CIMA LABS Announces Fourth-Quarter and Full-Year 2003 Financial Results; Company Reports Seventh Consecutive Quarter of Record Revenues.Business Editors/Health/Medical Writers EDEN PRAIRIE Eden Prairie A city of eastern Minnesota, a residential suburb of Minneapolis. Population: 57,300. , Minn.--(BUSINESS WIRE)--Feb. 26, 2004 CIMA LABS INC inc - /ink/ increment, i.e. increase by one. Especially used by assembly programmers, as many assembly languages have an "inc" mnemonic. Antonym: dec. . (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : CIMA) today reported financial results for the fourth quarter and 12 months ended December 31, 2003. For the fourth quarter of 2003: -- Revenues increased 34 percent to $20.8 million from $15.5 million in the fourth quarter of 2002, and rose sequentially from $20.3 million in the third quarter of 2003. -- The Company's GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. was $10.6 million, compared with GAAP operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. of $4 million for the fourth quarter of 2002, and $930,000 in the sequential third quarter of 2003. -- Due to lower reinvestment rates Reinvestment Rate The rate at which cash flows from fixed-income securities may be reinvested. Notes: Because of the additional interest income, bondholders can make larger investment returns if they reinvest received coupon payments. , other income, principally investment income, declined to $624,000 from $1.3 million in the fourth quarter of 2002. -- The Company's GAAP net loss was $9.8 million, or $(0.67) per share, compared with net income of $6.7 million, or $0.45 per 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. share, for the fourth quarter of 2002. GAAP net income for the sequential third quarter of 2003 was $972,000, or $0.07 per diluted share. The operating loss for the fourth quarter of 2003 included $13.7 million in expenses related to the Company's terminated merger with aaiPharma, Inc. (NASDAQ: AAII AAII See: American Association of Individual Investors ) and its ongoing proposed merger with Cephalon Ceph´a`lon n. 1. (Zool.) The head. , Inc. (NASDAQ: CEPH CEPH Council on Education for Public Health CEPH Centre d'Etude du Polymorphisme Humain ). These merger-related expenses included the payment of an $11.5 million break-up fee to aaiPharma, as well as advisory, investment banking, legal and administrative expenses. Under generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP), CIMA is required, as the accounting acquiree in both transactions, to expense costs related to the mergers as they are incurred. Certain of these costs are not considered tax deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). for financial reporting purposes based on new IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. rules. Excluding these merger-related charges, pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma operating income for the fourth quarter of 2003 was $3.1 million (15.0 percent of revenues), compared with $4 million (25.9 percent of revenues) for the fourth quarter of 2002. Pro forma net income for the fourth quarter of 2003, excluding merger-related expenses, was $3.2 million, or $0.21 per diluted share. CIMA's pro forma operating income, pro forma net income, and pro forma net income per diluted share are not based on GAAP. The Company believes such non-GAAP information provides investors with an additional means of measuring corporate performance and a consistent basis for comparing CIMA's results for the fourth quarter of 2003 with results for prior quarters. Within this news release, the Company has included tables that provide a reconciliation of these pro forma measures to comparable measures reported under GAAP. For the full year 2003: -- Revenues grew 63 percent to $76.1 million from $46.6 million in 2002. -- Including merger-related expenses, the Company's GAAP operating loss was $1.5 million, compared with GAAP operating income of $9.8 million last year. -- Due to lower reinvestment rates, other income, principally investment income, declined to $3.3 million from $6.4 million in 2002. -- CIMA's GAAP net loss was $2.0 million, or $(0.14) per share, compared with GAAP net income of $18.6 million, or $1.28 per diluted share, in 2002. Operations Review "CIMA reported its seventh consecutive quarter of record revenues, and the Company's revenue for the full year 2003 was in line with our upwardly revised guidance of $75 million to $77 million," said Steven B. Ratoff, chairman and interim CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "Posting 63 percent revenue growth in 2003 was a significant achievement, given the demands placed on our organization by the extraordinary level of M&A activity during the second half of the year. Equally significant, we continued to operate profitably on a pro forma basis even as we increased our investments in capacity expansion and the development of OraVescent