Cangene Reports Fiscal 2013 Results; Net Income Up $29.6 million from Prior Year

CNW Group

TSX: CNJ

Readers are referred to the cautionary notes regarding Forward-looking Information and non-IFRS Financial Measures at the end of this release. Unless noted otherwise, all dollar amounts are in U.S. dollars.

WINNIPEG , Oct. 29, 2013 /CNW/ - Cangene Corporation ("Cangene") today reports its financial results for the year ended July 31, 2013 .

Total revenue for the year was $127.3 million , compared with $111.0 million in the prior year. The increase primarily resulted from an $18.6-million holdback payment received following the U.S. Food and Drug Administration's ("FDA") approval of the Company's Botulism Antitoxin, which was developed under a U.S. government contract. Additionally, commercial contract manufacturing revenue at Cangene bioPharma, Inc. increased by $5.4 million compared with the prior year. The Company also benefited from increased sales of VARIZIG®, following its FDA approval earlier in the year, and the launch of episil® in October 2012 . The revenue increase was partially offset by a $5.0-million decline in biopharmaceutical product sales; $2.3 million of this was due to a year-over-year decrease in unprofitable non-specialty plasma sales, which Cangene no longer sells following the disposition of its U.S.-based plasma centres in October 2012 . The remainder of the decline resulted from lower sales of the Company's established biopharmaceutical products because of an increasingly competitive market environment.

Net income for the current year improved to $1.4 million or $0.02 per share, compared with a net loss of $28.3 million (a loss of $0.42 per share) in the prior year. The improvement was driven by the revenue increase, a $6.7-million reduction in inventory writedowns and improved margins, as well as a lower independent R&D expense, a reversal of impairment and the gain on the sale of the plasma centres. These positive factors were partially offset by an $7.3-million tax expense that compares with a $4.5-million tax recovery in the prior year and a $6.3-million increase in selling, general and administrative expenses in the current year that relates largely to the episil® launch and IB1001 acquisition transaction costs.

"We have built significant momentum since the start of this fiscal year—highlighted by two FDA product approvals in the U.S. and one approval in Portugal , two new U.S. government biodefence contracts and two contract extensions, and the strategic acquisition of a late-stage product for our commercial pipeline," says John Sedor , president and CEO of Cangene. "Our financial results reflect continuing investment in our commercial product pipeline along with improved margins in both our operating segments and a contract payment triggered by a product approval. We remain focused on our long-term strategy of building and improving margins in our commercial biopharmaceutical business by expanding our product portfolio to maximize its potential."

At July 31, 2013 , Cangene had no debt and a cash balance of $46.4 million , compared with no debt and a cash balance of $35.9 million at the end of the 2012 fiscal year. Cash of $19.9 million was provided by operating activities during the current year compared with $5.7 million used in operating activities during the prior year. The current year included a $10.5-million decrease in working capital. The reduction in working capital during the period was primarily attributable to increases of $5.1 million and $6.8 million in prepaid expenses and deposits, and accounts payable and accrued liabilities, respectively, and reductions of $5.2 million and $2.3 million in inventories and contracts in progress and taxes recoverable, respectively.

Operational highlights since beginning of the 2013 fiscal year

  • Strong balance sheet with a cash position of $46.4 million at July 31, 2013 , and no debt.
  • New biodefence-related contract with U.S. government for supply of Vaccinia Immune Globulin Intravenous™ ("VIGIV") and expanded contract related to anthrax immune globulin ("AIGIV").
  • Strategic sale of U.S.-based plasma centres to Grifols, through Grifols' wholly owned Biomat USA , Inc. subsidiary in a transaction that closed on October 22, 2012 .
  • FDA approval of VARIZIG® for post-exposure prophylaxis of varicella (chickenpox) in high-risk patient groups.
  • Acquisition of a late-stage coagulation Factor IX product known as IB1001, as well as two product candidates in preclinical development, IB1007 (a recombinant FVIIa) and IB1008 (a recombinant FVIII), from Ipsen Pharma S.A.S. and Inspiration Biopharmaceuticals, Inc. Cangene has worldwide rights to IB1001 and is moving aggressively to bring it to market.
  • Acquisition of commercial rights to a technology platform targeting Alzheimer's disease through an immune therapeutic treatment approach following a successful research collaboration with Dr. Neil Cashman at the University of British Columbia .
  • FDA approval of BAT™ for use in the treatment of suspected or documented exposure to botulinum neurotoxin A, B, C, D, E, F or G; this licensure triggered a supplemental holdback payment of $18.6 million from the U.S. government, which Cangene received in May 2013 . Remaining product deliveries under the contract will be paid at full contract price (Cangene had received a discounted price for deliveries prior to FDA licensure).
  • Received marketing authorization for WinRho® 1500 LQ in Portugal from the National Authority of Medicines and Health Products, I.P. This national licence allows Cangene to market the product in Portugal ; WinRho® 1500 LQ will be distributed by a local distributor in Portugal .
  • Expanded scope added to VIGIV contract that could generate up to approximately $6.9 million in revenue over the next 18 months, with possible optional future services providing $45 million to $77 million more.
  • New biodefence-related contract with U.S. government related to AIGIV; first task/delivery order awarded for collection and storage of human anti-anthrax plasma worth approximately $63 million between 2014 and 2017; total potential contract value approximately $264 million .

