NVN Liquidation Inc (fka NOVNQ)

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Noven Announces 2008 Second Quarter Financial Results
Wednesday August 6, 8:30 am ET
Noven Reports Quarterly EPS of $0.18, Adjusted EPS of $0.23
Quarterly Net Income at Novogyne Joint Venture Increases 34% to $25.4 Million

MIAMI--(BUSINESS WIRE)--Noven Pharmaceuticals, Inc. (NASDAQ:NOVN - News) today announced financial results for the second quarter and first half of 2008. Noven reported net income of $4.5 million or $0.18 diluted earnings per share for the quarter ended June 30, 2008, including a charge of $1.7 million (discussed below) relating to a previously disclosed voluntary product recall initiated during the quarter. Excluding this charge and related tax effects, Noven would have reported net income of $5.6 million or $0.23 diluted earnings per share for the second quarter of 2008.

Financial & Business Highlights

Novogyne & Vivelle-Dot®. At Novogyne Pharmaceuticals, Noven’s joint venture with Novartis Pharmaceuticals Corporation, net income for the second quarter of 2008 increased 34%, and net revenues increased 21%, compared to the second quarter of 2007. Total prescriptions for Vivelle-Dot®, Novogyne’s lead product, increased 6% in the second quarter of 2008 compared to the same quarter in 2007, while total prescriptions in the overall U.S. hormone therapy market decreased 6% for the same period.

Daytrana®. Sales of Daytrana® by Shire Limited in the 2008 second quarter were sufficient to trigger the third and final $25 million sales milestone due to Noven. In addition, together with Shire, Noven believes the definitive root cause of the peel force issue affecting Daytrana has been identified, and testing of solutions expected to address the issue is ongoing.

Stavzor™. On July 29, 2008, the FDA granted final approval of Noven’s Stavzor™ product (valproic acid delayed release capsules). The product will be marketed and sold by Noven Therapeutics, Noven’s specialty pharmaceutical subsidiary, and is expected to be available in pharmacies in the second half of August 2008.

Organizational Initiatives. Since June 2008, Noven has added three highly experienced pharmaceutical industry veterans to lead the critical functions of marketing and sales, transdermal research and development, and clinical, regulatory and medical affairs. With the participation of these new executives, Noven is continuing its review of all areas of spending and investment to assure that they advance the interests of shareholders.

CEO Comment

“The 2008 second quarter included another strong financial performance by Novogyne, as well as continued operational improvement in other areas of our business,” said Peter Brandt, Noven’s President and Chief Executive Officer. “At Novogyne, net income increased 34% over the same quarter last year, Vivelle-Dot total prescriptions and market share continued to increase, and we believe there is opportunity for continued significant growth in this business. At Noven Therapeutics, we are well prepared for the August launch of Stavzor, which received final FDA approval just last week. At Noven Transdermals, we believe, together with Shire, that we have identified the definitive root cause of the peel force issue affecting Daytrana, and we are testing solutions that we believe will address the issue. Daytrana continues to bring important benefits to patients with ADHD, and sales of the product by Shire in the second quarter triggered the third and final $25 million milestone to Noven,” said Brandt. “In addition, across key functions within the company – including research and development, sales and marketing, and clinical and regulatory – we have added new senior executives with substantial industry experience that should help us successfully execute our growth strategy.”

Financial Results

Noven’s financial results for the second quarter and first six months of 2008 included the results of operations of Noven Therapeutics (formerly JDS Pharmaceuticals, LLC), a specialty pharmaceutical company acquired by Noven in August 2007. The second quarter and first half of 2008 also included charges of $1.7 million and $1.95 million, respectively, representing reimbursement due to Shire in connection with the voluntary recall of two lots of Daytrana product initiated in 2008 (the “Daytrana Charge”).

Second Quarter Results

Including the impact of the Daytrana Charge, for the second quarter of 2008, Noven reported net income of $4.5 million ($0.18 diluted earnings per share), compared to $7.6 million ($0.30 diluted earnings per share) for the quarter ended June 30, 2007. Excluding the Daytrana Charge and the related tax effects, net income for the 2008 second quarter would have been $5.6 million ($0.23 diluted earnings per share). A reconciliation of net income and earnings per share on a GAAP basis to net income and earnings per share as adjusted to reflect the excluded items is attached to this press release.

Noven’s net revenues in the 2008 second quarter were $24.6 million, a 31% increase over the second quarter of 2007. This increase reflects the addition of $6.6 million in Pexeva® and Lithobid® product sales through Noven Therapeutics, as well as increased license and contract revenues, primarily due to amortization of deferred revenue from additional Daytrana sales milestones received in 2007.

