Endo Reports Fourth-Quarter And Full-Year 2016 Financial Results

DUBLIN, Feb. 28, 2017 /PRNewswire/ -- 

• Fourth-quarter 2016 revenues of $1,242 million brings full-year 2016 revenues of $4,010 million to top end of guidance
• Company reports $3.5 billion of asset impairment charges in fourth-quarter 2016 associated with the write-down of goodwill and intangible assets primarily related to the Company's Generics reporting unit
• Fourth-quarter reported $14.96 diluted (GAAP) loss per share from continuing operations; Full-year 2016 reported $14.48 diluted (GAAP) loss per share from continuing operations
• Fourth-quarter $1.77 adjusted diluted EPS from continuing operations; Full-year 2016 adjusted diluted EPS of $4.73 at top end of guidance
• Company expects 2017 revenues to range from $3.45 billion to $3.60 billion
• Company expects 2017 Adjusted EBITDA from $1.50 billion to $1.58 billion
• Company also announces divestiture of Litha Healthcare Group for $100 million

Endo International plc (NASDAQ/TSX: ENDP) today reported fourth-quarter 2016 financial results, including:

• Revenues of $1,242 million, a 16 percent increase compared to fourth-quarter 2015 revenues of $1,074 million.
• Reported net loss from continuing operations of $3,333 million compared to fourth-quarter 2015 reported net income from continuing operations of $444 million.
• Reported diluted loss per share from continuing operations of $14.96 compared to fourth-quarter 2015 reported diluted earnings per share (EPS) from continuing operations of $1.97.
• Adjusted net income from continuing operations of $396 million, a 29 percent increase compared to fourth-quarter 2015 adjusted net income from continuing operations of $307 million.¹
• Adjusted diluted EPS from continuing operations of $1.77, a 30 percent increase compared to fourth-quarter 2015 adjusted diluted EPS from continuing operations of $1.36.¹

EXECUTIVE COMMENTARY

"After I was named CEO last September, Endo began a comprehensive strategic review that has resulted in a series of definitive actions. First, we streamlined our global supply chain and restructured our Pain franchise, including the divestiture of BELBUCA™. We then executed a Corporate restructuring and have begun divesting non-core businesses with today's announced sale of Litha Healthcare Group. All of these measures better position Endo to focus on its core assets, drive margin expansion and de-lever over a period of time," said Paul Campanelli, President and CEO of Endo.

"Endo's core assets include a Generics business, which is the fourth largest in the U.S. based on sales, that possesses a growing sterile injectables portfolio and a promising ANDA pipeline. Complementing our generics unit is a revamped specialty Branded business focusing on our flagship product XIAFLEX^®. Despite industry headwinds and other challenges, we are excited about our future and have the people, products, and pipeline in place that we believe will enable us, in time, to create value for our shareholders," Mr. Campanelli concluded.

Blaise Coleman, Executive Vice President and Chief Financial Officer, added, "Expected 2017 revenues of between $3.45 billion and $3.60 billion are forecasted to be lower than 2016 revenues primarily due to the expected revenue decline in our Generics base business and legacy Branded pain franchise, as well as the impact of divestitures and product discontinuations. We estimate 2017 adjusted EBITDA from continuing operations of between $1.50 billion and $1.58 billion due, in part, to cost reduction initiatives undertaken in 2016 and early 2017 that have resulted in a significant year-over-year increase in Endo's adjusted EBITDA margin as a percentage of revenue. Finally, estimated 2017 adjusted diluted EPS from continuing operations of between $3.45 and $3.75 is significantly impacted by a higher adjusted effective tax rate and an anticipated increase in variable-rate interest expense."

CONSOLIDATED RESULTS

Total revenues increased by 16 percent to $1,242 million in fourth-quarter 2016 compared to the same period in 2015, primarily attributable to the launch of key first-to-file generic products, quetiapine and ezetimibe. GAAP net loss from continuing operations in fourth-quarter 2016 was $3,333 million compared to GAAP net income from continuing operations of $444 million during the same period in 2015, primarily attributable to the amount of goodwill and intangible asset impairment charges recorded during fourth-quarter 2016. GAAP net loss per share from continuing operations for the three months ended December 31, 2016 was $14.96, compared to GAAP net earnings from continuing operations of $1.97 in fourth-quarter 2015.

Adjusted net income from continuing operations in fourth-quarter 2016 increased by 29 percent to $396 million compared to fourth-quarter 2015, driven primarily by the contribution of quetiapine and ezetimibe. Adjusted net income per share from continuing operations for the three months ended December 31, 2016 increased 30 percent to $1.77 compared to fourth-quarter 2015.

