SOURCE: Endo Pharmaceuticals

November 01, 2007 07:00 ET

Endo Pharmaceuticals Reports Third Quarter 2007 Financial Results

Results Include Record Quarterly and Nine-Months Net Sales

CHADDS FORD, PA--(Marketwire - November 1, 2007) - Endo Pharmaceuticals Holdings Inc. (NASDAQ: ENDP), a specialty pharmaceutical company with market leadership in pain management, today reported financial results for the three months and nine months ended September 30, 2007.

Net sales for the third quarter of 2007 grew by 24% to a record $269.5 million compared with $217.1 million in the third quarter of 2006. Net income for the three months ended September 30, 2007 was $59.1 million compared with $44.9 million in the same period of 2006. As detailed in the Supplemental Financial Information below, adjusted net income for the three months ended September 30, 2007 was $61.6 million compared with $47.2 million in the same period in 2006.

Diluted earnings per share for the three months ended September 30, 2007 were $0.44 compared with $0.33 in the comparable 2006 period. As detailed in the Supplemental Financial Information below, adjusted diluted earnings per share for the three months ended September 30, 2007 were $0.46 compared with $0.35 in the same period in 2006, an increase of 31%.

"This excellent quarterly performance is indicative of the strength of our business," said Peter A. Lankau, President and Chief Executive Officer. "Underlying demand remains strong for LIDODERM®, the OPANA® franchise, and FROVA®, and we continue to implement key initiatives aimed at delivering long-term shareholder value." Lankau also noted that, consistent with its goal of becoming THE leading pain company, Endo is continuing to focus its business development activities on product licensing and acquisitions to deepen its penetration in pain management while seeking to diversify its revenue base in the near-term through company acquisitions in selected specialty-focused therapeutic areas.

Revised EPS Guidance

Based primarily on lower-than-expected SG&A costs associated with pre-launch marketing and promotional initiatives for FROVA following the disclosure on September 30, 2007 that the U.S. Food and Drug Administration had issued a "not approvable" letter in response to Endo's supplemental New Drug Application (sNDA) for FROVA for the short-term prevention of menstrual migraine, the company is increasing its earnings per share guidance for 2007. The company estimates adjusted diluted earnings per share (excluding estimated milestone payments to partners and the expensing of stock-based compensation charges) for 2007 to be approximately $1.79 to $1.84, up from the prior adjusted diluted EPS guidance of $1.75 to $1.80. Endo also reiterated its 2007 net sales guidance of approximately $1.050 billion to $1.075 billion, which includes estimated net sales of LIDODERM of approximately $685 million to $710 million and estimated combined net sales of the OPANA® franchise of approximately $90 million to $110 million.

Comparative Year-to-Date Results

For the first nine months of 2007, Endo's net sales were a record $781.0 million, a 20% increase from $650.2 million in the comparable 2006 period. Net income for the nine months ended September 30, 2007 was $176.8 million compared with $123.1 million in the comparable 2006 period. As detailed in the Supplemental Financial Information below, adjusted net income for the nine months ended September 30, 2007 was $188.5 million compared with $164.0 million in the same period in 2006.

Diluted earnings per share for the nine months ended September 30, 2007 were $1.31 compared with $0.92 in the same period in 2006. As detailed in the Supplemental Financial Information below, adjusted earnings per share for the nine months ended September 30, 2007 were $1.40 per diluted share versus $1.22 in the comparable 2006 period.

Pipeline Update

Endo also provided the following update regarding its Research & Development pipeline:

FROVA. As mentioned above, the FDA on September 28th issued a not approvable letter to Endo and its development partner Vernalis plc for FROVA in the short-term prevention of menstrual migraine, questioning whether the benefit demonstrated in two statistically significant Phase III efficacy and safety trials was clinically meaningful. The agency also expressed concern about the potential for increased risk of serious vascular adverse events, though none were observed in the clinical development program. The companies are continuing to evaluate the points raised in the not approvable letter and are seeking a meeting with the FDA to review in detail the agency's concerns and determine what kind of information is needed before deciding on the appropriate course of action.

