EXHIBIT 99.1
Financial Contact: Joel Kimbrough
901.385.3621
Investor Relations Contact: Kerry Finney
901.381.7442
For Immediate Release
ACCREDO HEALTH, INC. ANNOUNCES RECORD FOURTH QUARTER AND YEAR END RESULTS
Memphis, TN, August 30, 2004 - Accredo Health, Incorporated (NASDAQ: ACDO) today
reported record results for its fourth quarter and year ended June 30, 2004. Net
income for the quarter increased 15% to $19.8 million, or $0.40 per diluted
share, compared to $17.2 million, or $0.36 per diluted share, for the same
period in fiscal 2003. Revenues for the quarter increased 16% to $382.8 million
compared to $329.1 million for the same period in fiscal 2003. For the year, net
income was $78.3 million, or $1.60 per diluted share, compared to $29.5 million,
or $0.61 per diluted share, in fiscal 2003. For the year, revenues increased 10%
to $1.517 billion compared to $1.373 billion in fiscal 2003. In addition, gross
profit margins were 21.0% and earnings before minority interest, interest,
taxes, depreciation and amortization (EBITDA) as a percentage of revenues were
9.9% for the year ended June 30, 2004. An explanation and reconciliation of net
income under generally accepted accounting principles (GAAP) to EBITDA is
discussed in the question and answer section of this press release.
The financial information contained herein is unaudited. The audit will not be
complete until the Company files its report on form 10-K with the SEC, which is
due September 13, 2004. Accordingly, the financial information included in this
press release is subject to change pending the completion of the audit by the
Company's auditor, Deloitte & Touche LLP.
David D. Stevens, Accredo's chairman and chief executive officer commented, "We
are pleased with our record results for the quarter, especially considering the
challenges we faced with significant reductions in reimbursement from government
payors. We are also excited about a number of positive events, including the
initial transfer of patients to us from our expanded relationship with Medco
Health Solutions, Inc.; our announced acquisition of Hemophilia Resources of
America, Inc. (HRA); and our selection by Bertek Pharmaceuticals, Inc. as one of
three preferred specialty providers of APOKYN(TM) for the treatment of patients
suffering from severe symptoms of advanced Parkinson's disease. During the June
quarter, we incurred expenses preparing for the launch of APOKYN(TM), which we
began shipping on August 18, 2004."
Mr. Stevens continued, "During the September quarter, we are investing
significant resources to prepare for our October launch of the seasonal drug
Synagis(R), MedImmune, Inc.'s product for the treatment of RSV. We once again
expect to achieve revenue growth from Synagis(R) greater than the rate of growth
applicable to the overall market for that product. As a reminder, we had
Synagis(R) revenues of approximately $108 million in fiscal 2004 primarily in
our December and March quarters."
Joel R. Kimbrough, Accredo's chief financial officer, added, "We are pleased
with the continued overall revenue growth, especially in several key product
lines including Synagis(R), Tracleer(TM), Remodulin(R) and growth hormone.
Synagis(R), for example, achieved 41% revenue growth from fiscal 2003 to fiscal
2004. We are also pleased with the $37 million of revenue recorded in fiscal
2004 from the six newest products in our portfolio. As a reminder, we began
distributing certain products on a consignment basis and sold our infertility
business during fiscal 2003 eliminating revenues from these products in future
periods. In fiscal year 2003, our revenues from these products amounted to
approximately $65.9 million. Excluding the $65.9 million, total revenues
increased 16% from fiscal 2003 to fiscal 2004."