Fentanyl fentanyl /fen·ta·nyl/ (fen´tah-nil) an opioid analgesic; the citrate salt is used as an adjunct to anesthesia, in the induction and maintenance of anesthesia, in combination with droperidol (or similar agent) as a neuroleptanalgesic, and . For the quarter, Organon's Remeron Remeron® Mirtazipine, see there SolTabs, Wyeth's Alavert, and AstraZeneca's Zomig Zo·mig A trademark for the drug zolmitriptan. zolmitriptan Zomig, Zomig-ZMT Pharmacologic class: Selective 5-hydroxytryptamine receptor agonist Therapeutic class: continued to be our major revenue generators." "Our fourth-quarter pipeline and business development initiatives continued to focus on CIMA's proprietary OraVescent Fentanyl, the first product generated as a result of the dual operating strategy we initiated last year," Ratoff said. "We concluded a successful End of Phase II meeting with the U.S. Food and Drug Administration (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. ), and have begun our preparations for the Phase III Noun 1. phase III - a large clinical trial of a treatment or drug that in phase I and phase II has been shown to be efficacious with tolerable side effects; after successful conclusion of these clinical trials it will receive formal approval from the FDA Safety and Efficacy clinical trials. We expect to begin enrolling patients during the second quarter of 2004. We believe that CIMA is on target to achieve its plans to file a regulatory submission for OraVescent Fentanyl in early 2005, with commercial introduction occurring in early 2006." Stated Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. John Hontz, Ph.D., "From an operational standpoint The Standpoint is a newspaper published in the British Virgin Islands. It was originally published under the name Pennysaver, largely as a shopping-coupon promotional newspaper, but since emerged as one of the most influential sources of journalism in the , CIMA again performed well during the fourth quarter. In order to meet our partners' production needs, we continued to operate at levels substantially above normal capacity. At the same time, we stayed on track and on budget with our capacity expansion projects." "Although our partners delayed the introduction of two products we had expected them to launch in the fourth quarter, production of ODT See SCO Open Desktop. ODT - Open Desktop tablets rose 40 percent from a year ago, contributing to a nearly 84 percent increase in manufacturing volume for the full year," Hontz said. "CIMA's pipeline includes a total of 17 partner-driven products. We expect our partners to launch two products in 2004, with the potential for an additional four to six launches in 2005." Financial Review Stated Chief Financial Officer James Hawley, "CIMA performed well financially in the fourth quarter. We generated record revenue and solid pro forma operating income even as we invested in capacity expansion and increased R&D spending by $1.1 million sequentially as a result of accelerating OraVescent Fentanyl development expenses." "We recognized the remaining federal tax benefits from net operating losses Net operating losses Losses that a firm can take advantage of to reduce taxes. in the fourth quarter of 2003," continued Hawley. "CIMA's effective tax rate for the fourth quarter was 1.7%, and 16.0% on a pro forma basis, excluding the merger-related expenses. We expect a normalized tax rate of approximately 37.5% to apply to CIMA's earnings in 2004 and beyond. Earnings per diluted share at the fully taxed rate of 37.5%, excluding merger-related expenses, would have been $0.16 for the fourth quarter of 2003 compared with $0.23 for the fourth quarter of 2002." CIMA's fully taxed earnings per share are a non-GAAP financial measure that the Company is using to provide a comparison to prior quarters. A reconciliation of fully taxed earnings per share to the comparable GAAP financial measure is included in the statements incorporated as part of this news release. "CIMA's cash and available-for-sale securities totaled $110.2 million at December 31, 2003, compared with $131.7 million at December 31, 2002. The decline in cash and available-for-sale securities reflects our investments in manufacturing capacity expansion, transaction-related expenses, and increased OraVescent Fentanyl spending. We continued to have no debt on our balance sheet," concluded Hawley. Business Outlook "Looking ahead to the first quarter of 2004, our partner-based collaborative product business is facing several challenges," Ratoff said. "A significant portion of our Q4 shipments to Wyeth were for packaging for future sale, and our first-quarter Alavert shipments are expected to decline as a result. This factor, coupled with the impact of the Alavert launch in Q1 of 2003, will produce unfavorable year-over-year comparisons. In addition, the long-anticipated introduction by Barr Laboratories of a generic competitor to Remeron SolTabs in