RAPINYL™. The company announced that, due to the continued challenge of recruiting cancer patients in its Phase III placebo-controlled efficacy trial of this sublingual fentanyl tablet being studied for the treatment of breakthrough cancer pain, it has decided that it will conduct an interim statistical analysis of this trial. This interim analysis will be conducted as soon as possible when a predetermined number of patients (based upon a power calculation) with evaluable data have completed the trial. The company will provide further updates when this analysis is completed.

Topical Ketoprofen Patch. Endo also disclosed it has achieved positive results for a four-week, double-blind, placebo-controlled efficacy trial evaluating this once-daily analgesic patch in 309 patients with osteoarthritis flare of the knee. This trial represented the first part of a three-month safety study of the product (the final two months of the study were an open-label extension). The double-blind, placebo-controlled portion of the study met its predetermined primary objective: statistically significant difference from placebo at day 14 in the WOMAC(1) pain sub-scale (p=0.014). Significant treatment differences were observed at all measurement points in this parameter during the double-blind phase. Secondary outcomes, including physician global assessment of study medication and KOOS(2) sub-scales (pain, symptoms and function), also demonstrated statistically significant differences from placebo. Pain relief was sustained throughout the open-label phase.

The topical ketoprofen patch was generally safe and well tolerated for up to three months when applied to the knee area in patients with osteoarthritis. The most frequently reported adverse event during both phases of the study was application site reaction, generally mild, which occurred in 26.3% of ketoprofen patch-treated patients during the double-blind portion of the study (vs. 20.4% of placebo-treated patients) and 34.4% of patients during the open-label portion of the study, when all patients used the ketoprofen patch.

As Endo previously disclosed, two earlier Phase III double-blind, placebo-controlled clinical trials in patients with ankle sprains and strains and in patients with tendonitis or bursitis of the shoulder, elbow or knee did not meet their primary endpoints. The company continues to evaluate and analyze these results, which may have been due to such factors as insufficient severity of pain on entry into the studies and the use of ibuprofen as rescue medication. A third Phase III study, evaluating the ketoprofen patch in the treatment of pain associated with tendonitis or bursitis of the shoulder, elbow or knee, has been amended based on the above findings and is ongoing.

The positive outcome observed in the efficacy portion of the OA long-term safety study of the ketoprofen patch provides further information that could contribute to the design of additional clinical trials, and the company intends to request a meeting with the FDA to discuss its clinical development plans for this product. "We believe the topical ketoprofen patch is an effective treatment that could potentially offer significant advantages for patients with soft-tissue injuries and osteoarthritis, and we remain hopeful in its future prospects," said David A. Lee, M.D., Ph.D., Chief Scientific Officer.

EN 3285. Endo announced that it will initiate the first of two Phase III clinical studies in the fourth quarter of 2007 for EN 3285, a topical oral-rinse in development for the prevention or delay of severe oral mucositis (OM), painful mouth sores that often occur in cancer patients undergoing radiation and chemotherapeutic treatment. Endo has agreed to the trial design with FDA under the Special Protocol Assessment (SPA) process. Under the terms of the SPA, Endo will initiate a multicenter, double-blind, placebo-controlled trial in approximately 240 OM patients undergoing chemoradiation therapy for head and neck cancer. The primary endpoint will be total radiation dose to onset of severe OM (NCI grade > 2) over the cumulative dose range 0 - 50 Gy(3). A second Phase III study is expected to begin during the first half of 2008. The FDA will require two Phase III, double-blind, placebo-controlled trials as the basis for an NDA for this indication. As such, the company is currently projecting a 2010 NDA filing date for this product but may provide future updates depending upon the pace of patient enrollment in the clinical trials.