Mr. Kimbrough continued, "As a result of a variety of events occurring in the
June 2004 quarter, we are revising our earnings per share estimate for fiscal
2005. We now have additional information on the impact of the recently
implemented reimbursement rates from MediCal and Medicare for the reimbursement
of hemophilia factor and Medicare's reduction in reimbursement for our Pulmonary
Arterial Hypertension (PAH) products Flolan(R) and Remodulin(R). However, we do
not have the final reimbursement rates from MediCal nor Medicare's final
reimbursement rates for Flolan(R) and Remodulin(R), therefore, we expect further
clarity in the future. In addition, we have recently experienced lower
reimbursement from some payors for IVIG. Also, Aetna has recently announced
their intentions to move some of their specialty pharmacy business from us to a
joint venture partially owned by Aetna. We also have previously announced that
as a result of the recent amendment to our Senior Credit facility, we will be
expensing approximately $4.4 million of unamortized debt issuance costs
associated with the existing credit facility as a one-time non-cash charge in
the September 2004 quarter. Based upon the latest information we have and taking
these recent events into consideration along with the recent acquisition of HRA,
we are revising our fiscal 2005 earnings per share estimate. We estimate that
for our fiscal year ending June 30, 2005, we will achieve earnings per share of
$1.45 to $1.53. This compares to our previously announced estimate of earnings
per share in a range of $1.88 to $1.93. We are not changing our fiscal 2005
estimate for revenues, which we estimate will range from $1.85 billion to $1.90
billion. These estimates assume no new indications for current product lines
(including our newest product APOKYN(TM)), potential new product lines or
possible future acquisitions and are based upon our current estimates for
reimbursement rates."
IN ADDITION TO THE PREVIOUS DISCUSSIONS, WE ARE PROVIDING THE FOLLOWING
QUESTIONS AND ANSWERS RELATED TO OUR OPERATING RESULTS AND OUR ON-GOING
BUSINESS:
Q1) WHAT ARE THE COMPONENTS OF THE CHANGE IN THE COMPANY'S FISCAL 2005 EPS
ESTIMATES FROM THE PREVIOUS ESTIMATE RANGE OF $1.88 TO $1.93 TO A RANGE OF $1.45
TO $1.53?
A1) The change in the Company's fiscal 2005 earnings estimates includes
several different elements, each of which is discussed in greater detail in
separate questions and answers below. Our estimate of the EPS impact from the
various elements, based on information available at this time, is as follows:
Low High
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PREVIOUS FISCAL 2005 EPS ESTIMATE RANGE $1.88 $1.93
Additions:
Estimated accretion for the acquisition
of Hemophilia Resources of America 0.11 0.11
Reductions:
Estimated impact of IVIG margin decrease (0.20) (0.19)
Estimated impact of current Medicare
reimbursement rates for Remodulin and Flolan (0.12) (0.12)
Estimated incremental impact of MediCal's average
sales price (ASP) calculation changes for hemophilia (0.06) (0.06)
Estimated incremental impact of proposed
Medicare hemophilia reimbursement rate (0.04) (0.03)
Estimated fiscal 2005 impact of the
Aetna/PHCC joint venture (0.07) (0.06)
----- -----
EARNINGS ESTIMATE BEFORE ONE-TIME NON-CASH CHARGE
FOR THE UNAMORTIZED DEBT ISSUANCE COSTS 1.50 1.58
Expense for the unamortized debt issuance costs
related to our amended Senior Credit facility (0.05) (0.05)
----- -----
REVISED FISCAL 2005 EPS ESTIMATE RANGE $1.45 $1.53
----- -----
These estimates assume no new indications for current product lines (including
our newest product APOKYN(TM)), potential new product lines or possible future
acquisitions and are based upon our current estimates for reimbursement rates.
Our estimates are subject to numerous assumptions based on information available
to us at the time made and our judgment about the anticipated impact on our
future results and how we expect to react to future events. For example, our
current assumptions do not include possible increases in reimbursement. Further,
although extensive cost-cutting initiatives might allow us to meet our previous
EPS estimates for fiscal 2005, we have determined at this time that such
measures would negatively impact our long-term growth strategy.
Q2) WHAT IS THE STATUS OF THE RECENTLY ANNOUNCED ACQUISITION OF HEMOPHILIA
RESOURCES OF AMERICA?