the U.S. market, which took place during the fourth quarter of 2003, will have an effect on our business during the first quarter. Also, AstraZeneca recently signed an agreement to market Zomig through an independent distributor in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . We expect this to result in an adverse royalty revenue effect from our partner because the selling price on which we generate royalties will be lower." The Company expects the combined effect of these developments to reduce CIMA's first-quarter partner-driven revenue by approximately $1 million to $1.5 million from the comparable period a year ago. CIMA anticipates that partner launches during the year of Company-manufactured products will partially offset the effect of these factors in 2004. CIMA anticipates that Organon or·ga·non or or·ga·num n. pl. or·ga·nons or or·ga·nums or or·ga·na 1. An organ. 2. A set of principles for use in scientific investigation. organon pl. organa [Gr.] organ. , Wyeth and AstraZeneca will represent approximately 41 percent, 20 percent and 17 percent of revenues, respectively, for the first quarter. For the first quarter of 2004, CIMA expects its revenue component mix to include product sales revenues of approximately 60 percent, product development and licensing revenues of approximately 10 percent, and revenues from royalties of approximately 30 percent. Given the anticipated decline in partner-driven sales and an associated reduction in manufacturing volume, CIMA expects first-quarter 2004 gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. on manufactured products to decline to between 18.5 percent and 20.5 percent. This also reflects the increase in overhead due to the Company's recent investments in manufacturing capacity expansion, undertaken in anticipation of future growth requirements. Reflecting the start of the Phase III clinical trials Noun 1. phase III clinical trial - a large clinical trial of a treatment or drug that in phase I and phase II has been shown to be efficacious with tolerable side effects; after successful conclusion of these clinical trials it will receive formal approval from the for OraVescent Fentanyl, CIMA's R&D expense for the first quarter of 2004 is anticipated to rise to the range of $7 million to $7.5 million. The Company expects selling, general and administrative expenses to be in the range of $3.8 million to $4.5 million, including estimated transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). and costs related to CIMA's ongoing patent 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. . Considering the variables above, CIMA expects a first-quarter operating loss in the range of $3 million to $4 million. Concluded Ratoff, "In light of CIMA's impending im·pend intr.v. im·pend·ed, im·pend·ing, im·pends 1. To be about to occur: Her retirement is impending. 2. merger with Cephalon, we will not be providing financial guidance for full-year 2004. As we've stated previously, we expect to close the deal upon completion of the HSR HSR homogeneously staining regions. clearance process, and the satisfaction of all of the closing conditions in the merger agreement. We continue to believe that the long-term prospects for CIMA's business remain bright. OraVescent Fentanyl is moving rapidly into the clinic and we continue to make progress in moving our partner products through the development pipeline. We've assembled as·sem·ble v. as·sem·bled, as·sem·bling, as·sem·bles v.tr. 1. To bring or call together into a group or whole: assembled the jury. 2. a tremendous team and created strong partner relationships. Most important, CIMA has succeeded in developing ODT technologies that are becoming increasingly recognized across the pharmaceutical industry and we expect this recognition to generate strong long-term growth for our business." GAAP to Pro Forma Reconciliations The following tables reconcile pro forma operating income, pro forma net income, and pro forma income per diluted share to those reported under generally accepted accounting principles for the three- and 12-month periods ended December 31, 2003 and 2002.
GAAP operating income to Pro Forma operating income
(In millions of dollars) Q4 Q4 12 Mos. 12 Mos.
2003 2002 2003 2002
GAAP operating income (loss) (10.6) 4.0 (1.5) 9.8
Add back: merger-related expenses 13.7 - 17.4 -
Pro forma operating income 3.1 4.0 15.9 9.8
GAAP 2003 net income to Pro Forma 2003 net income (effective tax rate
of 16% in Q4, 27% 2003)
(In millions of dollars, except Q4 12 Mos.
per-share amounts) 2003 2003
GAAP net (loss) (9.8) (2.0)
Add back: merger-related expenses 13.7 17.4
Less: tax expense at pro forma (0.5) (5.1)
Less: tax benefit as reported (0.2) -
Add back: tax expense as reported - 3.7
Pro forma net income 3.2 14.0
Pro forma net income per diluted
share 0.21 0.95
GAAP net income to Pro Forma net income (effective tax rate of 37.5%)
(In millions of dollars, except Q4 Q4 12 Mos. 12 Mos.
