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SciClone Reports Financial Results for the Third Quarter 2012

SciClone Reports Financial Results for the Third Quarter 2012 and
2012 Outlook 
FOSTER CITY, CA -- (Marketwire) -- 11/09/12 --  SciClone
Pharmaceuticals, Inc. (NASDAQ: SCLN) today reported financial results
for the third quarter and for the nine months ended September 30,
2012. In the third quarter, ZADAXIN(R) sales continued to perform
well, with 12% revenue increase in the quarter and 22% increase year
to date compared to the prior year, and, combined with revenue from
other marketed products, driving our overall company revenue growth
of 9% in the quarter and 30% year-to-date.  
"While we are pleased with ZADAXIN's continued growth and believe
there is significant opportunity for strong growth long term with
this key product, there are several internal and external factors
affecting our short term revenue in the China market, which we are
addressing," commented Friedhelm Blobel, Ph.D., SciClone's President
and Chief Executive Officer. 
"Externally, while the China pharmaceuticals market is predicted to
grow at a rate of 15% or more annually, and demand for high quality
products remains high, the Chinese government is implementing
measures to contain healthcare costs. Relative to the recently
announced 18% national price reduction of ZADAXIN, we were able to
negotiate a favorable outcome with our importer that resulted in less
than a 5% revenue impact on our company. This was a very favorable
outcome for us, but we believe the prolonged uncertainty of the
pricing issue had a dampening effect on ZADAXIN sales to the hospital
pharmacies. Internally, while there are important strategic benefits
of the NovaMed acquisition, we are disappointed that the overall
business has under-performed. We have taken expedient action to
identify and address issues across our China organization, some of
which may have affected ZADAXIN sales to the hospital pharmacies, and
to put strategies in place designed to strengthen our business and
improve our financial performance in subsequent quarters. We believe
these actions will have a positive, long-term effect on our business
and re-establish our company on a sustainable growth trajectory." 
Comparable periods in 2011 referred to in this press release include
the financial results of NovaMed Pharmaceuticals, Inc. (NovaMed) only 
for the period subsequent to our acquisition of NovaMed on April 18,
2011. 
NovaMed Acquisition 
We acquired NovaMed on April 18, 2011. The acquisition increased our
portfolio of commercial and development-stage products through
exclusive licensing and product service agreements with a number of
leading pharmaceutical companies. However, although revenues from the
NovaMed business have grown since the acquisition, and are expected
to continue to grow in the fourth quarter, overall revenue growth and
profitability have not met our expectations at the time of the
acquisition. For the three and nine months ended September 30, 2012,
we recognized a one-time non-cash impairment loss of approximately
$42.7 million to fully write down the value of the Company's
promotion and distribution contract rights intangible assets recorded
as part of the acquisition of NovaMed as the undiscounted cash flows
estimated to be generated by those assets were less than the carrying
amounts of those assets. We also recorded a non-cash net tax benefit
related to NovaMed of approximately $6.8 million, primarily due to
the impairment of intangible assets, which resulted in reversal of
related deferred tax liabilities, and the impact of recording a full
valuation allowance on any remaining NovaMed deferred tax assets.  
The terms of our acquisition of NovaMed provided for the contingent
consideration of up to an additional $43.0 million in earn-out
payments upon the successful achievement of revenue and earnings
targets. We re-measure the fair value of the contingent consideration
each quarter, which resulted in a non-cash gain of $12.8 million for
the third quarter of 2012, compared to a gain of $2.2 million for the
same period in the prior year. The significant reduction in the
valuation of the contingent consideration expense during the third
quarter of 2012 was primarily related to the decrease in the
estimated probability of achieving targets relating to NovaMed's
product distribution agreements, including in particular the renewal
of the Depakine services agreement with Sanofi for a five-year term.
We are currently negotiating an extension of that agreement, but
believe that any initial extension will be for less than a five-year
term. For the nine months ended September 30, 2012, contingent
consideration gain was $14.9 million, compared with $1.4 million for
the same period last year.  
SciClone reported that revenues increased by 9% for the quarter ended
September 30, 2012, to $40.7 million, compared to revenues for the
same period in the prior year of $37.4 million. Revenues increased by
30% for the nine months ended September 30, 2012, to $120.1 million,
compared to revenues for the same period in the prior year of $92.2
million.  
