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King Pharmaceuticals Reports Strong Third Quarter 2009 Financial Results

  • EMBEDA™ Approval and Launch
  • Total Company Revenue of $463 Million
  • Cash Flow from Operations of $145 Million
  • Debt Repayment of $124 Million
  • Third Quarter Animal Health Revenue of $96 Million

  • Press Release
  • Source: King Pharmaceuticals, Inc.
  • On 7:00 am EST, Thursday November 5, 2009

BRISTOL, Tenn.--(BUSINESS WIRE)--King Pharmaceuticals, Inc. (NYSE:KG - News) announced today that total revenues were $463 million during the third quarter ended September 30, 2009, compared to $388 million in the third quarter of 2008. The Company reported net income of $42 million and diluted earnings per share of $0.17 during the third quarter of 2009, compared to net income of $82 million and diluted earnings per share of $0.34 in the third quarter of the prior year. Excluding certain special items and recurring non-GAAP adjustments, adjusted net income equaled $71 million and adjusted diluted earnings per share equaled $0.29 during the third quarter ended September 30, 2009, compared to adjusted net income of $95 million and adjusted diluted earnings per share of $0.39 in the third quarter of 2008.

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Similar to its financial reporting in prior years, King reports financial results determined in accordance with Generally Accepted Accounting Principles (“GAAP”) and also adjusted financial results. However, beginning with the first quarter of 2009, King’s adjusted financial results exclude the amortization of intangible assets and non-cash imputed interest expense associated with the Company’s $400 million 1¼% Convertible Senior Notes, as well as special items. For more information, see the “About Adjusted Financial Results” paragraph below.

Brian A. Markison, Chairman, President and Chief Executive Officer of King, stated “The transformation of King to a fully integrated specialty pharmaceutical company was further supported by strong third quarter performances reported by each of our business segments.” Mr. Markison continued, "The highlights included the approval, launch and successful wholesaler stocking of EMBEDA™, record third quarter Animal Health revenues and the shipment of Meridian’s next generation EpiPen® Auto-Injector. We believe that the combination of all three businesses will continue to contribute to our long-term growth strategy.”

Joseph Squicciarino, King’s Chief Financial Officer, stated, “Through measured financial progress against our previously stated goals, we continue to execute on our strategic plan to transform King into a leader in the specialty pharmaceutical sector.” He continued, “The Company’s reported third quarter results reflect strong cash flow from operations as well as a significant repayment of debt associated with the Alpharma acquisition, including complete repayment of the $200 million term loan in October. We remain committed to enhancing shareholder value through prudent financial management.”

As of September 30, 2009, the Company’s cash and cash equivalents totaled approximately $480 million.

Total Company revenue increased 19% to $463 million in the third quarter of 2009 compared to the third quarter of 2008 primarily due to branded pharmaceutical and Animal Health sales recorded as a result of the Alpharma acquisition and an increase in sales of Auto-Injectors in the Meridian business.

Net revenue from branded pharmaceuticals totaled $283 million for the third quarter of 2009, compared to $302 million during the third quarter of 2008. The decrease in revenues was primarily due to the sales declines of our THROMBIN-JMI® product and the market entry of generic substitutes for ALTACE® (ramipril) beginning in December 2007, offset by the addition of revenues from sales of FLECTOR® PATCH and EMBEDA™.

Net sales of SKELAXIN® (metaxalone) totaled $102 million during the third quarter of 2009, compared to $110 million during the same period of the prior year.

Net sales of our THROMBIN-JMI® (thrombin, topical, bovine, USP) product totaled $43 million during the third quarter of 2009, compared to $67 million during the third quarter of 2008.

Net sales of AVINZA® (morphine sulfate extended release) totaled $31 million during the third quarter of 2009, compared to $36 million during the third quarter of 2008.

Net sales of FLECTOR® PATCH (diclofenac epolamine topical patch) 1.3% totaled $40 million during the third quarter of 2009. The Company obtained FLECTOR® PATCH as a result of its acquisition of Alpharma on December 29, 2008.

Net sales of EMBEDA™ totaled $11 million during the third quarter of 2009. The Company announced the launch and commercial availability of EMBEDA™ on September 21, 2009.

Revenues from the Animal Health business were $96 million for the third quarter ended September 30, 2009. The Company added the Animal Health business as a result of its acquisition of Alpharma.