Gross margin, as a percentage of total net product revenues, was 35% in the 2008 second quarter compared to 38% in the same quarter last year. Gross margin in the second quarter of 2008 was adversely affected by increased quality assurance activities and expenses, primarily related to Daytrana production, which offset the favorable impact of higher gross margins on Noven Therapeutics’ products.

Research and development expenses in the 2008 second quarter, at $3.3 million, were largely unchanged from the second quarter of 2007. Selling and marketing expenses increased to $5.3 million from $0.2 million in the 2007 second quarter due to the addition of the Noven Therapeutics marketing and sales infrastructure supporting Pexeva, Lithobid and Stavzor (approved by the FDA in July 2008). General and administrative expenses increased $3.4 million, or 62%, due primarily to the Daytrana Charge and the addition of Noven Therapeutics.

Noven recognized $12.4 million in earnings from Novogyne in the 2008 second quarter, an increase of 35% compared to the $9.2 million recognized in the same quarter last year.

Novogyne’s net income for the second quarter of 2008 increased 34% to $25.4 million, compared to $18.9 million in the 2007 second quarter. Novogyne’s net revenues for the 2008 second quarter increased 21% to $43.8 million. Novogyne’s gross margin for the second quarter of 2008 increased slightly to 80%, and its selling, general and administrative expenses were largely unchanged at $9.8 million.

First Half Results

Including the impact of the Daytrana Charge, Noven reported net income of $7.1 million ($0.29 diluted earnings per share) for the first six months of 2008, compared to $12.6 million ($0.50 diluted earnings per share) reported for the first six months of 2007. Excluding the Daytrana Charge and the related tax effects, Noven would have reported net income for the first six months of 2008 of $8.3 million ($0.34 diluted earnings per share).

Noven’s net revenues for the first six months of 2008 were $46.1 million, a 21% increase over the same period last year. This increase reflects the addition of $12.3 million in Pexeva and Lithobid product sales, as well as increased license and contract revenues, primarily due to amortization of deferred revenue from additional Daytrana sales milestones received in 2007.

Gross margin, as a percentage of total net product revenues, was 33% in the first six months of 2008 compared to 41% in the same period in 2007. Gross margin in the first half of 2008 was adversely affected by inventory write-offs and costs associated with the equipment failure in transdermal manufacturing described above, as well as increased quality assurance activities and expenses, primarily related to Daytrana production, both of which offset the favorable impact of higher gross margins on Noven Therapeutics’ products.

Research and development expenses were largely unchanged at $6.6 million for the first half of 2008. Selling and marketing expenses increased to $10.2 million from $0.5 million in the first six months of 2007 due to the addition of Noven Therapeutics. General and administrative expenses increased 49% to $15.9 million, primarily due to the Daytrana Charge and the addition of Noven Therapeutics.

Noven recognized $20.7 million in earnings from Novogyne in the first half of 2008, an increase of 47% from the $14.1 million recognized in the first half of last year.

Novogyne’s net income for the first six months of 2008 was $48.3 million, a 37% increase from the $35.2 million reported in the same period last year. Novogyne’s net revenues for the first six months of 2008 increased 20% to $83.3 million. Novogyne’s gross margin for the first six months of 2008 increased slightly to 80%, and its selling, general and administrative expenses decreased 5% to $18.8 million.

Noven Balance Sheet

At June 30, 2008, Noven had $35.4 million in cash and cash equivalents and $17.5 million in investments in auction rate securities (“ARS”), representing an aggregate $52.9 million in cash, cash equivalents and investments in ARS. This compares with $14.0 million in cash and cash equivalents and $54.4 million in investments in ARS at December 31, 2007, representing an aggregate $68.4 million in cash, cash equivalents and investments in ARS. In July 2008, Noven established a $15.0 million revolving credit facility. As of the date of this press release, no amounts had been borrowed pursuant to the credit facility.

Noven’s investments in ARS at June 30, 2008 had a fair value of $17.5 million and all were classified as non-current on Noven’s balance sheet following failed auctions occurring since February 2008. Noven’s ARS are collateralized primarily by tax-exempt municipal bonds, and to a lesser extent, guaranteed student loans. Noven does not hold any ARS collateralized by mortgages or collateralized debt obligations. Noven believes its ARS are of high credit quality, as nearly 80% carry an AAA or AA credit rating, and all are considered investment grade securities. Noven had recorded a temporary change in fair value of $0.5 million relating to its investments in ARS in the first quarter of 2008; no additional change in fair value was required in the 2008 second quarter.

In early August 2008, Noven was advised that Shire’s net sales of Daytrana had triggered the third and final $25 million milestone due to Noven. Under Noven’s agreement with Shire, the $25 million milestone is due to be paid in the third quarter of 2008. As with prior Daytrana sales milestones, Noven expects to defer recognition of the latest sales milestone and recognize it as license revenue over time.

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