Cornerstone Therapeutics Reports Fourth Quarter and Fiscal Year 2012 Financial Results

Marketwired

CARY, NC--(Marketwire - Mar 14, 2013) - Cornerstone Therapeutics Inc. (NASDAQ: CRTX), a specialty pharmaceutical company focused on commercializing products for the U.S. hospital and adjacent specialty markets, today announced results for the fourth quarter and full year ended December 31, 2012.

Total net product sales were $116.1 million in 2012 versus $101.3 million reported in 2011, an increase of 15%. For the fourth quarter of 2012, net product sales were $34.9 million versus $18.2 million, up 92%, compared to the fourth quarter of 2011. Net sales from the ZYFLO® family of products amounted to $53.6 million, up 75% year over year. CUROSURF® net sales were $35.0 million, marginally up from the 2011 level. CARDENE® I.V. net sales were $24.8 million for the period from June 26, 2012, the acquisition date, through December 31, 2012.

Net loss in 2012 was $11.9 million, or $(0.46) per diluted share, compared to a net loss of $693,000, or $(0.03) per diluted share, in 2011. Net loss for the fourth quarter of 2012 was $7.0 million, or $(0.26) per diluted share, compared to a net loss of $2.7 million, or $(0.11) per diluted share, in the fourth quarter of 2011. The Company's net loss in the fourth quarter and for the full year resulted primarily from three events: a charitable donation of CARDENE I.V. inventory valued at $11.7 million; a write-off of RETAVASE® inventory valued at $14.6 million; and impairment of our LIXAR® in-process research and development assets valued at $11.5 million offset by a reduction in value of the related contingent payments of $8.8 million.

On a non-GAAP basis, net income for the year was $16.3 million, or $0.59 per diluted share, an increase of 76% from non-GAAP income of $9.2 million, or $0.35 per diluted share, in 2011. Non-GAAP net income for the fourth quarter of 2012 was $6.5 million, or $0.22 per diluted share, compared to a non-GAAP net loss of $1.5 million, or $(0.06) per diluted share, in 2011.

Non-GAAP net income and net income per diluted share exclude stock-based compensation expense, amortization and impairment of product rights, transaction-related expenses, acquisition adjustments related to inventory, the CARDENE I.V. charitable inventory donation, the RETAVASE inventory write-off, the change in acquisition-related contingent payments and the gain on the divestiture of certain product rights.

"In 2012, we executed on our strategy to transition away from our primary-care focused anti-infective business and focus primarily on the hospital and adjacent specialty markets. With the integration of EKR now substantially complete, we are well positioned as a Company for future growth. Additionally, we closed 2012 by extending our CUROSURF licensing agreement with Chiesi which now runs through 2024 and includes supply price and commercial incentives, which we believe will further improve product margin," said Craig A. Collard, Cornerstone's Chief Executive Officer. "We expect to continue this momentum in 2013 by growing revenues organically, bringing the products in our pipeline to market and keeping a keen eye out for licensing and acquisition opportunities that align with our vision for growth."

A breakdown of net revenues by product for the three and 12 months ended December 31, 2012 (in thousands, except percentages) follows:

                                     
    Three Months Ended         Year Ended      
    December 31,   Change     December 31,   Change  
    2012   2011   $   %     2012   2011   $   %  
Net product sales                                                
  CARDENE I.V. product family   $ 11,293     -   $ 11,293   100 %   $ 24,807     -   $ 24,807   100 %
  CUROSURF     8,127     9,450     (1,323 ) (14 )     34,972     34,852     120   -  
  ZYFLO product family     15,822     8,361     7,461   89       53,553     30,674     22,879   75  
  AlleRx Dose Pack products     (282 )   (2,928 )   2,646   (90 )     (1,407 )   23,263     (24,670 ) (106 )
  Anti-infective products     -     3,109     (3,109 ) (100 )     3,374     14,387     (11,013 ) (77 )
  Other products     (33 )   192     (225 ) (117 )     781     (1,875 )   2,656   -  
  Total net product sales     34,927     18,184     16,743   92       116,080     101,301     14,779   15  
License and royalty agreement revenues     -     22     (22 ) (100 )     4     121     (117 ) (97 )
Net revenues   $ 34,927   $ 18,206     16,721   92     $ 116,084   $ 101,422     14,662   14  
                                                 

