EXHIBIT 99.2
(CONNETICS LOGO)
COMPANY CONTACT: INVESTOR RELATIONS:
John Higgins Ina McGuinness or Bruce Voss
Chief Financial Officer Lippert/Heilshorn & Associates
(650) 843-2800 (310) 691-7100
jhiggins@connetics.com imcguinness@lhai.com
CONNETICS REPORTS SECOND QUARTER EPS OF $0.19,
PRODUCT REVENUES INCREASE 92% TO $38.0 MILLION
COMPANY RAISES 2004 REVENUE AND EARNINGS GUIDANCE AND INTRODUCES THIRD
QUARTER FINANCIAL GUIDANCE
PALO ALTO, CALIF. (JULY 28, 2004) - CONNETICS CORPORATION (NASDAQ: CNCT), a
specialty pharmaceutical company that develops and commercializes dermatology
products, today reported net income for the second quarter ended June 30, 2004
of $7.5 million or $0.19 per diluted share. This compares with a net loss for
the second quarter of 2003 of $1.9 million or $0.06 per share.
Total revenues for the second quarter of 2004 increased 92% to $38.3 million,
compared with total revenues of $20.0 million for the second quarter of 2003.
Product revenues for the 2004 second quarter were $38.0 million compared with
$15.5 million for the same period last year, reflecting growth in all product
lines as well as a full quarter with sales of Soriatane(R), which the Company
acquired on March 4, 2004 from Roche.
Second quarter of 2004 product sales of OLUX(R) and Luxiq(R) rose 34% to $20.8,
million including the impact of a one-time $0.6 million reduction made to
revenues to reflect Medicaid program product pricing allowances. Second quarter
of 2004 sales of Soriatane were $17.2 million, which included sales to a
U.S.-based distributor that exports branded pharmaceutical products to select
international markets. This distributor relationship commenced during the
quarter. Contract and royalty revenues for the second quarter of 2004 were
$0.3 million, compared with $4.4 million in the second quarter of 2003.
Selling, general and administrative (SG&A) costs were $17.2 million in the
second quarter of 2004, compared with $10.4 million in the second quarter of
2003. The increase to SG&A expenses is due to increased promotional activities
for all products and compensation expenses paid to UCB Pharma for its
promotional activities. Research and development (R&D) expenses for the second
quarter of 2004 were $5.0 million, down from $8.6 million in the second quarter
of 2003, primarily due to lower clinical trial expenses as a result of the
completion of the pivotal trials for Extina(R), Actiza(TM) and Velac(R) in 2003.
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SECOND QUARTER HIGHLIGHTS
Highlights of the second quarter of 2004 and subsequent weeks included:
- Acceptance by the FDA of the NDA filing for Extina, a potential new
treatment for seborrheic dermatitis in the VersaFoam(R) delivery
system. The FDA set the PDUFA date as September 24, 2004.
- Issuance of a U.S. Patent on Connetics' Emollient-Foam Technology.
The patent has seven independent product claims, and covers a
pharmaceutical aerosol foam composition having occlusive capability.
This technology has been incorporated into the Company's next
generation of foam products with Olux-E and Desonide-E. Patents
covering this technology have previously been issued in Australia
and New Zealand, and patent applications are pending in a number of
other countries.
- Signing a multi-year consent with Roche permitting Connetics to sell
Soriatane to a U.S.-based distributor that exports branded
pharmaceutical products to select international markets. Connetics
estimates that sales to this distributor could potentially generate
an incremental $11.0 million to $13.0 million in Soriatane sales
annually through 2007. Connetics will pay a royalty to Roche on
Soriatane sales to this distributor.
"This quarter's impressive results showcase our achievements in every aspect of
our operations and speak to the potential for further growth and expansion of a
valuable specialty pharmaceutical franchise," said Thomas Wiggans, Connetics'
President and CEO. "We are confident in our ability to achieve continued revenue
growth with our current brands and look forward to launching up to three new
products from our pipeline within the next 12 months. Based on our commercial
activities with Soriatane and the new distribution agreement we have entered
into we are raising our financial guidance for the balance of the year. Looking
ahead, we are diligently preparing to initiate two clinical trials while
preparing our commercial operations for the introduction of Actiza, Extina and
Velac," said Wiggans.
YEAR-TO-DATE FINANCIALS
For the six-months ended June 30, 2004 net income was $9.3 million or $0.25 per
diluted share, compared with a net loss of $7.2 million or $0.23 per share, for
the same period last year.
