Cephalon Reported Strong Financial Results for the First Quarter of 2011

May 3, 2011 Mergers & Acquisitions 0

Cephalon Reported Strong Financial Results for the First Quarter of 2011

First Quarter 2011 Sales Increased 28 Percent To $736 Million

Adjusted Net Income Increased 10 Percent To $158 Million

Board Concludes That Teva Pharmaceuticals Offer Maximizes Cephalon Shareholder Value

PR Newswire

FRAZER, Pa., May 3, 2011

FRAZER, Pa., May 3, 2011 /PRNewswire/ — Cephalon, Inc. (Nasdaq: CEPH) today reported first quarter 2011 net sales of $736.0 million, a 28 percent increase compared to net sales of $576.7 million for the first quarter of 2010. Basic income per common share for the period was $2.79. Excluding amortization expense and certain other items, adjusted net income for the first quarter of 2011 was $158.4 million, a 10 percent increase over the same period in 2010. Basic adjusted income per common share for the quarter was $2.09, a 9 percent increase over the $1.92 for the first quarter of 2010. Sales and earnings were within the previously announced guidance range.

Central nervous system (CNS) franchise net sales were $334.7 million during the quarter, a 7 percent increase compared to the same period last year. Pain franchise reported net sales of $130.5 million, a 13 percent increase versus first quarter 2010. Oncology franchise net sales were $149.1 million, a 35 percent increase over the same period last year due to strong net sales of TREANDA (bendamustine hydrochloride) of $117.7 million. Sales of other products increased to $121.6 million, from $38.3 million in 2010, primarily due to the addition of Mepha products sales.

During the first quarter 2011 Cephalon recorded net cash provided by operating activities of $147.8 million and ended the period with $1.16 billion of cash and cash equivalents.

On May 2, 2011 Cephalon announced the signing of a definitive agreement under which Teva Pharmaceutical Industries Ltd. will acquire all of the outstanding shares of Cephalon for $81.50 per share in cash.

“After analyzing a full range of strategic options our Board concluded that the Teva offer provides the maximum shareholder value for Cephalon shareholders,” said Kevin Buchi, Chief Executive Officer. “Based on these 2011 quarterly earnings, Cephalon is once again off to another very strong start. Given this performance, we expect that our full year earnings will meet or even exceed our previous guidance. However, due to our pending merger with Teva announced on Monday, we will no longer be providing 2011 guidance.”

About Cephalon, Inc.

Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life of individuals around the world. Since its inception in 1987, Cephalon has brought first-in-class and best-in-class medicines to patients in several therapeutic areas. Cephalon has the distinction of being one of the world’s fastest-growing biopharmaceutical companies, now among the Fortune 1000 and a member of the S&P 500 Index, employing approximately 4,000 people worldwide. The company sells numerous branded and generic products around the world. In total, Cephalon sells more than 150 products in approximately 100 countries. More information on Cephalon and its products is available at http://www.cephalon.com

In addition to historical facts or statements of current condition, this press release may contain forward-looking statements. Forward-looking statements provide Cephalon’s current expectations or forecasts of future events. These may include statements regarding Teva’s proposed acquisition of Cephalon; anticipated scientific progress on its research programs; development of potential pharmaceutical products; interpretation of clinical results; prospects for regulatory approval; manufacturing development and capabilities; market prospects for its products; and other statements regarding matters that are not historical facts. You may identify some of these forward-looking statements by the use of words in the statements such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” or other words and terms of similar meaning. Cephalon’s performance and financial results could differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the biotechnology and pharmaceutical industries as well as more specific risks and uncertainties facing Cephalon such as those set forth in its reports on Form 8-K, 10-Q and 10-K filed with the U.S. Securities and Exchange Commission. Given these risks and uncertainties, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements. Furthermore, Cephalon does not intend to update publicly any forward-looking statement, except as required by law. The Private Securities Litigation Reform Act of 1995 permits this discussion.