U.S. GENERIC PHARMACEUTICALS

During fourth-quarter 2016, the U.S. Generic Pharmaceuticals business unit completed the restructuring of its product portfolio as well as its manufacturing facility network, including the divestiture of the Charlotte, North Carolina facility.

Fourth-quarter 2016 U.S. Generic Pharmaceuticals results include:

• Revenues of $882 million, a 45 percent increase compared to fourth-quarter 2015; this increase was primarily attributable to the launches of quetiapine extended-release tablets, the generic version of SEROQUEL XR^®, and ezetimibe tablets, the generic equivalent of ZETIA^®. Par has first-to-file status and associated marketing exclusivity for each product. The introduction of ezetimibe tablets represented the largest product launch in Par Pharmaceutical's history.
• Sterile injectables increased 43 percent compared to fourth-quarter 2015; this increase was driven primarily by VASOSTRICT^®, which benefited from the market withdrawal of its only competitor's product in 2015.
• Generics base business decreased 23 percent compared to fourth-quarter 2015; this decrease resulted from continued pricing pressure due to increased competition, particularly among Solid Oral Immediate Release (IR) products.

U.S. BRANDED PHARMACEUTICALS

During fourth-quarter 2016, Endo announced highly statistically significant Phase 2b study results on the primary composite endpoint and all secondary endpoints for XIAFLEX^® in patients with cellulite. The Company also announced its intention to return the BELBUCA™ (buprenorphine) buccal film product to its developer, eliminate its U.S. Branded pain sales field force and manage the Company's legacy pain portfolio as mature brands. Endo's U.S. Branded segment will now focus on its core Specialty products, including its flagship product XIAFLEX^®, as well as SUPPRELIN^® LA, TESTOPEL^®, and AVEED^®.

Fourth-quarter 2016 U.S. Branded Pharmaceuticals results include:

• Revenues of $289 million, a 24 percent decrease compared to fourth-quarter 2015; this decrease was primarily attributable to generic erosion adversely impacting the Company's Pain and Established Products portfolios, including VOLTAREN^® Gel, LIDODERM^® and FROVA^®, along with the divestiture of STENDRA^®.
• Among Endo's Specialty products, net sales of XIAFLEX^® increased 11 percent compared to fourth-quarter 2015; this increase was primarily attributable to double-digit demand growth for the product. Net sales of SUPPRELIN^® LA increased 23 percent, driven, in part, by continued demand growth.
• In January 2017, the U.S. Food and Drug Administration announced that it will hold an advisory committee meeting in March 2017 to discuss certain pre- and post-marketing data relating to OPANA^® ER, and the overall risk-benefit of that product. The advisory committees will also discuss generic oxymorphone extended-release and oxymorphone immediate-release products.

INTERNATIONAL PHARMACEUTICALS

As with Endo's U.S. businesses, International Pharmaceuticals underwent a product-by-product and business-by-business assessment. Today, the Company announced the divestiture of Litha Healthcare Group to Acino for approximately $100 million. As part of Endo's strategic assessment and comprehensive asset review, the Company determined that Litha no longer aligned with its strategy and was not considered a core asset. The divestiture of Litha helps simplify the Endo organization and permits it to better focus on the core Generics and Specialty Branded Pharmaceutical businesses. The transaction is expected to close in the second quarter of 2017, subject to customary conditions, including the expiration or termination of any waiting periods under applicable competition laws. The final purchase price will be subject to cash, debt, working capital and other potential contractual adjustments.

Endo's International Pharmaceuticals unit continued to effectively manage its business operations in anticipation of the impact of the loss-of-exclusivity for certain Paladin products, during the fourth-quarter 2016, while continuing its efforts to improve adjusted operating margins.

Fourth-quarter 2016 International Pharmaceuticals results include:

• Revenues of $70 million, an 18 percent decrease compared to fourth-quarter 2015.
• Paladin revenues of $28 million, a 2 percent decrease compared to fourth-quarter 2015, due to expected competition on certain products. In the fourth quarter, Paladin began promoting XIAFLEX^® and NUCYNTA^® in Canada. Paladin also retains Canadian marketing rights to serelaxin and looks forward to the results of a Phase III clinical trial expected in 2017.
• Emerging market revenues from Litha and Somar of $38 million, a 25 percent decrease compared to fourth-quarter 2015, attributable, in part, to a decrease in Litha revenues as the result of the divestiture of non-core assets in first-quarter 2016. Revenues were also impacted by lower demand for certain products in Mexico and the unfavorable impact of foreign exchange.

