Andrx Corporation Reports 2002 Fourth Quarter and Full Year Results.Business Editors/Health/Medical Writers FORT LAUDERDALE Fort Lauderdale (lô`dərdāl), residential, commercial, and resort city (1990 pop. 149,377), seat of Broward co., SE Fla., on the Atlantic coast; settled around a fort built (c.1837) in the Seminole War, inc. 1911. , Fla.--(BUSINESS WIRE)--March 5, 2003 Fourth Quarter Results Include $16.6 Million of KUDCo Licensing Revenues and $50.9 Million in Total Charges Related to Production Inventories, Non-Core Operations and Legal Matters Andrx Corporation (Nasdaq:ADRX ADRX Andrx Corporation (stock symbol) ) ("Andrx" or the "Company") today announced its financial results for the fourth quarter and year ended December 31, 2002, summarized as follows (in thousands, except per share amounts):
Three Months Ended Years Ended
December 31, December 31,
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2002 2001 2002 2001
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Total revenues $218,097 $196,602 $770,980 $749,041
Net income (loss) $(31,912) $(3,443) $(91,817) $37,546
Total net income (loss)
allocated to Andrx (1) $(31,912) $4,241 $(86,399) $72,862
Andrx diluted earnings (loss)
per share (1) $(0.45) $0.06 $(1.22) $1.01
Total net loss allocated to
Cybear (1) $(7,684) $(5,418) $(35,316)
Cybear diluted loss per share (1) $(1.14) $(0.80) $(6.09)
(1) See note 2 in the accompanying Unaudited Condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. Consolidated Statements of Operations. The 2002 fourth quarter loss of $49.3 million before income tax benefit includes, among other things, total charges of $50.9 million, as follows: (i) $38.1 million charge to cost of goods sold Cost of goods sold The total cost of buying raw materials, and paying for all the factors that go into producing finished goods. cost of goods sold related to production of the Company's products and product candidates, consisting of $26.3 million of bioequivalent bi·o·e·quiv·a·lent n. A value indicating the rate at which a substance enters the bloodstream and becomes available to the body. products, primarily the Company's bioequivalent versions of Wellbutrin Well·bu·trin A trademark for the drug bupropion hydrochloride, used to treat depression. bupropion hydrochloride Budeprion SR, Budeprion XL, Wellbutrin, Wellbutrin SR, Wellbutrin XL, Zyban (R) SR/Zyban(R), $1.1 million of brand products, and a $10.7 million charge related to an excess facilities lease, related leasehold improvements Leasehold Improvement Improvements on a leased asset that increase the value of the asset. Notes: A leasehold improvement is classified as an asset that must be depreciated over time. , excess aerosol aerosol (âr`əsōl,–sŏl): see colloid. aerosol System of tiny liquid or solid particles evenly distributed in a finely divided state through a gas, usually air. product inventories, equipment and severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when at Andrx's Massachusetts Massachusetts (măsəch  `sĭts), most populous of the New England states of the NE United States. aerosol manufacturing facilities, as the Company is considering alternatives, including possible divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). . (ii) $12.8 million in other charges (included in Litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlements and other charges in the accompanying Unaudited Condensed Consolidated Statements of Operations), which include: -- a second quarter 2002 litigation settlements charge of $60 million relating to the Cardizem(R) CD antitrust litigation. -- a second quarter 2002 provision for doubtful accounts (included in SG&A) of approximately $4 million relating to numerous improper entries that affected the aging of its accounts receivable from 1999 through 2001. After consideration of all of the facts and circumstances, the Company recognized the full $4 million prior period misstatement in the second quarter of 2002, as the Company believes its impact is not material to any period affected. -- charges to cost of goods sold throughout 2002 totaling $104.5 million (inclusive of the $38.1 million of 2002 fourth quarter amounts) related to $41 million for unusable pre-launch inventories of the Company's bioequivalent version of Prilosec, resulting from a lower court ruling of patent infringement, $38 million in production of the Company's other products and product candidates, primarily the fourth quarter 2002 charges of its bioequivalent version of Wellbutrin SR/Zyban, $8 million related to excess capacity at its Massachusetts aerosol manufacturing facilities, $5 million related to the utilization of its Davie, Florida manufacturing facilities, and $800,000 related to start-up costs for the Company's Weston, Florida manufacturing facility. In addition, for the year ended December 31, 2002, there was a total charge to cost of goods sold of $11.7 million related to an excess facilities lease, related leasehold improvements, excess aerosol product inventories, equipment and severance at Andrx's Massachusetts aerosol manufacturing facilities. (Above mentioned items were before the effect of income taxes at Andrx's 2002 effective income tax rate of 35%) Andrx's Chief Executive Officer, Richard J. Lane, commented: "2002 was a year of challenge and transitioning in which we continued to make investments for the future of our Company. Our strategy is to utilize our technologies to develop products that we consider to have significant commercial value for both our generic and brand business segments and, when appropriate, to enter into business alliances that create additional shareholder value. To achieve these goals, we continue to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. high levels of spending in R&D and to build our brand sales force. We did not