This press release and/or the financial results attached to this press release include “Adjusted Net Income,” “Basic Adjusted Income per Common Share,” “Adjusted Net Income Guidance,” “Basic Adjusted Income per Common Share Guidance,” and “Diluted Adjusted Income Per Common Share,” amounts that are considered “non-GAAP financial measures” under SEC rules. As required, we have provided reconciliations of these measures. Additional required information is located in the Form 8-K furnished to the SEC in connection with this press release.

Contacts:

Media:

Investors:

Fritz Bittenbender

Robert (Chip) Merritt

610-883-5855

610-738-6376

fbittenb@cephalon.com

cmerritt@cephalon.com

Natalie deVane

Joseph Marczely

610-727-6536

610-883-5894

ndevane@cephalon.com

jmarczely@cephalon.com

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended March 31,

2011

2010

REVENUES:

Net Sales

$ 736,002

$ 576,681

Other revenues

9,111

19,904

745,113

596,585

COSTS AND EXPENSES:

Cost of sales

157,983

105,043

Research and development

122,313

105,377

Selling, general and administrative

250,686

204,641

Change in fair value of contingent consideration

1,801

–

Restructuring charges

858

744

Acquired in-process research and development

30,000

–

Impairment and (gain) loss on sale of assets

5,648

–

569,289

415,805

INCOME FROM OPERATIONS

175,824

180,780

OTHER INCOME (EXPENSE):

Interest income

1,017

1,930

Interest expense

(24,207)

(26,791)

Change in fair value of investments

164,735

–

Other income (expense), net

(3,028)

(7,271)

138,517

(32,132)

INCOME BEFORE INCOME TAXES

314,341

148,648

INCOME TAX EXPENSE

102,731

48,311

NET INCOME

211,610

100,337

NET (INCOME) LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST

(522)

10,228

NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 211,088

$ 110,565

BASIC INCOME PER COMMON SHARE

$ 2.79

$ 1.47

DILUTED INCOME PER COMMON SHARE

$ 2.64

$ 1.35

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING ATTRIBUTABLE TO CEPHALON, INC.

75,743

74,990

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING-ASSUMING DILUTION

ATTRIBUTABLE TO CEPHALON, INC.

79,836

81,811

CEPHALON, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income

(Unaudited)

Three Months Ended

March 31,

2011

2010

GAAP NET INCOME ATTRIBUTABLE TO CEPHALON, INC.

$ 211,088

$ 110,565

Cost of sales adjustments

29,118

(1)

30,966

(1)

Research and development adjustments

–

359

(2)

Selling, general and administrative adjustments

930

(3)

2,277

(3)

Change in contingent consideration adjustments

1,801

(4)

–

Restructuring charges

858

(5)

744

(5)

Acquired in-process research and development

30,000

(6)

–

Impairment and (gain) loss on sale of assets

5,648

(7)

–

Interest expense

15,675

(8)

17,579

(8)

Change in fair value of investment

(164,735)

(9)

–

Other income (expense)

506

(10)

6,169

(10)

Income taxes

27,484

(11)

(24,673)

(11)

*Noncontrolling Interest adjustments:

Other revenues

–

(31)

Research and development

203

8,112

Selling, general and administrative

357

3,022

Other income (expense)

–

165

Interest income

–

(7)

Interest expense

299

157

Income taxes

–

(1,190)

Less amount attributable to noncontrolling interest

(859)

(10,228)

(52,715)

33,421

ADJUSTED NET INCOME

$ 158,373

$ 143,986

BASIC ADJUSTED INCOME PER COMMON SHARE

$ 2.09

$ 1.92

DILUTED ADJUSTED INCOME PER COMMON SHARE

$ 1.98

$ 1.76

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING

75,743

74,990

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES OUTSTANDING-ASSUMING DILUTION

79,836

81,811

Notes to Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income

*Amounts recorded by our Variable Interest Entities that have been excluded from net income attributable to Cephalon, Inc.