A2) As previously announced, we completed the acquisition of HRA on July
21, 2004. We immediately began working with the HRA management team to maximize
synergistic opportunities, and to date the merger of HRA into our subsidiary
Hemophilia Health Services has gone very well. This acquisition was immediately
accretive to our earnings, and we estimate that HRA will add approximately $0.11
per share in the year ending June 30, 2005.
Q3) WHAT IS HAPPENING TO THE GROSS MARGINS FOR IVIG?
A3) During fiscal 2003 and the early part of fiscal 2004, our gross margins
expanded in the IVIG product line due to increasing product supply which reduced
our acquisition cost. We have previously noted, however, that the specialty
pharmacy industry is highly competitive, and that we are subject to price
fluctuations. Recently, several factors have caused our acquisition cost to
rise. In addition, we have begun to experience reimbursement pressure due to
competition arising out of the excess product supply and from product-only
service models being introduced by certain competitors. As a result, we expect
the gross margin percentage for IVIG to decline during fiscal 2005. We have
included an estimate of the effect of this anticipated IVIG gross margin
contraction in our revised fiscal 2005 estimates (See Question 1).
Q4) WHAT IS THE EFFECT OF THE MEDICARE PRESCRIPTION DRUG, IMPROVEMENT AND
MODERNIZATION ACT OF 2003 (MMA) ON THE REIMBURSEMENT FOR REMODULIN AND FLOLAN,
TWO OF THE COMPANY'S TREATMENTS FOR PATIENTS WITH PULMONARY ARTERIAL
HYPERTENSION?
A4) Remodulin(R) and Flolan(R) are covered by Medicare incident to durable
medical equipment (DME) reimbursement since they are administered through an
infusion pump and are reimbursed through one of the four Medicare DME regional
carriers (DMERCs). As we have previously noted, MMA changes the way the Federal
government pays for certain Part B drugs, and we expected that ultimately prices
and margins on some drugs would be reduced. Under the MMA, Remodulin(R) and
Flolan(R) are paid at 95% of the average wholesale price (AWP) in effect on
October 1, 2003 until the DME competitive acquisition program is phased in from
2007 to 2010. Under Medicare Part B, we receive 80% of this amount directly from
Medicare and the remaining 20% is the patient's co-payment obligation. Each one
of these drugs is packaged in several different vial strengths in order to be
able to provide the most appropriate dose level for each patient. Since January
1, 2004, the effective date of the MMA, the DMERCs have established payment
rates for the 10mg Remodulin(R) vial size and the 0.5 mg vial size of Flolan(R)
at rates that are below our acquisition cost of the drugs. In addition, one
regional DMERC is currently paying all Remodulin(R) vial sizes at the same rate
per mg as that of the 10 mg vial, thus reducing our reimbursement for all
Medicare recipients of Remodulin(R) in that region. Since the new rates went
into effect, we have been appealing claims in this one region, and we were
hopeful that the DMERC would retroactively correct this situation. We were also
hopeful that CMS would retroactively increase the reimbursement rates for
Flolan(R) and Remodulin(R). Recently, the Company and the manufacturer of
Remodulin(R), United Therapeutics Corporation, separately met with CMS to
discuss these issues. While CMS has not definitively responded to our request
for changes in the rates, we are now less optimistic that CMS will act promptly
to change the rates or change the rates on a retroactive basis. Although a
change in those rates is possible and we believe that CMS has the authority to
initiate such a change under the guidelines set forth in the MMA, our revised
fiscal 2005 estimates (See Question 1) assume that Remodulin(R) and Flolan(R)
are reimbursed by Medicare at the lower rates currently being used by the DMERCs
and do not assume any change to those rates in fiscal 2005 by CMS.
Q5) WHAT IS THE LATEST INFORMATION ON MEDICAL REIMBURSEMENT FOR BLOOD
CLOTTING FACTOR FOR FISCAL 2005?
