Talecris third quarter net revenue increases 2.8% to $407.0 million

Talecris Biotherapeutics Holdings Corp. ("Talecris") (Nasdaq: TLCR) today announced its financial results for the three and nine months ended September 30, 2010 and filed its Quarterly Report on Form 10-Q with the U.S. Securities and Exchange Commission (SEC).

Third quarter 2010 net revenue increased by $11.3 million or 2.8% to $407.0 million from $395.7 million in the third quarter of 2009.  Higher revenues from Talecris' principal products Gamunex®, Immune Globulin Intravenous (Human), 10% Caprylate/Chromatography Purified (IGIV) and Prolastin® Alpha-1 Proteinase Inhibitor (Human) (Prolastin, Prolastin A1PI, Prolastin-C A1PI) as well as Koate® DVI Factor VIII (Human) in the third quarter of 2010 were partially offset by lower sales of albumin, PPF powder and intermediates compared to the third quarter of 2009.  Third quarter 2010 gross margin was 43.5% compared to 41.7% in the third quarter of 2009.  Third quarter 2010 income from operations was $97.0 million versus $69.4 million for the third quarter of 2009, a 39.8% increase.  Net income was $56.1 million for the third quarter of 2010, an increase of $20.2 million compared to net income of $35.8 million for the third quarter of 2009.  Diluted earnings per share were $0.43 in the third quarter of 2010, including an after-tax charge of $5.8 million ($0.05 per diluted share) for costs associated with Talecris' definitive merger agreement with Grifols S.A. and Grifols, Inc. (Grifols), compared to diluted earnings per share of $0.38 (pro forma diluted EPS of $0.30) for the third quarter of 2009. Talecris' third quarter 2009 results included the after-tax charge of $0.9 million ($0.01 per diluted share) for CSL merger-related expenses.  

On a non-GAAP basis excluding merger-related items in both periods, Talecris' net income was $61.9 million for the third quarter of 2010, an increase of 68.7% compared to $36.7 million for the third quarter of 2009.  On the same basis, diluted earnings per share for the 2010 third quarter were $0.48, an increase of 65.5% from $0.29 for the third quarter of 2009.  Additional information regarding the computation of non-GAAP financial measures is included in Exhibit B.

For the first nine months of 2010, Talecris' net revenue increased by $47.7 million or 4.2% to $1,190.8 million compared to $1,143.1 million for the prior year.  Higher revenues from Talecris' principal products Gamunex IGIV and Prolastin-C/Prolastin as well as Koate Factor VIII in the first nine months of 2010 were partially offset by lower revenue from contract manufacturing and lower sales of PPF powder and hyperimmunes compared to the first nine months of 2009.  Gross margin for the period was 43.7% compared to 41.9% in the first nine months of 2009.  Net income for the first nine months of 2010 was $149.0 million, a decrease of $3.5 million compared to net income of $152.5 million for the first nine months of 2009.  Diluted EPS for the first nine months of 2010 was $1.16 compared to $1.62 (pro forma diluted EPS of $1.26) for the first nine months of 2009.  Talecris' first nine months 2010 results included an after-tax charge of $11.0 million ($0.08 per diluted share) for costs associated with the Grifols acquisition.  The first nine months 2009 diluted EPS included the $48.8 million after-tax benefit of the CSL merger termination fee ($0.52 per diluted share) which was partially offset by an after-tax charge of $8.7 million ($0.10 per diluted share) for CSL merger-related expenses.

On a non-GAAP basis excluding merger-related items in both periods, Talecris' net income was $160.0 million for the first nine months of 2010, a 42.2% increase compared to $112.5 million for the first nine months of 2009.  On the same basis, diluted EPS was $1.24 for the first nine months of 2010 compared to $0.90 for the first nine months of 2009, a 37.8% increase.  Additional information regarding the computation of non-GAAP financial measures is included in Exhibit B.

"At Talecris, we look forward to the consummation of our proposed merger with Grifols," said Lawrence D. Stern, Talecris' chairman and chief executive officer.  "While we work with the regulators and Grifols to complete the transaction, I am proud of the performance and strong results that our company has delivered in the first nine months of 2010.  I am especially proud of the recent approval of Gamunex-C by the FDA which provides patients with primary immunodeficiency the first and only immune globulin approved for both a subcutaneous and intravenous delivery option.  This new route of administration continues to build on Gamunex's position as a versatile IG therapy with the broadest set of FDA approved indications."

