ViroPharma reports 76% growth in fourth-quarter net product sales

Feb 24 2010

ViroPharma Incorporated (Nasdaq: VPHM) reported today its financial results for the fourth quarter and year ended December 31, 2009.

In the fourth quarter of 2009 we:

• Delivered record $88 million in net product sales including $36 million in net sales of Cinryze;
• Achieved adjusted net income of $26 million; GAAP net income reached $12 million;
• Improved working capital to $406 million as of December 31, 2009, including cash and cash equivalents of $332 million; and
• Delivered positive cash flows from operations of $43 million for the quarter ended December 31, 2009.

Net sales were $87.8 million and $310.4 million for the fourth quarter and year ended December 31, 2009, respectively, as compared to $50.0 million and $232.3 million in the comparative periods of 2008, respectively.  This represents 76 percent growth in the fourth quarter and 34 percent growth for the year in net product sales.

The Company is reporting both GAAP net income (loss) and adjusted results for the three and twelve months ended December 31, 2009 and 2008.  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, impairment loss 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 GAAP net (loss) income. ViroPharma's definition of non-GAAP financial measures may differ from others.

"As we provide Cinryze to patients to prevent attacks of hereditary angioedema, we put ourselves in a position to drive great value for our shareholders," commented Vincent Milano, ViroPharma's chief executive officer. "Throughout the year, we made great strides toward our ultimate goal of providing Cinryze to every patient who needs it.  I'm pleased  that during 2009 alone, over 400 patients' lives were transformed by initiating Cinryze therapy.  For these patients, starting on prophylaxis with Cinryze marks the beginning of an entirely new prevention-minded routine in which they can look forward to reducing the length, frequency and severity of attacks of HAE, and the ability to utilize this therapy in the comfort of their own homes.  This early success of Cinryze, combined with another solid year of Vancocin® sales, contributed to our record net product sales during 2009 of $310 million.  We believe that the momentum we have generated since the launch of Cinryze, along with our newly expanded rights for Cinryze, will serve as a springboard for new levels of growth as we seek to impact the lives of many more patients with diseases marked by C1 esterase inhibitor deficiency through global expansion, additional disease states, and potential new formulations."

Non-GAAP adjusted net income in the three and twelve months ended December 31, 2009 was $26.4 million and $102.6 million, respectively, compared to $10.0 million and $93.9 million, respectively, for the same periods in 2008.  The increase in adjusted net income for both periods is primarily due to the net effect of the Cinryze launch and lower research and development expenses, offset by lower Vancocin net sales, lower interest income, and higher income tax expense due to lower qualified orphan drug spend for maribavir. 

The change between our GAAP net loss of $11.1 million for the twelve months ended December 31, 2009 from GAAP net income of $64.0 million in the same period of 2008 was primarily the impact of our Goodwill impairment of $65.1 million, increased intangible amortization of $17.4 million associated with our acquisition of Lev Pharmaceuticals, Inc. and the $9.1 million gain on the repurchase of our convertible notes, in addition to the factors influencing our non-GAAP adjusted net income discussed above. The change in GAAP net income in the three months ended December 31, 2009 compared to 2008 was impacted by a $1.2 million increase in intangible amortization related to the acquisition of Lev Pharmaceuticals, Inc. in addition to the factors influencing the non-GAAP adjusted net income.

Effective January 1, 2009, the Company was required under a new accounting standard to change 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 this new accounting standard, the Company recorded $1.8 million and $2.0 million of additional non-cash interest expense in the three months ended December 31, 2009 and 2008, respectively, and $7.3 million and $7.9 million for the year ended December 31, 2009 and 2008, respectively.  For the three months ended December 31, 2008, the Company's previously reported net loss calculated in accordance with GAAP has been increased by $1.3 million to $2.3 million.  For the twelve months ended December 31, 2008, the previously reported net income has been reduced by $3.7 million to $64.0 million.    

Operating Highlights

Cinryze net sales during the three and twelve months ended December 31, 2009 were $36.0 million and $97.3 million, respectively.  Vancocin net sales during the three months ended December 31, 2009 increased 3.6 percent to $51.9 million due to realized price growth, offset by lower sales volume.  For the twelve months ended December 31, 2009, Vancocin sales decreased 8.2 percent to $213.1 million due to lower sales volume, partially offset by realized price growth.

Cost of sales increased over the three and twelve month periods in the prior year by $9.8 million and $31.3 million, respectively, due to the launch of Cinryze.  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 increased cost of sales for Cinryze during the year ended December 31, 2009 by $6.9 million.    

Investment in our commercialization efforts, product pipeline and the company decreased as research and development (R&D) and selling, general and administrative (SG&A) expenses in the fourth quarter 2009 were $30.1 million as compared to $43.6 million in the fourth quarter of 2008.  R&D expenses decreased $11.7 million related primarily to discontinuing the maribavir prophylactic program, offset by costs associated with our Phase 1 clinical trial for NTCD and costs related to the Cinryze Phase 4 safety requirement study for the U.S.   For the fourth quarter of 2009, SG&A decreased $1.8 million over the same period in 2008.  The largest contributors to this decrease were lower marketing and medical education efforts, offset by increased compensation costs driven by the expansion of our Cinryze field force.  For the twelve months ended December 31, 2009, R&D expenses decreased $12.4 million, driven by decreased costs related to discontinuing the maribavir prophylactic program, offset by the Cinryze open label trials and patient follow-up, manufacturing NTCD spores and our Phase 1 clinical trial, and higher compensation costs.  For the twelve month period, SG&A increased by $22.0 million over the 12 month period in 2008 as a result of the commercialization of Cinryze.

The Company's tax expense for the quarter ended December 31, 2009 was $20.8 million and was a $3.6 million benefit for the quarter ended December 31, 2008.  For the twelve months ended December 31, 2009 and 2008, the income tax expense was $41.0 million and $16.0 million, respectively.  The increase in the 2009 expense as compared to 2008 is primarily due to higher taxable income due to the goodwill impairment not being tax deductible.  

Working Capital Highlights

As of December 31, 2009, ViroPharma's working capital was $406.4 million, which represents a $48.5 million increase from September 30, 2009 and an $89.0 million increase from December 31, 2008.  The twelve 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 twelve months ended December 31, 2009 was $84.8 million.

Looking ahead in 2010

ViroPharma is commenting upon guidance for the year 2010 as a convenience to investors.  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 2010, ViroPharma expects the following

• Net Cinryze sales are expected to be $150 to $175 million.

• Global selling, general and administrative (SG&A) and research and development (R&D) expenses, including the impact of SFAS 123R, are expected to be $125 to $140 million.   SFAS 123R expenses are expected to be between $10 and $12 million.