A5) Effective June 1, 2004, MediCal, the California state Medicaid program,
began implementation of a new reimbursement methodology for hemophilia blood
clotting factor. Under this methodology, providers will be reimbursed a rate of
ASP plus 20% for all factor products. Although we have not received the final
ASP rates from MediCal, we have recently learned from several manufacturers what
was submitted to MediCal for consideration as ASP rates for the manufacturers'
products. If adopted by California, these rates are below our original ASP
estimates, and therefore, would worsen the impact of the changes by MediCal on
our hemophilia reimbursement. In addition, we understand that California is
considering further reducing the final ASP rates by the inclusion of certain
items, such as prompt pay discounts, in establishing product reimbursement
rates. We have included an estimate of the potential impact of these changes in
our revised fiscal 2005 estimates (See Question 1).
Q6) WHAT IS THE EFFECT OF THE MMA ON THE REIMBURSEMENT FOR HEMOPHILIA
CLOTTING FACTOR?
A6) Under the MMA, there are major changes in the Medicare payment rates
for blood clotting factor beginning in 2005. Currently, Medicare payment for
blood clotting factor furnished by pharmacies and physician offices continues to
be at 95% of AWP in 2004. Under Medicare Part B, the Company receives 80% of
this amount directly from Medicare and the remaining 20% is the patient's
co-payment obligation. Effective
January 1, 2005, the Company will be paid for blood clotting factor based on the
new ASP methodology. We expect that the resulting payment rates will be lower
than the current rates for these products. Congress has directed CMS to make a
separate payment to the entity that provides blood clotting factor to a Medicare
beneficiary for items and services related to the furnishing of such products.
The amount of this separate payment is capped so that the total of the ASP
payment rate and the separate payment amount cannot exceed 95% of AWP. In the
recently issued fee schedule proposed rule, CMS proposed a separate payment
amount of $0.05 per unit of blood clotting factor. We believe that the proposed
separate payment amount is inadequate for the service level requirements of the
Medicare beneficiary with hemophilia. A 60-day comment period for this proposed
rule commenced on its release date, and CMS has invited comments. We are in the
process of preparing comments to this proposed rule. Our revised fiscal 2005
estimates (See Question 1) assume that the separate payment of $0.05 per unit of
blood clotting factor goes into effect, along with the ASP payment methodology,
on January 1, 2005, and CMS makes no change in its proposed rule.
Q7) WHAT IS THE EFFECT ON FISCAL 2005 OF THE RECENTLY ANNOUNCED AETNA/PHCC
JOINT VENTURE?
A7) Revenues reimbursed or to be reimbursed by Aetna comprised
approximately 10% of our total revenues in fiscal 2004. Our contract with Aetna
expires on December 31, 2004, at which time Aetna has indicated that they will
begin transferring certain patients and therapies to the new proposed joint
venture. Aetna expects that the transfer of patients will be completed in the
third quarter of calendar 2005. Our estimate of the impact of the loss of a
portion of the Aetna business is included in our revised fiscal 2005 estimates
(See Question 1).
Q8) WHAT IS THE RECONCILIATION OF NET INCOME UNDER GAAP TO EBITDA?
A8) When we refer to EBITDA, we mean net income before minority interest,
interest, income tax expense, and depreciation and amortization. We have
included the EBITDA information because we consider it to be a good indication
of our ability to generate cash flow in order to liquidate our liabilities and
reinvest in our Company. EBITDA is not a measurement of financial performance
under GAAP and should not be considered a substitute for net income as a measure
of performance or for cash flow as a measure of liquidity. A reconciliation of
net income under GAAP to EBITDA for the year ended June 30, 2004 is as follows
(in thousands):
2004
--------
Net income $ 78,313
Minority interest in consolidated subsidiary 2,338
Interest expense, net 8,125
Income tax expense 49,124
Depreciation and amortization 12,866
--------
EBITDA $150,766
========
EBITDA as a percentage of total revenues 9.9%
========
Q9) WHY DID GROSS PROFIT MARGINS DECREASE TO 20.7% IN THE JUNE 2004 QUARTER
COMPARED TO 22.2% ACHIEVED IN THE SAME QUARTER LAST YEAR?