Talecris' Form 10-Q is available on the SEC's website at www.sec.gov and on Talecris' website at http://ir.talecris.com

Discussion of Third Quarter 2010 Financial and Operating Results

Net revenue for the 2010 third quarter was $407.0 million compared to $395.7 million in the third quarter of 2009, an increase of $11.3 million or 2.8%.  Gamunex IGIV revenue increased $8.8 million or 4.2%, which consisted primarily of $9.2 million in higher volumes partially offset by unfavorable foreign exchange.  Gamunex experienced higher volumes of $21.3 million in the U.S., Europe and other international regions, which were partially offset by lower volumes of $12.1 million in Canada.  U.S. Gamunex revenue grew 9.2% for the third quarter of 2010 compared to the third quarter of 2009.  Canadian Gamunex volumes were negatively impacted by lower sales to Canadian Blood Services due to their IGIV multi-source strategy.  U.S. and Canadian Gamunex pricing was higher by $2.6 million during the 2010 period as compared to the prior year period.  The benefit of higher pricing in the U.S. and Canada was offset by lower pricing of $3.0 million in Europe and other international regions resulting from unfavorable foreign exchange of $1.0 million, country mix as well as competitive pressures.  

Prolastin-C/Prolastin A1PI revenues increased $9.2 million or 11.3%, which primarily consisted of $7.9 million in higher volumes and improved pricing of $4.2 million partially offset by $2.9 million of unfavorable foreign exchange.  Growth in volume was driven by increased number of patients on Prolastin-C/Prolastin A1PI in both the U.S. and European markets.  In addition, Koate Factor VIII revenues increased $5.2 million or 46.1%.  These increases were offset primarily by lower sales of albumin mainly due to opportunistic sales during the 2009 third quarter which did not occur in the 2010 period, lower sales of PPF powder as well as reduced sales of intermediate products.  

Gross profit increased to $177.1 million for the 2010 third quarter compared to $165.1 million in the third quarter of 2009.  This increase was primarily due to lower unabsorbed infrastructure and start-up costs related to Talecris Plasma Resources, Inc. (TPR), which is Talecris' plasma collection platform, higher Gamunex IGIV and Prolastin-C/Prolastin A1PI revenue, as well as lower costs of production primarily driven by production mix associated with the conversion to Prolastin-C.  These increases were partially offset by increases in inventory impairment provisions.  Unabsorbed TPR infrastructure and start-up costs declined by $7.2 million or 82.8% to $1.5 million for the third quarter of 2010 compared to $8.7 million for the third quarter of 2009.  Inventory impairment provisions during the third quarter of 2010 increased $10.3 million to $17.5 million primarily driven by higher provisions for work-in-process inventories.  Gross margin was 43.5% during the third quarter of 2010 compared to 41.7% for the 2009 third quarter, an increase of 180 basis points.  

Operating expenses for the third quarter of 2010 were $80.1 million which represented a decrease of $15.6 million or 16.3% versus $95.7 million incurred during the prior year period.  The decrease in operating expenses resulted from a decrease in SG&A expenses primarily driven by a $15.4 million reduction in share-based compensation, lower charitable donations of $2.3 million, lower legal expenses of $2.7 million related to the company's internal FCPA investigation, and the absence of $2.0 million of management fees to Talecris Holdings LLC as a result of the termination of the management agreement at the time of its initial public offering.  During the three months ended September 30, 2010, SG&A benefited from $4.3 million in favorable foreign exchange compared to the third quarter of 2009.  These decreases were partially offset by $5.3 million in higher sales and marketing expense in the third quarter of 2010 as the result of the sales force expansion.  R&D spending increased $2.5 million in the third quarter of 2010, driven by increased activity in preparation for the phase II trial for Plasmin in the treatment of acute peripheral arterial occlusion (aPAO).  In addition, the company incurred $8.5 million in merger- related expenses including $2.8 million in retention expenses in SG&A related to the definitive merger agreement with Grifols.

Operating income was $97.0 million during the third quarter of 2010, which represented a 39.8% increase over the $69.4 million reported during the third quarter of 2009.  Operating margin was 23.8% in the 2010 third quarter compared to 17.5% in the 2009 third quarter, an increase of 630 basis points.

Net interest expense was $11.5 million in the 2010 third quarter compared to $19.6 million in the prior year period, a decrease of $8.1 million primarily due to lower debt levels.  Income tax expense during the third quarter of 2010 was $29.7 million resulting in a 34.7% effective tax rate compared to $14.1 million for the third quarter of 2009 or a 28.3% effective tax rate.

