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 FIRST QUARTER RESULTS AND REAFFIRMS FISCAL 2005
ESTIMATES
Memphis, TN, November 1, 2004 - Accredo Health, Incorporated (NASDAQ: ACDO)
today reported results for its first quarter ended September 30, 2004. Revenues
for the quarter increased 24% to $416,126,000 compared to $334,984,000 for the
same period in fiscal 2004. Net earnings decreased 27% to $12,856,000, or $0.26
per diluted share, for the quarter ended September 30, 2004 compared to
$17,508,000, or $0.36 per diluted share, for the same period in fiscal 2004. As
previously announced, the Company expensed approximately $4.4 million ($2.7
million net of tax) in unamortized debt issuance costs associated with the
replacement and expansion of its Senior Credit facility during the quarter
ended September 30, 2004. Excluding the charge, diluted earnings per share
would be $0.32 for the quarter ended September 30, 2004.
David D. Stevens, Accredo's chairman and chief executive officer remarked, "We
are encouraged by the continued revenue growth both on a sequential and year
over year basis. This increase is driven by growth in both our core and
recently added product lines. In addition, we are pleased with the integration
of our recent acquisition of Hemophilia Resources of America, Inc. (HRA) and
its contribution in the September quarter. Consistent with the recent
reductions to our fiscal 2005 estimates, we continue to face pressure on the
gross margin line due to declining reimbursement levels, particularly related
to government payors. Furthermore, our current quarter revenue mix includes
more products with a lower margin profile than our historical book of business.
We continue to work diligently to influence and improve the outcome of the
proposed reimbursement changes pertaining to Remodulin(R), Flolan(R) and blood
clotting factor, and expect to have further information before the end of
calendar 2004."
Stevens further commented, "The initial transfer of patients from our expanded
relationship with Medco Health Solutions, Inc. (Medco) has progressed favorably
and is nearing completion. Based on the results of the September 2004 quarter,
Medco revenues for fiscal 2005 are in line to meet or exceed our expectations.
The seven new products launched since April 2003, which represent approximately
one-third of our total product line offerings, continue to grow at or above our
expectations. In addition, we have significantly increased our investment in
the seasonal launch of Synagis(R) this year to take advantage of market
opportunities. We will maintain our focus on expanding market share in the
therapies we serve and solidifying our position as one of the country's premier
specialty pharmacy providers."
Joel R. Kimbrough, Accredo's chief financial officer, added, "We are pleased
with the continued overall revenue growth, which will be supplemented in the
next two quarters with revenue from the seasonal drug
Synagis(R) for the treatment of RSV in infants. In addition, the full impact of
the Medco business and our recent acquisition was not realized in the current
quarter. As a result of the expected decrease in government and commercial
payor reimbursement levels, primarily in the PAH and IVIG product lines,
coupled with the first full-quarter impact of the reduced reimbursement levels
for hemophilia products from MediCal, we experienced declines this quarter in
gross profit and net income margins. We continue to monitor and proactively
address legislative and marketplace changes during this climate of changing
reimbursement levels."
Mr. Kimbrough continued, "We are reaffirming our previously announced fiscal
year 2005 revenues and earnings estimates of $1.85 billion to $1.90 billion in
revenues and $1.45 to $1.53 in diluted earnings per share, inclusive of the
$4.4 million ($2.7 million net of tax) write-off of unamortized debt issuance
costs. Despite the level of change that is occurring in our industry, the
fundamentals of our business remain strong. As previously announced, 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 NEW DEVELOPMENTS HAVE OCCURRED PERTAINING TO 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?
A1) As previously announced, since January 1, 2004, the effective date of
the MMA, the DME regional carriers (DMERCs) have established payment rates for
the 10 mg 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 appealed claims in this one region, and we were hopeful that
the DMERC would retroactively correct this situation. We were also hopeful that
the Centers for Medicare and Medicaid Services (CMS) would retroactively
increase the reimbursement rates for Flolan(R) and Remodulin(R). The Company
and the manufacturer of Remodulin(R), United Therapeutics Corporation,
separately met with CMS to discuss these issues. In addition, numerous
discussions have occurred since these meetings. CMS has not definitively
responded to our request for changes in the rates. However, a change in those
rates is possible, and we believe that CMS has the authority to initiate, and
is currently considering, such a change under the guidelines set forth in the
MMA. As more definitive information becomes available, we will evaluate our
long-term strategy with regard to these products.
Q2) WHAT IS THE LATEST INFORMATION ON MEDICAL REIMBURSEMENT FOR BLOOD
CLOTTING FACTOR FOR FISCAL 2005?
A2) 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. At the time of our fiscal 2004
year-end earnings release, we had not received payment from MediCal on blood
clotting factor dispensed on or after June 1, 2004. During the September 2004
quarter, however, we received payments from MediCal for blood clotting factor
at levels that are substantially consistent with our previous estimates.
Q3) WHAT IS THE EFFECT OF THE MMA ON THE REIMBURSEMENT FOR HEMOPHILIA
CLOTTING FACTOR?
A3) 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. We provided comments to CMS on the proposed rule
in September 2004, and expect CMS to release a final rule during November 2004.
Our previously revised fiscal 2005 estimates 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.
Q4) WHAT IS THE COMPANY'S OUTLOOK FOR THE FISCAL 2005 SYNAGIS(R) SEASON?
A4) In the September 2004 quarter, we experienced sales of Synagis(R)
above those levels obtained during the same quarter last year. As previously
reported, we continue to expect to achieve revenue growth from Synagis(R) in
fiscal 2005 greater than the rate of growth applicable to the overall market
for that product. We incurred costs of approximately $1.6 million in the
September quarter related to this season's Synagis(R) launch. As a reminder,
sales of Synagis(R) primarily occur in the second and third quarters of our
fiscal year.
