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Depomed Reports Third Quarter 2016 Financial Results

- Third Quarter Revenues of $111 million -

- Conference Call Scheduled for Today at 4:30 PM EST; Dial-In Information Below -

NEWARK, Calif., Nov. 07, 2016 (GLOBE NEWSWIRE) -- Depomed, Inc. (Nasdaq:DEPO) today reported financial results and highlighted operational achievements for the quarter ended September 30, 2016.

“Although our third quarter revenues increased by 5% over the previous year’s quarter, they did not meet our expectations, as several factors, including a disconnect between prescription demand and wholesaler shipments, influenced net sales of the NUCYNTA franchise and Gralise.  Prescriptions for NUCYNTA ER grew 4% over the second quarter, while shipments to wholesalers were down 1%.  Prescriptions for NUCYNTA and Gralise were equal to the second quarter, however, shipments were down 6% and 12%, respectively,” said Jim Schoeneck, President and CEO of Depomed. “In addition, we made adjustments to our reserve accounts, including managed care and PBM rebate submissions from prior quarters, which impacted our product net sales.”   

Continued Mr. Schoeneck, “For the rest of 2016 and beyond, we are fully committed to continuing the successful relaunch of our Nucynta franchise and building prescription demand for our products.  For the third quarter, NUCYNTA ER reached all time high monthly market share and total prescriptions, with year-over-year prescription growth of approximately 20%. In addition, the rest of our portfolio achieved revenues of $45 million, an increase of 13% year-over-year.  Finally, Depomed’s recent NUCYNTA ANDA patent litigation win marked a major milestone for the company, giving us more than 9 years to continue to grow the NUCYNTA franchise, with exclusivity established until December 2025.”

Business and Financial Highlights

  • Third quarter 2016 revenues were $111 million, compared to $105 million for third quarter of 2015, an increase of 5%
  • Quarterly net loss of ($12.9) million or ($0.21) per share
  • Quarterly non-GAAP adjusted earnings of $20.9 million, or $0.28 per share
  • Quarterly non-GAAP adjusted EBITDA of $35.4 million
  • Favorable District Court ruling in the company's patent litigation against all three filers of Abbreviated New Drug Applications (ANDAs) of the NUCYNTA franchise with expected market exclusivity until December 2025
  • Settlement agreement reached with Starboard Value LP including the addition of three independent directors, James P. Fogarty, Robert G. Savage and James L. Tyree, to Depomed’s Board of Directors
  • Introduction of a new aspartame-free formulation of CAMBIA® (diclofenac potassium for oral solution)

NUCYNTA Franchise Highlights

  • Third quarter 2016 net sales of $65 million
  • Net sales of $396 million since acquisition on April 2, 2015
  • NUCYNTA ER® reached record all-time monthly high prescription volume of over 30,000 in August, an increase of 20.4% over August 20151
  • NUCYNTA ER reached record all-time monthly high market share of 6.85% of branded long acting opioids and 1.99% of total long acting opioids in September1

Product Portfolio Highlights

  • Gralise® third quarter 2016 net sales were $21 million
  • Cambia® third quarter 2016 net sales were a record $9.1 million, an increase of 29% compared to $7 million in the same period last year. Cambia total branded market share reached an all-time high in August1 
  • Lazanda® third quarter 2016 net sales were a record $8.2 million, an increase of 50% compared to $5.4 million in the same period last year. Lazanda total market share reached an all-time high in September1 

1 Source: SHA IDV

                   
REVENUES (GAAP BASIS)  
(in thousands, unaudited)  
                   
    Three Months Ended    Nine Months Ended  
    September 30,   September 30,  
      2016       2015       2016       2015    
                   
Product sales, net:                  
Nucynta products1   $   65,287     $   64,936     $   206,568     $   121,597    
Gralise       20,640         21,116         63,451         59,317    
Cambia       9,110         7,058         22,900         19,268    
Lazanda       8,181         5,440         19,093         12,475    
Zipsor       7,085         6,176         19,379         18,035    
Total product sales, net       110,303         104,726         331,391         230,692    
                   