Use of Non-GAAP Measures -- Adjusted Net Income and Adjusted Diluted Earnings per Share:

Adjusted Net Income and Adjusted Diluted Earnings per Share are non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with accounting principles generally accepted in the United States and may be different from non-GAAP financial measures used by other companies. Endo refers to these non-GAAP financial measures in making operating decisions because it believes they provide meaningful supplemental information regarding the company's operational performance. For instance, Endo believes that these non-GAAP financial measures facilitate its internal comparisons to its historical operating results and comparisons to competitors' results. The company includes these non-GAAP financial measures in its earnings announcements because it believes they are useful to investors in allowing for greater transparency related to supplemental information used by Endo in its financial and operational decision-making. In addition, Endo has historically reported similar non-GAAP financial measures to its investors and believes that the inclusion of comparative numbers provides consistency in its financial reporting at this time. Further, Endo believes that these non-GAAP financial measures may be useful to investors as it is aware that certain of its significant stockholders utilize these measures to evaluate its financial performance. Finally, these measures are considered by the Compensation Committee of Endo's Board of Directors in assessing the performance and compensation of substantially all of its employees, including its executive officers. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this earnings announcement to their most directly comparable GAAP financial measures as provided with the financial statements included in this press release.

Supplemental Financial Information

A reconciliation of net income as determined by GAAP to adjusted net income for the three months ended September 30, 2007 and September 30, 2006 is as follows:

                                                       (Unaudited)
                                                       Three Months
                                                           Ended
                                                        September 30,
                                                  -------------------------
                                                      2007         2006
                                                  ------------ ------------
                                                       (in thousands,
                                                   except per share data)

GAAP net income                                   $     59,147 $     44,891
  Add: Income tax                                       30,924       27,737
                                                  ------------ ------------
GAAP income before income tax                           90,071       72,628
  Add: Upfront and milestone payments to partners          439            -
  Add: Stock compensation expense related to
   SFAS 123R                                             3,707        3,801

Adjusted income before income tax                       94,217       76,429
  Pro forma income tax                                  32,582       29,191
                                                  ------------ ------------
Adjusted net income                               $     61,635 $     47,238
                                                  ============ ============

Diluted weighted average shares outstanding            134,621      134,231

Adjusted diluted earnings per share               $       0.46 $       0.35
                                                  ============ ============

A reconciliation of net income as determined by GAAP to adjusted net income for the nine months ended September 30, 2007 and September 30, 2006 is as follows:

                                                        (Unaudited)
                                                        Nine Months
                                                           Ended
                                                        September 30,
                                                  -------------------------
                                                      2007         2006
                                                  ------------ ------------
                                                       (in thousands,
                                                   except per share data)

GAAP net income                                   $    176,842 $    123,065
  Add: Income tax                                       97,793       76,037
                                                  ------------ ------------
GAAP income before income tax                          274,635      199,102
  Add: Compensation expense and related
   employer payroll taxes to be funded by Endo
   Pharma LLC                                                -       42,385
  Add: Upfront and milestone payments to partners        8,070       10,400
  Add: Stock compensation expense related to
   SFAS 123R                                            10,940        9,337
Adjusted income before income tax                      293,645      261,224
  Pro forma income tax                                 105,154       97,178
                                                  ------------ ------------
Adjusted net income                               $    188,491 $    164,046
                                                  ============ ============

Diluted weighted average shares outstanding            134,566      134,060

Adjusted diluted earnings per share               $       1.40 $       1.22
                                                  ============ ============

Product Review

LIDODERM. For the quarter ended September 30, 2007, net sales of LIDODERM were $174.3 million compared with $127.4 million in the same period in 2006. For the first nine months of 2007, net sales of LIDODERM were $496.9 million compared with $393.3 million in the same period a year ago. Prescription growth for LIDODERM was up 13% and dispensed unit growth was up 14% in the third quarter of 2007 versus the same 2006 period. Prescription growth for LIDODERM was up 15% and dispensed unit growth was up 17% for the nine months ended September 30, 2007 over the comparable 2006 period. The company estimates that prescription demand for LIDODERM in the third quarter of 2007 was approximately $188.5 million.

OPANA ER and OPANA. Combined net sales for the OPANA franchise were $24.0 million for the third quarter of 2007 and were $78.3 million for the first nine months of 2007. The year-to-date results include the recognition of $13.8 million in deferred revenue for commercial shipments of OPANA ER and OPANA made to customers in 2006. Endo estimates that prescription demand for OPANA ER and OPANA in the third quarter was approximately $20.4 million.