Total revenues for the first half of 2004 rose to $63.2 million, compared with
total revenues of $35.3 million last year. Product revenues for the six-months
ended June 30, 2004 more than doubled to $61.6 million from $29.8 million for
the same period last year, reflecting growth in all product lines and the
addition of Soriatane to the Company's product portfolio in March 2004.
SG&A costs were $32.3 million for the first half of 2004 compared with $21.1 in
the first half of 2003 due to increased promotional activities in 2004 for all
products and compensation expenses paid to UCB Pharma for its promotional
activities. R&D expenses 2004 year-to-date were $9.2 million, down from $17.0
million last year as pivotal trials for Extina, Actiza and Velac were completed
in 2003.
INCREASED 2004 REVENUE AND EARNINGS GUIDANCE; THIRD QUARTER GUIDANCE INTRODUCED
Based on information currently available to the Company, Connetics is raising
2004 financial guidance. Product revenues are now expected to be
$138.0 million to $146.0 million compared to prior guidance of $126.0 million to
$134.0 million, reflecting increased sales of Soriatane. Soriatane sales are now
projected to total $47.0 million to $49.0 million compared to prior guidance of
$35.0 million to $37.0 million. Combined sales guidance for OLUX and Luxiq
remains unchanged and is expected to total $87.0 million to $91.0 million.
Combined sales guidance for Actiza and Extina, which we anticipate launching one
or both products in the fourth quarter, remains unchanged and is expected to
total $4.0
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million to $6.0 million. Total revenues (which include royalties and contract
payments) are expected to be $140.0 million to $148.0 million.
For 2004, Connetics now projects combined SG&A and R&D expenses in the range of
$91.0 million to $96.0 million, reflecting additional marketing costs to support
pre-launch activities for pipeline products, increased promotional expenses
associated with Soriatane, and expenses associated with the expansion of the
Company's sales force. Connetics projects it will make a $3.5 million milestone
payment to Yamanouchi Europe B.V. in the third quarter concurrent with the
projected submission of the Velac NDA. Connetics licensed the Velac program from
Yamanouchi in 2002. Earnings per share on a diluted basis for 2004 are projected
to be $0.48 to $0.52, including the $0.10 per share charge in the third quarter
for the Yamanouchi payment.
For the third quarter of 2004, the Company projects product revenue of $37.5
million to $39.5 million. Third quarter combined SG&A and R&D expenses are
projected to be in the range of $23.5 million to $25.0 million. EPS on a diluted
basis is projected to be $0.06 to $0.08, including the $0.10 per share charge
for the $3.5 million milestone payment to Yamanouchi.
In assessing the Company's financial guidance, many factors and assumptions were
taken into consideration, including, but not limited to, current and projected
prescription information; sales trend data of the Company's products; the
potential generic availability of the Company's products; competitive threats to
the Company's products; size, reach and call frequency of the Company's selling
organization; status, timing and progression of the Company's development
projects; current and projected spending levels to support sales, marketing,
development, and administrative activities; and other risk factors discussed in
the Company's publicly filed documents. The above guidance does not include
conversion of the Company's convertible senior notes, the effect of expensing
stock options, or the potential impact of other components of the Company's
growth strategy, including possible future acquisitions of products, businesses
and/or technologies.
CONFERENCE CALL
Connetics will host a conference call to discuss second quarter financial
results and revised financial guidance today, beginning at 4:30 p.m. Eastern
Time/1:30 p.m. Pacific Time. To participate in the live call by telephone,
domestic callers should dial (888) 328-2575, and international callers should
dial (706) 643-0459. To listen to the conference call live via the Internet, go
to the investor relations section of www.connetics.com. A telephone replay will
be available for 48 hours beginning today at 6:30 p.m. Eastern Time/3:30 p.m.
Pacific Time. To access the replay from the U.S., please dial (800) 642-1687;
and from outside the U.S. please dial (706) 645-9291. The Conference ID# is
8771613. The Internet replay of the call will be available for 30 days at
www.connetics.com.