A9) For the June 2004 quarter, gross profit margins decreased to 20.7%
compared to 22.2% in the same quarter last year. The decrease in gross profit
margins as a percentage of revenue is primarily the result of product mix
changes. We derived a larger percentage of our revenues from lower margin
products in the June 2004 quarter (primarily growth hormone, Avonex(R) and the
six new products launched in fiscal 2004) when compared to the same quarter last
year. In addition, we experienced a decrease in reimbursement from
Medicare, MediCal and other Medicaid programs in the June 2004 quarter for some
of our products, including hemophilia clotting factor, IVIG, Flolan(R) and
Remodulin(R).
Q10) WHY DID BAD DEBT EXPENSE DECREASE TO 1.6% OF REVENUE IN THE JUNE 2004
QUARTER COMPARED TO 2.1% IN THE SAME QUARTER LAST YEAR?
A10) The decrease in bad debts as a percentage of revenues is primarily due
to a decrease in the percentage of our revenues that were reimbursed by major
medical benefit plans versus prescription card benefits. The change in revenue
mix discussed above directly impacts the percentage of revenue reimbursed by
prescription card benefits versus major medical benefit plans. The majority of
the reimbursement provided by major medical benefit plans are subject to much
higher co-payment and deductible amounts versus the typical $20 to $30 co-pay
generally required by prescription card benefit plans.
Q11) WHY DID CASH FLOW PROVIDED BY OPERATING ACTIVITIES DECREASE FROM $71.1
MILLION IN FISCAL 2003 TO $58.3 MILLION IN FISCAL 2004?
A11) The decrease in cash flows provided by operating activities is
primarily due to the increase in inventory from $90.0 million as of June 30,
2003, to $128.3 million as of June 30, 2004. As a percentage of cost of sales,
inventory increased from 8.3% in fiscal 2003 to 10.7% in fiscal 2004. This
increase is due to the growth in our business, the purchase of inventory to
fulfill certain purchase commitments and the purchase of certain inventory at a
lower acquisition cost. This increased level of inventory does not exceed our
demand, and we do not expect to have any obsolescence adjustments related to
this additional inventory.
Q12) WHAT IS THE STATUS OF THE DISTRIBUTION OF APOKYN(TM)?
A12) We announced on April 26, 2004, that we were selected by Bertek
Pharmaceuticals, Inc., a wholly owned subsidiary of Mylan Laboratories, Inc., as
a preferred specialty pharmacy provider of APOKYN(TM) used in the acute,
intermittent treatment of hypomobility associated with advanced Parkinson's
disease. We began the distribution of this product August 18, 2004. We have not
included the addition of this product in our estimates. We will update our
estimates when Bertek announces their expectations for this product, and we have
more data to estimate the impact on our results.
As previously announced, the Company's conference call to discuss the fourth
quarter results is scheduled for Monday, August 30, 2004, at 9:00 a.m. CDT. The
conference call will be web-cast live on the Accredo Health, Incorporated web
site. Interested parties may access the web-cast at www.accredohealth.com
beginning at 9:00 a.m. CDT on August 30, 2004. A replay of the call will be
available, and there will also be a playback of the conference call available
over the Internet beginning approximately one hour after the end of the
conference call. The replay of the call will be available until September 17,
2004 at 5:00 p.m. CDT. To access the replay call, dial 402-220-2491 and enter
the code 25243922. The Internet playback option will be archived on the
Company's website. To access the Internet playback, go to www.accredohealth.com.
In addition to historical information, certain of the statements in the
preceding paragraphs, particularly those anticipating future financial
performance, business prospects and growth and operating strategies constitute
forward-looking statements within the meaning of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Such statements may be
identified by words such as anticipate, believe, estimate, expect, intend,
predict, hope or similar expressions. Such statements, which include estimated
financial information or results and the quoted comments of Mr. Stevens and Mr.