have sufficient generic product launches in 2002 to offset such investment spending, which adversely affected short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. financial results, but our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. plans remain intact. In the 2002 fourth quarter, our R&D efforts resulted in the submission of seven ANDAs and our second NDA (Non Disclosure Agreement) An agreement signed between two parties that have to disclose confidential information to each other in order to do business. In general, the NDA states why the information is being divulged and stipulates that it cannot be used for any (metformin metformin /met·for·min/ (met-for´min) an antihyperglycemic agent that potentiates the action of insulin, used in the treatment of type 2 diabetes mellitus. met·for·min n. XT), which was accepted for filing in February 2003. During the first two months of 2003, we have received final FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. approval for four of our ANDAs including our bioequivalent version of Claritin-D 24(R), tentative tentative, adj not final or definite, such as an experimental or clinical finding that has not been validated. FDA approval of our ANDAs for Claritin-D 12(R) and Lotensin Lo·ten·sin A trademark for the drug benazepril hydrochloride. benazepril hydrochloride Lotensin Pharmacologic class: Angiotensin-converting enzyme (ACE) inhibitor Therapeutic class: (R), and have submitted three new ANDAs." Mr. Lane continued, "We still cannot predict the timing of the introduction of our generic versions of Wellbutrin SR/Zyban. In addition to the ongoing litigation uncertainty, we have likely extended the time required for us to receive FDA approval of our product by raising an issue that affects the expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created dating of our product. This issue pertains to impurity im·pu·ri·ty n. pl. im·pu·ri·ties 1. The quality or condition of being impure, especially: a. Contamination or pollution. b. Lack of consistency or homogeneity; adulteration. c. limits that have been adopted by the USP USP - unique sales point , and the FDA is seeking to enforce, but we have difficulty meeting as a result of patent obstacles that GlaxoSmithKline has placed in our way. Though we are in dialogue with the FDA and USP on this issue, the timing of that resolution and the launch of these products are uncertain. As a result, we have recorded a fourth quarter 2002 charge against our generic Wellbutrin/Zyban inventories. While we are confident that the product we made is safe, bioequivalent and does not infringe in·fringe v. in·fringed, in·fring·ing, in·fring·es v.tr. 1. To transgress or exceed the limits of; violate: infringe a contract; infringe a patent. 2. any patents, we have provided a reserve, not a write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. , to deal with the contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. related to the remaining commercial life of our manufactured product and the timing of the resolution of this issue. During the fourth quarter of 2002, we also decided to no longer actively pursue, and to potentially divest To deprive or take away. Divest is usually used in reference to the relinquishment of authority, power, property, or title. If, for example, an individual is disinherited, he or she is divested of the right to inherit money. our Massachusetts aerosol manufacturing facilities and POL, which we have identified as non-core operations, recording the appropriate charges. And though we continue to incur charges related to the start-up Start-up The earliest stage of a new business venture. , utilization and production at our Florida and North Carolina North Carolina, state in the SE United States. It is bordered by the Atlantic Ocean (E), South Carolina and Georgia (S), Tennessee (W), and Virginia (N). Facts and Figures Area, 52,586 sq mi (136,198 sq km). Pop. facilities, we are also continuing to invest in manufacturing personnel and resources to alleviate Alleviate To make something easier to be endured. Mentioned in: Kinesiology, Applied these issues for the longer term." Mr. Lane concluded, "Despite the lower court decision in the Prilosec Pri·lo·sec A trademark for the drug omeprazole. omeprazole Losec (CA) (UK), Heartburn Relief (UK), Prilosec, Prilosec OTC, Zegerid, Zanprol (UK) Pharmacologic class: Proton pump inhibitor (R) patent infringement patent infringement n. the manufacture and/or use of an invention or improvement for which someone else owns a patent issued by the government, without obtaining permission of the owner of the patent by contract, license or waiver. case and the FDA's decision to grant OTC OTC See: Over-the-counter. OTC See over-the-counter market (OTC). status to the Claritin Clar·i·tin A trademark for the drug loratadine. loratadine Alavert, Claritin, Claritin RediTabs, Clarityn (UK) Pharmacologic class: Histamine1-receptor antagonist (second-generation) line of products, in both of these instances, we worked through these obstacles to create valuable opportunities for Andrx by entering into business alliances. Moreover, our internal operating plans are focused on delivering positive earnings per share in 2003 with or without a Wellbutrin SR/Zyban launch and plans are in place to control expenses, even while continuing to invest in our future. We are excited about our future and remain steadfastly committed to our long-term goals Long-term goals Financial goals expected to be accomplished in five years or longer. . We will continue to invest in our three business platforms - brand products, generic products and distribution, while remaining cognizant cog·ni·zant adj. Fully informed; conscious. See Synonyms at aware. [From cognizance.] Adj. 1. of the need to create shareholder value."
