OSI Pharmaceuticals, Inc. Announces Third Quarter 2009 Financial Results

October 21, 2009 4:05 PM EDT

Total Revenues Increased 18% to $111 Million

Non-GAAP Net Income Increased 27% to $51 Million; GAAP Net Income $17.9 Million

Non-GAAP Earnings Per Share Increased 26.5% to $0.81; GAAP Earnings Per Share $0.30

MELVILLE, N.Y.--(BUSINESS WIRE)-- OSI Pharmaceuticals, Inc. (NASDAQ: OSIP) announced today its financial results for the Company's third quarter ended September 30, 2009. The Company reported total revenues from continuing operations of $111 million for the third quarter of 2009 compared to revenues of $95 million for the third quarter of 2008, an 18% increase over the prior year period. Total worldwide net sales of Tarceva for the three and nine months ended September 30, 2009, as reported to the Company by its collaborator Roche, were approximately $301 million and $870 million, respectively.

The Company reported net income from continuing operations of $17.9 million (or $0.30 per share) for the three months ended September 30, 2009, compared to $31.4 million (or $0.53 per share) for the three months ended September 30, 2008. 2009 is the first year of financial reporting in which OSI has shown a full tax provision on its earnings. Adjusting for non-cash tax expense (to reflect OSI's actual cash tax rate of approximately 3%), restructuring and other charges related to our consolidation of U.S. operations, expense related to equity-based compensation, non-cash interest expense on our convertible notes, and certain other items detailed in the attached reconciliation of GAAP to non-GAAP financial measures, the Company reported that non-GAAP net income from continuing operations increased 27% to $51 million from $40 million and non-GAAP earnings per share increased 26.5% to $0.81 from $0.64, for the three months ended September 30, 2009 and 2008, respectively.

Total revenues from continuing operations for the third quarter of 2009 are comprised of the following key items:

    --  Tarceva Related Revenues of $89 million for the third quarter of 2009
        compared to $81 million for the third quarter of 2008, based primarily
        on the following:
        o Net revenues from the unconsolidated joint business for Tarceva of $51
          million for the third quarter of 2009, compared to $46 million in the
          third quarter of 2008, arising from the Company's co-promotion
          arrangement with Genentech, a wholly-owned member of the Roche Group.
          The net revenues are based on total U.S. Tarceva sales of $118 million
          for the third quarter of 2009, compared to $110 million in the third
          quarter of 2008, as reported to OSI by Roche. Sales for the three
          months ended September 30, 2008 were negatively impacted by
          approximately $11 million of net reserve adjustments primarily due to
          higher than anticipated product returns related to expiring inventory,
          and sales for the three months ended September 30, 2009 were
          negatively impacted by a net reserve adjustment of approximately $2
          million.
        o Royalties on product licenses of $37 million for the third quarter of
          2009 compared to $34 million in the third quarter of 2008 from Roche
          for sales of Tarceva outside of the United States. Royalty revenues
          are based on total rest of world sales of $183 million for the third
          quarter of 2009. As disclosed by Roche, year to date growth in local
          currencies (excluding Japan) was approximately 16%, and was 30% in
          Japan, compared to the prior year.
    --  Other Revenues of $23 million for the third quarter of 2009 compared to
        $14 million in the third quarter of 2008, primarily based upon royalties
        related to worldwide non-exclusive licensing agreements under the
        Company's DP-IV patent portfolio covering the use of DP-IV inhibitors
        for treatment of type 2 diabetes. The three months ended September 30,
        2009 included a $5 million milestone payment related to a non-exclusive
        licensing agreement under the Company's DP-IV patent portfolio.

Operating Expenses

Operating expenses from continuing operations for the third quarter of 2009 were $71 million compared to $58 million for the same period last year. Research and development expenses for the third quarter of 2009 were $39 million compared to $33 million for the same period last year. The increase was primarily driven by higher clinical trial expense. The Company also recognized a $5 million in-process research and development charge related to its recently announced expansion of its drug discovery and translational research collaboration with AVEO Pharmaceuticals Inc. Selling, general and administrative expenses for the third quarter of 2009 were $25 million compared to $22 million for the same period last year. The Company also recognized restructuring costs of $1.1 million related to its previously announced plans to consolidate its U.S. operations onto a single campus at its recently acquired site in Ardsley, New York.

Taxes and Interest Expense

Beginning in 2009, the Company is required to report its tax provision at its full effective tax rate, which is estimated at approximately 39%. However, the Company expects to continue paying taxes at the lower alternative minimum tax rates as it continues to utilize its net operating loss carryforwards (NOLs). In addition to the 39% tax rate, the income tax provision for the three and nine months ended September 30, 2009 includes a $3.3 million charge related to a valuation reserve adjustment as a result of consolidating operations into a single site. The results also reflect the retrospective application of Accounting Standards Codification Subtopic 470-20 which includes guidance for convertible debt instruments that may be settled in cash upon conversion, resulting in higher interest expense reported in both 2009 and 2008.