King’s Meridian Auto-Injector business contributed revenue totaling $72 million during the third quarter of 2009, compared to $68 million during the third quarter of 2008. During the third quarter of 2009, the next generation EpiPen® Auto-Injector was shipped to Dey L. P. in preparation for a fourth quarter 2009 launch.

Royalty revenues, derived primarily from ADENOSCAN® (adenosine), totaled $12 million during the third quarter of 2009 compared to $18 million during the third quarter of 2008.

Conference Call and Web Cast Information

King management will conduct a conference call at 11:00 am ET today. This call may include discussion of the Company’s marketed products, pipeline, strategy for growth, financial results and expectations, and other matters relating to its business. The call will be open to all interested parties and may be accessed by using the following information:

Conference Call Access

Domestic Dial In: (888) 674-0224

International Dial In: (201) 604-0502

Interested parties may also listen to the web cast by clicking the following link to register and then joining the live event with the same URL:

http://www.kingpharm.com/Investors/Webcasts.cfm

If you are unable to participate during the live event, the replay number is 888-632-8973, or 201-499-0429 if you are calling from outside the USA. The replay code is 88910347 followed by the # sign. The web cast of today’s call will be archived on King’s web site, accessible through the link above, for not less than 14 days.

About Adjusted Financial Results

In addition to financial results determined in accordance with Generally Accepted Accounting Principles (“GAAP”), King provides adjusted net earnings and adjusted diluted earnings per share results. These non-GAAP financial measures exclude the effect of amortization of intangible assets and non-cash imputed interest expense associated with the Company’s $400 million 1¼% Convertible Senior Notes, as well as special items. Special items are those particular material income or expense items that King considers to be unrelated to the Company’s ongoing, underlying business, non-recurring, or not generally predictable, and include, but are not limited to, merger and restructuring expenses; non-capitalized expenses associated with acquisitions, such as in-process research and development charges and inventory valuation adjustment charges; charges resulting from the early extinguishment of debt; asset impairment charges; expenses of drug recalls; and gains and losses resulting from the divestiture of assets. King believes that providing adjusted financial results enhances the analysis of the Company’s ongoing, underlying business and the analysis of the Company’s financial results when comparing those results to that of a previous or subsequent like period. However, it should be noted that the determination of whether to exclude an item from adjusted financial results involves judgments by King’s management. A reconciliation of adjusted financial results and King’s reported financial results determined in accordance with GAAP is provided below.

About King Pharmaceuticals, Inc.

King, headquartered in Bristol, Tennessee, is a vertically integrated branded pharmaceutical company. King, an S&P 500 Index company, seeks to capitalize on opportunities in the pharmaceutical industry through the development, including through in-licensing arrangements and acquisitions, of novel branded prescription pharmaceutical products and technologies that complement the Company’s focus in specialty-driven markets, particularly neuroscience and hospital. King’s wholly owned subsidiary, Alpharma Inc., is also a leader in the development, registration, manufacture and marketing of pharmaceutical products for food producing animals.

Forward-looking Statements

This release contains forward-looking statements which reflect management’s current views of future events and operations, including, but not limited to, statements pertaining to: the potential future financial performance and results of King or its business units or subsidiaries; the execution of King’s long-term growth strategy; and King’s planned webcast to discuss its third-quarter 2009 results. These forward-looking statements involve certain significant risks and uncertainties, and actual results may differ materially from the forward-looking statements. Some important factors which may cause actual results to differ materially from the forward-looking statements include: the future levels of demand for, and net sales of, King’s products; King’s ability to successfully market its products; King’s ability to successfully complete and integrate acquisitions; King’s ability to advance the development of its pipeline products as planned; the high cost and uncertainty of research, clinical trials, and other development activities involving products in which King has an interest; the unpredictability of the duration and results of the FDA’s review of Investigational New Drug applications, New Drug Applications, and Abbreviated New Drug Applications and/or similar reviews by other regulatory agencies worldwide; the availability and cost of raw materials; any material interruptions in supply by contract manufacturers of King’s products; the potential effect on sales of King’s existing products of the development and approval of generic substitutes for any of King’s branded pharmaceutical products or other new competitive products; the potential effect of future acquisitions and other transactions pursuant to the Company’s growth strategy; King’s compliance with FDA and other government regulations that relate to its business; King’s ability to conduct its webcast as currently planned on November 5, 2009; changes in general economic and business conditions; changes in current pricing levels; changes in federal and state laws and regulations; changes in competition; changes in technologies and technological advances; and manufacturing capacity constraints. Other important factors that may cause actual results to differ materially from the forward-looking statements are discussed in the “Risk Factors” section and other sections of King’s Form 10-K for the year ended December 31, 2008 and Form 10-Q for the quarter ended June 30, 2009, which are on file with the U.S. Securities and Exchange Commission. King does not undertake to publicly update or revise any of its forward-looking statements even if experience or future changes show that the indicated results or events will not be realized.