Royalties       221         130         595         872    
                   
Total revenues (GAAP Basis)   $    110,524     $    104,856     $    331,986     $    231,564    
                   
  1 Nucynta acquisition completed April 2015   
               

Updated 2016 Financial Outlook

Depomed is updating its 2016 financial guidance as follows:

  Updated Guidance Prior Guidance
Total Revenue $455 to $465 million $480 to $505 million
GAAP SG&A Expense $204 to $208 million Previously not given
GAAP R&D Expense $33 to $36 million Previously not given
Non-GAAP SG&A Expense $183 to $187 million $185 to $190 million
Non-GAAP R&D Expense $32 to $35 million $28 to $35 million
GAAP Net Loss $43 to $49 million Previously not given
Non-GAAP Adjusted Earnings $79 to $85 million $95 to $105 million
Non-GAAP Adjusted EBITDA $152 to $160 million $175 to $190 million
 

The Company is now providing GAAP net loss and GAAP expense guidance as the Company is now able to estimate its non-recurring costs for the remainder of 2016.

Non-GAAP Financial Measures

In this press release, Depomed includes information about non-GAAP adjusted earnings, non-GAAP adjusted earnings per share, non-GAAP adjusted EBITDA, and other non-GAAP financial measures, as useful operating metrics for the three month and six periods ended September 30, 2016 and 2015 and its full year 2016 financial outlook.

The Company believes that the presentation of these non-GAAP financial measures, when viewed with our results under GAAP and the accompanying reconciliations, provides relevant and useful supplementary information to analysts, investors, lenders, and our management in assessing the Company’s performance and liquidity. The Company uses these non-GAAP financial measures in connection with its own planning and forecasting purposes, and in part, in the determination of bonuses for executive officer and employees.

The Company uses non-GAAP adjusted earnings and non-GAAP adjusted earnings per share to evaluate its period-over-period operating performance because it provides supplementary information on the results of the primary operations of the Company that more consistently correlates with the Company’s underlying operating cash flows of the business by removing non-cash gains or losses and non-recurring cash gains or losses.  This measure may also be useful to investors and analysts in evaluating the underlying operating performance of the business.

Non-GAAP adjusted earnings and non-GAAP adjusted earnings per share are not based on any standardized methodology prescribed by GAAP and represent GAAP net loss and GAAP net loss per share adjusted to exclude (1) amortization and non-cash adjustments related to product acquisitions, (2) non-cash stock-based compensation expense, (3) non-cash interest expense related to debt, (4) non-recurring costs associated with the Company's defense against the Horizon Pharma hostile takeover bid in 2015 and costs associated with the special meeting requests made by an activist investor in 2016, and by excluding (5) the non-cash portion of income tax benefit/expense related to the period.

The Company uses non-GAAP adjusted EBITDA to evaluate its period-over-period operating performance because it provides supplementary information on the results of the primary operations of the Company before investing and financing income and expense and taxes. This measure may be useful to lenders and other parties to evaluate our credit worthiness.  This measure may also be useful to investors and analysts in evaluating the underlying operating performance of the business.

Non-GAAP adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and represents GAAP net loss adjusted to exclude (1) amortization and non-cash adjustments related to product acquisitions, (2) non-cash stock-based compensation expense, (3) depreciation, (4) taxes, (5) non-recurring costs associated with the Company's defense against the Horizon Pharma hostile takeover bid in 2015 and costs associated with the special meeting requests made by an activist investor in 2016, (6) interest income and expense, and (7) non-recurring transaction costs associated with product acquisitions. 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.

These non-GAAP financial measures should be considered in addition to, and not a substitute for, or superior to, net loss or other financial measures calculated in accordance with GAAP.

Conference Call

Depomed will host a conference call today, Monday, November 7th, beginning at 4:30 p.m. EST (1:30 p.m. PST) to discuss its results. Participants can access the call by dialing (866) 643-3010 (United States) or (857) 270-6032 (International) referencing conference ID 11112362. The conference call will also be available via a live webcast under 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 leading specialty pharmaceutical company focused on enhancing the lives of the patients, families, physicians, providers and payors we serve through commercializing innovative products for pain and neurology related disorders. Depomed markets six medicines with areas of focus that include mild to severe acute pain, moderate to severe chronic pain, neuropathic pain, migraine and breakthrough cancer pain. Depomed is headquartered in Newark, California. To learn more about Depomed, visit 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 NUCYNTA ER, NUCYNTA, Gralise, CAMBIA, Zipsor and Lazanda, Depomed's financial outlook for 2016 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 most recent Annual Report on Form 10-K and most recent Quarterly Report on Form 10-Q. 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. 

