabilities | 1,499,601 | 1,116,070 | 1,462,400 |
Creditors: amounts falling due after more than one year | (327,679) | (50,650) | (334,567) |
Provisions for liabilities and charges | - | (3,921) | - |
Deferred income | (2,904) | (6,072) | (5,931) |
Net assets | 1,169,018 | 1,055,427 | 1,121,902 |
Capital and reserves | |||
Called up share capital | 29,816 | 29,981 | 29,644 |
Share premium account | 390,223 | 382,762 | 383,219 |
Capital redemption reserve | 323 | 323 | 323 |
Merger reserve | 457,800 | 457,800 | 457,800 |
Profit and loss account | 290,856 | 184,561 | 250,916 |
Equity shareholders' funds | 1,169,018 | 1,055,427 | 1,121,902 |
Unaudited results for the period ended 31 December 2003
Consolidated cash flow statement - UK GAAP
Unaudited Quarter ended 31 December | Audited Year ended 30 September | ||
2003 | 2002 | 2003 | |
$'000 | $'000 | $'000 | |
Net cash inflow from operating activities | 47,253 | 22,697 | 202,822 |
Returns on investments and servicing of finance | |||
Interest paid | (1,589) | (113) | (11,502) |
Interest received | 269 | 1,710 | 4,091 |
(1,320) | 1,597 | (7,411) | |
Taxation | |||
Corporation tax paid | (5,787) | (2,166) | (31,244) |
Capital expenditure | |||
Purchase of tangible fixed assets | (1,806) | (2,518) | (6,164) |
Sale of tangible fixed assets | - | - | 40 |
Purchase of intangible fixed assets | (2,308) | - | (664,229) |
Government grant received | 383 | - | 530 |
(3,731) | (2,518) | (669,823) | |
Acquisitions and disposals | |||
Sale of fixed assets (net of costs) | 35,783 | (324) | (324) |
Equity dividends paid | - | - | (9,241) |
Net cash flow before management of liquid resources and financing | 72,198 | 19,286 | (515,221) |
Management of liquid resources | |||
(Increase)/decrease in short term deposits | (62,650) | (18,000) | 215,400 |
Financing | |||
Issue of ordinary share capital (net of expenses) | 7,176 | (769) | 536 |
Loan notes repaid | - | - | (2,925) |
Loans (repaid)/obtained (net) | (710) | (138) | 294,085 |
Principal repayment under hire purchase agreements | (236) | (139) | (414) |
6,230 | (1,046) | 291,282 | |
Increase /(decrease) in cash in the period | 15,778 | 240 | (8,539) |
Unaudited results for the period ended 31 December 2003
Notes to results
1 Basis of preparation
The financial information for the quarters ended 31 December 2003 and 2002, which is unaudited and does not constitute statutory accounts, has been prepared using accounting policies consistent with those set out in the group's 30 September 2003 statutory accounts.
The abridged financial information for the year ended 30 September 2003 has been extracted from the group's statutory accounts for that year, which will be filed with the Registrar of Companies. The report of the auditors on those accounts was unqualified.
Earnings per ordinary share is based on profit for the financial period and on the weighted average number of ordinary shares in issue during the period, excluding those held in the employee share trust.Diluted earnings per share is calculated using an adjusted number of shares reflecting the number of dilutive shares under option.Adjusted earnings per share figures reflecting the results from continuing operations before the impact of exceptional items and goodwill and intangibles amortisation have been calculated to provide shareholders with a clearer understanding of the underlying trading performance of the group (see below).