Kimbrough above, are based on management's current expectations and are subject
to a number of factors and uncertainties which could
cause actual results to differ materially from those described in the
forward-looking statements, including, without limitation, the loss of a
biopharmaceutical relationship, our inability to sell existing products,
difficulties integrating acquisitions, the impact of pharmaceutical industry
regulation, the difficulty of predicting FDA and other regulatory authority
approvals, the regulatory environment and changes in healthcare policies and
structure, acceptance and demand for new pharmaceutical products and new
therapies, the impact of competitive products and pricing, the ability to obtain
products from suppliers, reliance on strategic alliances, the ability to expand
through joint ventures and acquisitions, the ability to maintain pricing
arrangements with suppliers that preserve margins, the need for and ability to
obtain additional capital, the seasonality and variability of operating results,
the Company's ability to implement its strategies and achieve its objectives and
the risks and uncertainties described in reports filed by Accredo with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, including without limitation, cautionary statements under the heading
"Risk Factors" made in Accredo's Annual Report on Form 10-K for its year ended
June 30, 2003 and Accredo's Quarterly Reports on Form 10-Q.
###
ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED) (UNAUDITED)
YEAR ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net patient revenue $ 1,475,036 $ 1,337,414 $ 371,839 $ 321,738
Other revenue 38,761 33,982 10,157 6,723
Equity in net income of joint ventures 3,071 1,940 799 595
------------ ------------ ------------ ------------
Total revenues 1,516,868 1,373,336 382,795 329,056
Cost of sales 1,197,836 1,086,334 303,498 256,132
------------ ------------ ------------ ------------
Gross profit 319,032 287,002 79,297 72,924
General & administrative expenses 138,521 129,803 35,355 32,629
Bad debts 29,745 87,418 6,014 7,073
Depreciation and amortization 12,866 10,386 3,533 2,839
------------ ------------ ------------ ------------
Income from operations 137,900 59,395 34,395 30,383
Interest expense, net (8,125) (9,564) (1,760) (2,369)
Minority interest in consolidated subsidiary (2,338) (2,044) (597) (571)
------------ ------------ ------------ ------------
Net income before income taxes 127,437 47,787 32,038 27,443
Provision for income tax expense 49,124 18,252 12,269 10,204
------------ ------------ ------------ ------------
Net income $ 78,313 $ 29,535 $ 19,769 $ 17,239
============ ============ ============ ============
Earnings per share:
Basic $ 1.63 $ 0.62 $ 0.41 $ 0.36
Diluted $ 1.60 $ 0.61 $ 0.40 $ 0.36
Weighted average shares outstanding:
Basic 48,165,855 47,509,682 48,513,123 47,780,753
Diluted 49,042,676 48,442,723 49,563,592 48,304,903
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
JUNE 30, JUNE 30,
2004 2003
---------- ---------
Cash & cash equivalents $ 42,743 $ 48,006
Accounts receivable, net 325,642 307,982
Inventories 128,323 89,985
Other current assets 52,370 55,909
Fixed assets, net 41,283 31,681
Other assets 407,821 381,220
--------- ---------
Total assets $ 998,182 $ 914,783
========= =========
Current liabilities $ 206,879 $ 206,008
Long-term debt 160,491 178,438
Other liabilities 28,869 17,629
Stockholders' equity 601,943 512,708
--------- ---------
Total liabilities and stockholders' equity $ 998,182 $ 914,783
========= =========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
YEAR ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
-------- -------- -------- --------
Net cash provided by operating activities $ 58,314 $ 71,070 $ 9,108 $ 23,116
Net cash (used in) investing activities (55,573) (37,975) (9,451) (4,038)
Net cash (used in) financing activities (8,004) (28,002) (1,549) (3,134)
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents $ (5,263) $ 5,093 $ (1,892) $ 15,944
======== ======== ======== ========