Revenues and Cost of Goods Sold
Three Months Ended Years Ended
December 31, December 31,
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2002 2001 2002 2001
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Distributed Products
Net sales $153,051 $145,790 $534,618 $495,241
Cost of goods sold 124,550 123,362 433,650 410,292
Gross profit 28,501 22,428 100,968 84,949
Gross margin 18.6% 15.4% 18.9% 17.2%
Andrx Products - Bioequivalent
Net sales $38,524 $42,284 $183,873 $197,940
Cost of goods sold 43,142 18,114 146,025 52,274
Gross profit (loss) (4,618) 24,170 37,848 145,666
Gross margin (loss) (12.0%) 57.2% 20.6% 73.6%
Andrx Products - Brand
Net sales $7,186 $3,753 $25,534 $31,063
Cost of goods sold 3,994 5,926 13,263 12,163
Gross profit (loss) 3,192 (2,173) 12,271 18,900
Gross margin (loss) 44.4% (57.9%) 48.1% 60.8%
Licensing and Royalties
Revenue $16,931 $1,967 $17,340 $13,648
Gross profit 16,931 1,967 17,340 13,648
Gross margin 100.0% 100.0% 100.0% 100.0%
Other
Revenue $2,405 $2,808 $9,615 $11,149
Cost of goods sold 13,573 1,514 27,131 4,866
Gross profit (loss) (11,168) 1,294 (17,516) 6,283
Gross margin (loss) (464.4%) 46.1% (182.2%) 56.4%
Total
Total Revenues $218,097 $196,602 $770,980 $749,041
Cost of goods sold 185,259 148,916 620,069 479,595
Gross profit 32,838 47,686 150,911 269,446
Gross margin 15.1% 24.3% 19.6% 36.0%
In the fourth quarter of 2002, net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight of distributed products increased to an all time high level of $153.1 million which includes participation in the distribution of generic products introduced by other generic manufacturers, including generic versions of Prilosec and Augmentin Aug·men·tin A trademark for a preparation of amoxicillin and clavulanic acid. amoxicillin and clavulanate potassium (R). Distributed products' gross margin of 18.6% in the fourth quarter of 2002 is consistent with the overall level of gross margin realized throughout 2002, and is toward the higher end Coordinates: For other places with the same name, see Billinge. Higher End or Billinge Higher End is a district of the Metropolitan Borough of Wigan, in Greater Manchester, England. of our historical range of 15% to 21%. The decrease in net sales of Andrx bioequivalent products in the 2002 fourth quarter from the 2001 fourth quarter includes a decline in net sales of Andrx's existing bioequivalent products, which was offset in part by net sales of Andrx bioequivalent products launched in 2002. During the 2002 fourth quarter, the Company recorded a charge to cost of goods sold of $26.3 million, primarily relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc pre-launch production of Andrx's bioequivalent versions of Wellbutrin SR/Zyban. Additionally, in the fourth quarter of 2002, Andrx incurred expenses included in cost of goods sold of $219,000 related to the start-up of its new Weston, Florida Weston is a city located in Broward County, Florida, USA. Established as a city in 1996, much of the community was developed by Arvida/JMB Partners and is located near the western developmental boundary of Broward County. As of 2006, the city had a total population of 65,793. facility and $1.3 million related to facility utilization issues at its Davie, Florida Davie is a town in Broward County, Florida, United States. In 2006, the U.S. Census Bureau estimated the city's population at 84,350.[3] It is part of the South Florida metropolitan area, which is home to 5,463,857 people. facilities. As a result of the foregoing, gross margin for bioequivalent products was a negative 12.0% in the fourth quarter of 2002. The increase in net sales of Andrx's brand products in the 2002 fourth quarter to $7.2 million from $3.8 million in the 2001 fourth quarter is primarily the result of increased net sales from the Entex(R) cough cough, sudden, forceful expiration of air from the lungs caused by an involuntary contraction of the muscles controlling the process of breathing. The cough is a response to some irritating condition such as inflammation or the presence of mucus (sputum) in the and cold product line and $2.4 million of net sales of Altocor Al·to·cor A trademark for the drug lovastatin. (TM), which was launched during the 2002 third quarter. The fourth quarter of 2002 cost of goods sold includes a charge of $1.1 million related to production failures. For the comparable quarter of 2001, Andrx recorded a charge of approximately $4.1 million included in cost of goods sold primarily due to the high levels of potentially obsolete inventory Obsolete Inventory Term that refers to inventory that is at the end of its product life cycle and has not seen any sales or usage for a set period of time usually determined by the industry. This type of inventory has to be written down and can cause large losses for a company. in the brand distribution