The weighted average numbers of shares used in the calculation of earnings per share are as follows:
Quarter ended 31 December | Year ended 30 September | ||
2003 Number | 2002 Number | 2003 Number | |
Weighted average number of shares: | |||
Basic | 183,849,142 | 183,188,688 | 183,574,057 |
Diluted | 186,086,722 | 183,930,198 | 184,504,240 |
Quarter ended 31 December | Year ended 30 September | ||
Adjusted earnings per share (cents) | 2003 | 2002 | 2003 |
Statutory earnings per ordinary share | 19.3 | 7.0 | 51.2 |
Adjustments | |||
Goodwill and intangibles amortisation | 11.0 | 5.7 | 33.8 |
Exceptional costs of notes redemption | - | - | 0.2 |
Adjusted earnings per share - basic | 30.3 | 12.7 | 85.2 |
Quarter ended 31 December | ||
2003 | 2002 | |
$'000 | $'000 | |
Operating profit | 52,836 | 14,426 |
Depreciation | 1,300 | 1,441 |
Amortisation of intangibles | 20,109 | 10,515 |
Capital grants release | (272) | (226) |
Profit on sale of fixed assets | (427) | - |
(Increase)/decrease in stocks | (439) | 737 |
(Increase)/decrease in debtors | (17,697) | 320 |
Decrease in creditors | (8,992) | (4,154) |
Exchange difference | 835 | (362) |
Net cash inflow from operating activities | 47,253 | 22,697 |
Summary of differences between UK and US Generally Accepted Accounting Principles ("GAAP")
The group financial statements are prepared in accordance with UK GAAP which differs in certain significant respects from US GAAP. The effect of the US GAAP adjustments to profit for the financial period and equity shareholders' funds are set out in the tables below:
3 months to 31 December | ||
2003 | 2002 | |
$'000 | $'000 | |
Unaudited | ||
(a) Reconciliation of profit for the period to US GAAP | ||
Profit for the financial period under UK GAAP | 35,537 | 12,771 |
US GAAP adjustments: | ||
Amortisation of goodwill | 5,800 | 5,763 |
Impact of discounted contingent consideration | 1,822 | - |
Amortisation of intangibles | (1,755) | (545) |
Depreciation of interest capitalised | (13) | (13) |
Deferred taxation | 1,494 | (3,440) |
Compensation expense | (295) | (82) |
Deferred tax effect of US GAAP adjustments | 110 | 394 |
US GAAP adjustments total | 7,163 | 2,077 |
Profit for the financial period under US GAAP | 42,700 | 14,848 |
As at 31 December 2003 | As at 30 September 2003 | |
$'000 | $'000 | |
Unaudited | ||
(b) Effect on equity shareholders' funds of differences between UK GAAP and US GAAP | ||
Equity shareholders' funds under UK GAAP | 1,169,018 | 1,121,902 |
US GAAP adjustments: | ||
Acquisition accounting | (110,849) | (114,896) |
Impact of discounted contingent consideration | 3,522 | 1,700 |
Functional currency adjustment | 21,906 | 21,906 |
Capitalisation of interest | 2,488 | 2,501 |
Deferred taxation | (41,714) | (43,318) |
Employee benefit trust | (12,299) | (11,459) |
Share premium account | 12,299 | 11,459 |
Dividends | 7,330 | 7,330 |
US GAAP adjustments total | (117,317) | (124,777) |
Equity shareholders' funds under US GAAP | 1,051,701 | 997,125 |
Unaudited consolidated balance sheets - US GAAP
(In thousands of US dollars)
As at December 31 | Audited As at September 30 | |
2003 | 2003 | |
$'000 | $'000 | |
Assets | ||
Current assets: | ||
Cash and cash equivalents | 167,500 | 89,073 |
Accounts receivable, net | 49,630 | 38,042 |
Inventories | 33,247 | 32,808 |
Prepaid expense and other assets | 12,918 | 6,808 |
263,295 | 166,731 | |
Property, plant and equipment, net | 31,593 | 64,594 |
Intangible assets, net | 1,094,581 | 1,109,106 |
Goodwill, net | 224,934 | 224,934 |
Total assets | 1,614,403 | 1,565,365 |
Liabilities | ||
Current liabilities: | ||
Accounts payable | 15,978 | 19,592 |
Accrued and other liabilities | 66,461 | 70,848 |
Current instalments of long-term debt | 102,813 | 103,088 |
Current instalments of obligation under capital leases | - | 233 |
Income taxes | 25,108 | 17,442 |
Total current liabilities | 210,360 | 211,203 |
Other liabilities: | ||
