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Depomed Reports Second Quarter 2014 Financial Results

Total product revenues double to $28.2 million from Q2 2013

NEWARK, Calif., Aug. 6, 2014 /PRNewswire/ -- Depomed, Inc. (Nasdaq: DEPO) today reported financial results for the quarter ended June 30, 2014.

Second Quarter 2014 Summary

  • Total product sales of $28.2 million increased 100% compared to $14.1 million for the second quarter of 2013, and increased 31% from $21.5 million for the first quarter of 2014
    • Gralise® (gabapentin) product sales of $15.1 million increased 39% from $10.9 million for the first quarter of 2014 and 76% compared to $8.6 million for the second quarter of 2013
    • Zipsor® (diclofenac potassium) product sales of $6.8 million increased 28% from $5.3 million for the first quarter of 2014 and 21% compared to $5.6 million for the second quarter of 2013
    • Cambia® (diclofenac potassium for oral solution) product sales of $5.0 million increased 9% from $4.6 million for the first quarter of 2014
    • Lazanda® (fentanyl) Nasal Spray product sales of $1.4 million increased 100% from $0.7 million for the first quarter of 2014
  • Gralise added to tier 2 formulary at Catamaran, the 3rd largest PBM. Gralise is now tier 2 with the top 3 PBMs
  • Received a total of $15 million in milestone payments from Mallinckrodt during the quarter, which included a $10 million FDA approval milestone for Xartemis XR® (recognized as revenue in the first quarter of 2014) and a $5 million milestone upon FDA acceptance of the NDA filing for MNK-155 (recognized as revenue in the second quarter of 2014)
  • Generated second quarter 2014 GAAP net income of $12.7 million or $0.21 per diluted share
  • Generated second quarter 2014 non-GAAP adjusted earnings of $0.3 million or $0.01 per diluted share
  • $223.7 million of cash and marketable securities and no debt outstanding as of June 30, 2014, an increase of $10.6 million for the quarter
  • Completed bench trial in ANDA litigation related to Gralise with a ruling expected in short order
  • Srinivas G. Rao, MD, PhD, joined Depomed in July as Chief Medical Officer and announced that R. Scott Shively will join the company as Chief Commercial Officer in September

"Gralise and our recent acquisitions, CAMBIA and Lazanda, led the way to a strong quarter, doubling our net product sales over the same period last year.  All four of our products showed prescription growth in Q2 compared to Q1 2014," said Jim Schoeneck, President and Chief Executive Officer of Depomed.  "We believe the growth of our product revenues in Q2 and the integration of new products into our commercial organization demonstrate our ability to build a growth-oriented specialty pharmaceutical company focused on pain and central nervous system disorders. We are also thrilled to add Srini and Scott to our leadership team, increasing our depth and expertise in the pain and CNS markets.  For the remainder of 2014, we are focused on growing product revenues, acquiring additional assets that will enhance our product portfolio and managing expenses to continue to operate at positive cash flow."

Accounting Treatment for the Sale of Type 2 Diabetes Royalty and Milestone Interests to PDL

In October 2013, Depomed sold interests in future royalty and milestone payments in the Type 2 diabetes therapeutic area to PDL Biopharma, Inc. (PDL) for $240.5 million. As a result of ongoing supply order obligations with respect to the underlying royalties, Depomed is accounting for this transaction under the debt accounting method. Although the royalty and milestone payments were sold to PDL, debt accounting requires the Company to continue to recognize the underlying royalties and milestones as revenue and record the proceeds of $240.5 million as a liability. As royalties and milestones are recognized under this arrangement, the liability is reduced and an implied non-cash interest expense is recognized.

During the three and six months ended June 30, 2014, Depomed recognized $33.3 million and $76.1 million, respectively, of non-cash revenues, $4.9 million and $10.3 million, respectively, in non-cash interest expense and $8.3 million and  $20.1 million, respectively, in non-cash tax expense related to this arrangement.

Second Quarter 2014 Financial Results

Total revenues for the second quarter of 2014 increased to $67.7 million from $30.0 million for the second quarter of 2013. A summary of total revenues for the first quarter of 2014 as compared to the corresponding prior period is as follows:














Three Months Ended 


Six Months Ended 


June 30,


June 30,


2014


2013


2014


2013


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Product sales:












Gralise

$

15,111


$

8,554


$

25,970


$

14,643

Zipsor


6,822



5,552



12,165



8,592

CAMBIA (1)


4,958



-



9,582



-

Lazanda (1)


1,354



-



2,034



-

         Total product sales 


28,245



14,106



49,751



23,235













Royalties:












Glumetza US

$

-


$

14,193


$

-


$

27,481

Other


430



904



925



1,697

            Total royalty revenue


430



15,097



925



29,178













License and other revenue:












Mallinckrodt

$

5,000


$

-


$

15,000


$

-

Janssen


-



-



-



2,204

Glumetza


760



760



1,520



1,520

Other


-



-



1,000



-

         Total license and other revenue


5,760



760



17,520



3,724













Non-cash PDL royalty revenue

$

33,297


$

-


$

76,081


$

-













Total revenues (GAAP Basis)

$

67,732


$

29,963


$

144,277


$

56,137


(1)   Depomed acquired Lazanda in July 2013 and CAMBIA in December 2013.