2017 FINANCIAL GUIDANCE

For the full twelve months ended December 31, 2017, at current exchange rates, Endo is providing guidance on revenue, GAAP and adjusted diluted EPS guidance from continuing operations and adjusted EBITDA from continuing operations. The Company estimates:

• Total revenues to be between $3.45 billion to $3.60 billion;
• Reported diluted GAAP EPS from continuing operations to be between $0.04 and $0.34;
• Adjusted diluted EPS from continuing operations to be between $3.45 to $3.75; and
• Adjusted EBITDA from continuing operations to be between $1.50 billion to $1.58 billion.

The Company's 2017 non-GAAP financial guidance is based on the following assumptions:

• Adjusted gross margin of approximately 62.0% to 63.0%;
• Adjusted operating expenses as a percentage of revenues to be approximately 22.5% to 23.0%;
• Adjusted interest expense of approximately $470 million to $480 million;
• Adjusted effective tax rate of approximately 13.0% to 14.0%;
• Adjusted diluted EPS from continuing operations assumes full-year adjusted diluted shares outstanding of approximately 224 million shares; and
• Adoption of Accounting Standard Update 2016-09 ("ASU 2016-09") in the first quarter of 2017, changing the GAAP reporting of excess tax benefits and deficiencies associated with employee stock-based compensation. The Company estimates there could be at least a $10 million tax detriment (~$0.04 GAAP and Adjusted diluted earnings per share estimated impact) recognized primarily in the first quarter of 2017 when most employee stock awards vest or expire during the year.

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

As of December 31, 2016, the Company had $517.3 million in unrestricted cash; net debt of approximately $7.8 billion and a net debt to adjusted EBITDA ratio of 4.6.

Fourth-quarter 2016 cash provided by operating activities was $81.1 million, primarily attributable to the benefit of no interest payments related to high-yield notes and lower mesh payments during the quarter, offset partially by increases in working capital resulting from the fourth-quarter quetiapine and ezetimibe launches in our generics segment.

During fourth-quarter 2016, the Company conducted an annual goodwill impairment assessment, resulting in a pre-tax, non-cash impairment charge of $2,674 million, including the following items:

• $2,342.5 million related to the Generics reporting unit, which represents the difference between the estimated implied fair value of the reporting unit's goodwill and its book value. The impairment charge was driven by a reduction in the expected future cash flows in the Generics reporting unit primarily due to a change in pricing expectations partly driven by an expected increased level of competition and increased buying power from the continued consolidation of the generic business customer base. These charges are primarily due to industry and competitive pressures in the sector, which resulted in a reduction of the Generics reporting unit's fair value.
• $272.6 million related to the Paladin Canada reporting unit, was driven primarily by a reduction in pricing expectations and additional generic competitors for several of Paladin's products.
• $33.0 million and $26.3 million related to the Somar and Litha reporting units, respectively.

In addition to the Company's goodwill assessment, the Company also incurred pre-tax, non-cash intangible asset impairment charges in the fourth-quarter of approximately $830.3 million, including:

• $507.2 million and $285.5 million in our U.S. Generic Pharmaceutical and International Pharmaceutical segments, respectively, resulting from certain market conditions impacting the commercial potential of definite and indefinite-lived intangible assets.
• $37.6 million in the U.S. Branded Pharmaceuticals segment primarily resulting from the termination of BELBUCA™ and the return of this product to BioDelivery Sciences International, Inc.

Conference Call Information

Endo will conduct a conference call with financial analysts to discuss this press release today at 8:30 a.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 58581981. Please dial in 10 minutes prior to the scheduled start time.

A replay of the call will be available from February 28, 2017 at 11:30 a.m. ET until 12:30 p.m. ET on March 14, 2017 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 58581981.

A simultaneous webcast of the call can be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available until 12:30 p.m. ET on March 14, 2017. The replay can be accessed by clicking on the Investor Relations section of the Endo website.

The following table presents Endo's unaudited Net Revenues for the three and twelve months ended December 31, 2016 and 2015:

The following table presents unaudited consolidated Statement of Operations data for the three and twelve months ended December 31, 2016 and 2015 (in thousands, except per share data):

The following table presents unaudited condensed consolidated Balance Sheet data at December 31, 2016 and December 31, 2015 (in thousands):

The following table presents unaudited condensed consolidated Statement of Cash Flow data for the year ended December 31, 2016 and 2015 (in thousands):

The following schedule presents the significant pre-tax cash outlays and cash receipts impacting our Net cash provided by operating activities for the years ended December 31, 2016 and 2015 (in thousands):

Supplemental Financial Information

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures. For additional information on the Company's use of such non-GAAP financial measures, refer to Endo's Current Report on Form 8-K furnished today to the Securities and Exchange Commission, which includes an explanation of the Company's reasons for using non-GAAP measures.