# # #

EXECUTIVE OFFICES

KING PHARMACEUTICALS, INC.

501 FIFTH STREET, BRISTOL, TENNESSEE 37620

KING PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
           
September 30, December 31,
  2009   2008  
 
ASSETS
Current assets:
Cash and cash equivalents $ 479,968 $ 940,212
Investments in debt securities 39,624 6,441
Marketable securities 1,930 511
Accounts receivable, net 227,030 245,070
Inventories 207,650 258,303
Deferred income tax assets 100,577 89,513
Income tax receivable 12,051 -
Prepaid expenses and other current assets   99,374     129,214  
Total current assets   1,168,204     1,669,264  
Property, plant and equipment, net 401,162 417,259
Intangible assets, net 822,589 934,219
Goodwill 453,008 450,548
Deferred income tax assets 250,017 267,749
Investments in debt securities 292,034 353,848
Other assets 75,379 122,826
Assets held for sale   7,900     11,500  
Total assets $ 3,470,293   $ 4,227,213  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 87,111 $ 140,908
Accrued expenses 309,962 411,488
Income taxes payable - 10,448
Short-term debt 4,101 5,230
Current portion of long-term debt   122,449     439,047  
Total current liabilities   523,623     1,007,121  
 
Long-term debt 505,904 877,638
Other liabilities   105,358     110,022  
Total liabilities   1,134,885     1,994,781  
 
Commitments and contingencies
Shareholders’ equity:

Common shares no par value, 600,000,000 shares authorized, 248,226,583 and 246,487,232 shares issued and outstanding, respectively

1,412,509 1,389,698
Retained earnings 941,368 871,021
Accumulated other comprehensive loss   (18,469 )   (28,287 )
Total shareholders’ equity   2,335,408     2,232,432  
Total liabilities and shareholders’ equity $ 3,470,293   $ 4,227,213  
 
(more)
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
             
Three Months Ended Nine Months Ended
September 30, September 30,
  2009     2008     2009     2008  
REVENUES:
Total revenues $ 463,349   $ 388,445   $ 1,337,394   $ 1,217,329  
OPERATING COSTS AND EXPENSES:
Cost of revenues , exclusive of depreciation, amortization, and impairments shown below 160,231 101,465 429,679 292,482
Excess purchase commitment - - - 2,629
Acquisition related inventory step-up   2,566     -     40,150     -  
Total cost of revenues   162,797     101,465     469,829     295,111  
Selling, general and administrative, exclusive of co-promotion fees 134,315 100,039 390,885 311,815
Special legal and professional fees - (6,748 ) - (4,713 )
Acquisiton related costs - - 6,733 -
Co-promotion fees   1,427     5,987     4,022     34,007  
Total selling, general, and administrative expense   135,742     99,278     401,640     341,109  
Depreciation 15,338 8,992 43,959 27,603
Intangible amortization 38,011 20,241 114,338 92,211
Accelerated depreciation - 661 1,263 1,935
Research and development 22,640 28,755 71,098 85,175
Research and development milestone payments - 5,100 - 25,850
Research and development-In-process upon acquisition - - - 5,500
Asset impairments - - - 39,429
Restructuring charges   1,653     1,153     51,178     1,670  
Total operating costs and expenses   376,181     265,645     1,153,305     915,593  
 
OPERATING INCOME 87,168 122,800 184,089 301,736
OTHER (EXPENSE) INCOME:
Interest expense (17,707 ) (1,097 ) (59,616 ) (3,181 )
Noncash convertible debt interest expense (4,511 ) (4,203 ) (13,297 ) (12,390 )
Interest income 1,027 8,110 5,321 31,000
Gain (loss) on investment 521 - (826 ) -
Other, net   1,526     (1,024 )   2,859     (1,851 )
Total other (expense) income   (19,144 )   1,786     (65,559 )   13,578  
INCOME BEFORE INCOME TAXES 68,024 124,586 118,530 315,314
Income tax expense   25,536     42,114     48,829     106,525  
NET INCOME $ 42,488   $ 82,472   $ 69,701   $ 208,789  
 
