ViroPharma Incorporated (VPHM)

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ViroPharma Incorporated Reports Second Quarter 2009 Financial Results
- Company Delivers $26 Million in Second Quarter Net Sales of Cinryze(TM) C1 Esterase Inhibitor (Human) - - Provides 2009 Cinryze Net Sales Guidance of $80 million to $95 million -
Press Release
Source: ViroPharma Incorporated
On Wednesday July 29, 2009, 7:30 am EDT

Companies:Viropharma inc.
EXTON, Pa., July 29 /PRNewswire-FirstCall/ -- ViroPharma Incorporated (Nasdaq: VPHM - News) reported today its financial results for the second quarter ended June 30, 2009.

Delivered record $82 million in net product sales including $26 million in net sales of Cinryze(TM) (C1 esterase Inhibitor [human]), of which $2 million was previously classified as deferred revenue;
Grew adjusted net income 19 percent to $34 million for the 2009 second quarter compared to prior year period; GAAP net income reached $16 million;
Improved working capital to $328 million as of the end of the second quarter of 2009, including cash and cash equivalents of $267 million; and
Achieved positive cash flows from operations of $25 million.

Net sales were $81.9 million and $142.1 million for the three and six months ended June 30, 2009, respectively, as compared to $65.4 million and $116.4 million for Vancocin only in the comparative three and six month periods of 2008, respectively. This represents 25 percent growth in the three month period and 22 percent growth for the six month period in net product sales.

The Company is reporting both GAAP net income (loss) and adjusted results for the three and six months ended June 30, 2009. Adjusted net income is GAAP net income excluding (1) non-cash interest expense, (2) amortization related to the acquisition of Lev Pharmaceuticals and Vancocin, and step up in inventory related to purchase accounting arising from the acquisition of Lev Pharmaceuticals, (3) stock compensation expenses, and (4) certain non-recurring events such as the goodwill write off and gain on extinguishment of repurchased bonds. A reconciliation between GAAP and adjusted net income is provided in the Selected Financial Information - Reconciliation of GAAP Net Income to Adjusted Net Income table included with this release.

The Company believes it is important to share these non-GAAP financial measures with shareholders as they better represent the ongoing economics of the business and reflect how we manage the business. Accordingly, management believes investors' understanding of the Company's financial performance is enhanced as a result of our disclosing these non-GAAP financial measures. Non-GAAP adjusted net income should not be viewed in isolation, or as a substitute for or superior to reported or GAAP net (loss) income. ViroPharma's definition of non-GAAP financial measures may differ from others.

"With the early success of Cinryze - our product used to prevent attacks of hereditary angioedema (HAE) - exceeding our initial expectations, the second quarter of 2009 was among the strongest financial quarters in our history," commented Vincent Milano, ViroPharma's chief executive officer. "During the quarter, the company achieved positive cash flows from operations and achieved a record $82 million in net product sales, including recognizing $26 million of net sales of Cinryze. We are pleased with the early adoption of the product and our focus remains on improving the lives of patients suffering from HAE; and on broadening our ongoing physician education on the debilitating consequences of the disease and the benefits of prophylaxis with Cinryze."

GAAP net income for the second quarter ended June 30, 2009 was $16.1 million compared to $22.8 million for the same period in 2008. GAAP net loss for the six months ended June 30, 2009 was $43.2 million compared to net income of $39.2 million for the same period in 2008. GAAP net income per share for the quarter ended June 30, 2009 was $0.21 per share, basic, and $0.20, diluted, compared to $0.33, basic, and $0.29, diluted, for the same period in 2008. GAAP net loss per share for the six months ended June 30, 2009 was $0.56 per share, basic and diluted, compared to a GAAP net income per share of $0.56, basic, and $0.51, diluted, for the same period in 2008.

Non-GAAP adjusted net income in the three and six months ended June 30, 2009 was $34.5 million and $46.0 million, respectively, compared to $28.9 million and $51.0 million, respectively, for the same periods in 2008.

The primary drivers of the GAAP net loss in the six months ended June 30, 2009 was the impairment of goodwill for $65.1 million, offset by the gain on our repurchase of our senior convertible notes of $9.1 million. Contributing to this loss were launch costs for Cinryze, increased expenses relating to the development of our product pipeline, and the increase in amortization expense. GAAP net income decreased for the second quarter of 2009 as compared to 2008 due to a decrease in Vancocin sales, increased SG&A costs related to the launch of Cinryze, increased amortization and lower interest income, partially offset by Cinryze sales.