Gross margin (exclusive of license and royalty agreement revenues and amortization of product rights) for 2012 was 63% and remained flat compared to 2011. Cost of product sales for 2012 included $4.2 million of fair value step-up adjustments related to acquired CARDENE I.V. inventory sold during the year, which had a four percentage point negative impact on gross margin.

Selling, general and administrative expenses were relatively flat at $46.4 million in 2012 compared to $45.9 million in 2011. Reductions in certain employee-related costs driven by the divestiture of the anti-infective product rights and respiratory sales force in March 2012 were offset by increases in co-promotion expense and marketed product support related to ZYFLO.

As of December 31, 2012, Cornerstone had $56.3 million in cash and cash equivalents compared to $34.2 million at the end of the third quarter 2012 and $74.0 million at December 31, 2011. The year-over-year decrease primarily represents the $36.4 million of cash-on-hand used to help fund the EKR Therapeutics acquisition, while the sequential increase reflects our strong cash flow from operations.

Conference Call Information

Cornerstone Therapeutics will host a conference call today at 8:30 AM ET to discuss financial results for the three and 12 months ended December 31, 2012. To participate in the live conference call, please dial 888-364-3109 (U.S. callers) or 719-325-2432 (international callers), and provide passcode 4876543. A live webcast of the call will also be available through the Investor Relations section of the Company's website. Please allow extra time prior to the webcast to register, download and install any necessary audio software.

The conference call and the webcast will be archived for 30 days. The telephone replay of the call will be available approximately two hours after completion of the call by dialing 888-203-1112 (U.S. callers) or 719-457-0820 (international callers), and providing passcode 4876543.

About Cornerstone Therapeutics

Cornerstone Therapeutics Inc. (NASDAQ: CRTX), headquartered in Cary, N.C., is a specialty pharmaceutical company focused on commercializing products for the hospital and adjacent specialty markets. Key elements of the Company's strategy are to focus its commercial and development efforts in the hospital and adjacent specialty product sector within the U.S. pharmaceutical marketplace; continue to seek out opportunities to acquire companies, marketed or registration-stage products and late-stage development products that fit within the Company's focus areas; and generate revenues by marketing approved generic products through the Company's wholly-owned subsidiary, Aristos Pharmaceuticals, Inc. For more information, visit www.crtx.com.

Use of Non-GAAP Financial Measures

To supplement the consolidated financial statements presented in accordance with GAAP, the Company uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share. The Company's management regularly uses supplemental non-GAAP financial measures to understand, manage and evaluate its business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from similarly titled non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The additional non-GAAP financial information presented in this press release should be considered in conjunction with, and not as a substitute for, or superior to, the financial information presented in accordance with GAAP (such as operating income (loss), net income (loss) and earnings (loss) per share) and should not be considered measures of the Company's liquidity. These non-GAAP measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.

The non-GAAP financial measures reflect adjustments for stock-based compensation expense, amortization and impairment of product rights, transaction-related expenses, acquisition adjustments related to inventory, its CARDENE I.V. charitable inventory donation, its RETAVASE inventory write-off, changes in acquisition-related contingent payments, and the gain on the divestiture of certain product rights. Transaction-related expenses consist of (1) costs incurred to complete product or company acquisitions or other strategic transactions, including due diligence and legal, consulting and other related fees; (2) integration costs related to the Company's completed transactions; and (3) transaction-related fees associated with transactions that are not consummated. The Company excludes these items from its non-GAAP measures because it believes that their exclusion provides an additional means to assess the extent to which the Company's efforts and execution of its strategy are reflected in its operating results. In particular, stock-based compensation expense is excluded primarily because it is a non-cash expense that is determined based on subjective assumptions; amortization and impairment of product rights are excluded because they are not reflective of the cash-settled expenses incurred related to product sales; and the transaction-related expenses, acquisition adjustments related to inventory, its CARDENE I.V. charitable inventory donation, its RETAVASE inventory write-off, changes in acquisition contingent payments, and the Company's gain on the divestiture of certain product rights are excluded because management believes they have no direct correlation to current operating results. Management believes that these non-GAAP measures, when shown in conjunction with the corresponding GAAP measures, enhance investors' and management's overall understanding of the Company's current financial performance and its prospects for the future.

