ViroPharma second-quarter net sales increase 33% to $109.0 million

Jul 28 2010

ViroPharma Incorporated (Nasdaq: VPHM) reported today its financial results for the second quarter ended June 30, 2010.

In the second quarter of 2010 we:

• Achieved a record $109 million in net product sales;
• Increased Cinryze net sales by 58 percent over prior year's second quarter to $40 million;
• Attained Non-GAAP adjusted net income of $36 million, representing 38 percent growth over the prior year second quarter; GAAP net income reached $29 million;
• Delivered record positive cash flows from operations of $54 million;
• Improved working capital to $465 million as of June 30, 2010, including cash, cash equivalents and short-term investments of $406 million;
• Submitted the Cinryze industrial scale manufacturing Prior Approval Supplement (PAS) to the U.S. Food and Drug Administration (FDA);
• Introduced parallel chromatography-produced Cinryze into the trade for sale;
• Completed Phase 1 study of non-toxigenic C. difficile (VP20621);
• Initiated Phase 2 study of subcutaneous administration of Cinryze.

Net sales were $109.0 million and $199.6 million for the three and six months ended June 30, 2010, respectively, as compared to $81.9 million and $142.1 million in the comparative periods of 2009, respectively.  This represents 33 percent growth for the three month period and 41 percent growth for the six month period in net product sales.

"The second quarter of 2010 was an outstanding quarter for us, both operationally and financially," stated Vincent Milano, ViroPharma's chief executive officer. "For example, regarding Cinryze we expanded the HAE prophylaxis market in the U.S.; advanced our manufacturing scale-up progress both through the introduction of product manufactured at parallel chromatography process scale and the filing of our PAS with the FDA for our industrial scale manufacturing; and made progress with our clinical initiatives including the initiation of our subcutaneous administration Phase 2 trial and submission of our IND for our forthcoming antibody mediated rejection study.  Overall, this was a period of substantial progress and we look forward to continued execution throughout the rest of 2010 and in the years ahead."

Non-GAAP adjusted net income for the three and six months ended June 30, 2010 was $36.1 million and $64.7 million, respectively compared to $26.2 million and $35.5 million for the same periods in 2009, respectively.  The increase in adjusted net income is primarily due to the net effect of the Cinryze launch, increased Vancocin® (Vancomycin Hydrochloride, USP) net sales and lower research and development expenses, offset by higher income tax expense. 

Our GAAP net income grew to $28.5 million in the second quarter of 2010 as compared to $16.1 million in the comparative period in 2009 due to the same factors influencing our non-GAAP adjusted net income discussed above.  The change between our GAAP net income of $49.8 million for the six months ended June 30, 2010 from a GAAP net loss of $43.2 million in the same period of 2009 was primarily due to the impact of our goodwill impairment in 2009 of $65.1 million and the $9.1 million gain on the repurchase of our convertible notes in the first six months of 2009, in addition to the factors influencing our non-GAAP adjusted net income discussed above.

The Company is reporting both GAAP net income (loss) and adjusted results for the three and six months ended June 30, 2010 and 2009. Adjusted net income is GAAP net income (loss) excluding (1) non-cash interest expense, (2) amortization primarily related to the acquisitions of Lev Pharmaceuticals and Vancocin, and step-up in inventory primarily related to purchase accounting arising from the acquisitions of Lev Pharmaceuticals (3) stock compensation expenses, and (4) certain non-recurring events such as the goodwill write off 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 (loss) 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.

Operating Highlights

Cinryze net sales grew during the three and six months ended June 30, 2010 to $40.3 million and $75.2 million, respectively, as compared to $25.6 million and $32.2 million in the same periods in 2009, respectively due to the increase in the number of patients receiving Cinryze.  Vancocin net sales during the three and six months ended June 30, 2010 increased 21 percent to $68.4 million and 13 percent to $124.1 million, respectively, due to realized price growth, offset by lower sales volume.  We currently do not believe that the health care reform will have a material impact on Vancocin or Cinryze net sales in the near term.

Cost of sales decreased for the three months ended June 30, 2010 as compared to the prior year by $0.5 million due to the effect of the step up in inventory recorded, partially offset from increased Cinryze volume.  Cost of sales increased for the six months ended June 30, 2010 by $9.5 million as compared to the same period in the prior year due to the increase in Cinryze units sold, partially offset by the impact of the step-up on 2009 cost of sales related to the acquisition of Lev ($6.2 million).  We have utilized all inventory that was recorded at fair value as part of the Lev purchase during 2009.  Additionally, included in the cost of sales for the six months ended June 30, 2009 are expenses of $1.5 million related to non-refundable start up costs paid to our new plasma supplier.  

Investments related to our commercialization efforts and selling, general and administrative (SG&A) expenses increased and our costs related to our product pipeline and research and development (R&D) expenses decreased in the second quarter 2010.  Combined, these expenses were $34.6 million in the second quarter of 2010 as compared to $36.1 million in the second quarter of 2009.  R&D expenses decreased $3.2 million related primarily to discontinuing the maribavir prophylactic program, partially offset by costs associated with our Phase 1 clinical trial for VP20621 and costs related to the Cinryze Phase 4 safety requirement study for the U.S. and the development of our life cycle program.   For the second quarter of 2010, SG&A increased $1.8 million over the same period in 2009.  The largest contributors to this increase were increases in compensation expense and marketing activities, offset by lower medical education efforts.  For the six months ended June 30, 2010, SG&A expenses decreased $1.7 million to $46.3 million mainly due to decreased compensation expense and decreased medical education activities, partially offset by increased marketing expenses.  R&D expenses decreased to $19.0 million for the six months ended June 30, 2010 for the reasons discussed above.

The Company's tax expense for the quarters ended June 30, 2010 and 2009 was $18.4 million and $5.6 million, respectively, and $32.3 million and $10.6 million for the six months ended June 30, 2010 and 2009, respectively.  The increases in the 2010 expense as compared to 2009 are primarily due to higher taxable income in both 2010 periods.  

Working Capital Highlights

As of June 30, 2010, ViroPharma's working capital was $465.4 million, which represents a $59.0 million increase from December 31, 2009.  Cash flow provided by operating activities for the six months ended June 30, 2010 was $92.2 million.

Looking ahead in 2010

ViroPharma is increasing the bottom of its Cinryze net sales guidance range and increasing our expense guidance for the year 2010.  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 $165 to $175 million.
• Research and development (R&D) and selling, general and administrative (SG&A) expenses, including the impact of stock compensation expense, are expected to be $135 to $145 million.   Stock compensation expenses are expected to be between $10 and $12 million.