FROVA. Net sales of FROVA were $13.5 million and $38.4 million for the three and nine months ended September 30, 2007, respectively. This compares with $9.1 million and $29.1 million in the respective year-ago periods. Prescription growth was up 15% for the quarter and 11% for the year to date in 2007 versus the comparable 2006 periods. The company estimates that prescription demand for FROVA in the third quarter of 2007 was approximately $12.8 million.

PERCOCET®. Net sales of PERCOCET were $31.6 million for the three months ended September 30, 2007 versus $25.3 million in the same period in 2006. Net sales of PERCOCET were $91.2 million for the nine months ended September 30, 2007 compared with $74.9 million in the same period in 2006. The company estimates that prescription demand for PERCOCET in the 2007 third quarter was approximately $28.2 million.

Generic products. Net sales from the company's generic products in 2007 were $23.3 million in the third quarter and $68.4 million for the nine months compared with $52.6 million and $142.1 million in the respective periods of 2006. The year-ago results included net sales of the company's extended-release oxycodone tablets of $19.0 million in the third quarter and $43.3 million during the first nine months. Endo ceased selling this product as of December 31, 2006. The quarterly and year-to-date decreases in 2007 are also due to increased generic competition with the company's morphine sulfate extended-release tablets. Endo expects competition to continue to adversely affect its market share and the price of both ENDOCET® and its morphine sulfate extended-release tablets.

Note to Investors

Endo will conduct a conference call with financial analysts to discuss this news release today at 11:00 a.m. ET. Investors and other interested parties may access the conference call by dialing (888) 713-4216 (domestic), (617) 213-4868 (international), passcode 61517458. Please dial in 10 minutes prior to the scheduled start time. A replay of the call will be available from November 1, 2007 at 1:00 p.m. ET by dialing (888) 286-8010 (domestic) or (617) 801-6888 (international), passcode 32593761, and will run until 12:00 a.m. ET on November 8, 2007.

A simultaneous webcast of the call for interested investors and others may be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available until 12:00 a.m. ET on November 8, 2007. The replay can be accessed by clicking on "Events" in the Investor Relations section of the website.

About Endo

Endo Pharmaceuticals Holdings Inc. is a fully integrated specialty pharmaceutical company with market leadership in pain management products. Through its Endo Pharmaceuticals Inc. subsidiary, the company researches, develops, produces and markets a broad product offering of both branded and generic pharmaceuticals, meeting the needs of healthcare professionals and consumers alike. More information, including this and past press releases of Endo Pharmaceuticals Holdings Inc., is available online at www.endo.com.

Forward-Looking Statements

This press release contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management's beliefs and assumptions, current expectations, estimates and projections. Statements that are not historical facts, including statements which are preceded by, followed by, or that include, the words "believes," "anticipates," "plans," "expects" or similar expressions and statements are forward-looking statements. Endo's estimated or anticipated future results, product performance or other non-historical facts are forward-looking and reflect Endo's current perspective on existing trends and information. Many of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict. These statements are subject to risks and uncertainties and, therefore, actual results may differ materially from those expressed or implied by these forward-looking statements. The reader should not rely on any forward-looking statement. The Company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Several important factors, in addition to the specific factors discussed in connection with these forward-looking statements individually, could affect the future results of Endo and could cause those results to differ materially from those expressed in the forward-looking statements contained in this press release. Important factors that may affect future results include, but are not limited to: market acceptance of the Company's products and the impact of competitive products and pricing; dependence on sole source suppliers; the success of the Company's product development activities and the timeliness with which regulatory authorizations and product launches may be achieved; successful compliance with extensive, costly, complex and evolving governmental regulations and restrictions; the availability on commercially reasonable terms of raw materials and other third party manufactured products; exposure to product liability and other lawsuits and contingencies; dependence on third party suppliers, distributors and collaboration partners; the ability to timely and cost effectively integrate acquisitions; uncertainty associated with pre-clinical studies and clinical trials and regulatory approval; uncertainty of market acceptance of new products; the difficulty of predicting FDA approvals; risks with respect to technology and product development; the effect of competing products and prices; uncertainties regarding intellectual property protection; uncertainties as to the outcome of litigation; a determination by a regulatory agency that we are engaging in inappropriate sales or marketing activities, including promoting the "off-label" use of our products; changes in operating results; impact of competitive products and pricing; product development; changes in laws and regulations; customer demand; possible future litigation; availability of future financing and reimbursement policies of government and private health insurers and others; and other risks and uncertainties detailed in Endo's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K filed with the SEC on March 1, 2007. Readers should evaluate any statement in light of these important factors.