channel. Licensing and royalties revenues for the 2002 fourth quarter primarily consist of $16.6 million of estimated licensing revenues from an agreement with Kremers Urban Development Co. ("KUDCo") related to KUDCo's sales of its generic version of Prilosec, which commenced on December 9, 2002. Licensing and royalties revenues for the 2001 fourth quarter primarily represent fees related to an agreement with Geneva Geneva, canton and city, Switzerland Geneva (jənē`və), Fr. Genève, canton (1990 pop. 373,019), 109 sq mi (282 sq km), SW Switzerland, surrounding the southwest tip of the Lake of Geneva. Pharmaceuticals, Inc. ("Geneva"), which was terminated in the fourth quarter of 2001. In the fourth quarter of 2002, cost of goods sold related to other revenues includes a $10.7 million charge related to an excess facilities lease, related leasehold improvements, excess aerosol product inventories, equipment and severance at Andrx's Massachusetts aerosol manufacturing facilities and a $1.1 million charge relating to underutilization of these aerosol manufacturing facilities. Selling, General and Administrative ("SG&A") Expenses SG&A expenses of $53.8 million in the 2002 fourth quarter, or 24.6% of total revenues, continued to increase primarily as a result of additional brand sales and marketing costs and the expansion of distribution operations, including the opening of Andrx's Ohio distribution center in September 2002. Research and Development ("R&D") Expenses R&D expenses in the 2002 fourth quarter represent 39.3% of Andrx's products net sales. During the fourth quarter of 2002, Andrx submitted seven ANDAs to the FDA, bringing the total submitted during the year ended December 31, 2002 to eleven and total ANDAs pending at the FDA to more than 30. Andrx also submitted an NDA for metformin XT to the FDA in the fourth quarter of 2002, which was accepted as filed by the FDA in February 2003. In the fourth quarter of 2002 and 2001, R&D expenses include milestones to Geneva of $3.0 million and $2.0 million, respectively. Year Ended December 31, 2002 Andrx's operating results for the year ended December 31, 2002 include, among other things: -- a second quarter 2002 litigation settlements charge of $60 million relating to the Cardizem(R) CD antitrust litigation. -- a second quarter 2002 provision for doubtful accounts (included in SG&A) of approximately $4 million relating to numerous improper entries that affected the aging of its accounts receivable from 1999 through 2001. After consideration of all of the facts and circumstances, the Company recognized the full $4 million prior period misstatement in the second quarter of 2002, as the Company believes its impact is not material to any period affected. -- charges to cost of goods sold throughout 2002 totaling $104.5 million (inclusive of the $38.1 million of 2002 fourth quarter amounts) related to $41 million for unusable pre-launch inventories of the Company's bioequivalent version of Prilosec, resulting from a lower court ruling of patent infringement, $38 million in production of the Company's other products and product candidates, primarily the fourth quarter 2002 charges of its bioequivalent version of Wellbutrin SR/Zyban, $8 million related to excess capacity at its Massachusetts aerosol manufacturing facilities, $5 million related to the utilization of its Davie, Florida manufacturing facilities, and $800,000 related to start-up costs for the Company's Weston, Florida manufacturing facility. In addition, for the year ended December 31, 2002, there was a total charge to cost of goods sold of $11.7 million related to an excess facilities lease, related leasehold improvements, excess aerosol product inventories, equipment and severance at Andrx's Massachusetts aerosol manufacturing facilities. Balance Sheet As of December 31, 2002, the Company had $97 million in cash, cash equivalents and investments available-for-sale and $282 million of working capital. On December 30, 2002, the Company established a four-year secured revolving line of credit Revolving line of credit A bank line of credit on which the customer pays a commitment fee and can take and repay funds at will. Normally a revolving LOC involves a firm commitment from the bank for a period of several years. facility of up to $185 million, none of which was outstanding at December 31, 2002. Outlook In its distribution business, growth in net sales will continue to be primarily a function of new generic products launched by other generic manufacturers, offset by the overall level of net price declines on existing distributed products. Accordingly, the distribution operation is expected to grow at a rate consistent with the overall generic industry. In the bioequivalent products business, sales of Andrx's current bioequivalent products are not expected to increase and may decrease