                     
CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS)    
(in thousands, except per share amounts)
   
                     
    Three Months Ended    Nine Months Ended    
    September 30,   September 30,    
      2016       2015       2016       2015      
    (unaudited)   (unaudited)    
Revenues:                    
Product sales, net   $ 110,303     $ 104,726     $ 331,391     $ 230,692      
Royalties     221       130       595       872      
Total revenues     110,524       104,856       331,986       231,564      
                     
Costs and expenses:                    
Cost of sales     20,243       20,914       64,757       46,891      
Research and development expense     10,412       4,629       23,477       11,201      
Selling, general and administrative expense     51,574       49,065       156,036       141,015      
Amortization of intangible assets     27,037       27,013       81,111       56,284      
Total costs and expenses     109,266       101,621       325,381       255,391      
                     
Income (loss) from operations     1,258       3,235       6,605       (23,827 )    
Other income     113       62       310       180      
Loss on prepayment of senior notes     -       -       (5,777 )     -      
Interest expense     (20,307 )     (22,634 )     (63,182 )     (50,733 )    
Benefit from income taxes     6,042       7,552       17,692       29,310      
Net loss   $ (12,894 )   $ (11,785 )   $ (44,352 )   $ (45,070 )    
                     
Basic and diluted net loss per share   $ (0.21 )   $ (0.20 )   $ (0.73 )   $ (0.75 )    
Shares used in calculating basic and diluted net loss per share     61,422,015       60,320,369       61,163,059       59,960,507      

 

             
CONSOLIDATED CONDENSED BALANCE SHEETS    
(in thousands)    
(unaudited)    
    September 30,   December 31,    
      2016       2015      
             
             
Cash, cash equivalents and marketable securities   $   137,093     $   209,768      
Accounts receivable       87,385         71,687      
Inventories       11,258         10,494      
Income taxes receivable       14,509         6,358      
Property and equipment, net       16,065         14,794      
Intangible assets, net       927,884         1,008,994      
Deferred tax assets       42,344         22,995      
Prepaid and other assets       13,148         12,159      
Total assets   $   1,249,686     $   1,357,249      
             
Accounts payable       18,471         12,805      
Income tax payable       543         -       
Interest payable       13,768         18,672      
Accrued liabilities       53,363         62,931      
Accrued rebates, returns and discounts       124,672         121,058      
Senior notes       465,453         563,012      
Convertible notes       248,735         237,313      
Contingent consideration liability       14,949         14,971      
Other liabilities       19,001         11,432      
Shareholders’ equity       290,731         315,055      
Total liabilities and shareholders’ equity    $   1,249,686     $   1,357,249      
             

 

                     
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP ADJUSTED EARNINGS    
(in thousands, except per share amounts)    
                     
    Three Months Ended    Nine Months Ended    
    September 30,   September 30,    
      2016       2015       2016       2015      
    (unaudited)   (unaudited)    
                     
GAAP net loss   $   (12,894 )   $   (11,785 )   $   (44,352 )   $   (45,070 )    
Non-cash interest expense on debt       4,460         4,051         13,861         11,456      
Intangible amortization related to product acquisitions       27,037         27,013         81,111         56,284      
Inventory step-up related to product acquisitions       -          786         16         5,988      
Product sales benefit related to product acquisitions       -          -          -          10,466      
Contingent consideration related to product acquisitions       686         (134 )       1,593         (2,029 )    
Stock based compensation       4,364         3,631         12,602         9,697      
Non-cash income tax adjustment       (4,739 )       (2,076 )       (19,200 )       (13,292 )    
Other costs (1)       2,015         3,405         2,942         3,620      
Non-GAAP adjusted earnings   $   20,929     $   24,891     $   48,573     $   37,120      
Add interest expense of convertible debt, net of tax (2)       2,091         2,156         6,275         6,470      
Numerator   $   23,020     $   27,047     $   54,848     $   43,590      
Shares used in calculation (2)       81,940         81,830         81,370         81,110      
Non-GAAP adjusted earnings per share (2)   $   0.28     $   0.33     $   0.67     $   0.54      
                     