The table below provides reconciliations of our consolidated income (loss) from continuing operations (GAAP) to our adjusted income from continuing operations (non-GAAP) for the three and twelve months ended December 31, 2016 and 2015:

Notes to the reconciliation of certain line items included in the GAAP Statements of Operations to the Non-GAAP line items are as follows:

Notes to the reconciliation of certain line items included in the GAAP Statements of Operations to the Non-GAAP line items are as follows:

The Company's guidance is being issued based on certain assumptions including:

• Certain of the above amounts are based on estimates and there can be no assurance that Endo will achieve these results.
• Includes all completed and pending business development transactions as of February 28, 2017.

Non-GAAP Financial Measures

The Company utilizes certain financial measures that are not prescribed by or prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). These Non-GAAP financial measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted earnings per share amounts. Despite the importance of these measures to management in goal setting and performance measurement, we stress that these are Non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, Non-GAAP adjusted EBITDA and Non-GAAP adjusted net income and its components (unlike U.S. GAAP net income and its components) may not be comparable to the calculation of similar measures of other companies. These Non-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses performance. See Endo's Current Report on Form 8-K furnished today to the Securities and Exchange Commission for an explanation of Endo's non-GAAP financial measures.

About Endo International plc

Endo International plc (NASDAQ/TSX: ENDP) is a highly focused generics and specialty branded pharmaceutical company delivering high-quality medicines to patients in need through excellence in development, manufacturing and commercialization. Endo has global headquarters in Dublin, Ireland, and U.S. headquarters in Malvern, PA. Learn more at www.endo.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements, including but not limited to the statements by Messrs. Campanelli and Coleman, as well as, other statements regarding product development, market potential, corporate strategy, optimization efforts and restructurings, expected growth and regulatory approvals, together with Endo's earnings per share amounts, product net sales, revenue forecasts and any other statements that refer to Endo's expected, estimated or anticipated future results. Because forecasts are inherently estimates that cannot be made with precision, Endo's performance at times differs materially from its estimates and targets, and Endo often does not know what the actual results will be until after the end of the applicable reporting period. Therefore, Endo will not report or comment on its progress during a current quarter except through public announcement. Any statement made by others with respect to progress during a current quarter cannot be attributed to Endo.

All forward-looking statements in this press release reflect Endo's current analysis of existing trends and information and represent Endo's judgment only as of the date of this press release. Actual results may differ materially from current expectations based on a number of factors affecting Endo's businesses, including, among other things, the following: changing competitive, market and regulatory conditions; Endo's ability to obtain and maintain adequate protection for its intellectual property rights; the timing and uncertainty of the results of both the research and development and regulatory processes; domestic and foreign health care and cost containment reforms, including government pricing, tax and reimbursement policies; technological advances and patents obtained by competitors; the performance, including the approval, introduction, and consumer and physician acceptance of new products and the continuing acceptance of currently marketed products; the effectiveness of advertising and other promotional campaigns; the timely and successful implementation of strategic initiatives; the results of any pending or future litigation, investigations or claims; the uncertainty associated with the identification of and successful consummation and execution of external corporate development initiatives and strategic partnering transactions; and Endo's ability to obtain and successfully maintain a sufficient supply of products to meet market demand in a timely manner. In addition, U.S. and international economic conditions, including higher unemployment, political instability, financial hardship, consumer confidence and debt levels, taxation, changes in interest and currency exchange rates, international relations, capital and credit availability, the status of financial markets and institutions, fluctuations or devaluations in the value of sovereign government debt, as well as the general impact of continued economic volatility, can materially affect Endo's results. Therefore, the reader is cautioned not to rely on these forward-looking statements. Endo expressly disclaims any intent or obligation to update these forward-looking statements except as required to do so by law.

Additional information concerning the above-referenced risk factors and other risk factors can be found in press releases issued by Endo, as well as Endo's public periodic filings with the U.S. Securities and Exchange Commission and with securities regulators in Canada, including the discussion under the heading "Risk Factors" in Endo's 2016 Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. Copies of Endo's press releases and additional information about Endo are available at www.endo.com or you can contact the Endo Investor Relations Department by calling 484-216-0000.