The non-GAAP measures are subject to inherent limitations because (1) they do not reflect all of the expenses associated with the results of operations as determined in accordance with GAAP and (2) the exclusion of these items involved the exercise of judgment by management. Even though the Company has excluded stock-based compensation expense, amortization and impairment of product rights, transaction-related expenses, acquisition adjustments related to inventory, CARDENE I.V. charitable inventory donation, RETAVASE inventory write-off, changes in acquisition-related contingent payments, and the gain from the divestiture of product rights from the non-GAAP financial measures, stock-based compensation is an integral part of the Company's compensation structure, the acquisition of additional companies and/or product rights and the divestiture of the Company's anti-infective product rights are an important part of its business strategy, transaction-related expenses, whether or not the transaction is successfully closed, may be significant cash expenses and the disposition of its assets other than through product sales has a negative impact on the Company's results of operations and cash flows.

Safe Harbor Statement

Statements in this press release regarding the progress and timing of our product development programs and related trials; our future opportunities; our strategy, future operations, anticipated financial position, future revenues and projected costs; our management's prospects, plans and objectives; and any other statements about management's future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Any statements that are not statements of historical fact (including, without limitation, statements containing the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "target," "will," "would" and similar expressions) should also be considered to be forward-looking statements.

There are a number of important factors that could cause our actual results or events to differ materially from those indicated by such forward-looking statements, including risks relating to our "critical accounting estimates"; our ability to develop and maintain the necessary sales, marketing, supply chain, distribution and manufacturing capabilities to commercialize our products; our ability to replace the revenues from products we no longer market; the adverse impact of returns of previously sold inventory; patient, physician and third-party payer acceptance of our products as safe and effective therapeutic products; our heavy dependence on the commercial success of a relatively small number of currently marketed products; our ability to maintain regulatory approvals to market and sell our products; our ability to obtain FDA approval to manufacture, market and sell our products and product candidates, including our lixivaptan compound, LIXAR (formerly referred to as CRTX 080), and RETAVASE; our ability to successfully and effectively launch our Hydrocodone Polistirex and Chlorpheniramine Polistirex Extended Release Suspension product (formerly referred to as CRTX 067); our ability to enter into additional strategic licensing, product acquisition, collaboration or co-promotion transactions on favorable terms, if at all; our ability to manage and control unknown liabilities in connection with any acquisitions; our ability to successfully manage growth or integrate acquired businesses and operations; our ability to maintain compliance with NASDAQ listing requirements; adverse side effects experienced by patients taking our products; difficulties relating to clinical trials, including difficulties or delays in the completion of patient enrollment, data collection or data analysis; the results of preclinical studies and clinical trials with respect to our product candidates and whether such results will be indicative of results obtained in later clinical trials; our ability to develop and commercialize our product candidates before our competitors develop and commercialize competing products; our ability to satisfy FDA and other regulatory requirements; our substantial indebtedness and debt covenants; and our ability to obtain, maintain and enforce patent and other intellectual property protection for our products and product candidates and the other factors described in Item 1A (Risk Factors) of our Annual Report on Form 10-K filed with the SEC on March 6, 2012, Item 1A (Risk Factors) in our Quarterly Report on Form 10-Q filed with the SEC on November 8, 2012 and in our subsequent filings with the SEC. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

In addition, the statements in this press release reflect our expectations and beliefs only as of the date of this release. We anticipate that subsequent events and developments will cause our expectations and beliefs to change. However, while we may elect to update these forward-looking statements publicly at some point in the future, we specifically disclaim any obligation to do so, whether as a result of new information, future events or otherwise, except as may be required by law. Our forward-looking statements do not reflect the potential impact of any acquisitions, mergers, dispositions, business development transactions, joint ventures or investments that we may make or enter into. These forward-looking statements should not be relied upon as representing our views as of any date after the date of this release.