Net Income Including Discontinued Operations

The Company's net income including results from discontinued operations was $17.6 million (or $0.30 per share) for the third quarter of 2009 compared with a net income of $51.6 million (or $0.87 per share) for the same period last year.

Use of Non- GAAP Financial Measures

The accompanying tables contain both GAAP and non-GAAP financial measures for the periods presented. The non-GAAP measures include adjusted net income from continuing operations and adjusted earnings per share from continuing operations, each of which has directly comparable GAAP equivalents. OSI has provided these non-GAAP financial measures to adjust for the impact of (i) equity-based compensation expense, (ii) imputed interest expense related to the application of Accounting Standards Codification Subtopic 470-20, which provides guidance for bifurcation of the conversion feature from the debt component of convertible debt instruments that may be settled in cash upon conversion, (iii) amortization of acquired intangible assets, (iv) non-cash tax expense to adjust OSI's effective tax rate of approximately 39% to reflect its actual cash tax rate of approximately 3%, (v) acquired in-process research and development and (vi) restructuring and other costs related to consolidation of the Company's operations onto a single campus. These items have been adjusted because they are either non-cash, non-recurring or not otherwise considered to be core to OSI's business. Management uses these non-GAAP financial measures internally to evaluate the performance of the business, including the allocation of resources as well as the planning and forecasting of future periods, and believes that these results are useful to others in analyzing the core operating performance and trends of OSI for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP and therefore are not necessarily comparable to the financial results of other companies. These non-GAAP measures should be considered as a supplement to, not a substitute for, or superior to, the corresponding financial measures calculated in accordance with GAAP.

Conference Call

OSI will host a conference call reviewing the Company's financial results, product portfolio and business developments on October 21, 2009 at 5:00PM (Eastern Time). To access the live webcast or the archive via the Internet, log on to www.osip.com. Please connect to the Company's website at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be needed to access the webcast. Alternatively, please call 1-888-401-4689 (U.S.) or 1-719-457-2698 (international) to listen to the call. The conference ID number for the live call is 9702946. Telephone replay is available approximately two hours after the call. To access the replay, please call 1-888-203-1112 (U.S.) or 1-719-457-0820 (international). The conference ID number is 9702946.

About OSI Pharmaceuticals

OSI Pharmaceuticals is committed to "shaping medicine and changing lives" by discovering, developing and commercializing high-quality, novel and differentiated targeted medicines designed to extend life and improve the quality of life for patients with cancer and diabetes/obesity. For additional information about OSI, please visit http://www.osip.com.

This news release contains forward-looking statements. These statements are subject to known and unknown risks and uncertainties that may cause actual future experience and results to differ materially from the statements made. Factors that might cause such a difference include, among others, OSI's and its collaborators' abilities to effectively market and sell Tarceva and to expand the approved indications for Tarceva, OSI's ability to protect its intellectual property rights, safety concerns regarding Tarceva, competition to Tarceva and OSI's drug candidates from other biotechnology and pharmaceutical companies, the completion of clinical trials, the effects of FDA and other governmental regulation, including pricing controls, OSI's ability to successfully develop and commercialize drug candidates, and other factors described in OSI Pharmaceuticals' filings with the Securities and Exchange Commission.

OSI Pharmaceuticals, Inc. and Subsidiaries

Selected Financial Information

Consolidated                                       Nine Months Ended September
Statements of    Three Months Ended September 30,  30,
Operations

(In thousands,
except per       2009           2008*              2009         2008*
share data)

                 Unaudited      Unaudited          Unaudited    Unaudited

Revenues:

Tarceva-related  $ 88,735       $ 80,708           $ 257,914    $ 251,006
revenues

Other revenues     22,712         13,864             46,276       29,955

Total revenues     111,447        94,572             304,190      280,961

Operating
expenses:

Cost of goods      1,607          2,517              6,460        6,748
sold

Research and       38,546         33,054             111,129      94,009
development

Acquired
in-process         5,000          -                  5,000        -
research and
development

Selling,
general and        24,677         22,262             74,065       69,985
administrative

Restructuring      1,148          -                  1,148        -
costs

Amortization of    229            646                693          1,884
intangibles

Total operating    71,207         58,479             198,495      172,626
expenses

Income from
continuing         40,240         36,093             105,695      108,335
operations

Other income
(expense):

Investment         1,624          2,976              5,795        9,670
income - net

Interest           (6,534  )      (6,202  )          (19,319 )    (18,696 )
expense

Other income       (184    )      (518    )          (2,906  )    (2,424  )
(expense) - net

Income from
continuing
operations         35,146         32,349             89,265       96,885
before income
taxes

Income tax         17,282         987                38,389       2,761
provision

Net income from
continuing         17,864         31,362             50,876       94,124
operations

Income (loss)
from               (298    )      20,281             (379    )    5,936
discontinued
operations

Net income       $ 17,566       $ 51,643           $ 50,497     $ 100,060

Basic and
diluted income
(loss) per
common share:

Basic income
(loss)

