Viropharma 2010 third quarter net sales increases 46% to $317.4 million

Oct 27 2010

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

In the third quarter of 2010 we:

• Achieved a record $118 million in net product sales;
• Increased Cinryze net sales by 69 percent over prior year's third quarter to $49 million;
• Attained Non-GAAP adjusted net income of $47 million, representing 70 percent growth over the prior year third quarter; GAAP net income reached $38 million;
• Delivered positive cash flows from operations of $45 million;
• Improved working capital to $512 million as of September 30, 2010, including cash, cash equivalents and short-term investments of $448 million; and
• Presented data from Phase 1 study of VP20621 (non-toxigenic C. difficile) at the 50th Annual Interscience Conference on Antimicrobial Agents and Chemotherapy (ICAAC).

Net sales were $117.8 million and $317.4 million for the three and nine months ended September 30, 2010, respectively, as compared to $80.6 million and $222.6 million in the comparative periods of 2009, respectively.  This represents 46 percent growth for the three month period and 43 percent growth for the nine month period in net product sales.

"The third quarter of 2010 marked another consecutive period of solid operational execution accompanied by continued significant financial growth for ViroPharma," stated Vincent Milano, ViroPharma's chief executive officer. "While we clearly have much more to accomplish, including completing the tasks required for the approval of industrial scale manufacturing for Cinryze, we've made great strides in the commercial growth of the product and have taken strong positive steps on the clinical side with both Cinryze and VP20621.  We continue to be driven by the needs of patients and our focus to that end has never been greater."

Non-GAAP adjusted net income for the three and nine months ended September 30, 2010 was $46.5 million and $111.2 million, respectively compared to $27.3 million and $62.8 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, offset by higher income tax expense. Additionally, the nine months ended September 30, 2010 benefitted from lower research and development expenses.

Our GAAP net income grew to $38.3 million in the third quarter of 2010 as compared to $20.1 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 $88.1 million for the nine months ended September 30, 2010 from a GAAP net loss of $23.1 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 nine months ended September 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 acquisitions (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 nine months ended September 30, 2010 to $49.1 million and $124.3 million, respectively, as compared to $29.1 million and $61.3 million in the same periods in 2009, respectively due to the increase in the number of patients receiving Cinryze and a corresponding increase of inventory in the channel, which remains within normal levels.  Vancocin net sales during the three and nine months ended September 30, 2010 increased 31 percent to $67.6 million and 19 percent to $191.7 million, respectively, due to net realized price growth, offset by lower sales volume.  

Cost of sales increased for the three months ended September 30, 2010 as compared to the prior year by $5.5 million due to increased Cinryze volume.  Cost of sales increased for the nine months ended September 30, 2010 by $15.1 million as compared to the same period in the prior year due to the increase in Cinryze volume.  

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 third quarter 2010.  Combined, these expenses were $35.2 million in the third quarter of 2010 as compared to $31.2 million in the third quarter of 2009.  R&D expenses decreased $0.8 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 subcutaneous formulation Phase 2 Study, Cinryze Pediatric Study, Phase 4 safety requirement study for the U.S., the development of our Cinryze life cycle program and costs associated with other development assets.   For the third quarter of 2010, SG&A increased $4.8 million over the same period in 2009.  The largest contributors to this increase were compensation expense and marketing activities related to Cinryze, offset by lower medical education efforts related to Vancocin.  For the nine months ended September 30, 2010, SG&A expenses increased $3.2 million to $71.3 million mainly due to increased marketing expenses.  R&D expenses decreased to $29.2 million for the nine months ended September 30, 2010 for the reasons discussed above.

The Company's tax expense for the quarters ended September 30, 2010 and 2009 was $23.2 million and $9.6 million, respectively, and $55.5 million and $20.2 million for the nine months ended September 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 September 30, 2010, ViroPharma's working capital was $511.8 million, which represents a $105.5 million increase from December 31, 2009.  Cash flow provided by operating activities for the nine months ended September 30, 2010 was $137.4 million.

Looking ahead in 2010

ViroPharma is increasing the top of its Cinryze net sales guidance range, and increasing the bottom of our expense guidance range 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 $170 to $180 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 $140 to $145 million.   Stock compensation expenses are expected to be between $10 and $12 million.