Trademarks

LIXAR®, ZYFLO CR® and ZYFLO® are registered trademarks of Cornerstone Therapeutics Inc. CARDENE® I.V. and RETAVASE® are registered trademarks of EKR Therapeutics, Inc., Cornerstone Therapeutics' wholly-owned subsidiary. CUROSURF® is owned by Chiesi Farmaceutici S.p.A. and is licensed to Cornerstone Therapeutics for sales and marketing purposes in the United States.

               
CORNERSTONE THERAPEUTICS INC.  
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS  
(In thousands, except share and per share data)  
                         
    Three Months Ended December 31,     Year Ended December 31,  
    2012     2011     2012     2011  
    (Unaudited)              
Net revenues   $ 34,927     $ 18,206     $ 116,084     $ 101,422  
Costs and expenses:                                
  Cost of product sales (exclusive of amortization of product rights)     10,595       8,640       42,579       37,823  
  Selling, general and administrative     13,659       9,764       46,404       45,877  
  Research and development     544       252       4,273       1,624  
  Amortization of product rights     4,155       3,591       17,929       14,368  
  Change in acquisition-related contingent payments     (10,322 )     -       (11,896 )     -  
  Transaction-related expenses     410       467       8,354       467  
  Other operating expenses, net     37,271       -       35,779       2,500  
    Total costs and expenses     56,312       22,714       143,422       102,659  
Loss from operations     (21,385 )     (4,508 )     (27,338 )     (1,237 )
Other expenses, net:                                
  Interest expense, net     (1,697 )     (7 )     (3,496 )     (128 )
  Other expense, net     (84 )     -       (299 )     -  
    Total other expenses     (1,781 )     (7 )     (3,795 )     (128 )
Loss before income taxes     (23,166 )     (4,515 )     (31,133 )     (1,365 )
Benefit from income taxes     16,207       1,766       19,245       672  
Net loss   $ (6,959 )   $ (2,749 )   $ (11,888 )   $ (693 )
                                 
Comprehensive loss   $ (6,959 )   $ (2,749 )   $ (11,888 )   $ (693 )
                                 
Net loss per share, basic   $ (0.26 )   $ (0.11 )   $ (0.46 )   $ (0.03 )
Net loss per share, diluted   $ (0.26 )   $ (0.11 )   $ (0.46 )   $ (0.03 )
Weighted-average common shares, basic     26,334,106       25,797,763       26,115,266       25,684,593  
Weighted-average common shares, diluted     26,334,106       25,797,763       26,115,266       25,684,593  
                                 
                                 
                                 
CORNERSTONE THERAPEUTICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
           
           
    December 31,     December 31,
    2012     2011
Assets              
Current assets:              
  Cash and cash equivalents   $ 56,250     $ 73,968
  Accounts receivable, net     14,368       11,894
  Inventories, net     11,384       9,419
  Prepaid expenses     3,343       3,753
  Income tax receivable     4,094       1,900
  Deferred tax asset     1,614       2
  Acquisition-related current assets     11,134       5,618
  Other current assets     379       494
    Total current assets     102,566       107,048
Property and equipment, net     1,310       1,574
Product rights, net     232,111       106,960
Goodwill     33,356       15,218
Amounts due from related parties     -       38
Deferred tax asset, less current portion     -       523
Other assets     32       953
    Total assets   $ 369,375     $ 232,314
               