(1) Other costs represents non-recurring costs associated with the special meeting requests of an activist investor and costs associated with the Company's defense of Horizon Pharma's hostile takeover attempt    
(2) The Company uses the if-converted method to compute diluted earnings per share with respect to its convertible debt.     
                     
                     
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP ADJUSTED EBITDA    
(in thousands)    
                     
    Three Months Ended    Nine Months Ended    
    September 30,   September 30,    
      2016       2015       2016       2015      
    (unaudited)   (unaudited)    
                     
GAAP net loss   $   (12,894 )   $   (11,785 )   $   (44,352 )   $   (45,070 )    
Intangible amortization related to product acquisitions       27,037         27,013         81,111         56,284      
Inventory step-up related to product acquisitions       -          786         16         5,988      
Product sales benefit related to product acquisitions       -          -          -          10,466      
Contingent consideration related to product acquisitions       686         (134 )       1,593         (2,029 )    
Stock based compensation       4,364         3,631         12,602         9,697      
Interest and other income       (113 )       (62 )       (310 )       (180 )    
Interest expense       19,666         22,027         67,001         49,036      
Depreciation       646         682         1,908         1,730      
Benefit from income taxes       (6,042 )       (7,552 )       (17,692 )       (29,310 )    
Other costs (1)       2,015         3,405         2,942         3,620      
Transaction costs       -          150         45         12,267      
Non-GAAP adjusted EBITDA   $   35,365     $   38,161     $   104,864     $   72,499      
                     
(1) Other costs represents non-recurring costs associated with the special meeting requests of an activist investor and costs associated with the Company's defense of Horizon Pharma's hostile takeover attempt    

 

                             
RECONCILIATIONS OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION  
(in thousands)  
(unaudited)  
                             
    Three Months Ended    Three Months Ended     
    September 30, 2016   September 30, 2015    
    GAAP       Non-GAAP   GAAP       Non-GAAP    
    Reported   Adjustments   Adjusted   Reported   Adjustments   Adjusted    
                             
Total revenues     110,524       -       110,524       104,856       -       104,856      
Cost of sales     20,243       (11 ) (a)   20,232       20,914       (790 ) (a)   20,124      
Research and development expense     10,412       (121 ) (b)   10,291       4,629       (37 ) (b)   4,592      
Selling, general and administrative expense     51,574       (6,324 ) (c)   45,250       49,065       (6,254 ) (c)   42,811      
Amortization of intangible assets     27,037       (27,037 ) (d)   -       27,013       (27,013 ) (d)   -      
Interest expense     (20,307 )     (5,069 ) (e)   (15,238 )     (22,634 )     (4,658 ) (e)   (17,976 )    
Benefit from (provision for) income taxes     6,042       (4,739 ) (f)   1,303       7,552       (2,076 ) (f)   5,476      
Net (loss)/adjusted earnings     (12,894 )     33,823   (g)   20,929       (11,785 )     36,676   (g)   24,891      
                             
Explanation of adjustments:                            
(a) Inventory step-up related to product acquisitions and stock based compensation
   
(b) Stock-based compensation                            
(c) Non-recurring costs (Horizon Pharma and activist investor costs) of $2,014 and $3,405, stock-based compensation of $4,232 and $3,590, contingent
 consideration of $78 and ($741) for the three months ended in September 30, 2016 and 2015, respectively
   
(d) Amortization of intangible assets
           
(e) Non-cash interest expense of $4,460 and $4,051, contingent consideration of $609 and $607 for the three months ended in September 30, 2016  
 and 2015, respectively                            
(f) Non-cash taxes                            
(g) Calculated by taking (f) minus sum of (a) through (e)
   
                             
                             
