Inspire fourth quarter revenues increase 2% to $30.3 million

Feb 17 2011

Inspire Pharmaceuticals, Inc. announced today financial results for the fourth quarter and year ended December 31, 2010. For the quarter ended December 31, 2010, the Company reported a net loss of $4.3 million, or ($0.05) per common share, compared to a net loss of $2.6 million, or ($0.03) per common share, for the same period in 2009. Net loss for the year ended December 31, 2010 was $35.4 million, or ($0.43) per common share, compared to a net loss of $40.0 million, or ($0.60) per common share, for the same period in 2009.

Total revenue for the fourth quarter of 2010 was $30.3 million, compared to $29.6 million for the fourth quarter of 2009, reflecting an increase of 2%. Total revenue for the fourth quarter of 2009 included approximately $1.2 million of previously deferred co-promotion revenue from net sales of ELESTAT^® (epinastine HCl ophthalmic solution) 0.05% and approximately $2.0 million to $2.5 million of AZASITE^® (azithromycin ophthalmic solution) 1% revenue that was associated with hospital usage as a substitute therapy during a temporary supply shortage of erythromycin ophthalmic ointment (0.5%), which was resolved in the first quarter of 2010. Total revenue for the fourth quarter of 2010 included $1.25 million in collaborative research and development revenue. When excluding these three items, total revenue for the fourth quarter of 2010 increased approximately 12% compared to the fourth quarter of 2009. Revenue from the sale of AZASITE totaled $13.2 million in the fourth quarter of 2010, an increase of 9% compared to $12.1 million recognized in the fourth quarter of 2009.

Total product co-promotion and royalty revenue, comprised of royalty revenue from net sales of RESTASIS^® (cyclosporine ophthalmic emulsion) 0.05% and co-promotion revenue from net sales of ELESTAT, was $15.9 million for the fourth quarter of 2010 compared to $17.5 million in 2009. Royalty revenue for the fourth quarter of 2010 from RESTASIS was $13.0 million and co-promotion revenue from ELESTAT was $2.9 million, compared to $12.0 million and $5.5 million in the fourth quarter of 2009, respectively.

The Company also recognized $1.25 million in collaborative research and development revenue in the fourth quarter of 2010 that was received pursuant to a collaborative agreement with Santen Pharmaceutical Co., Ltd. related to the approval and launch in Japan of DIQUAS^TM Ophthalmic Solution 3% (diquafosol tetrasodium) for the treatment of dry eye disease.

Total revenue for the year ended December 31, 2010 was $106.4 million, an increase of 15% compared to $92.2 million recognized in 2009. AZASITE revenue was $42.7 million in 2010, an increase of 22% compared to $35.0 million recognized in 2009. Excluding the revenue associated with the erythromycin shortage, which was approximately $3 million to $4 million in 2009 and approximately $1 million in 2010, and the revenue associated with the research and development milestone, which was $1.25 million in the fourth quarter of 2010, year over year growth in 2010 as compared to 2009 was approximately 18% and 35% for total revenue and AZASITE revenue, respectively. Co-promotion and royalty revenues were $62.5 million in 2010, an increase of approximately $5.3 million compared to $57.2 million in 2009. Royalty revenue for the year ended December 31, 2010 from RESTASIS was $45.6 million and co-promotion revenue from ELESTAT was $16.9 million, as compared to $38.4 million and $18.8 million in the year ended December 31, 2009, respectively. Collaborative research and development revenue for 2010 was $1.25 million.

Total operating expenses for the fourth quarter of 2010 totaled $35.6 million, as compared to $31.8 million for the same period in 2009. The increase in fourth quarter 2010 operating expenses was due to increases in research and development expenses associated with the denufosol development program, cost of sales as a result of increased AZASITE sales volume and general and administrative expenses.

Total operating expenses for the year ended December 31, 2010 were $142.2 million, as compared to $129.8 million in 2009, reflecting an increase of 10%. The increase in 2010 operating expenses primarily related to increased general and administrative expenses associated with changes in management and the related compensation charges, including CEO transition costs of approximately $5 million. Additionally, there was an increase in cost of sales due to increased AZASITE sales volume. These increases were partially offset by a decrease in research and development expense.

Cash, cash equivalents and investments totaled $94.3 million at December 31, 2010, reflecting a $5.2 million utilization of cash and investments in the fourth quarter and a $34.8 million utilization of cash and investments for the twelve months ended December 31, 2010.