Liabilities and Stockholders' Equity              
Current liabilities:              
  Accounts payable   $ 12,439     $ 5,526
  Accrued expenses     37,379       34,993
  Acquisition-related contingent payments     6,846       -
  Deferred revenue     -       1,428
  Acquisition-related current liabilities     9,636       6,618
  Other current liabilities     525       90
    Total current liabilities     66,825       48,655
Acquisition-related contingent payments, less current portion     26,362       8,800
Long-term debt     89,540       -
Deferred tax liability     15,683       -
Other long-term liabilities     4,792       56
    Total liabilities     203,202       57,511
               
Stockholders' equity              
  Preferred stock - $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding     -       -
  Common stock - $0.001 par value, 90,000,000 shares authorized; 26,348,470 and 25,803,864 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively     26       26
  Additional paid-in capital     167,461       163,203
  (Accumulated deficit) retained earnings     (1,314 )     11,574
    Total stockholders' equity     166,173       174,803
    Total liabilities and stockholders' equity   $ 369,375     $ 232,314
                   
                   
                   
CORNERSTONE THERAPEUTICS INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
    Year Ended December 31,  
    2012     2011  
Cash flows from operating activities                
Net loss   $ (11,888 )   $ (693 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
  Amortization and depreciation     18,660       14,896  
  Amortization of debt costs     51       -  
  Provision for prompt payment discounts     3,474       3,448  
  Provision for other receivables     1,457       -  
  Provision for inventory allowances     1,277       209  
  Acquisition accounting adjustment on inventory     4,178       -  
  CARDENE I.V. charitable inventory donation     11,662       -  
  RETAVASE inventory write-off     14,586       -  
  Gain on sale of product rights     (1,969 )     -  
  Loss on disposal of property and equipment     299       -  
  Change in acquisition-related contingent payments     (11,896 )     -  
  Impairment of product rights     11,500       2,500  
  Stock-based compensation     2,961       2,207  
  Deferred revenue     (1,428 )     (55,766 )
  Benefit from deferred income taxes     (16,062 )     (388 )
Changes in operating assets and liabilities:                
  Accounts receivable     1,453       61,134  
  Inventories     (2,007 )     5,546  
  Prepaid expenses and other assets     231       8,528  
  Accounts payable, accrued expenses, and other liabilities     (4,460 )     (15,746 )
  Acquisition-related current assets and liabilities     (1,498 )     -  
  Income taxes receivable     (2,194 )     (1,703 )
    Net cash provided by operating activities     18,387       24,172  
Cash flows from investing activities                
Acquisition of businesses, net of cash acquired     (126,921 )     -  
Purchase of product rights     (1,000 )     -  
Purchase of property and equipment     (275 )     (616 )
Proceeds from sale of product rights     3,000       -  
  Net cash used in investing activities     (125,196 )     (616 )
Cash flows from financing activities                
Proceeds from term loans     90,000       -  
Payment of debt financing costs     (511 )     -  
Proceeds from exercise of common stock options     1,159       369  
Excess tax benefit from stock-based compensation     265       522  
Payments related to net settlement of restricted stock     (127 )     -  
Acquisition-related contingent payments     (1,603 )     -  
Principal payments on license agreement liability     -       (1,341 )
Principal payments on capital lease obligation     (92 )     (83 )
  Net cash provided by (used in) financing activities     89,091       (533 )
  Net (decrease) increase in cash and cash equivalents     (17,718 )     23,023  
Cash and cash equivalents as of beginning of year     73,968       50,945  
Cash and cash equivalents as of end of year   $ 56,250     $ 73,968  
                 
Supplemental disclosure of cash flow information                
Cash paid during the year for interest   $ 3,059     $ 177  
Cash paid during the year for income taxes     -     $ 1,379  
                 
                 
                 
CORNERSTONE THERAPEUTICS INC.  
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES  
   
                         
The following tables reconcile our non-GAAP measures to the most directly comparable GAAP financial measures (in thousands, except share and per share amounts):  
                   