Basic net income per common share $ 0.17   $ 0.34   $ 0.29   $ 0.86  
 
Diluted net income per common share $ 0.17   $ 0.34   $ 0.28   $ 0.85  
 
Shares used in basic net income per share 244,964 243,696 244,515 243,475
Shares used in diluted net income per share 248,266 245,834 247,370 245,184
 
 
 
 
(more)
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
EXCLUDING NON-GAAP ITEMS
(in thousands, except per share data)
(Unaudited)
             
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2009     2008     2009     2008  
REVENUES:
Total revenues $ 463,349   $ 388,445   $ 1,337,394   $ 1,217,329  
OPERATING COSTS AND EXPENSES:
Cost of revenues , exclusive of depreciation shown below   160,231     101,465     429,679     292,482  
Selling, general and administrative, exclusive of co-promotion fees 134,315 100,039 390,885 311,815
Co-promotion fees   1,427     5,987     4,022     34,007  
Total selling, general, and administrative expense   135,742     106,026     394,907     345,822  
Depreciation 15,338 8,992 43,959 27,603
Research and development 22,640 28,755 71,098 85,175
Research and development milestone payments   -     5,100     -     25,850  
Total operating costs and expenses   333,951     250,338     939,643     776,932  
 
OPERATING INCOME 129,398 138,107 397,751 440,397
OTHER (EXPENSE) INCOME:
Interest expense (17,707 ) (1,097 ) (59,616 ) (3,181 )
Interest income 1,027 8,110 5,321 31,000
Other, net   1,526     (1,024 )   2,859     (1,851 )
Total other (expense) income   (15,154 )   5,989     (51,436 )   25,968  
INCOME BEFORE INCOME TAXES 114,244 144,096 346,315 466,365
Income tax expense   42,923     48,666     131,109     160,437  
NET INCOME $ 71,321   $ 95,430   $ 215,206   $ 305,928  
 
 
Basic net income per common share $ 0.29   $ 0.39   $ 0.88   $ 1.26  
 
Diluted net income per common share $ 0.29   $ 0.39   $ 0.87   $ 1.25  
 
Shares used in basic net income per share 244,964 243,696 244,515 243,475
Shares used in diluted net income per share 248,266 245,834 247,370 245,184
 
 
 
 
(more)
KING PHARMACEUTICALS, INC.
RECONCILIATION OF NON-GAAP ITEMS
(in thousands, except per share data)
(Unaudited)
               
 
 
The following tables reconcile Non-GAAP items to amounts reported under GAAP:
 
 
 
Three Months Ended September 30, Nine Months Ended September 30,
  2009     2008     2009     2008  
Diluted income per common share, as reported under GAAP $ 0.17 $ 0.34 $ 0.28 $ 0.85
Effect of non-GAAP items   0.12     0.05     0.59     0.40  
Diluted income per common share, excluding non-GAAP items $ 0.29   $ 0.39   $ 0.87   $ 1.25  
 
 
NON-GAAP ITEMS:
Excess purchase commitment (cost of revenues) - - - 2,629
Acquisition related inventory step-up (cost of revenues) 2,566 - 40,150 -
Special legal and professional fees (selling, general, and administrative) - (6,748 ) - (4,713 )
Acquisition related costs (selling, general, and administrative) - - 6,733 -
Intangible amortization (other operating costs and expenses) 38,011 20,241 114,338 92,211
Accelerated depreciation (other operating costs and expenses) - 661 1,263 1,935
Research and development-In-process upon acquisition (other operating costs and expenses) - - - 5,500
Asset impairments (other operating costs and expenses) - - - 39,429
Restructuring charges (other operating costs and expenses) 1,653 1,153 51,178 1,670
Noncash convertible debt interest expense (other (expense) income) 4,511 4,203 13,297 12,390
Gain/loss on investment (other (expense) income)   (521 )   -     826     -  
Total non-GAAP items before income taxes 46,220 19,510 227,785 151,051
Income tax benefit from non-GAAP items   (17,387 )   (6,552 )   (82,280 )   (53,912 )
Increase in net income $ 28,833   $ 12,958   $ 145,505   $ 97,139  
Effect of non-GAAP items on diluted income per common share $ 0.12   $ 0.05   $ 0.59   $ 0.40  

Contact:

King Pharmaceuticals, Inc.
Jack Howarth, Vice President, Investor Relations, 908-429-8350

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