ADVANZ PHARMA Corp. Announces Second Quarter 2019 Results

DVANZ PHARMA Corp. (“ADVANZ PHARMA” or “the Company”) (TSX:ADVZ), an international specialty pharmaceutical company focused on serving the needs of patients and healthcare providers around the world with enhanced access to high quality, niche-established medicines, today announced its financial and operational results for the three and six months ended June 30, 2019. All financial references are in U.S. dollars (“USD”) unless otherwise noted.

“The Company generated second quarter financial results that are consistent with management’s expectations,” said Graeme Duncan, Chief Executive Officer of ADVANZ PHARMA. “We also made important progress with respect to our pipeline and M&A development during the reporting period.”

Consolidated Second Quarter 2019 Financial and Operational Results

• Reported second quarter 2019 revenue of $131.1 million, compared to $139.5 million for the second quarter of 2018, and $135.6 million for the first quarter of 2019.
• Reported a net loss for the second quarter of 2019 of $44.3 million.
• Reported second quarter adjusted EBITDA¹ of $59.7 million, compared to $66.8 million for the second quarter of 2018, and $65.1 million for the first quarter of 2019.
• Generated cash flows from operating activities of $97.4 million in the first six months of 2019, compared to $83.9 million during the same period in 2018.
• As of June 30, 2019, the Company had a cash and cash equivalents balance of $224.3 million compared to $224.4 million as of December 31, 2018.
• On April 1, 2019, announced the acquisition of the global rights to two established medicines, Salagen® tablets (pilocarpine hydrochloride) (excluding Japan) and Panretin® gel (alitretinoin), from Eisai Inc. for $30 million in cash plus approximately $3.3 million for purchased inventory and related prepayments. The Company funded the transaction using cash on hand on April 15, 2019. Since the transaction closed, the two medicines have performed in line with management’s expectations.

Second Quarter 2019 Segment Results

International Segment

ADVANZ PHARMA International segment revenue of $95.5 million for the quarter ended June 30, 2019, decreased by $11.2 million, or 11%, compared to the corresponding period in 2018.

The decline consisted of a $5.7 million decrease in baseline revenue, which was further compounded by a $5.5 million decrease in revenue as a result of the British pound (GBP) weakening against the USD, when compared against the second quarter of 2018.

Declines to revenue attributable to key products during the quarter, excluding the impact of foreign currency translation, included a $2.2 million decrease from Carbimazole; a $2.1 million decrease from Liothyronine Sodium; a $1.8 million decrease from Nitrofurantoin; a $1.5 million decrease from Levothyroxine Sodium; and a $1.2 milliondecrease from Cyclizine Hydrochloride.

These lower product volumes and revenues are primarily due to ongoing competitive market pressures resulting in market share erosion in the U.K.

These declines to revenue were partially offset by $4.4 million increase in revenue from Fusidic Acid as a result of product volume increases.

The remaining decrease was primarily due to general competitive market pressures across the segment’s product portfolio.

North America Segment

ADVANZ PHARMA North America segment revenue of $35.6 million for the quarter ended June 30, 2019, increased by $2.8 million or 9%, compared to the corresponding period in 2018.

The increase was primarily due to a $2.6 million increase from Plaquenil® authorized generic due to the timing of shipments in 2019; a $1.0 million increase from recently acquired Salagen® and Panretin®  brands in the U.S.; and a $0.9 million increase in revenue from Photofrin® as a result of higher volumes.

These increases were partially offset by a $3.6 million decrease from Donnatal® as a result of competitive pressures that have resulted in a loss of market share.

Pipeline Update

The Company continued to make progress with respect to the evaluation and advancement of its pipeline of medicines.

In the second quarter of 2019, ADVANZ PHARMA submitted for approval, or received approval, for 17 medicines.

Going forward, the Company intends to expand its product portfolio in order to deliver mid-term value and long-term growth, through pipeline filling, optimization, licencing and development partnerships. These initiatives will be focussed on niche and differentiated generics, complex specialty and value-added medicines.

For 2019, the Company continues to believe that product launches from its pipeline will not generate a material amount of revenue.

Consolidated Financial Results

Consolidated Results of Operations

Revenue for the second quarter of 2019 and year to date decreased by $8.4 million, or  6%, and $25.0 million, or 9%, respectively, compared to the corresponding periods in 2018.