per-share amounts) 2003 2002 2003 2002
GAAP net income (loss) (9.8) 6.7 (2.0) 18.6
Add back: merger-related expenses 13.7 - 17.4 -
Less: tax benefit as reported (0.2) (1.4) - (2.4)
Add back: tax expense as reported - - 3.7 -
Less: tax expense at 37.5% (1.4) (2.0) (7.2) (6.1)
Pro forma net income 2.3 3.3 12.0 10.1
Pro forma net income per diluted
share 0.16 0.23 0.81 0.69
Fourth-Quarter Conference Call and Replay CIMA will review its fourth-quarter operating results in a conference call at 4:30 p.m. ET today. A replay of the conference call will be available for one week by dialing 719-457-0820 and providing the 497860 confirmation code. Investors also can listen to the conference call by visiting the Company's website, www.cimalabs.com. The call will be archived on this site. About CIMA LABS CIMA develops and manufactures prescription and over-the-counter products based upon its proprietary, orally disintegrating drug delivery technologies, OraSolv(R) and DuraSolv(R). Based on its technologies, an active drug ingredient, which the Company frequently taste-masks, is formulated for·mu·late tr.v. for·mu·lat·ed, for·mu·lat·ing, for·mu·lates 1. a. To state as or reduce to a formula. b. To express in systematic terms or concepts. c. into a new, orally disintegrating dosage form A dosage form is the physical form of a dose of medication, such as a capsule or injection. The route of administration is dependent on the dosage form of a given drug. that dissolves quickly in the mouth without chewing chewing or mastication Up-and-down and side-to-side movements of the lower jaw, using the teeth to grind food for easier swallowing. During chewing, the tongue shapes food into a lump and saliva lubricates it for swallowing. or the need for water. The Company develops and manufactures orally disintegrating versions of drugs for pharmaceutical company partners for whom CIMA currently produces three branded prescription pharmaceuticals and three over-the-counter brands. CIMA also is developing proprietary products utilizing its orally disintegrating technologies, as well as its new OraVescent(R) enhanced absorption, transmucosal drug delivery system. 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. Statement This press release contains 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. within the meaning 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. These statements include, but are not limited to, CIMA's first-quarter 2004 expectations for partner-driven revenue, revenue component mix, gross margin on manufactured products, operating and merger-related expenses; the future success of products marketed by CIMA's partners; CIMA's expected effective tax rate; and the timing of the introduction of new products incorporating CIMA's technologies. A number of factors could cause actual results to differ materially from CIMA's assumptions and expectations. These factors include the successful completion of feasibility projects, consumer acceptance of products incorporating CIMA's technologies, the receipt of firm orders for these products, the success of pharmaceutical companies in marketing products incorporating CIMA's technologies, production costs, production yields, agreeing to commercial terms with pharmaceutical companies for new collaborative development and license agreements, capacity utilization Capacity Utilization measures the rate at which a firm makes use of their capital productive capacities, such as factories and machinery. Capacity Utilization generally rises when the economy is healthy and falls when demand softens. of product development and manufacturing resources, the outcome of tests in humans of proposed products, returns on investments, and recognition of income tax benefits. Additional factors that may cause actual results to differ from CIMA's assumptions and expectations include those set forth under the heading "Factors That Could Affect Future Results" included in CIMA's most recent filings with the Securities and Exchange Commission. All forward-looking statements are qualified by, and should be considered in conjunction with, such cautionary statements. These forward-looking statements speak only as of the date on which they are made. CIMA disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Condensed Income Statement
(in thousands, except per share)
Unaudited Unaudited
Three Months Ended Full Year Ended
December 31 December 31
2003 2002 2003 2002
Operating Revenues:
Net sales $13,396 $8,420 $49,061 $23,391
Product development fees and
licensing 1,602 2,887 6,163 11,496
Royalties 5,796 4,194 20,852 11,738
Total operating revenues 20,794 15,501 76,076 46,625
Operating expenses:
Cost of goods sold 9,892 6,540 34,578 18,481
Research and product
development 4,701 2,858 13,519 10,641
Selling, general and
administrative 3,076 2,083 12,112 7,710
Merger expenses 13,705 - 17,413 -
Total operating expenses 31,374 11,481 77,622 36,832
Operating income (10,580) 4,020 (1,546) 9,793
Other income 624 1,257 3,296 6,383
Income before provision
for taxes (9,956) 5,277 1,750 16,176
Income tax expense (benefit) (167) (1,385) 3,725 (2,441)
Net income (loss) $(9,789) $6,662 $(1,975) $18,617
Net income (loss) per basic
share $(0.67) $0.47 $(0.14) $1.31
Net income (loss) per diluted
share $(0.67) $0.45 $(0.14) $1.28
Weighted average of number of
shares:
Basic 14,531 14,234 14,420 14,193
Diluted 14,531 14,655 14,420 14,599
SELECTED BALANCE SHEET DATA
(in thousands)
December 31, December 31,
2003 2002
(unaudited) (audited)
Cash, cash equivalents and available-for-
sale securities - current & non-current $110,157 $131,681
Trade accounts receivable, net 14,686 14,621
Inventories, net 7,289 4,082
Property, plant & equipment, net 78,112 61,074
Deferred tax assets, net 14,008 11,414
Total assets 230,268 225,353
Current liabilities 15,689 12,052
Stockholders' equity 214,579 213,301
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