(1) To exclude the on-going amortization of acquired intangible assets ($29.1M in 2011; $25.8M in 2010) and accelerated depreciation related to restructuring ($5.2M in 2010).

(2) To exclude accelerated depreciation related to restructuring.

(3) To exclude charges related to the acquisition of Mepha GmbH ($0.7M in 2011; $2.3M in 2010), Mesoblast Limited
($0.1M in 2011) and GeminX Pharmaceuticals ($0.1M in 2011).

(4) In 2011, to exclude the change in fair value of the Ception Therapeutics, Inc. ($1.3M) and BioAssets Development Company ($0.5M) contingent consideration.

(5) To exclude costs related to restructurings.

(6) In 2011, to exclude costs related to the acquisition of worldwide license rights to Mesoblast Limited’s proprietary technology platform.

(7) In 2011, to exclude costs associated with our plan to sell our manufacturing facility in Mitry Mory, France ($6.1M), offset by a gain on the sale of our facility in Savigny le Temple, France ($0.4M).

(8) To exclude imputed interest expense associated with convertible debt.

(9) In 2011, to exclude the change in fair value of our investments in Mesoblast Limited ($159.6M) and ChemGenex Pharmaceuticals Limited ($5.1M).

(10) To exclude losses on currency forward contracts and options used to manage foreign exchange rate risk related to the Mesoblast acquisition in 2011 and the Mepha GmbH acquisition in 2010.

(11) To reflect the tax effect of pre-tax adjustments at the applicable tax rates and certain other tax adjustments primarily related to changes in valuation allowances, and other changes in tax assets and liabilities.

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED SALES DETAIL

(In thousands)

(Unaudited)

Three Months Ended

%

March 31,

Increase

2011

2010

(Decrease)

United States

Europe

Total

United States

Europe

Total

United States

Europe

Total

Sales:

CNS

Proprietary CNS

PROVIGIL

$ 243,343

$ 15,053

$ 258,396

$ 244,601

$ 17,850

$ 262,451

(1%)

(16%)

(2%)

NUVIGIL

52,032

–

52,032

34,922

–

34,922

49

–

49

GABITRIL

11,038

1,089

12,127

8,299

1,462

9,761

33

(26)

24

Other Proprietary CNS

–

2,353

2,353

–

3,006

3,006

–

(22)

(22)

Generic CNS

–

9,775

9,775

–

2,311

2,311

–

323

323

CNS

306,413

28,270

334,683

287,822

24,629

312,451

6

15

7

Pain

Proprietary Pain

FENTORA

39,043

7,358

46,401

38,480

3,729

42,209

1

97

10

AMRIX

23,032

–

23,032

25,135

–

25,135

(8)

–

(8)

Other Proprietary Pain

–

61

61

–

59

59

–

3

3

Generic Pain

ACTIQ

15,486

12,669

28,155

14,940

18,491

33,431

4

(31)

(16)

Generic OTFC

9,023

–

9,023

12,779

–

12,779

(29)

–

(29)

Other Generic Pain

–

23,866

23,866

–

2,142

2,142

–

1014

1014

Pain

86,584

43,954

130,538

91,334

24,421

115,755

(5)

80

13

Oncology

Proprietary Oncology

TREANDA

117,725

–

117,725

81,257

–

81,257

45

–

45

Other Proprietary Oncology

5,503

19,734

25,237

4,555

20,191

24,746

21

(2)

2

Generic Oncology

–

6,178

6,178

–

4,154

4,154

–

49

49

Oncology

123,228

25,912

149,140

85,812

24,345

110,157

44

6

35

Other

Other Proprietary

6,005

2,214

8,219

5,364

100

5,364

12

–

53

Other Generic

7,151

106,271

113,422

4,096

28,858

32,954

75

268

244

Other

13,156

108,485

121,641

9,460

28,858

38,318

$ 529,381

$ 206,621

$ 736,002

$ 474,428

$ 102,253

$ 576,681

12%

102%

28%

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

March 31,

December 31,

2011

2010

CURRENT ASSETS:

Cash and cash equivalents

$ 1,160,657

$ 1,160,239

Receivables, net

506,437

431,333

Inventory, net

293,905

291,360

Deferred tax assets, net

211,523

213,798

Other current assets

72,360

54,845

Total current assets

2,244,882

2,151,575

INVESTMENTS ($471,254 and $155,808 at fair value in 2011 and 2010, respectively)

493,509

168,494

PROPERTY AND EQUIPMENT, net

499,672

502,856

GOODWILL

836,636

822,071

INTANGIBLE ASSETS, net

1,248,622

1,212,387

DEBT ISSUANCE COSTS

13,101

14,196

OTHER ASSETS

24,254

20,254

$ 5,360,676

$ 4,891,833

CURRENT LIABILITIES:

Current portion of long-term debt, net

$ 663,684

$ 651,997

Accounts payable

119,777

104,477

Accrued expenses

550,443

460,141

Total current liabilities

1,333,904

1,216,615

LONG-TERM DEBT

398,475

391,416

DEFERRED TAX LIABILITIES, net

182,100

172,589

OTHER LIABILITIES

258,952

273,438

Total liabilities

2,173,431

2,054,058

REDEEMABLE EQUITY

161,969

170,183

EQUITY:

Cephalon Stockholders’ Equity

Common stock, $0.01 par value

793

791

Additional paid-in capital

2,477,973

2,428,450

Treasury stock, at cost

(225,874)

(225,870)

Accumulated earnings

458,174

247,086

Accumulated other comprehensive income

246,528

182,975

Total Cephalon stockholders’ equity

2,957,594

2,633,432

Noncontrolling Interest

67,682

34,160

Total equity

3,025,276

2,667,592

$ 5,360,676

$ 4,891,833

CEPHALON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended

March 31,

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$ 211,610

$ 100,337

Adjustments to reconcile net income to net cash provided by operating activities:

Deferred income tax expense (benefit)

9,609

(1,045)

Shortfall tax benefits from stock-based compensation

(243)

(16)

Depreciation and amortization

47,469

48,353

Stock-based compensation expense

5,870

8,830

Amortization of debt discount and debt issuance costs

16,217

18,144

Changes in fair value of investments

(164,735)

–

Loss on foreign exchange contracts

506

6,169

Impairment and (gain) loss on sale of assets

5,648

–

Other

(25)

255

Changes in operating assets and liabilities:

Receivables

(64,528)

20,308

Inventory

8,269

(2,383)

Other assets

(16,795)

(348)

Accounts payable and accrued expenses

104,700

39,449

Other liabilities

(15,814)

(4,498)

Net cash provided by operating activities

147,758

233,555

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(11,671)

(9,613)

Proceeds from sale of property and equipment

818

–

Cash balance from consolidation of variable interest entity

15,513

–

Purchases of investments

(176,104)

–

(Cash settlements of) proceeds from foreign exchange contracts

1,516

(6,155)

Net cash used for investing activities

(169,928)

(15,768)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock under the employee stock purchase plan

349

–

Proceeds from exercises of common stock options

11,745

13,804

Windfall tax benefits from stock-based compensation

1,505

23

Acquisition of treasury stock

(4)

(33)

Payments on and retirements of long-term debt

(711)

(2,577)

Net cash provided by financing activities

12,884

11,217

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

9,704

(2,186)

NET INCREASE IN CASH AND CASH EQUIVALENTS

418

226,818

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

1,160,239

1,647,635

CASH AND CASH EQUIVALENTS, END OF PERIOD

$ 1,160,657

$ 1,874,453

SOURCE Cephalon, Inc.

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