Long-term debt, excluding current instalments | 238,769 | 239,065 |
Long-term obligations under capital leases, excluding current instalments | - | 3 |
Deferred income taxes | 110,669 | 112,038 |
Other non-current liabilities | 2,904 | 5,931 |
Total liabilities | 562,702 | 568,240 |
Shareholders' equity | ||
Ordinary shares, par value (pounds sterling) 0.10 per share; 250,000,000 (September 30, 2003; 250,000,000) shares authorised,189,091,531shares issued and outstanding at December 31, 2003 and 188,209,895 issued and outstanding at September 30, 2003 |
30,218 |
30,046 |
Additional paid in capital | 683,829 | 676,528 |
Retained earnings | 321,420 | 278,720 |
Treasury stock | (23,638) | (23,638) |
Accumulated other comprehensive income | 39,872 | 35,469 |
Total shareholders' equity | 1,051,701 | 997,125 |
Total liabilities and shareholders' equity | 1,614,403 | 1,565,365 |
Unaudited consolidated statement of operations - US GAAP
(In thousands of US dollars, except per share data)
Quarter ended December 31 | ||
2003 | 2002 | |
$'000 | $'000 | |
Revenues | 140,852 | 68,643 |
Operating expenses | ||
Cost of sales (excluding depreciation shown separately below) | 21,556 | 14,274 |
Selling, general and administrative | 38,472 | 22,630 |
Research and development | 6,874 | 5,437 |
Depreciation | 1,313 | 1,455 |
Amortisation | 14,752 | 5,297 |
Total operating expenses | 82,967 | 49,093 |
Operating income | 57,885 | 19,550 |
Other (expense) / income | ||
Interest income | 269 | 2,484 |
Interest expense | (3,605) | (1,660) |
Total other (expense) / income | (3,336) | 824 |
Income before taxes | 54,549 | 20,374 |
Provision for income taxes | 11,849 | 5,526 |
Net income | 42,700 | 14,848 |
Basic and diluted net income per ordinary share | 0.23 | 0.08 |
Basic net income per ADS equivalent | 0.93 | 0.32 |
Diluted net income per ADS equivalent | 0.92 | 0.32 |
Weighted average ordinary shares outstanding | ||
Basic | 183,849,142 | 183,188,688 |
Diluted | 186,086,722 | 183,930,198 |
Weighted average ADS equivalents outstanding | ||
Basic | 45,962,286 | 45,797,172 |
Diluted | 46,521,680 | 45,982,550 |
Unaudited consolidated statements of cash flows - US GAAP
(In thousands of US dollars)
Quarter ended December 31 | ||
2003 | 2002 | |
$'000 | $'000 | |
Cash flows from operating activities | ||
Net income | 42,700 | 14,848 |
Adjustment to reconcile net income to net cash provided by operating activities: | ||
Depreciation | 1,313 | 1,455 |
Amortisation of intangibles | 14,752 | 5,297 |
Gain on sale of fixed assets | (427) | - |
Amortisation of government grants | (272) | (226) |
Long term debt finance costs (net) | 57 | (47) |
Stock compensation expense | 295 | 81 |
Changes in assets and liabilities: | ||
Increase in accounts receivable, prepaid expense and other assets | (17,699) | (334) |
(Increase) / decrease in inventories | (439) | 737 |
Decrease in accounts payable, accrued liabilities and other liabilities | (7,033) | (2,595) |
Income taxes | 6,063 | 3,537 |
Foreign exchange gain / (loss) | 797 | (626) |
Net cash provided by operating activities | 40,107 | 22,127 |
Cash flows from investing activities | ||
Purchase of tangible fixed assets | (1,806) | (2,518) |
Purchase of intangible fixed assets | (2,308) | - |
Government grant received | 383 | - |
Proceeds from sale of businesses (net of costs) | 35,783 | (324) |
Net cash provided by /(used in) investing activities | 32,052 | (2,842) |
Cash flows from financing activities | ||
Long term debt repaid | (710) | (138) |
Payments under capital leases | (236) | (139) |
Proceeds from share capital issue (net of expenses) | 7,176 | (769) |
Net cash provided by / (used in) financing activities | 6,230 | (1,046) |
Net increase in cash and cash equivalents | 78,389 | 18,239 |
Cash and cash equivalents, beginning of period | 89,073 | 313,012 |
Foreign exchange adjustment on cash and cash equivalents | 38 | - |
Cash and cash equivalents, end of period | 167,500 | 331,251 |