Certain comparative figures in the following financial results have been reclassified to conform with the current year's presentation.

Cangene Corporation
Incorporated under the laws of Ontario
CONSOLIDATED BALANCE SHEETS

             
in thousands of U.S. dollars     At July 31, 2013     At July 31, 2012
             
ASSETS            
Current            
Cash   $ 46,410     $ 35,870  
Accounts receivable     21,206       22,330  
Inventories and contracts in progress     52,454       57,650  
Taxes recoverable     2,090       4,355  
Prepaid expenses and deposits     7,342       2,221  
Total current assets     129,502       122,426  
Property, plant and equipment, net     61,301       61,467  
Taxes recoverable     15,849       17,539  
Deferred development cost     178       —  
Deferred tax     12,374       14,636  
Intangible assets, net     59,353       15,900  
Other assets     7,961       —  
Total assets   $ 286,518     $ 231,968  
             
LIABILITIES AND EQUITY            
Current            
Accounts payable and accrued liabilities   $ 20,607     $ 13,782  
Derivative financial instruments           79  
Provisions for chargebacks     4,530       3,625  
Royalty provision     605       761  
Royalty liability     604       320  
Incentive plan liabilities     1,436       841  
Taxes payable           707  
Current portion of deferred income     3,804       1,883  
Total current liabilities     31,586       21,998  
Deferred income     3,286       5,912  
Royalty provision     793       1,492  
Royalty liability     3,691       3,901  
Purchase consideration payable     45,638       —  
Incentive plan liabilities     301       1,062  
Deferred share unit liability     1,134       481  
Deferred tax     3,180       1,770  
Total liabilities     89,609       36,616  
             
             
Equity            
Share capital     50,860       50,860  
Contributed surplus     638       439  
Retained earnings     145,411       144,053  
Total equity     196,909       195,352  
Total liabilities and equity   $ 286,518     $ 231,968  
             



Cangene Corporation
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

             
in thousands of U.S. dollars except share-related data     Year ended
July 31, 2013
    Year ended
July 31, 2012
             
Revenues            
Product sales   $ 43,598   $ 48,616
Product services     71,010     45,793
R&D services     12,708     16,620
      127,316     111,029
             
Cost of sales            
Product sales     33,925     41,044
Product services     31,111     30,742
R&D services     9,994     13,581
      75,030     85,367
             
Gross profit     52,286     25,662
             
Expenses (income)            
Independent R&D     16,749     27,109
Selling, general and administrative     33,678     27,387
Impairment (reversal of impairment) of property, plant
and equipment, and intangible assets
    (4,116)     6,227
Loss (gain) on disposal of assets     (4,633)     61
Change in fair value of royalty provision     (714)     (983)
      40,964     59,801
             
Income (loss) before the following:     11,322     (34,139)
             
Financing charges, net     (2,324)     (724)
Foreign-exchange gain (loss)     (349)     2,075
             
Income (loss) before taxes     8,649     (32,788)
             
Tax expense (benefit)            
  Current     3,619     (5,132)
  Deferred     3,672     631
      7,291     (4,501)
             
Net income (loss) and comprehensive
  income (loss) for the year
  $ 1,358   $ (28,287)
             
Earnings (loss) per share            
  Basic and diluted   $ 0.02   $ (0.42)
             



Cangene Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

                         
in thousands of U.S. dollars     Share capital     Retained
earnings
    Contributed
surplus
    Total
                         
Balance at August 1, 2011   $ 50,860   $ 172,340   $   $ 223,200
Net loss for the year ended July 31, 2012         (28,287)         (28,287)
Stock option expense             439     439
                         
Balance at July 31, 2012     50,860     144,053     439     195,352
                         
Net income for the year ended July 31, 2013         1,358         1,358
Stock option expense             199     199
                         
Balance at July 31, 2013   $ 50,860   $ 145,411   $ 638   $ 196,909
                         



Cangene Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS

in thousands of U.S. dollars     Year ended
July 31, 2013 
    Year ended
July 31, 2012
             