ABOUT CONNETICS
Connetics Corporation is a specialty pharmaceutical company focused on the
development and commercialization of innovative therapeutics for the dermatology
market. The Company's marketed products are OLUX(R) (clobetasol propionate)
Foam, 0.05%, Luxiq(R) (betamethasone valerate) Foam, 0.12%, and Soriatane(R)
(acitretin) capsules, 10 mg and 25 mg. Connetics is developing Extina(R), a foam
formulation of the antifungal drug ketoconazole, Actiza(TM), a foam formulation
of clindamycin for treating acne, and Velac(R), a combination of clindamycin and
tretinoin for treating acne. Connetics has branded its innovative foam drug
delivery vehicle VersaFoam(R). These formulations aim to improve the management
of dermatological diseases and provide significant product differentiation, and
have earned wide acceptance by both physicians and patients due to their
clinical effectiveness, high quality and cosmetic elegance. For more information
about Connetics and its products, please visit www.connetics.com.
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SAFE HARBOR STATEMENT
Except for historical information, this press release includes "forward-looking
statements" within the meaning of the Securities Litigation Reform Act. All
statements included in this press release that address activities, events or
developments that Connetics expects, believes or anticipates will or may occur
in the future, including particularly earnings estimates and future financial
performance, are forward-looking statements, including, but not limited to,
statements pertaining to sales expectations through our new distributor
relationship; Connetics' ability to achieve continued revenue growth with our
current brands; are ability to launch three new products from our pipeline
within the next 12 months; and our ability to initiate new clinical trail
programs. These forward-looking statements are based on certain assumptions made
by Connetics' management based on experience and perception of historical
trends, current conditions, expected future developments and other factors it
believes are appropriate in the circumstances. Such statements are subject to a
number of assumptions, risks and uncertainties, many of which are beyond
Connetics' control, and which could cause actual results or events to differ
materially from those expressed in such forward-looking statements. No
assurances can be given that these events will occur or that such results will
be achieved. Factors that could cause or contribute to such differences include,
but are not limited to, risks and other factors that are discussed in documents
filed by Connetics with the Securities and Exchange Commission from time to
time, including Connetics' Annual Report on Form 10-K for the year ended
December 31, 2003 and Form 10-Q for the quarter ended March 31, 2004.
Forward-looking statements represent the judgment of the Company's management as
of the date of this release, and Connetics disclaims any intent or obligation to
update any forward-looking statements.
NOTE: Full prescribing information for any Connetics prescription product is
available by contacting the Company.
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CONNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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Revenues: 2004 2003 2004 2003
---- ---- ---- ----
Product sales $ 37,999 $ 15,528 $ 61,565 $ 29,839
Contract and royalty 254 4,442 1,670 5,442
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Total revenues 38,253 19,970 63,235 35,281
Operating costs and expenses:
Cost of product sales 3,578 1,185 5,146 2,257
Research and development 4,957 8,571 9,243 17,022
Selling, general and administrative 17,239 10,386 32,311 21,068
Depreciation and amortization 3,767 454 5,415 1,042
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Total operating costs and expenses 29,541 20,596 52,115 41,389
Income / (loss) from operations 8,712 (626) 11,120 (6,108)
Interest and other income (expense), net (608) (28) (900) 150
Provision for income taxes (647) (1,202) (890) (1,279)
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Net income / (loss) $ 7,457 $ (1,856) $ 9,330 $ (7,237)
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Net income / (loss) per share:
Basic $ 0.21 $ (0.06) $ 0.27 $ (0.23)
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Diluted (1) $ 0.19 $ (0.06) $ 0.25 $ (0.23)
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Shares used to calculate net income / (loss) per share:
Basic 35,242 31,519 34,439 31,403
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Diluted (1) 41,627 31,519 40,925 31,403
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(1) In accordance with SFAS No. 128, using the If-Converted Method, interest
expense of $649,000 related to 2.25% convertible senior notes due in 2008
has been added back to net income for purposes of calculating net income
per diluted share for the three month period ended June 30, 2004. Shares
used to calculate net income per diluted share for the three month period
ended June 30, 2004 include the dilutive effect of shares issuable upon
exercise of outstanding stock options and warrants plus the effect of
$90.0 million 2.25% convertible senior notes, which convert to
approximately 4.2 million shares.
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CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2004 2003
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ASSETS
Assets:
Cash, cash equivalents and short-term investments $ 66,992 $114,966
Accounts receivable and other current assets 13,651 7,408
Soriatane asset, net 123,397 --
Property and equipment, net 6,276 5,628
Other long-term assets 18,642 17,895
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Total assets $228,958 $145,897
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities and stockholders' equity:
Current liabilities $ 24,720 $ 10,127
Other liabilities 90,015 90,016
Stockholders' equity 114,223 45,754
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Total liabilities and stockholders' equity $228,958 $145,897
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