ISTA Pharmaceuticals first-quarter net revenues up 39%

Apr 30 2010

ISTA Pharmaceuticals, Inc. (Nasdaq: ISTA), today reported financial results for the quarter ended March 31, 2010.  First quarter 2010 net revenues were $28.3 million, an increase of 39% from the first quarter of 2009.  Net income for the first quarter ended March 31, 2010, was $0.5 million, or $0.01 per share, compared to a net loss of $19.6 million, or $0.59 per share, for the first quarter ended March 31, 2009. A non-cash warrant valuation gain of $7.2 million and a loss of $13.3 million were included in net income (loss) for the first quarters ended March 31, 2010 and 2009, respectively.

"We're out of the gate for the first quarter 2010 with strong revenue growth, driven by continued progress with Xibrom™ for ocular inflammation and pain following cataract surgery and the successful launch of Bepreve® for ocular itching associated with allergic conjunctivitis," stated Vicente Anido, Jr., Ph.D., President and Chief Executive Officer of ISTA Pharmaceuticals.  "Our goals are to build Bepreve into a leading ocular allergy treatment and maximize Xibrom's leadership position in the cataract surgery market.

"In 2009, we increased the size of our sales force now calling on more than 21,000 high-prescribing clinicians, including U.S. ophthalmologists, optometrists and allergists. The initial feedback on Bepreve from physicians and patients alike has been very positive. Since January, new prescriptions for Bepreve have risen notably week over week. The March IMS HEALTH data shows our total prescription dollar market share in our called-on audience was 2.7%.  With the past winter season wetter and colder than normal, allergy season was delayed several weeks. In April, there has been a sizable up tick in ocular allergy prescriptions, and allergists are now predicting this to be a severe spring allergy season. Demand from our wholesalers for Bepreve is up significantly in April."

During the first quarter of 2010, ISTA's supplemental New Drug Application for once-daily XiDay™ (bromfenac ophthalmic solution) was accepted for review by the U.S. Food and Drug Administration, or FDA. The FDA has granted XiDay a standard review time of ten months, assigning ISTA a Prescription Drug User Fee Act, or PDUFA, action date of October 16, 2010.

Dr. Anido added, "Ophthalmologists continue to recognize the benefits ISTA's products bring to their patients, which are reflected in the ongoing growth of our Xibrom and Istalol franchises.  We believe once-daily XiDay, assuming FDA approval, will offer another advance for patients undergoing cataract surgery."

In addition to XiDay, the Company's pipeline includes a bromfenac formulation for dry eye and a bepotastine formulation for nasal allergy.  The Company plans to initiate Phase 3 clinical trials in dry eye disease mid-summer 2010. To maximize the bepotastine franchise, which began with the Bepreve ophthalmic solution, ISTA will complete its formulation work for bepotastine nasal spray and anticipates initiating a full-scale clinical program during 2010.

Net revenues for the first quarter ended March 31, 2010, were $28.3 million, or an increase of 39% over the same period in 2009.  Net revenues grew primarily due to increased prescription growth and market penetration for the Company's products.

Gross margin for the first quarter ended March 31, 2010, was 74%, or $21.0 million, as compared to 75%, or $15.3 million, for the same period in 2009.  The decrease in the gross margin percentage for the first quarter of 2010 was due to a change in the mix of products sold.  

Research and development expenses for the first quarter ended March 31, 2010, were $4.8 million, as compared to $6.7 million during the corresponding period of 2009.  The reduction over the prior-year period was due primarily to the timing, initiation, and completion of clinical trials.  

Selling, general, and administrative expenses for the first quarter ended March 31, 2010, increased to $20.9 million from $13.0 million for the corresponding period in 2009.  The increase reflects the addition of 65 new sales representatives and related corporate new hires, plus the promotional activities associated with the Bepreve product launch.  

Operating loss for the first quarter ended March 31, 2010, was $4.7 million, compared to an operating loss of $4.4 million in the corresponding quarter of 2009.

Net income for the first quarter ended March 31, 2010, was $0.5 million, or $0.01 per share, including a non-cash warrant valuation gain of $7.2 million, or $0.21 per share.  Net loss for the first quarter ended March 31, 2009, was $19.6 million, or $0.59 per share, including a non-cash warrant valuation loss of $13.3 million, or $0.40 per share.  These non-cash warrant valuation adjustments are driven primarily by the change in the Company's stock price quarter over quarter.

At March 31, 2010, ISTA had cash of $43.2 million, which included $13 million borrowed under ISTA's revolving line of credit with Silicon Valley Bank.

"As we look ahead to the second quarter and the full year 2010," concluded Dr. Anido, "we are poised for continued growth and our first year of profitability.  In addition, we now have the products, people and pipeline in place to drive annual revenue toward $500 million over the next several years."

Reaffirming ISTA's 2010 Financial Outlook

• ISTA expects its net revenues for 2010 will be approximately $147 million to $165 million.  The Company continues to assume there will not be a generic competitor to Xibrom in 2010.  ISTA expects sales from its Xibrom franchise (including XiDay, assuming FDA approval) to be in the range of $95 million to $105 million and anticipates sales from Bepreve will be at least $20 million.  
• ISTA expects its gross margin will be in the range of 74% to 76%.
• ISTA expects R&D expenses to be approximately 18% to 22% of net revenues, depending upon the progress of its clinical programs.  
• ISTA expects SG&A expenses to be approximately 48% to 52% of net revenues.
• ISTA expects its operating income will be $8 million to $10 million.
• ISTA expects its net income will be at least $1 million, or earnings per share of $0.02, excluding any non-cash valuation adjustments relating to warrants.  As of March 31, 2010, ISTA's fully diluted common shares, including its outstanding shares of common stock plus warrants and stock options on a treasury stock basis, were approximately 44 million shares.
• ISTA expects its business to generate $6 million to $10 million of cash.

ISTA Seeks Declaratory Judgment

On Thursday, April 29, 2010, ISTA filed a Complaint against Senju Pharmaceuticals, Co., Ltd. in the U.S. District Court for the Central District of California seeking a declaratory judgment with regard to the Xibrom (bromfenac ophthalmic solution)® 0.09% patent and relevant royalties.  The Xibrom patent expired in January 2009.  According to U.S. case law and the terms of ISTA's royalty obligations, no royalties are due after patent expiration.  ISTA acquired U.S. marketing rights for Xibrom in 2002 and launched the product in the U.S. in 2005.  ISTA is seeking a declaratory judgment in regard to royalty obligations that may apply not only to Xibrom, but also to XiDay™, the Company's once-daily product currently awaiting FDA approval. There can be no assurance about when this action will be resolved, and, as a result, the Company has not taken into account any potential outcome of this action in its 2010 expected financial results.