OPERATING ACTIVITIES            
Net income (loss) for the year   $ 1,358   $   (28,287)
Adjustments for:            
  Depreciation of property, plant and equipment     7,000     8,560
  Amortization of intangible assets     4,268     2,630
  Loss (gain) on disposal of assets     (4,633)     61
  Taxes recoverable, long-term     1,690     (1,251)
  Deferred income     (705)     (2,128)
  Incentive plan liabilities     (166)     (941)
  Royalty provision     (740)     (864)
  Royalty liability     (691)    
  Deferred share unit liability     653     259
  Change in fair value of royalty provision     (714)     (983)
  Non-cash financing charges     2,408     784
  Deferred tax expense     3,672     631
  Change in fair value of derivative financial instruments     (79)     (1,696)
  Impairment (reversal of impairment) of property, plant
and equipment, and intangible assets
    (4,116)     6,227
  Stock option expense     199     439
Net change in non-cash working capital balances related
  to operations
    10,487     10,897
             
Cash provided by (used in) operating activities     19,891     (5,662)
             
INVESTING ACTIVITIES            
Purchase of property, plant and equipment, net     (3,069)     (1,604)
Acquisition of intangible assets     (135)     (2,106)
Acquisition of business     (8,701)    
Increase in deferred development cost     (178)    
Proceeds on disposal of assets     2,732     66
             
Cash used in investing activities     (9,351)     (3,644)
             
Net increase (decrease) in cash during the year     10,540     (9,306)
Cash, beginning of year     35,870     45,176 
Cash, end of year   $ 46,410   $ 35,870 
             
Interest paid1   $ 116   $ 15
Taxes received2   $ (3,677)   $ (12,342)
  1. Amounts paid and received for interest were reflected as operating cash flows in the consolidated statements of cash flows.
  2. Amounts paid and received for income taxes were reflected as either operating or investing cash flows in the consolidated statements of
    cash flows, depending upon the nature of the underlying transaction.


About Cangene Corporation
Cangene Corporation (CNJ.TO), headquartered in Winnipeg, Canada , is one of the nation's oldest and largest biopharmaceutical companies. It is focused on the development and commercialization of specialty therapeutics. Cangene's products are sold worldwide and include products that have been accepted into the U.S. Strategic National Stockpile. Cangene has offices in three locations across North America . It operates manufacturing facilities in Winnipeg, Manitoba and Baltimore, Maryland (through its wholly owned subsidiary, Cangene bioPharma, Inc.) where it produces its own products and undertakes contract manufacturing for a number of customers. Cangene also operates a plasma-collection facility in Winnipeg, Manitoba under the name Cangene Plasma Resources. Its U.S. sales and marketing office is located in Philadelphia, Pennsylvania . For more information about Cangene, visit the Company's website at www.cangene.com.

Cautionary Note regarding Forward-Looking Information
This document contains forward-looking statements about the Corporation, including its business operations, strategy, and expected financial performance and condition. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects", "anticipates", "intends", "plans", "will", "believes", "estimates", or negative versions thereof, and similar expressions. In addition, any statement that may be made concerning future financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, future use, safety and efficacy of unapproved products or unapproved uses of products, and possible future action by the Corporation are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Corporation, economic factors and the biopharmaceutical industry generally. They are not guarantees of future performance. Actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Corporation due to, but not limited to, important factors such as sales levels; fluctuations in operating results; the Corporation's reliance on a small number of customers including government organizations; the demand for new products and the impact of competitive products, service and pricing; the availability and cost of raw materials, and in particular, the cost, availability and antibody concentration in plasma; progress and cost of clinical trials; costs and possible development delays resulting from use of legal, regulatory or legislative strategies by the Company's competitors; uncertainty related to intellectual property protection and potential costs associated with its defence as well as general economic, political and market factors in North America and internationally; interest and foreign-exchange rates; business competition; technological change; changes in government action, policies or regulations; decisions by Health Canada, the United States Food and Drug Administration and other regulatory authorities regarding whether and when to approve drug applications that have been or may be filed, as well as their decisions regarding labelling and other matters that could affect the availability or commercial potential of drug candidates; unexpected judicial or regulatory proceedings; catastrophic events; the Corporation's ability to complete strategic transactions; and other factors beyond the control of management.

The reader is cautioned that the foregoing list of important factors is not exhaustive and there may be other factors listed in other filings with securities regulators, including factors set out under "Risk and Uncertainties" in the Corporation's Management Discussion and Analysis, which, along with other filings, is available for review at www.sedar.com. The reader is also cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, the Corporation has no intention to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Cautionary Note Regarding Non-IFRS Financial Measures
This news release may contain non-IFRS financial measures. Terms by which non-IFRS financial measures are identified include but are not limited to "EBITDA", "net cash", "total assets", "sales" and other similar expressions. Non-IFRS financial measures are used to provide management and investors with additional measures of performance. However, non-IFRS financial measures do not have standard meanings prescribed by IFRS and are not directly comparable to similar measures used by other companies. Please refer to the appropriate reconciliations of these non-IFRS financial measures to measures prescribed by IFRS.

SOURCE Cangene Corporation

Contact:

Contact Information
Investor Relations Contact
Jeff Lamothe
Chief Financial Officer
Tel: (204) 275-4267
Email: ir@cangene.com

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