These decreases were primarily due to lower sales from the ADVANZ PHARMA International segment, combined with lower foreign exchange rates impacting translated revenues from the ADVANZ PHARMA International segment, partially offset by higher sales from the ADVANZ PHARMA North America segment.

Gross profit for the second quarter of 2019 and year to date decreased by $9.6 million, or 10%, and $19.6 million, or 10%, respectively, compared to the corresponding periods in 2018, primarily due to segment revenue declines.

Gross profit percentage for the second quarter of 2019 and year to date decreased by 3% and 1%, respectively, compared to the corresponding periods in 2018, primarily due to a change in the mix of product sales within both segments.

Operating expenses for the second quarter of 2019 and year to date decreased by $42.8 million, or 31%, and $69.5 million, or 28%, respectively, compared to the corresponding periods in 2018.

The decrease in operating expenses for the second quarter of 2019 is primarily due to $24.7 million lower restructuring related, acquisition and other costs mainly associated with the Company’s Recapitalization Transaction that was completed in 2018, $10.4 million lower amortization charges on intangible assets, and $7.9 million lower impairment charges.

Operating expenses were lower for the year to date compared to corresponding period in 2018, primarily due to $35.7 million lower restructuring related, acquisition and other costs mainly associated with the Company’s Recapitalization Transaction that was completed in 2018, $22.9 million lower amortization charges on intangible assets, and $7.9 million lower impairment charges.

General and administrative expenses reflect costs related to salaries and benefits, professional and consulting fees, public company costs, travel and other administrative expenditures. General and administrative expenses for the second quarter of 2019 and year to date decreased by $0.3 million, or 3%, and $2.3 million, or 11%, respectively, compared to the corresponding periods in 2018. The decrease year to date is primarily due to $1.6 million lower costs associated with lease payments recorded in general and administrative expenses as a result of the revised accounting for these costs due to the adoption of IFRS 16 on January 1, 2019, combined with favourable foreign exchange rate movements impacting translation of general and administrative expenses from ADVANZ PHARMA International. The decrease was partially offset by increased legal costs within ADVANZ PHARMA North America associated with claims brought against the non-FDA approved competitors of Donnatal®.

Selling and marketing expenses reflect costs incurred by the Company for the marketing, promotion and sale of its portfolio of products across its segments. Selling and marketing costs for the second quarter of 2019 and year to date decreased by $1.7 million, or 16%, and $3.3 million, or 16%, respectively, compared to the corresponding periods in 2018. The decreases are primarily as a result of lower costs associated with sales promotion and advertising activities, as well as reduced salaries and benefits costs.

Research and development expenses reflect costs for clinical trial activities, product development, professional and consulting fees and services associated with the activities of the medical, clinical and scientific affairs, quality assurance costs, regulatory compliance and drug safety costs (Pharmacovigilence) of the Company. Research and development costs for the second quarter of 2019 increased by $0.6 million, or 8%, compared to the corresponding period in 2018 primarily due to lower clinical trial costs, combined with favourable foreign exchange rate movements impacting translation of research and development costs from ADVANZ PHARMA International. Research and development costs for the year to date 2019, compared to the same period in 2018, were essentially flat.

Adjusted EBITDA for the second quarter of 2019 and year to date decreased by $7.0 million, or 11% and $14.0 million, or 10%, compared to the corresponding periods in 2018. These declines were primarily due to lower sales and gross profits from the ADVANZ PHARMA International segment, combined with lower foreign exchange rates impacting translated results. Adjusted EBITDA by segment for the second quarter of 2019 and year to date was $41.1 million and $87.9 million, respectively from ADVANZ PHARMA International and $21.8 million and $43.3 million from ADVANZ PHARMA North America.

In addition, during the second quarter of 2019 and year to date, the Company incurred $3.1 million, and $6.4 million, respectively, of corporate costs. Corporate expenses for the second quarter of 2019 and year to date increased by $0.5 million and decreased by $0.1 million, respectively, compared to the corresponding periods in 2018.

As of June 30, 2019, the Company had cash and cash equivalents of $224.3 million and 48,913,490 limited voting shares issued and outstanding.  – PR Newswire