based on, among other things, market conditions, and future growth will be generated from the launch of new products. The most significant of Andrx's product candidates are Wellbutrin SR/Zyban, Tiazac Tiazac® Diltiazem, see there and the Claritin family of products (Claritin-D 24 Hour, Claritin-D 12, and Claritin Reditabs, all of which have been converted into OTC products by the brand holder). Andrx has made, is in the process of making or will make commercial quantities of these products prior to the date in which Andrx anticipates that such products will receive FDA final marketing approval and/or satisfactory resolution of the patent infringement litigation involving them. The commercial production of these products involves the risk that such product(s) may not be approved for marketing by the FDA on a timely basis or ever and/or that the results of such litigation may not be satisfactory. This risk notwithstanding, Andrx plans to continue to scale-up and build inventories of certain products that have not yet received final FDA marketing approval and/or satisfactory resolution of patent infringement litigation, when it believes that such action is necessary and appropriate in relation to the commercial value of its product launch opportunity. In late February 2003, Andrx proposed amendments to its ANDAs for its bioequivalent versions of Wellbutrin SR/Zyban, even though it believed that those ANDAs were nearing the last stages of FDA's final approval process, and it was in the late stage of the process of building launch quantities for these products. This action was taken to change a specification which Andrx had previously agreed to, but later determined, based upon additional manufacturing experience and analysis, should be changed. Though Andrx has supplied scientific evidence that these issues only affect expiration dating, and not the efficacy or safety of the products, and is consistent with the FDA's guidance on impurities, the FDA has advised that the specification that it previously agreed to may need to be further revised in light of updated USP specifications, that the FDA is now seeking to enforce. As we are in discussions with the FDA and USP on this issue, Andrx cannot at this time accurately advise whether or when such issues will be satisfactorily resolved or these product introductions will occur. The FDA granted final marketing approval for Claritin-D 24 in February 2003, and to the Company's knowledge, the only substantive matter delaying approval of Andrx's bioequivalent versions of Claritin D-12 and Claritin Reditabs is the expiration of the 180-day market exclusivity period for each of those products. Andrx also believes that it is nearing final marketing approval for its bioequivalent version of Tiazac, as the FDA has advised that it does not presently have any issues concerning the bioequivalence bioequivalence /bio·equiv·a·lence/ (-e-kwiv´ah-lens) the relationship between two preparations of the same drug in the same dosage form that have a similar bioavailability. or stability of the proposed Andrx product. In its brand products business, Andrx began to ship and promote Altocor, its first internally developed product, in July 2002, and recorded approximately $3.8 million in net sales of Altocor on shipments of approximately $11.7 million (estimated net sales value) in 2002. Andrx deferred recognition of the net sales relating to a significant portion of the shipments of Altocor, given the limited amount of prescription and return history and the sales terms and incentives (which included a right of return of initial stocking). By the end of the first quarter of 2003, Andrx will have approximately 450 sales representatives detailing its products. Though current sales and marketing trends would equate e·quate v. e·quat·ed, e·quat·ing, e·quates v.tr. 1. To make equal or equivalent. 2. To reduce to a standard or an average; equalize. 3. to 2003 net sales of Altocor of approximately $35 million, a number of new sales and marketing initiatives have been or are in the process of being implemented which management believes will increase such sales to approximately $50 million. Andrx's application for a registered trademark for Altocor has been opposed by Kos Pharmaceuticals, which alleges that there is a likelihood of confusion between Kos' trademark, Advicor, and Altocor. Andrx has requested FDA guidance on other names, and may seek to change the name of Altocor. Andrx expects to continue to generate significant licensing revenues from its agreement with KUDCo. Pursuant to the KUDCo agreement, Andrx is entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to receive: -- 15.0% of KUDCo's net profits, as defined in the agreement ("Net Profits"), for approximately six months after the December 9, 2002, launch; -- 9.0% of KUDCo's Net Profits until the earlier of (a) the next twelve months or, (b) an appellate court A court having jurisdiction to review decisions of a trial-level or other lower court. An unsuccessful party in a lawsuit must file an appeal with an appellate court in order to have the decision reviewed. decision, as defined in the agreement and -- 6.25% of KUDCo's Net Profits during approximately the next 24 months thereafter. Such licensing fees may also cease if Andrx or Genpharm, Inc., who is also a party to that agreement with KUDCo, becomes lawfully law·ful adj. 1. Being within the law; allowed by law: lawful methods of dissent. 