Net income was $56.1 million for the 2010 third quarter including an after-tax charge of $5.8 million for costs associated with the announced acquisition of the company by Grifols.  This compares to $35.8 million in the third quarter of 2009, which included the after-tax charge of $0.9 million for CSL merger-related expenses.

Diluted EPS for the 2010 third quarter was $0.43 compared to $0.38 (pro forma diluted EPS of $0.30) for the 2009 third quarter.  The 2010 period included an after-tax charge of $0.05 per share related to costs associated with the Grifols acquisition while the 2009 period included a charge of $0.01 per diluted share for CSL merger-related expenses. Total diluted shares outstanding were 128,934,490 for the 2010 third quarter and 93,911,201 for the 2009 third quarter.

On a non-GAAP basis excluding merger-related expenses in both periods, Talecris' net income of $61.9 million for the third quarter of 2010 increased 68.7% compared to $36.7 million for the third quarter of 2009.  On the same basis, earnings per diluted share, excluding merger-related expenses, for the 2010 third quarter were $0.48, an increase of 65.5% from $0.29 for the third quarter of 2009.  Additional information regarding the computation of non-GAAP financial measures is included in Exhibit B.

The 2010 third quarter EBITDA was $106.9 million compared to $77.0 million in the 2009 third quarter.  Adjusted EBITDA was $120.9 million in the 2010 third quarter compared to adjusted EBITDA of $102.5 million in the 2009 third quarter.  

Discussion of First Nine Months of 2010 Financial and Operating Results

Net revenue was $1,190.8 million for the first nine months of 2010 compared to $1,143.1 million during the same period of 2009, representing an increase of $47.7 million or 4.2%.  The increase was mainly due to $24.1 million in higher Gamunex IGIV revenue, consisting of $27.4 million in higher volumes, partially offset by $3.3 million in lower pricing which included unfavorable foreign exchange of $1.0 million.  Gamunex revenue growth was driven primarily by U.S. sales which grew 8.7% in the first nine months of 2010 compared to the first nine months of 2009.  The first nine months of 2010 results also reflected $28.0 million in higher Prolastin-C/Prolastin A1PI sales as well as higher revenues related to Koate Factor VIII, Thrombate® III antithrombin III (human) and albumin, partially offset by reduced contract manufacturing for Canadian Blood Services due to their multi-source strategy, lower sales of PPF powder and lower sales of hyperimmunes.

Gross profit during the first nine months of 2010 totaled $520.3 million compared to $479.2 million during the first nine months of 2009, an increase of $41.1 million or 8.6%, driven primarily by higher Gamunex IGIV revenue, reduced unabsorbed TPR infrastructure and start-up costs, as well as lower costs of production primarily driven by production mix associated with the conversion to Prolastin-C.  These benefits were partially offset by increases in inventory impairment provisions and non-capitalizable capital expenditures.  Unabsorbed TPR infrastructure and start-up costs decreased $28.9 million or 84.7% to $5.2 million in the first nine months of 2010 compared to $34.1 million for the same period of 2009.  Inventory impairment provisions during the first nine months of 2010 increased $17.1 million to $40.4 million primarily driven by higher provisions for work-in-process inventories.  Non-capitalizable capital expenditures during the first nine months of 2010 were $31.2 million compared to $22.2 million during the first nine months of 2009.  Gross margin was 43.7% during the period, an increase of 180 basis points from the gross margin of 41.9% for the first nine months of 2009.

Operating expenses totaled $255.8 million for the first nine months of 2010, a 3.7% decrease over the $265.6 million incurred during the first nine months of 2009.  The decrease in operating expenses was attributed to a decrease in selling, general and administrative expenses primarily driven by lower share-based compensation expense of $23.9 million, the absence of $11.0 million of legal and retention expenses related to the company's terminated merger agreement with CSL, lower charitable donations of $8.2 million, lower legal expenses of $2.5 million related to the company's internal FCPA investigation and the absence of $5.7 million of management fees to Talecris Holding LLC as a result of the termination of the management agreement at the time of Talecris' initial public offering.  These items were partially offset by higher sales and marketing expenses of $16.0 million during the first nine months of 2010 as the result of the sales force expansion.  During the first nine months of 2010, SG&A included $2.9 million of unfavorable foreign exchange as compared to favorable foreign exchange of $3.3 million during the same prior year period.  R&D spending decreased $0.9 million during the first nine months of 2010 as a result of timing of in-process projects and the nature and extent of expenses associated with these projects.  The company also incurred $16.9 million in merger-related expenses including $2.8 million in retention expenses within SG&A related to the definitive merger agreement with Grifols.    