Q5) WHY DID GROSS PROFIT MARGINS DECREASE TO 17.7% IN THE SEPTEMBER 2004
QUARTER COMPARED TO 22.7% ACHIEVED IN THE SAME QUARTER LAST YEAR AND TO THE
20.7% ACHIEVED IN THE JUNE 2004 QUARTER?
A5) For the September 2004 quarter, gross profit margins declined to 17.7%
compared to 22.7% in the same quarter last year. We also experienced a decrease
in gross profit margins from 20.7% in the June 2004 quarter to 17.7% in the
September 2004 quarter. These declines are primarily a result of reductions in
reimbursement amounts from government and commercial payors in the September
2004 quarter as compared to the relevant quarters in our last fiscal year.
These reductions primarily relate to our hemophilia (specifically products
reimbursed by MediCal), PAH and IVIG product lines. The decrease is also due to
changes in our payor mix, and changes in the product mix derived from our
expanded relationship with Medco. With regard to IVIG, we continue to face
reimbursement pressure from managed care.
We expect our overall gross margin percentage to be in the 16% to 17%
range in the second and third quarters of fiscal 2005. The anticipated decrease
from the 17.7% gross margin percentage achieved in the September 2004 quarter
can be attributed to sales of the seasonal drug Synagis(R), which has a lower
gross margin than the composite gross margin of all our products, coupled with
various reimbursement changes discussed above.
Q6) WHY DID INTEREST EXPENSE (NET) INCREASE TO $7.3 MILLION IN THE CURRENT
QUARTER FROM $2.3 MILLION IN THE QUARTER ENDED SEPTEMBER 30, 2003 AND $1.8
MILLION IN THE QUARTER ENDED JUNE 30, 2004?
A6) Current quarter interest expense (net) includes the write-off of
approximately $4.4 million in unamortized debt issuance costs associated with
the replacement and expansion of the Company's Senior Credit facility. Upon the
closing of the expanded facility (now at $550 million capacity), the Company
increased its borrowings to $375.0 million. The borrowings were primarily used
to fund the acquisition of HRA that occurred during the September 2004 quarter.
Amounts borrowed under the previous Senior Credit facility were approximately
$178.4 million at June 30, 2004, and $190.6 million at September 30, 2003.
Q7) WHY DID CASH FLOW PROVIDED BY OPERATING ACTIVITIES INCREASE TO $32.3
MILLION IN THE QUARTER ENDED SEPTEMBER 30, 2004 FROM $9.1 MILLION IN THE
QUARTER ENDED JUNE 30, 2004 AND $7.5 MILLION IN THE QUARTER ENDED SEPTEMBER 30,
2003?
A7) The increase in cash flow provided by operating activities in the
September 2004 quarter is primarily attributable to the timing of the payment
of certain accounts payable, accrued expenses and tax obligations of the
Company. In addition, the growth in accounts receivable from June 30, 2004, to
September 30, 2004, was lower than the sequential revenue growth, as evidenced
by a three day reduction in day's sales outstanding. This is driven in part by
the affect of the expanded Medco relationship. We estimate that cash flow
provided by operating activities will range from $70 to $75 for the fiscal year
ended June 30, 2005.
As previously announced, the Company's conference call to discuss the first
quarter results is scheduled for Monday, November 1, 2004, at 9:00 a.m. CST.
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. CST on November 1, 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 November 24,
2004 at 5:00 p.m. CST. To access the replay call, dial 402-220-2491 and enter
the code 26803110. The Internet playback option will be archived on the
Company's website for 21 days. 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, 2004.
ACCREDO HEALTH, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30
-----------------------------------
2004 2003
----------- -----------
Net patient revenue $ 406,856 $ 326,039
Other revenue 8,665 8,397
Equity in net income of joint ventures 605 548
----------- -----------
Total revenues 416,126 334,984
Cost of sales 342,491 258,897
----------- -----------
Gross profit 73,635 76,087
General & administrative 35,983 34,552
Bad debts 5,600 7,174
Depreciation and amortization 3,839 2,955
----------- -----------
Income from operations 28,213 31,406
Interest expense, net (7,281) (2,276)
Minority interest in consolidated subsidiary (207) (482)
----------- -----------
Net income before income taxes 20,725 28,648
Provision for income taxes 7,869 11,140
----------- -----------
Net income $ 12,856 $ 17,508
=========== ===========
Earnings per share:
Basic $ 0.26 $ 0.37
Diluted $ 0.26 $ 0.36
Weighted average shares outstanding:
Basic 48,653,474 47,848,126
Diluted 49,093,243 48,554,127
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
2004 2004
------------- --------
Cash & cash equivalents $ 81,596 $ 42,743
Accounts receivable, net 342,476 325,642
Inventories 145,542 128,323
Other current assets 49,939 52,370
Fixed assets, net 42,535 41,283
Other assets 578,499 407,821
---------- --------
Total assets $1,240,587 $998,182
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Current liabilities $ 223,003 $192,504
Long-term debt 370,312 174,866
Other liabilities 29,165 28,869
Stockholders' equity 618,107 601,943
---------- --------
Total liabilities and stockholders' equity $1,240,587 $998,182
========== ========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30
-----------------------------
2004 2003
--------- -------
Net cash provided by operating activities $ 32,263 $ 7,456
Net cash used in investing activities (191,100) (1,894)
Net cash provided by (used in) financing activities 197,690 (4,447)
--------- -------
Increase in cash and cash equivalents $ 38,853 $ 1,115
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