James Hawley, CFO or Ehren Lister, Account Executive
CIMA LABS INC. Sharon Merrill Associates, Inc.
(952) 947-8700 (617) 542-5300
jim.hawley@cimalabs.com elister@investorrelations.com
CIMA LABS ANNOUNCES SECOND-QUARTER 2003
FINANCIAL RESULTS
OPERATING INCOME UP 117% ON 79% YEAR-OVER-YEAR REVENUE INCREASE
July 31, 2003--Eden Prairie, MN--CIMA LABS INC. (NASDAQ NMS: CIMA) today
reported record results for the second quarter ended June 30, 2003.
o Revenues increased 79% year-over-year to $18.3 million, from $10.2
million in the second quarter of 2002, and rose 10% sequentially from
$16.7 million in the first quarter of 2003.
o Operating income was $4.2 million (23.2% of revenue), a 117% increase
from the second quarter of 2002. In addition, CIMA's operating income
increased 10% sequentially from $3.9 million (23.2% of revenues) in
the first quarter of 2003, despite higher-than-anticipated legal costs
associated with a patent defense claim.
o Other income, principally investment income, declined approximately
56% year-over-year to $849,000 in the second quarter of 2003 due to
lower reinvestment rates.
o Net income was $3.7 million, or $0.25 per share on a diluted basis,
compared with second-quarter 2002 net income of $4.2 million, or $0.28
per diluted share. The year-over-year decline in net income reflects
CIMA recording approximately $1.4 million in income tax provisions
during the quarter, compared to a small tax benefit recorded in the
second quarter of 2002.
"This was another very good quarter for CIMA," said Steven B. Ratoff, chairman
and interim CEO. "CIMA operated at full capacity during the second quarter, as
our sales of Remeron SolTabs and Alavert to CIMA's partners remained strong.
Higher absorption of fixed costs, together with a favorable manufacturing mix,
resulted in substantially improved product gross margins. As a result, we hit
the middle of our second-quarter guidance range for revenue and the top of the
range for earnings. At the same time, we made excellent progress in our product
development pipeline activities."
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CIMA SECOND-QUARTER FINANCIAL RESULTS / 2
"Remeron SolTabs, Organon's orally disintegrating tablet (ODT) medication for
depression, remained CIMA's largest revenue contributor in the second quarter,"
said Ratoff. "Even after reaching an all-time high in the first quarter of 2003,
our Remeron shipments increased sharply again this quarter and were the major
factor in our $2.2 million sequential increase in product sales. Organon has
reported that Remeron SolTabs sales have held up well in the United States,
despite competition from generic forms of standard Remeron. Internationally,
primarily in the European Community, Organon has been aggressively marketing
SolTabs as a line extension or a replacement for their conventional Remeron
tablet. As a result, about two-thirds of CIMA's Remeron SolTab shipments went to
offshore markets during the second quarter."
"Although our partner Wyeth has not disclosed its second-quarter results for ODT
forms of Alavert, CIMA's recent sales numbers suggest that this new
over-the-counter ODT antihistamine has been performing well since its launch in
December 2002," Ratoff said. "Alavert has consistently been our number-two
revenue contributor through the first half of 2003, though product sales to
Wyeth during the second quarter declined sequentially compared with an extremely
strong Q1. Based on Wyeth's production forecasts, however, we believe that
Alavert will continue to be an important factor in CIMA's growth going forward."
"We continued to make significant advances in our product pipeline activities
during the second quarter," Ratoff said. "As we previously indicated, we are
expecting our partners to launch one or two new products before the end of 2003,
and three to five new products in 2004. CIMA remains on-track with respect to
its previously announced partnerships, and our collaborative product pipeline
continues to expand. Earlier this month we announced our newest collaboration --
a license and supply agreement for an orally disintegrating prescription
anti-inflammatory -- which is expected to generate in excess of $7 million in
milestone payments and development fees during its initial phase. In addition,
late in the second quarter Wyeth launched a pediatric form of Alavert under the
Dimetapp brand, which should support the continued strength of this product
during the second half of 2003."
"At the same time, CIMA moved further toward completing preparations for the
Phase III clinical trials of OraVescent Fentanyl -- our first proprietary
product," Ratoff said. "We remain on an aggressive schedule for an FDA filing
for OraVescent Fentanyl by the end of 2004 and a potential partner launch in
late 2005."
Commenting on the Company's manufacturing capacity expansion efforts, Chief
Operating Officer John Hontz, Ph.D., said, "CIMA's manufacturing operations ran
round-the-clock during the second quarter to satisfy our partners' product
demand. As a result, we increased our production volume for the quarter by 46%.
At the same time, we completed the installation and initial testing of our first
bottled tablet manufacturing line, which should provide us with annual capacity
of 700 million bottled tablets beginning late this year. We're also about to
start construction of a third production line for blister-packaged tablets. This
new line is designed to increase our annual blister-packaged capacity from 600
million to 1 billion tablets, and we expect it to be operational during the
first quarter of 2004."