(1) Western Ontario and McMaster University Osteoarthritis Index (WOMAC), considered the leading outcome measure for patients with osteoarthritis of the lower extremity

(2) Knee Injury and Osteoarthritis Outcome Score (KOOS)

(3) Unit of absorbed radiation

The following tables present Endo's unaudited net sales for the three months and nine months ended September 30, 2007 and September 30, 2006:

                 Endo Pharmaceuticals Holdings Inc.
                       Net Sales (unaudited)
                          (in thousands)


                                                  Three Months Ended
                                                     September 30,
                                               --------------------------
                                                   2007          2006
                                               ------------  ------------
    LIDODERM                                   $    174,326  $    127,390
    PERCOCET                                         31,644        25,264
    OPANA ER AND OPANA                               23,998             -
    FROVA                                            13,465         9,090
    Other Brands                                      2,707         2,742
                                               ------------  ------------
    Total Brands                               $    246,140  $    164,486
                                               ============  ============

    Oxycodone ER                               $          -  $     18,971
    Other Generics                                   23,330        33,668
                                               ------------  ------------
    Total Generics                             $     23,330  $     52,639
                                               ============  ============

       Total Net Sales                         $    269,470  $    217,125
                                               ============  ============




                 Endo Pharmaceuticals Holdings Inc.
                       Net Sales (unaudited)
                          (in thousands)


                                                   Nine Months Ended
                                                      September 30,
                                               --------------------------
                                                   2007          2006
                                               ------------  ------------
    LIDODERM                                   $    496,926  $    393,284
    PERCOCET                                         91,183        74,901
    OPANA ER AND OPANA                               78,274             -
    FROVA                                            38,365        29,108
    Other Brands                                      7,837        10,838
                                               ------------  ------------
    Total Brands                               $    712,585  $    508,131
                                               ============  ============

    Oxycodone ER                               $          -  $     43,263
    Other Generics                                   68,441        98,794
                                               ------------  ------------
    Total Generics                             $     68,441  $    142,057
                                               ============  ============

       Total Net Sales                         $    781,026  $    650,188
                                               ============  ============

The following table presents Endo's consolidated statements of operations for the three months and nine months ended September 30, 2007 and September 30, 2006:

                 Endo Pharmaceuticals Holdings Inc.
          Consolidated Statements of Operations (unaudited)
               (in thousands, except per share data)


                                        Three Months        Nine Months
                                           Ended               Ended
                                        September 30,       September 30,

                                       2007      2006      2007      2006
                                    --------- --------- --------- ---------
  NET SALES                         $ 269,470 $ 217,125 $ 781,026 $ 650,188
  COST OF SALES                        49,779    44,406   151,634   143,551
                                    --------- --------- --------- ---------
  GROSS PROFIT                        219,691   172,719   629,392   506,637
  COSTS AND EXPENSES:
    Selling, general and
     administrative                   107,399    87,850   287,205   252,281
    Research and development           26,886    14,456    79,571    59,382
    Depreciation and amortization       5,068     4,636    12,996    12,944
                                    --------- --------- --------- ---------
  OPERATING INCOME                     80,338    65,777   249,620   182,030
  INTEREST INCOME, Net                  9,733     6,851    25,015    17,072
                                    --------- --------- --------- ---------
  INCOME BEFORE INCOME TAX             90,071    72,628   274,635   199,102
  INCOME TAX                           30,924    27,737    97,793    76,037
                                    --------- --------- --------- ---------
  NET INCOME                        $  59,147 $  44,891 $ 176,842 $ 123,065
                                    ========= ========= ========= =========