Effective January 1, 2009, the Company adopted Financial Accounting Standards Board's Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"), which changed the method of accounting for the Company's convertible notes. The Company revised its previously reported financial statements to apply this change in accounting to prior periods. Under this new accounting method, the Company's EPS and net (loss) income calculated in accordance with GAAP have been reduced as a result of recognizing incremental non-cash interest expense. In connection with adopting FSP APB 14-1, the Company recorded $1.7 million and $2.0 million of additional non-cash interest expense in the three months ended June 30, 2009 and 2008, respectively, and $3.7 million and $3.9 million for the six months ended June 30, 2009 and 2008, respectively. In addition, the Company's previously reported net income calculated in accordance with GAAP for the three and six months ended June 30, 2008 has been reduced by $1.3 million and $2.4 million, respectively to $22.8 million and $39.2 million, respectively, with no impact on diluted earnings per share, as a result of adopting this new accounting method.

Operating Highlights

Our net product sales are related to Vancocin and Cinryze. During the second quarter of 2009, we met the revenue recognition criteria to begin recognizing revenue based upon shipment of Cinryze to our specialty pharmacies and specialty distributors (SP/SD's). During the quarter ended June 30, 2009, net sales of Cinryze were $25.6 million, which includes $2.4 million of sales that was previously deferred. Vancocin net sales during the three and six months ended June 30, 2009, decreased 14.0 percent to $56.3 million and 5.6 percent to $109.8 million, respectively due to lower sales volume, partially offset by the price increase in January 2009.

Cost of sales increased over the three and six month periods in the prior year by $11.7 million and $13.7 million, respectively, due to the launch of Cinryze. Included in the second quarter cost of sales is $1.8 million that was previously deferred. In the comparative periods in 2008, the Company only had cost of sales related to Vancocin. As part of our October 2008 purchase of Lev, we acquired Cinryze inventory which was recorded at fair value in purchase accounting. This fair value of inventory will increase cost of sales for Cinryze until all purchased inventory is sold to SP/SD's. At June 30, 2009, the value of the remaining set-up on our balance sheet related to purchase accounting was $0.7 million.

Investment in our commercialization efforts, product pipeline and the company continued to grow as research and development (R&D) and selling, general and administrative (SG&A) expenses in the second quarter 2009 were $36.1 million as compared to $31.2 million in the second quarter of 2008. R&D expenses decreased $2.1 million related primarily to discontinuing the maribavir prophylactic program, offset by costs associated with manufacturing NTCD spores, costs related to the Cinryze open label trial and patient follow-up. For the second quarter of 2009, SG&A increased $7.0 million over the same period in 2008. The largest contributors to this increase were increased compensation costs resulting from expansion of our field force, increased marketing efforts and increased legal and accounting costs. For the six months ended June 30, 2009, R&D expenses increased $3.2 million, driven by the Cinryze open label trial and patient follow-up, manufacturing NTCD spores, and higher compensation costs, offset by decreased costs related to discontinuing the maribavir prophylactic program. For the six month period, the largest contributors to this $18.0 million increase for SG&A over the six month period in 2008 were increased compensation costs from the addition of our field force, increased marketing efforts, increased legal and accounting fees, and increased medical education activities.

The Company's tax expense for the quarter was $5.6 million and $7.8 million for the quarters ended June 30, 2009 and 2008, respectively and $10.6 million and $14.1 million for the six months ended June 30, 2009, respectively. Income tax expense includes federal, state and foreign income tax at statutory rates and the effects of various permanent differences.

Working Capital Highlights

As of June 30, 2009, ViroPharma's working capital was $327.7 million, which represents a $27.2 million increase from March 31, 2009 and a $10.3 million increase from December 31, 2008. The six month increase is primarily the result of net sales, offset by our repurchase of $45 million principal amount of our senior convertible notes. Cash flow provided by operating activities for the six months ended June 30, 2009 was $15.9 million.

Looking ahead in 2009

ViroPharma is revising its guidance for the year 2009. The following guidance provided by ViroPharma are projections, based upon numerous assumptions, all of which are subject to certain risks and uncertainties. For a discussion of the risks and uncertainties associated with these forward looking statements, please see the Disclosure Notice below.

For the year 2009, ViroPharma expects the following:


Net Cinryze sales are expected to be $80 to $95 million.


Research and development (R&D) and selling, general and administrative (SG&A) expenses, including the impact of SFAS 123R, are expected to be $135 to $145 million, which includes approximately $18 million of maribavir-related expenses. SFAS 123R expenses are expected to be between $11 and $13 million.

The company is providing Cinryze net sales guidance and withdrawing Vancocin net sales guidance to align the company's guidance with its growth driver and in light of the August 4, 2009 FDA advisory committee regarding proposed bioequivalence recommendations for Vancocin
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