Selling, general and administrative expense was $32.6 million for the second quarter of 2014 as compared to $25.4 million for the second quarter of 2013. The increase in 2014 is primarily due to increased sales and marketing expenses associated with the Cambia and Lazanda® product acquisitions which occurred in the second half of 2013 and increased legal expense related to ongoing patent infringement litigation.

Research and development expense was $1.4 million for the second quarter of 2014 as compared to $1.4 million for the second quarter of 2013.

GAAP net income for the second quarter of 2014 was $12.7 million, or $0.21 per diluted share, compared to GAAP net income of $0.5 million, or $0.01 per diluted share for the second quarter of 2013.  The increase in GAAP net income resulted primarily from increased product sales and the recognition of non-cash revenue relating to the royalties sold to PDL as described above under the caption "Accounting Treatment for the Sale of Type 2 Diabetes Royalties and Milestones to PDL."

Cash and marketable securities were $223.7 million as of June 30, 2014 as compared to $213.1 million as of March 31, 2014. The increase in cash and marketable securities in the second quarter of 2014 is primarily related to receipt of $15 million in milestone payments from Mallinckrodt during the second quarter of 2014.

2014 Financial Outlook

Depomed is increasing its guidance for total revenues and GAAP earnings per share  for full year 2014 and is reiterating its guidance for product sales, non-GAAP adjusted earnings per share and cash flow for  full year 2014:

  • Product sales of approximately $115 to $125 million
  • Total revenues of approximately $215 to $230 million, which includes non-cash revenues related to the PDL transaction and $15 million in milestones already received in 2014 from Mallinckrodt
  • GAAP earnings per share of approximately $0.36 to $0.51 per share, which includes the non-cash PDL revenues and non-cash PDL interest expense
  • Non-GAAP adjusted earnings per share of break-even to $0.16 per share
  • Cash flow of at least break-even excluding payment of approximately $58 million in taxes in the first quarter of 2014 related to fiscal year 2013

The increases in guidance regarding total revenues and GAAP earnings per share are entirely due to increased estimates of non-cash PDL royalty revenues resulting from net sales of Glumetza by Salix Pharmaceuticals during the first half of 2014.

Non-GAAP Financial Measures

In this press release, Depomed includes information about non-GAAP adjusted earnings per share, a non-GAAP financial measure, as a useful operating metric for the three and six month periods ended June 30, 2014 and its 2014 financial outlook. The Company believes that the presentation of this non-GAAP financial measure, when viewed with our results and projections under GAAP and the accompanying reconciliation, provides supplementary information to investors. The Company uses this non-GAAP measure in connection with its own planning and forecasting purposes and for measuring the Company's performance. This non-GAAP financial measure should be considered in addition to, and not a substitute for, or superior to, net income or other financial measures calculated in accordance with GAAP. Non-GAAP adjusted earnings per share for the three and six month periods ended June 30, 2014 and guidance for the year ending December 31, 2014 are not based on any standardized methodology prescribed by GAAP and represents GAAP earnings per share adjusted to exclude (1) non-cash PDL royalty revenue, net of related costs, (2) non-cash interest expense on the liability related to the sale of future royalties and milestones to PDL, (3) amortization related to product acquisitions, and (4) stock-based compensation expense, and to adjust (5) the income tax provision to reflect the estimated amounts payable in cash. Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, non-GAAP measures used by other companies. 

The following table reconciles the Company's non-GAAP adjusted income/(loss) to GAAP net income for the three and six months ended June 30, 2014:  

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EARNINGS/(LOSS)

(in thousands, except per share amounts)





Three Months Ended


June 30, 2014




GAAP net income

$

12,746

     Non-cash PDL royalties, net of related costs


(32,865)

           Non-cash interest expense on PDL liability


4,903

     Amortization related to product acquisitions


4,933

     Stock based compensation


2,299

     Non-cash income tax adjustment


8,300

Non-GAAP adjusted earnings

$

316

Non-GAAP adjusted earnings per share

$

0.01





Six Months Ended


June 30, 2014




GAAP net income

$

30,684

     Non-cash PDL royalties, net of related costs


(75,210)

           Non-cash interest expense on PDL liability


10,282

     Amortization related to product acquisitions


9,489

     Stock based compensation


4,170

     Non-cash income tax adjustment


20,128

Non-GAAP adjusted (loss)

$

(457)

Non-GAAP adjusted (loss) per share

$

(0.01)

 

The following table reconciles the Company's non-GAAP adjusted earnings per share guidance to GAAP earnings per share guidance for the year ending December 31, 2014:  







RECONCILIATION OF GAAP EARNINGS PER SHARE TO NON-GAAP ADJUSTED EARNINGS PER SHARE

GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2014




GAAP earnings per share

$

 0.36 - 0.51 

     Non-cash PDL royalties, net of related costs


 (1.26 - 1.46) 