  NET INCOME PER SHARE:

  Basic                             $    0.44 $    0.34 $    1.32 $    0.92
  Diluted                           $    0.44 $    0.33 $    1.31 $    0.92

  WEIGHTED AVERAGE SHARES:

  Basic                               133,915   133,270   133,835   133,067
  Diluted                             134,611   134,147   134,491   133,961

The following table presents the Endo's unaudited condensed consolidated balance sheet data at September 30, 2007 and December 31, 2006:

                 Endo Pharmaceuticals Holdings Inc.
         Condensed Consolidated Balance Sheet Data (unaudited)
                            (in thousands)


                                               September 30,  December  31,
                                                   2007           2006
                                              -------------- --------------
  ASSETS
      Cash and cash equivalents               $      274,884 $      628,085
      Marketable securities                          608,000             --
      Accounts receivable, net                       214,252        279,159
      Inventories, net                                74,509         62,129
      Other current assets                            64,630         66,641
                                              -------------- --------------

        Total current assets                       1,236,275      1,036,014
   Property and equipment, net                        44,783         36,565
   Goodwill                                          181,079        181,079
   Other intangibles, net                             73,390         78,046
   Note receivable                                    50,016         52,872
   Other assets                                       18,429         12,113
                                              -------------- --------------
   TOTAL ASSETS                               $    1,603,972 $    1,396,689
                                              ============== ==============

   LIABILITIES AND STOCKHOLDERS’ EQUITY
   Due to Endo Pharma LLC                     $       19,323 $       38,693
   Other current liabilities                         328,613        299,406
                                              -------------- --------------
       Total current liabilities                     347,936        338,099

  Other liabilities                                   18,886         17,602

  Total stockholders’ equity                       1,237,150      1,040,988
                                              -------------- --------------

  TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $    1,603,972 $    1,396,689
                                              ============== ==============

The following table presents condensed consolidated cash flow data for the nine months ended September 30, 2007 and September 30, 2006:

                 Endo Pharmaceuticals Holdings Inc.
          Condensed Consolidated Cash Flow Data (unaudited)
                          (in thousands)


                                                   Nine Months Ended
                                                     September 30,
                                              --------------------------
                                                  2007          2006
                                              ------------  ------------

Net cash provided by operating activities     $    287,431  $    275,543
Net cash used in investing activities             (630,624)      (41,688)
Net cash used in financing activities              (10,008)      (60,161)
                                              ------------  ------------
Net (decrease) / increase in cash and cash
 equivalents                                  $   (353,201) $    173,694

Cash and cash equivalents, beginning of
 period                                       $    628,085  $    500,956
                                              ------------  ------------
Cash and cash equivalents, end of period      $    274,884  $    674,650
                                              ============  ============

Net Cash Used in Financing Activities

During the nine months ended September 30, 2007, net cash used in financing activities included a $20.0 million payment to Endo Pharma LLC. Endo Pharma LLC is a limited liability company that is no longer affiliated with the Company, but had historically held significant portions of Endo common stock, in which affiliates of Kelso & Company and certain current and former members of management have an interest. This payment was made pursuant to the tax-sharing agreement between the company and Endo Pharma LLC. This agreement requires the company, under certain circumstances, to pay Endo Pharma LLC the amount of the tax benefits that are usable by the company as a result of the exercise of stock options granted pursuant to the Endo Pharma LLC Stock Option Plans, which stock options are exercisable only into shares of Endo common stock held by Endo Pharma LLC and, accordingly, do not dilute the ownership of the company's public stockholders. The company has recorded a liability of $18.5 million as of September 30, 2007 related to exercises during 2006, which amount is expected to be paid in the fourth quarter of 2007 and another $0.8 million related to exercises during 2007 which, if used to reduce its 2007 income taxes, will be paid in 2008.