"In 2010, we delivered strong financial performance through solid revenue growth and tight expense management," said Adrian Adams, President and CEO of Inspire. "We generated double digit revenue growth for the sixth consecutive year from our eye care business, driven by a 36% increase in AZASITE prescriptions, continued ELESTAT sales and RESTASIS royalties. As a result of our prudent expense and cash flow management during the year, we were able to pay off our term loan facility and end the year with a strong balance sheet with no debt. The strategic corporate restructuring announced today will allow us to focus on our eye care business and drive toward profitability and positive cash flow by significantly reducing our cost base and cash burn."

Recent Updates Include (November 5, 2010 through February 17, 2011):

Pulmonary Research & Development

• Announced that TIGER-2, the second Phase 3 clinical trial with denufosol tetrasodium for cystic fibrosis, did not achieve statistical significance for its primary or key secondary efficacy endpoints; and
• Announced today that Inspire's assessment of the full data set from TIGER-2, the open-label DEFY trial data and the Company's current corporate resources supports Inspire's decision to discontinue development of denufosol.

Ophthalmic Research & Development

• In December 2010, initiated an exploratory Phase 2, double-masked, vehicle-controlled clinical trial (Trial 044-103) comparing AZASITE to vehicle for four weeks of treatment with an eight-week follow-up period in up to 300 blepharitis patients at approximately 25 U.S. sites; Inspire expects information from this trial in the second half of 2011.

Commercial Operations

• Increased fourth quarter 2010 and full year 2010 AZASITE prescription volume by approximately 29% and 36%, respectively, compared to the same periods in 2009;
• Announced that DIQUAS received pricing approval and was launched for sale in Japan in December 2010 by Santen Pharmaceutical Co., Ltd.; Inspire received a related milestone payment of $1.25 million in the fourth quarter of 2010 and is entitled to receive payments based upon a tiered royalty rate on net sales of DIQUAS in Japan, with a minimum rate in the high single digits and a maximum rate in the low double digits; and
• Allergan, Inc. provided 2011 guidance for net sales of RESTASIS to be in the range of $680-$710 million.

Corporate

• Announced today a strategic corporate restructuring designed to result in the Company focusing activities on its eye care business, including a workforce reduction of approximately 65 positions, or 27% of total headcount, which represents 45% of non-sales force headcount; the restructuring is estimated to result in a more than $40 million reduction in 2011 non-cost of sales operating expenses, excluding restructuring charges, as compared to 2010;
• Received four grants totaling approximately $1 million under the Federal Government's Qualifying Therapeutic Discovery Project; and
• Completed repayment of the Company's term loan facility, thereby allowing the Company to be debt-free at December 31, 2010.

Financial Outlook for 2011

Based upon current trends and assumptions and its planned strategic direction and development operations, Inspire issues the following financial guidance for 2011:

• Aggregate revenue in the range of $80-$90 million;
• Total operating expenses in the range of $110-$125 million, which includes projected stock-based compensation costs of approximately $7-$12 million and restructuring costs:
  • Cost of sales in the range of $18-$21 million;
  • Research and development expenses in the range of $13-$18 million;
  • Selling and marketing expenses in the range of $45-$50 million;
  • General and administrative expenses in the range of $22-$26 million;
  • Restructuring expenses of $10-13 million; and
• Operating cash utilization in the range of $15-$22 million.

Inspire's 2011 financial results will be dependent on the amount of revenues received from AZASITE, RESTASIS, ELESTAT and DIQUAS. Inspire expects that a generic form of epinastine could be launched at any time, which will result in the termination of the ELESTAT co-promotion agreement and nominal future revenue from ELESTAT in trailing tail payments under the agreement.

Inspire will host a conference call and live webcast to discuss its fourth quarter and full year 2010 financial results, 2011 financial guidance and corporate restructuring on Thursday, February 17, 2011 at 8:00 a.m. ET. To access the conference call, U.S. participants may call (877) 648-7970 and international participants may call (706) 902-0415. The conference ID number is 43734225. A live webcast and replay of the call will be available on Inspire's website at www.inspirepharm.com. A telephone replay of the conference call will be available until February 24, 2011. To access this replay, U.S. participants may call (800) 642-1687 and international participants may call (706) 645-9291. The conference ID number is 43734225.