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CIMA SECOND-QUARTER FINANCIAL RESULTS / 3
FINANCIAL REVIEW
"Sales of branded prescription and over-the-counter orally disintegrating
tablets that CIMA manufactures for its partners increased 164% year-over-year
and nearly 22% sequentially to $12.3 million in the second quarter of 2003,"
said James Hawley, CIMA's chief financial officer. "Remeron SolTabs and Alavert
dominated our production mix during the quarter."
"Product development fees and license revenue were roughly flat on a sequential
basis but were down 48% from the second quarter of 2002," Hawley said. "This
revenue is affected by the timing of milestone payments and project development
work. Both of these factors can vary from quarter to quarter, but we expect this
revenue category to improve in the second half of the year."
"Royalty revenue declined by approximately 11% from the first quarter, but
increased 77% from the second quarter last year," Hawley said. "The sequential
decline primarily resulted from lower Alavert royalties compared with the high
level of first-quarter Alavert royalties associated with the product's
fourth-quarter 2002 launch. In addition, some of our Q2 Alavert manufacturing
was bulk product for repackaging by Wyeth, so royalties associated with a
certain portion of this bulk production are expected in the third quarter. The
sequential decline also reflected unusually high Zomig-ZMT royalties in Q1,
reflecting a move by distributors to build their Zomig-ZMT inventories prior to
a price increase that went into effect on April 1. The year-over-year increase
in royalty payments was attributable to the increase in partner sales of Remeron
SolTabs, Alavert and Zomig-ZMT compared with the same period last year."
"The quality of our earnings continues to improve as our business matures,"
Hawley said. "Operating income accounted for 83% of CIMA's total pre-tax income
in the second quarter of 2003. In comparison, operating income represented 78%
of pre-tax income in the sequential first quarter and 50% in the second quarter
of 2002, when fully half of our pre-tax income was generated by investment
income. We made this progress despite anticipated increases in expenses for
management transition and Sarbanes-Oxley Act compliance, as well as
higher-than-expected costs related to patent defense litigation."
CIMA used approximately $500,000 of its remaining tax benefits in
the second quarter, with the remaining $1.3 million to be recognized during the
second half of 2003. CIMA's effective tax rate for the second quarter was 27.6%.
The company expects its effective tax rate for the remaining quarters of 2003 to
be in the range of 27%-29%. A normalized tax rate of approximately 37.5% is
expected to apply to CIMA's earnings subsequent to recognizing the remaining tax
benefits. Earnings per diluted share at the fully taxed rate of 37.5% would have
been $0.22 for the second quarter of 2003 compared with $0.17 for the second
quarter of 2002. CIMA's fully taxed earnings per share are a non-GAAP financial
measure that the Company is using to provide a comparison to prior quarters. A
reconciliation of fully taxed earnings per share to the comparable GAAP
financial measure is included in the statements incorporated as part of this
news release.
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CIMA SECOND-QUARTER FINANCIAL RESULTS / 4
CIMA's cash and available-for-sale securities totaled $133.7 million at the end
of the second quarter of 2003, compared with $131.7 million at December 31,
2002. The Company continued to have no debt on its balance sheet at the end of
the second quarter of 2003.
OUTLOOK
"The progress CIMA is making in every aspect of its business -- current
partnerships, future partnerships and proprietary product development --
suggests that we are well on our way toward meeting, and in some cases
surpassing, all of our stated objectives for 2003," Ratoff said. "Looking
farther ahead, within the next three years CIMA's partners have the potential to
launch as many as 10 new products incorporating CIMA's technologies including
our first proprietary product -- OraVescent Fentanyl. This will not only
reinforce our leadership position in orally disintegrating dosage forms, but
also further diversify our revenue and profit base."
"Our forecast for 2003 product sales and royalty revenues indicates that our
previous 2003 revenue guidance remains on target," Ratoff said. "Our previous
earnings guidance remains on target as well. Although CIMA's effective tax rate
should be lower than previously anticipated in the second half of 2003, a less
favorable manufacturing mix, increased litigation expense and higher proprietary
development costs are expected to offset the lower tax rate."
THIRD-QUARTER AND FULL-YEAR 2003 GUIDANCE
For the third quarter of 2003, CIMA expects revenues to be in the range of $19
million to $20.5 million. Earnings per diluted share, based on an anticipated
tax rate of 27%-29% and lower manufacturing margins, are expected to be in the
range of $0.24 to $0.27.
For the full year 2003, the Company continues to expect revenue to be in the
range of $70 million to $75 million. Earnings per share, based on the Company's
new anticipated full-year tax rate of approximately 28-30%, are expected to be
in the range of $1.07 to $1.17 per diluted share.
SECOND-QUARTER CONFERENCE CALL AND REPLAY
CIMA will review its second-quarter operating results in a conference call at
4:30 p.m. ET today. A replay of the conference call will be available for one
week by dialing 719-457-0820 and providing the 514361 confirmation code.