           Non-cash interest expense on PDL liability


 0.29 - 0.33 

     Amortization related to product acquisitions


 0.27 - 0.29 

     Stock based compensation


 0.12 - 0.14 

     Non-cash income tax adjustment


 0.22 - 0.35 

Non-GAAP adjusted earnings per share

$

 0.00 - 0.16 

Conference Call

Depomed will host a conference call today, Wednesday, August 6th, beginning at 4:30 p.m. EDT (1:30 p.m. PDT) to discuss its results.  Participants can access the call by dialing 877-317-6789 (United States) or 412-317-6789 (international). The conference call will also be available via a live webcast on the investor relations section of Depomed's website at http://www.depomed.com.   Access the website 15 minutes prior to the start of the call to download and install any necessary audio software. An archived webcast replay will be available on the Company's website for three months.

About Depomed

Depomed is a specialty pharmaceutical company that commercializes products for pain and neurology related disorders.  Gralise® (gabapentin) is a once-daily treatment approved for the management of postherpetic neuralgia. CAMBIA® (diclofenac potassium for oral solution) is a non-steroidal anti-inflammatory drug indicated for acute treatment of migraine attacks with or without aura in adults (18 years of age or older). Zipsor® (diclofenac potassium) Liquid Filled Capsules is a non-steroidal anti-inflammatory drug indicated for relief of mild to moderate acute pain in adults.  Lazanda® (fentanyl) Nasal Spray is an intranasal fentanyl drug used to manage breakthrough pain in adults (18 years of age or older) who are already routinely taking other opioid pain medicines around-the-clock for cancer pain. Gralise and various partner product candidates are formulated with Depomed's proven, proprietary Acuform® drug delivery technology.   Additional information about Depomed may be found at www.depomed.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this release are forward-looking statements that involve risks and uncertainties including, but not limited to, those related to the commercialization of Gralise, CAMBIA, Zipsor and Lazanda, Depomed's financial outlook for 2014 and expectations regarding financial results and potential business opportunities and other risks detailed in the company's Securities and Exchange Commission filings, including the company's Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014. The inclusion of forward-looking statements should not be regarded as a representation that any of the company's plans or objectives will be achieved. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

INVESTOR CONTACT:
August J. Moretti
Depomed, Inc.
510-744-8000
[email protected]

MEDIA CONTACT:
Carolyn Hawley
Canale Communications for Depomed
619-849-5375
[email protected]

 

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (GAAP BASIS)

(in thousands, except share and per share amounts)

(Unaudited)
















Three Months Ended June 30,


Six Months Ended June 30,



2014


2013


2014


2013

Revenues:













Product sales 


$

28,245


$

14,106


$

49,751


$

23,235

Royalties 



430



15,097



925



29,178

License and other revenue 



5,760



760



17,520



3,724

Non-cash PDL royalty revenue



33,297



-



76,081



-

Total revenues 



67,732



29,963



144,277



56,137














Costs and expenses:













Cost of sales 



4,675



1,688



8,377



3,172

Research and development expense 



1,397



1,412



3,439



4,710

Selling, general and administrative expense



32,573



25,368



65,090



51,331

Amortization of intangible assets



2,542



963



5,081



1,924

Total costs and expenses 



41,187



29,431



81,987



61,137














Income (loss) from operations 



26,545



532



62,290



(5,000)

Other income (expense)



(596)



6



(1,196)



(41)

Non-cash interest expense on PDL liability



(4,903)



-



(10,282)



-

Benefit from (provision for) income taxes 



(8,300)



(60)



(20,128)



39

Net income (loss)


$

12,746


$

478


$

30,684


$

(5,002)














Basic net income (loss) per share 


$

0.22


$

0.01


$

0.53


$

(0.09)

Diluted net income (loss) per  share 


$

0.21


$

0.01


$

0.51


$

(0.09)














Basic shares



58,105,902



56,562,433



57,827,430



56,511,911

Diluted shares



60,430,456



57,142,343



60,258,445



56,511,911

 







CONSOLIDATED CONDENSED BALANCE SHEETS (GAAP BASIS)

(in thousands)








June 30,


December 31,


2014


2013


(Unaudited)



(1)







Cash, cash equivalents and marketable securities

$

223,699


$

276,017

Accounts receivable


17,274



11,451

Receivables from collaborative partners


35,635



10,824

Inventories


7,782



10,145

Property and equipment, net


7,731



8,340

Intangible assets, net


77,440



82,521

Deferred tax assets


79,173



103,202

Prepaid and other assets


7,373



6,153

Total assets

$

458,480


$

508,653







Accounts payable and accrued liabilities

$

44,274


$

34,935

Income taxes payable


-



61,875

      Deferred license revenue


13,995



15,516

      Liability related to sale of future royalties and milestones to PDL


194,938



233,981

Other liabilities


13,752



13,666

Contingent consideration liability


12,195



11,264

Shareholders' equity


179,326



137,416

Total liabilities and shareholders' equity 

$

458,480


$

508,653

(1)  Derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

SOURCE Depomed, Inc.

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