Operating income during the first nine months of 2010 was $264.5 million compared to $213.6 million during the first nine months of 2009, representing an increase of $50.9 million or 23.8%.  Operating margin was 22.2% in the first nine months of 2010 compared to 18.7% in the first nine months of 2009, an increase of 350 basis points.

Net interest expense was $34.9 million in the first nine months of 2010 compared to $61.4 million in the prior year period, a decrease of $26.5 million due largely to lower debt levels.  Income tax expense during the first nine months of 2010 was $81.1 million resulting in a 35.3% effective tax rate compared to $74.9 million for the first nine months of 2009 or a 32.9% effective tax rate.

Net income for the first nine months of 2010 was $149.0 million, a decrease of $3.5 million compared to net income of $152.5 million for the first nine months of 2009.  The 2010 period included an after-tax charge of $11.0 million for costs associated with the Grifols acquisition, while the 2009 period included the after-tax income from the CSL merger termination fee of $48.8 million which was partially offset by an after-tax charge of $8.7 million for CSL merger-related expenses.

Diluted EPS for the first nine months of 2010 was $1.16 including an after-tax charge of $0.08 per diluted share for costs associated with the Grifols acquisition.  This compares to $1.62 (pro forma diluted EPS of $1.26) in the first nine months of 2009, which included income of $0.52 per diluted share related to the after-tax effect of the CSL merger termination fee as well as a charge of $0.10 per diluted share for merger-related expenses.  Total diluted shares outstanding were 128,513,727 for the first nine months of 2010 compared to diluted shares outstanding of 93,919,553 for the first nine months of 2009.

On a non-GAAP basis excluding merger-related items in both periods, Talecris' net income of $160.0 million for the first nine months of 2010 increased 42.2% compared to $112.5 million for the first nine months of 2009.  On the same basis, earnings per diluted share, excluding merger-related expenses, for the first nine months of 2010 were $1.24, an increase of 37.8% from $0.90 for the first nine months of 2009.  Additional information regarding the computation of non-GAAP financial measures is included in Exhibit B.

EBITDA for the first nine months of 2010 was $291.6 million, a decrease of $18.7 million from $310.3 million in the first nine months of 2009 which included income of $75.0 million related to the CSL merger termination. In the first nine months of 2010, adjusted EBITDA was $326.2 million, a decrease of $44.2 million, compared to $370.4 million in the first nine months of 2009 which included income of $75.0 million related to the CSL merger termination.

Recent Events

Talecris achieved a number of financial and commercial milestones in the third quarter of 2010 and since the conclusion of the third quarter.  These include:

• On October 13, 2010, Talecris received approval from the U.S. Food and Drug Administration (FDA) for Gamunex®-C (Immune Globulin Injection [Human], 10% Caprylate/Chromatography Purified) for subcutaneous administration in the treatment of primary immunodeficiency (PI).  Gamunex-C is the first and only immune globulin to provide both the intravenous route of administration and a new subcutaneous route of administration. The intravenous delivery mode is approved to treat PI, chronic inflammatory demyelinating polyneuropathy (CIDP), and idiopathic thrombocytopenic purpura (ITP). The subcutaneous mode is approved to treat only PI;
• On September 15, 2010, Talecris placed the final beam on the steel structure of the North Fractionation Facility located in Clayton, North Carolina. The new facility, which is expected to be operational in 2015, will have the capacity to fractionate 6.0 million liters of human plasma annually;
• In September 2010, Talecris launched its next generation A1PI product, Prolastin-C, in Canada.  The company anticipates converting all Canadian Prolastin patients to Prolastin-C in the fourth quarter;
• On August 6, 2010, Talecris and Grifols S.A. each received a request for additional information and documentary material, often referred to as a "Second Request," from the U.S. Federal Trade Commission (FTC) in connection with the proposed merger;
• During the third quarter of 2010, Talecris Plasma Resources, Inc. (TPR) received FDA licensure for two additional collection centers.  Subsequent to the close of the quarter, TPR received FDA licensure for one additional center.  The current collection platform consists of 69 operating centers, of which 67 have FDA licenses.  

SOURCE Talecris Biotherapeutics Holdings Corp.