    For the Three Months Ended     For the Year Ended  
    December 31,     December 31,  
    2012     2011     2012     2011  
GAAP loss from operations   $ (21,385 )   $ (4,508 )   $ (27,338 )   $ (1,237 )
  Add: stock-based compensation     934       621       2,961       2,207  
  Add: amortization and impairment of product rights     15,655       3,591       29,429       16,868  
  Add: transaction-related expenses     410       467       8,354       467  
  Add: acquisition adjustments related to inventory     1,117       -       4,178       -  
  Add: CARDENE I.V. charitable inventory donation     11,662       -       11,662       -  
  Add: RETAVASE inventory write-off     14,586       -       14,586       -  
  Less: change in acquisition-related contingent payments     (10,322 )     -       (11,896 )     -  
  Less: gain on divestiture of product rights     (477 )     -       (1,969 )     -  
Non-GAAP income from operations   $ 12,180     $ 171     $ 29,967     $ 18,305  
                                 
GAAP net loss   $ (6,959 )   $ (2,749 )   $ (11,888 )   $ (693 )
  Add: stock-based compensation     934       621       2,961       2,207  
  Add: amortization and impairment of product rights     15,655       3,591       29,429       16,868  
  Add: transaction-related expenses     410       467       8,354       467  
  Add: acquisition adjustments related to inventory     1,117       -       4,178       -  
  Add: CARDENE I.V. charitable inventory donation     11,662       -       11,662       -  
  Add: RETAVASE inventory write-off     14,586       -       14,586       -  
  Less: change in acquisition-related contingent payments     (10,322 )     -       (11,896 )     -  
  Less: gain on divestiture of product rights     (477 )     -       (1,969 )     -  
  Less: tax effects related to above items1     (20,148 )     (3,420 )     (29,164 )     (9,621 )
Non-GAAP net income (loss)   $ 6,458     $ (1,490 )   $ 16,253     $ 9,228  
                                 
GAAP net loss per share, diluted   $ (0.26 )   $ (0.11 )   $ (0.46 )   $ (0.03 )
Non-GAAP net income (loss) per share, diluted2   $ 0.22     $ (0.06 )   $ 0.59     $ 0.35  
                                 
Shares used in diluted net income (loss) per share calculation:                                
  GAAP net loss     26,334,106       25,797,763       26,115,266       25,684,593  
  Non-GAAP net income (loss)     30,813,848       25,797,763       28,669,855       26,232,333  
                                 
 
1 Income taxes typically represent a complex element of our consolidated statement of comprehensive (loss) income and effective tax rates can vary widely between different periods. As such, for the three months ended December 31, 2012 and the year ended December 31, 2012, we calculated non-GAAP net income by applying our statutory tax rate of 37.9% to non-GAAP income before taxes. The tax effects for 2012 periods represent the difference between our GAAP tax benefit and our calculated non-GAAP tax expense. Tax effects for the three months ended December 31, 2011 and the year ended December 31, 2011 were calculated using the effective tax rates of 73.1% and 49.2%, respectively.
 
2 The convertible term loan was determined to be dilutive to non-GAAP net income per share, diluted for the year ended December 31, 2012. As such, for the year ended December 31, 2012, non-GAAP net income was adjusted for $645,000 of interest expense related to the convertible term loan, net of tax effects. Non-GAAP net income adjusted for the related interest expense, net of tax effects, was divided by the sum of the weighted-average number of common shares and dilutive common share equivalents outstanding during the year, as adjusted for the impact of the shares related to the convertible debt of approximately 2.2 million shares for the year ended December 31, 2012.
 
Contact:
Contacts

Investor Relations
Josh Franklin
Vice President
Strategy and Business Development
+1-919-678-6520
josh.franklin@crtx.com

Media Relations
Fleishman-Hillard
Andrea Moody
+1-919-457-0743
andrea.moody@fleishman.com
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