2. Established, sanctioned, or recognized by the law: the lawful heir. permitted to launch its own bioequivalent version of Prilosec. Andrx earned $16.6 million in estimated licensing revenues in the fourth quarter of 2002 which includes the initial stocking of KUDCo's generic version of Prilosec, commonly referred to as pipeline fill. KUDCo estimates that license revenues due to Andrx for January 2003 will be approximately $9.4 million. Future KUDCo licensing revenues will also be dependent on a number of factors, including, among other things, KUDCo's manufacturing capacity, market competition for Prilosec and other factors outside of Andrx's control. Payments to Andrx on amounts earned in December 2002 and January 2003 are due to Andrx 90 days after the respective month end. Amounts earned thereafter are due to Andrx 60 days after the respective month end. Throughout 2003, Andrx will continue to focus on improving its pharmaceutical manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. . Andrx's Weston, Florida manufacturing facility is expected to become fully operational by 2004 and will produce specialty, niche and immediate release products, including oral contraceptives Oral Contraceptives Definition Oral contraceptives are medicines taken by mouth to help prevent pregnancy. They are also known as the Pill, OCs, or birth control pills. . Andrx's North Carolina facility is expected to be operational in 2005. Andrx is also exploring alternatives, including a possible divestiture of its Massachusetts aerosol manufacturing facilities. Until all of these efforts come to fruition fru·i·tion n. 1. Realization of something desired or worked for; accomplishment: labor finally coming to fruition. 2. Enjoyment derived from use or possession. 3. , Andrx will continue to incur costs related to the start-up at its Weston, Florida and North Carolina facilities, utilization at its Davie, Florida facilities and excess capacities at its Massachusetts aerosol manufacturing facilities. The Company expects to incur approximately $5 million to $6 million per quarter of such other unabsorbed manufacturing costs in the form of start-up costs and utilization issues, before the possible divestiture of its Massachusetts aerosol facilities. The Company will also incur additional unabsorbed charges directly to cost of goods sold for production of products and product candidates. SG&A will continue to increase as a result of, among other things, brand commercial operation activities including an expanded sales force and Altocor promotional activity, and the operations at Andrx's Ohio distribution facility. Levels of SG&A will continue to be generally a function of sales and product mix. Andrx continues to evaluate alternatives concerning its POL Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the assets including a possible divestiture. The Company currently plans to invest approximately $60 million in R&D for the year ending December 31, 2003, which will be allocated approximately 50% to bioequivalent products and 50% to brand products. Such level of spending will be reviewed from time to time based on, among other things, the launch of certain bioequivalent products such as Wellbutrin SR/Zyban and the Claritin family of products. The Company believes its federal and state effective income tax rate for 2003 will be approximately 38%. Though the timing remains uncertain, the Company remains optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that it will be able to introduce during 2003 its bioequivalent versions of Tiazac, and through its arrangement with Perrigo Company ("Perrigo") its bioequivalent version of Claritin-D 24. Additionally, through its arrangement with Perrigo, the Company can potentially also introduce in 2003 its bioequivalent versions of Claritin-D12 and Claritin Reditabs, which are subject to, among other things, exclusivity rights of other generic manufacturers. Future product introductions are dependent on a number of factors including, among other things, manufacturing scale-up, final FDA marketing approval, satisfactory resolution of litigation, the competitive marketplace and the other factors described in Andrx's SEC filings. Andrx's operating results for the first quarter of 2003 