Continuing       $ 0.31         $ 0.55             $ 0.88       $ 1.65
operations

Discontinued       (0.01   )      0.35               (0.01   )    0.10
operations

Net income       $ 0.30         $ 0.90             $ 0.87       $ 1.75

Diluted income
(loss)

Continuing       $ 0.30         $ 0.53             $ 0.87       $ 1.62
operations

Discontinued       (0.00   )      0.33               (0.01   )    0.10
operations

Net income       $ 0.30         $ 0.87             $ 0.86       $ 1.71

Weighted
average shares
of common stock
outstanding:

Basic shares       57,973         57,437             57,900       57,218

Diluted shares     60,510         60,663             60,492       60,447

Computation of
diluted income
per share from
continuing
operations:

Net income from
continuing       $ 17,864       $ 31,362           $ 50,876     $ 94,124
operations

Add: Interest
and issuance
costs related      495            910                1,486        3,557
to dilutive
convertible
debt

Net income from
continuing       $ 18,359       $ 32,272           $ 52,362     $ 97,681
operations -
diluted

Basic shares       57,973         57,437             57,900       57,218

Dilutive effect
of options and     539            1,227              594          821
restricted
stock

Dilutive effect
of the 2023        1,998          1,999              1,998        2,408
Notes

Dilutive effect
of the 2025        -              -                  -            -
Notes

Dilutive effect
of the 2038        -              -                  -            -
Notes

Diluted shares     60,510         60,663             60,492       60,447

                 September 30,  December 31,

                 2009           2008

                 Unaudited

Cash and
investments
securities       $ 542,068      $ 515,511
(including
restricted
investments)

* The three and nine months ended September 30, 2008 reflect the retrospective
application of ASC subtopic 470-20 which includes the accounting guidance
formerly known as FSP APB 14-1.

OSI Pharmaceuticals, Inc. and Subsidiaries

Reconciliation From Reported Net Income from Continuing Operations to
Non-GAAP Net Income from Continuing Operations and Reported Dilutive Income
Per Share to Non-GAAP Diluted Income Per Share

Unaudited

(In thousands, except per share data)

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

                2009        2008              2009         2008

Reported
diluted income
per common      $ 0.30      $ 0.53            $ 0.87       $ 1.62
share from
continuing
operations

Adjustments
per common        0.51        0.11              1.11         0.32
share

Non-GAAP
diluted income
per common      $ 0.81      $ 0.64            $ 1.98       $ 1.94
share from
continuing
operations

Net income
from            $ 17,864    $ 31,362          $ 50,876     $ 94,124
continuing
operations

Non-GAAP
Adjustments:

Site
consolidation
related cost:

Restructuring     1,148       -                 1,148        -
costs

Net operating
loss valuation    3,308       -                 3,308        -
allowance
adjustment*

Accelerated
depreciation      1,205       -                 1,205        -
on leasehold
improvements**

Total site
consolidation     5,661       -                 5,661        -
related costs

Equity-based
compensation      6,018       5,084             18,497       14,929
expense

Imputed
interest
related to the    3,594       3,184             10,490       9,302
application of
ASC 470***

Amortization
of acquired       229         646               693          1,884
intangibles

Non cash tax      13,060      -                 32,760       -
expense

Acquired
in-process        5,000       -                 5,000        -
research and
development

Income tax
effect on         (447   )    (247   )          (963    )    (723    )
adjustments

Non-GAAP net
income from     $ 50,979    $ 40,029          $ 123,014    $ 119,516
continuing
operations

Computation of
Non-GAAP
diluted income
per common
share from
continuing
operations:

Non-GAAP net
income from     $ 50,979    $ 40,029          $ 123,014    $ 119,516
continuing
operations

Add: Interest
and issuance
costs related     3,223       3,342             9,669        10,661
to dilutive
convertible
debt

Non-GAAP net
income from
continuing      $ 54,202    $ 43,371          $ 132,683    $ 130,177
operations -
diluted

Computation of
Non-GAAP
diluted
shares:

Basic shares      57,973      57,437            57,900       57,218

Adjustment to
dilutive
shares:

Dilutive
effect of
options and       539         1,227             594          821
restricted
stock

Dilutive
effect of the     1,998       1,999             1,998        2,408
2023 Notes

Dilutive
effect of the     3,908       3,908             3,908        3,908
2025 Notes

Dilutive
effect of the     2,709       2,709             2,709        2,628
2038 Notes

Non-GAAP
dilutive          67,127      67,280            67,109       66,983
shares

* Represents a valuation allowance adjustment included in the tax provision
for state and local net operating losses not expected to be realized as a
result of consolidating operations.

** Represents the impact of shortening the estimated useful life of leasehold
improvements as a result of our intention to exit certain facilities.

*** The Accounting Standards Codification subtopic 470-20 or ASC subtopic
470-20 includes the accounting guidance for literature formerly know as FSP
APB 14-1.

    Source: OSI Pharmaceuticals, Inc.

Related Categories

Press Releases

Stocks Mentioned

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?