Investors also can listen to the conference call at www.cimalabs.com. Listeners
should go to the Web site at least 15 minutes before the scheduled start time to
download and install any necessary audio software.
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CIMA SECOND-QUARTER FINANCIAL RESULTS / 5
ABOUT CIMA LABS INC.
CIMA develops and manufactures prescription and over-the-counter products based
upon its proprietary, oral disintegration drug delivery technologies, OraSolv(R)
and DuraSolv(R). Based on its technologies, an active drug ingredient, which the
Company frequently taste-masks, is formulated into a new, orally disintegrating
dosage form that dissolves quickly in the mouth without chewing or the need for
water. CIMA's business involves a dual operating strategy. The Company develops
and manufactures orally disintegrating versions of drugs for pharmaceutical
company partners for whom CIMA currently produces three branded prescription
pharmaceuticals and three over-the-counter brands. CIMA also is developing
proprietary products utilizing its oral disintegration technologies, as well as
its new OraVescent(R) enhanced absorption, transmucosal drug delivery system.
SAFE HARBOR STATEMENT
This press release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements include, but
are not limited to those relating to CIMA's financial expectations for earnings
and revenues for the third quarter and full year 2003, the future success of
products marketed by CIMA's partners, CIMA's expected effective tax rate, the
timing of the introduction of new products incorporating CIMA's technologies and
the receipt of product development fees, and the Company's manufacturing
capacity. A number of factors could cause actual results to differ materially
from CIMA's assumptions and expectations. These factors include the successful
completion of feasibility projects, consumer acceptance of products
incorporating CIMA's technologies, the receipt of firm orders for these
products, the success of pharmaceutical companies in marketing products
incorporating CIMA's technologies, production costs, production yields, agreeing
to commercial terms with pharmaceutical companies for new collaborative
development and license agreements, capacity utilization of product development
and manufacturing resources, the outcome of tests in humans of proposed
products, returns on investments, and recognition of income tax benefits.
Additional factors that may cause actual results to differ from CIMA's
assumptions and expectations include those set forth under the heading "Factors
That Could Affect Future Results" included in CIMA's most recent filings with
the Securities and Exchange Commission, including the Company's Form 10-Q for
the period ended March 31, 2003. All forward-looking statements are qualified
by, and should be considered in conjunction with, such cautionary statements.
Financial Statements Follow . . .
CONDENSED INCOME STATEMENT
(in thousands, except per share)
Unaudited Unaudited
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------ -----------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ---------------
Operating Revenues:
Net sales $ 12,252 $ 4,639 $ 22,320 $ 8,877
Product development fees and licensing 1,594 3,060 3,197 5,367
Royalties 4,426 2,501 9,428 4,339
---------------- ---------------- ---------------- ---------------
Total operating revenues 18,272 10,200 34,945 18,583
Operating expenses:
Cost of goods sold 7,434 3,743 15,202 7,028
Research and product development 2,703 2,445 5,210 4,455
Selling, general and administrative 3,895 2,054 6,429 3,644
---------------- ---------------- ---------------- ---------------
Total operating expenses 14,032 8,242 26,841 15,127
Operating income 4,240 1,958 8,104 3,456
Other income 849 1,937 1,915 3,676
---------------- ---------------- ---------------- ---------------
Income before provision for taxes 5,089 3,895 10,019 7,132
Income tax expense (benefit) 1,405 (272) 3,177 (440)
---------------- ---------------- ---------------- ---------------
Net income $ 3,684 $ 4,167 $ 6,842 $ 7,572
================ ================ ================ ===============
Net income per basic share $ 0.26 $ 0.29 $ 0.48 $ 0.53
Net income per diluted share $ 0.25 $ 0.28 $ 0.47 $ 0.52
Weighted average of number of shares:
Basic 14,374 14,169 14,328 14,164
Diluted 14,759 14,631 14,683 14,631
Pro forma: assumes income before tax is subject
to tax at a normalized rate of 37.5% (unaudited):
Net income as reported $ 3,684 $ 4,167 $ 6,842 $ 7,572
add back: Tax expense at as reported 1,405 (272) 3,177 (440)
less: tax expense at 37.5% (1,908) (1,461) (3,757) (2,674)
---------------- ---------------- ---------------- ---------------
Pro forma net income $ 3,181 $ 2,434 $ 6,262 $ 4,458
Pro forma net income per diluted share $ 0.22 $ 0.17 $ 0.43 $ 0.30
Weighted average diluted shares 14,759 14,631 14,683 14,631
SELECTED BALANCE SHEET DATA
(in thousands)
June 30, 2003 December 31, 2002
(unaudited) (audited)
Cash, cash equivalents and available-for-sale
securities - current & non-current $133,740 $ 131,681
Trade accounts receivable, net 12,909 14,621
Inventories, net 5,947 4,082
Property, plant & equipment, net 70,520 61,074
Deferred tax assets, net 9,695 11,414
Total assets 235,468 225,353
Current liabilities 11,896 12,052
Stockholders' equity 223,572 213,301