will continue to be highly dependent on KUDCo license revenues, Andrx's ability to manufacture and generate net sales of Altocor, its bioequivalent versions of Cardizem Car·di·zem A trademark for the drug diltiazem hydrochloride. diltiazem hydrochloride Adizem (UK), Angitil (UK), Apo-Diltiaz (CA), Apo-Diltiazem (CA), Calcicard (UK), Cardizem, Cardizem CD, Cardizem LA, Cartia XT, CD and, to a lesser extent, Dilacor Di·la·cor A trademark for the drug diltiazem hydrochloride. XR(R) and Glucophage Glu·co·phage A trademark for the drug metformin. metformin hydrochloride Warning - High-alert drug! , and whether Andrx launches significant additional bioequivalent products. Other Following the discovery that one of its employees had inappropriately altered its accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying records and the Company's former auditors, Arthur Andersen For the U.S. Supreme Court case commonly known as Arthur Andersen, see . Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms (the other four are PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG), performing LLP LLP - Lower Layer Protocol , ceased operations, Andrx requested that its new independent auditors Independent Auditor An external auditor with a certified public accounting designation that qualifies him or her to provide an auditor's report. Notes: These auditors aren't affiliated with the company being audited. , Ernst & Young LLP, re-audit Andrx's 2001 consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge , to provide additional assurance that the Company's 2001 consolidated financial statements were fairly stated. The re-audit is now substantially complete and is not expected to result in a change to the 2001 consolidated financial statements as filed in the Company's 2001 Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. . The Ernst & Young auditors' report, to be included in the Company's Annual Report on Form 10-K for 2002, is expected to include an unqualified opinion Unqualified opinion An independent auditor's opinion that a company's financial statements comply with accepted accounting procedures. Antithesis of qualified opinion. unqualified opinion See clean opinion. on Andrx's consolidated financial statements for the years ended December 31, 2002 and 2001. Webcast Investors will have the opportunity to listen to management's discussion of this release in a conference call to be held on March 5, 2003 at 8:00 AM Eastern Time. This call is being webcast and can be accessed at Andrx's website http://www.andrx.com. The webcast will be available for replay. About Andrx Corporation Andrx is engaged in the formulation formulation /for·mu·la·tion/ (for?mu-la´shun) the act or product of formulating. American Law Institute Formulation and commercialization of oral controlled-release pharmaceuticals utilizing its proprietary drug delivery technologies. In its ANDA ANDA abbr. abbreviated new drug application program, Andrx is developing generic versions of controlled-release or specialty, niche or immediate release brand name pharmaceuticals. In its NDA program, Andrx is developing its own brand name formulations of certain existing drugs that it believes may be improved by the application of Andrx's drug delivery technologies. Andrx also markets and distributes pharmaceutical products manufactured by third parties. Forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. (statements which are not historical facts) in this release are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. For this purpose, any statements contained herein or which are otherwise made by or on behalf of the Company that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality gen·er·al·i·ty n. pl. gen·er·al·i·ties 1. The state or quality of being general. 2. An observation or principle having general application; a generalization. 3. of the foregoing, words such as "may," "will," "to," " plan," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," or "continue" or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements. Investors are cautioned that all forward-looking statements involve risk and uncertainties, including but not limited to, the Company's dependence on a relatively small number of products, licensing revenues, the timing and outcome of litigation and future product launches, government regulation, competition, and manufacturing results. Andrx Corporation is also subject to other risks detailed herein or detailed from time to time in its filings with the U.S. Securities and Exchange Commission, including the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2001 and the Forms 10-Q for the quarterly periods ended March 31, 2002, June 30, 2002 and September 30, 2002. This release and additional information about Andrx Corporation is also available on the Internet at: http://www.andrx.com.
ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
Three Months Ended Years Ended
December 31, December 31,
-------------------- -------------------
2002 2001 (1) 2002 2001 (1)
--------- ---------- --------- ---------
Revenues
Distributed products $153,051 $145,790 $534,618 $495,241
Andrx products 45,710 46,037 209,407 229,003
Licensing and royalties 16,931 1,967 17,340 13,648
Other 2,405 2,808 9,615 11,149
--------- ---------- --------- ---------
Total revenues 218,097 196,602 770,980 749,041
--------- ---------- --------- ---------
Operating expenses
Cost of goods sold 185,259 148,916 620,069 479,595
Selling, general and
administrative 53,758 38,570 193,253 145,321
Research and development 17,942 12,664 51,479 52,846
Litigation settlements and
other charges 12,833 2,404 72,833 14,759
--------- ---------- --------- ---------
Total operating expenses 269,792 202,554 937,634 692,521
--------- ---------- --------- ---------
Income (loss) from operations (51,695) (5,952) (166,654) 56,520
Other income, net 2,364 2,764 14,011 12,411
--------- ---------- --------- ---------
Income (loss) before income
taxes (49,331) (3,188) (152,643) 68,931
Income tax (benefit) (17,419) 255 (60,826) 31,385
--------- ---------- --------- ---------
Net income (loss) $(31,912) $(3,443) $(91,817) $37,546
========= ========== ========= =========
EARNINGS (LOSS) PER SHARE
ANDRX COMMON STOCK: (2)
Net income (loss) allocated
to Andrx
(includes Cybear subsequent
to the May 17, 2002
Conversion) $(31,912) $4,241 $(85,873) $72,862
Premium on Conversion of
Cybear common stock - - (526) -
--------- ---------- --------- ---------
Total net income (loss)
allocated to Andrx $(31,912) $4,241 $(86,399) $72,862
========= ========== ========= =========
Net income (loss) per share of
Andrx common stock:
Basic $(0.45) $0.06 $(1.22) $1.04
========= ========== ========= =========
Diluted $(0.45) $0.06 $(1.22) $1.01
========= ========== ========= =========
Weighted average shares of
Andrx common stock
outstanding:
Basic 71,356 70,360 70,876 69,998
========= ========== ========= =========
Diluted 71,356 72,557 70,876 72,243
========= ========== ========= =========
CYBEAR COMMON STOCK: (2)
Net loss allocated to Cybear
(through the May 17, 2002
Conversion) $ (7,684) $(5,944) $(35,316)
Premium on Conversion of
Cybear common stock - 526 -
---------- --------- ---------
Total net loss allocated to
Cybear $(7,684) $(5,418) $(35,316)
========== ========= =========
Basic and diluted net loss per
share of Cybear common stock (3) $(1.14) $(0.80) $ (6.09)
========== ========= =========
Basic and diluted weighted
average shares of Cybear common
stock outstanding (3) 6,743 6,743 5,802
========== ========= =========
(1) Certain prior period amounts have been reclassified to conform to the current period presentation. (2) Effective May 17, 2002, all outstanding shares of Cybear common stock were converted to Andrx common stock. For periods subsequent to the conversion, Andrx Corporation will only report earnings (loss) per share for Andrx common stock which includes all of the former Cybear's operating results from the effective date of the conversion and will no longer report separate earnings (loss) per share for the former Cybear common stock. (3) The basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. weighted average shares of Cybear common stock outstanding and the basic and diluted net loss per share of Cybear common stock included herein for the period through May 17, 2002 and the year ended December 31, 2001 reflect the July 31, 2001 one-for-four reverse stock split for Cybear common stock.
ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
-------------------
2002 2001
--------- ---------
Assets
Cash, cash equivalents and investments
available-for-sale $97,394 $245,424
Accounts receivable, net 130,044 129,900
Inventories, net 147,967 161,691
Income tax receivable and deferred income
tax assets, net 101,858 30,745
Other current assets 12,371 15,313
--------- ---------
Total current assets 489,634 583,073
Property, plant and equipment, net 233,828 139,898
Goodwill, intangibles and other assets, net 66,017 66,243
--------- ---------
Total assets $789,479 $789,214
========= =========
Liabilities and Stockholders' Equity
Total current liabilities $208,058 $136,238
Non-current liabilities 15,714 5,082
--------- ---------
Total liabilities 223,772 141,320
Commitments and contingencies
Total stockholders' equity 565,707 647,894
--------- ---------
Total liabilities and stockholders' equity $789,479 $789,214
========= =========
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