    Nine Months Ended   Nine Months Ended    
    September 30, 2016   September 30, 2015    
    GAAP       Non-GAAP   GAAP       Non-GAAP    
    Reported   Adjustments   Adjusted   Reported   Adjustments   Adjusted    
                             
Total revenues       331,986         -          331,986         231,564         10,466   (a)     242,030      
Cost of sales       64,757         (43 ) (b)     64,714         46,891         (5,997 ) (b)     40,894      
Research and development expense       23,477         (329 ) (c)     23,148         11,201         (219 ) (c)     10,982      
Selling, general and administrative expense       156,036       (14,979 ) (d)     141,057         141,015         (9,363 ) (d)     131,652      
Amortization of intangible assets       81,111         (81,111 ) (e)     -          56,284         (56,284 ) (e)     -       
Loss on prepayment of Senior Notes       5,777         (777 ) (f)     5,000         -          -          -       
Interest expense       (63,182 )       (14,886 ) (g)     (78,068 )       (50,733 )       (13,153 ) (g)     (63,886 )    
Benefit from (provision for) income taxes       17,692         (19,200 ) (h)     (1,508 )       29,310         (13,292 ) (h)     16,018      
Net (loss)/adjusted earnings       (44,352 )       92,925   (i)     48,573         (45,070 )       82,190   (i)     37,120      
                             
Explanation of adjustments                            
(a) Product sales benefit related to product acquisition
   
(b) Inventory step-up related to product acquisitions and stock based compensation
   
(c) Stock-based compensation                            
(d) Non-recurring costs (Horizon Pharma and activist investor costs) of $2,942 and $3,620, stock-based compensation of $12,246 and $9,469 contingent
 consideration of ($209) and $(3,726) for the nine months ended in September 30, 2016 and 2015, respectively
   
(e) Amortization of intangible assets
       
(f) Non-cash acceleration of debt discount
       
(g) Non-cash interest expense of $13,861 and $11,456 contingent consideration of $1,802 and $1,697 for the nine months ended in September 30, 2016
 and 2015, respectively
   
(h) Non-cash taxes                            
(i) Calculated by taking (a) plus (h) minus sum of (b) through (g)
   

 

                   
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP ADJUSTED EARNINGS        
GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2016        
(in millions)        
                   
GAAP net loss $  (43) - (49)           
Non-cash interest expense on debt   18 -19          
Intangible amortization related to product acquisitions    108           
Contingent consideration related to product acquisitions   2 - 3          
Stock based compensation   16 - 18          
Non-cash income tax adjustment   (21) - (25)          
Other costs (1)   4 - 6          
Non-GAAP adjusted earnings $  79 - 85           
                   
                   
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP ADJUSTED EBITDA        
GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2016        
(in millions)        
               
                   
GAAP net loss $  (43) - (49)           
Intangible amortization related to product acquisitions    108           
Contingent consideration related to product acquisitions   2 - 3          
Stock based compensation   16 - 18          
Interest expense   86 - 88          
Depreciation   2 -3          
Benefit from income taxes   (18) - (22)          
Other costs (1)   4 - 6          
Non-GAAP adjusted EBITDA $  152 - 160           
                   
                   
RECONCILIATION OF GAAP SG&A EXPENSE TO NON-GAAP SG&A EXPENSE        
GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2016        
(in millions)        
               
                   
GAAP SG&A expense $  204 - 208           
Stock based compensation    (15) - (17)           
Other costs (1)    (4) - (6)           
Non-GAAP SG&A expense $  183 - 187           
                   
                   
RECONCILIATION OF GAAP R&D EXPENSE TO NON-GAAP R&D EXPENSE        
GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2016        
(in millions)        
               
                   
GAAP R&D expense $ 33 - 36          
Stock based compensation   (1
)        
Non-GAAP R&D expense $ 32 - 35          
                   
(1) Other costs represents non-recurring costs associated with the special meeting requests of an activist investor and costs associated with the Company's defense of Horizon Pharma's hostile takeover attempt  


INVESTOR CONTACT:

Christopher Keenan
VP, Investor Relations and Corporate Communications
Depomed, Inc.
510-744-8000
ckeenan@depomed.com

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