The importers and distributors who are our customers tend to purchase
infrequent large orders of ZADAXIN inventory to facilitate their
distribution and sale to Chinese hospital pharmacies. The timing of
infrequent large orders may significantly affect the ZADAXIN channel
inventory levels and may cause fluctuations to our reported sales and
profitability for each quarterly period.  
Financial Results 
During the third quarter and particularly in September 2012, we
believe that there was a significant increase in ZADAXIN channel
inventory levels. We believe the overall market for thymalfasin has
continued to grow, but that our strategy of increasing demand for
ZADAXIN through various measures, including the expansion of our
ZADAXIN sales force, has not led to increased demand during 2012 for
ZADAXIN in the hospital pharmacies. We continue to believe that we
can increase penetration in the market and grow demand for ZADAXIN.
During the nine months ended September 30, 2012, we believe that our
sales to our customers have exceeded the pace at which our customers
have been able to sell ZADAXIN through to other parties, primarily
hospital pharmacies. For the six months ended June 30, 2012, we
believe that the levels of ZADAXIN channel inventory grew moderately.
For the three months ended September 30, 2012, we believe that the
levels of ZADAXIN channel inventory grew significantly. We believe
that approximately $14 million of our revenue recognized in the three
months ended September 30, 2012 related to the increase of ZADAXIN
channel inventory levels at our customers in China.  
The increase in revenues in the third quarter and year to date was
also affected by the inclusion of the NovaMed primary care and
oncology business revenues since the date of the acquisition. For the
third quarter ending September 30, 2012, ZADAXIN revenues increased
12% to $31.2 million compared to revenues for the same period in the
prior year of $27.9 million, and revenues attributable to the primary
care and oncology product lines were $9.5 million for both quarters
ended September 30, 2012 and 2011. For the nine months ended
September 30, 2012, ZADAXIN revenues increased 22% to $91.4 million
compared to revenues for the same period in the prior year of $75.0
million, and revenues attributable to the primary care and oncology
product lines increased 67% to $28.7 million, compared to revenues
for the same period in the prior year of $17.2 million. 
On a pro forma basis, assuming NovaMed had been
 acquired on January
1, 2011, the revenues for the quarter and nine months ended September
30, 2012 of $40.7 million and $120.1 million would have been compared
to $37.4 million and $100.2 million, an increase of $3.3 million or
9% and $19.9 million or 20%, respectively.  
On a GAAP basis, SciClone's net loss for the third quarter of 2012
was $13.5 million, compared with net income of $10.2 million for the
same period in the prior year, or a net loss of $0.24 per share on
both a basic and diluted basis for the three months ended September
30, 2012, compared with a net gain of $0.18 and $0.17 per share on a
basic and diluted basis, respectively, for the same period in the
prior year. The loss was due to a one-time, non-cash impairment
charge of approximately $42.7 million, offset in part by certain
non-cash gains, which related to our NovaMed acquisition. For the
nine months ended September 30, 2012, SciClone reported net income of
$5.8 million, compared with $16.1 million for the same period in the
prior year, or $0.10 per share on both a basic and diluted basis,
compared with $0.30 and $0.28 per share on a basic and diluted basis,
respectively, for the same period in the prior year. 
SciClone's non-GAAP net income for the third quarter of 2012 was
$11.7 million, compared with non-GAAP income of $9.8 million for the
same period of last year, or $0.21 and $0.20 per share on a basic and
diluted basis, respectively, for the three months ended September 30,
2012, and $0.17 and $0.16 per share on a basic and diluted basis,
respectively, for the three months ended September 30, 2011. For the
nine months ended September 30, 2012, SciClone's non-GAAP net income
was $32.7 million, compared with non-GAAP income of $22.2 million for
the same period of last year, or $0.57 and $0.55 per share on a basic
and diluted basis for the nine months ended September 30, 2012,
respectively, compared to $0.41 and $0.39 per share on a basic and
diluted basis, respectively, for the same period of last year. 
SciClone believes this non-GAAP information is useful for investors,
taken in conjunction with SciClone's GAAP financial statements,
because management uses such information internally for its
operating, budgeting and financial planning purposes. Non-GAAP
information is not prepared under a comprehensive set of accounting
rules and should only be used to supplement an understanding of
SciClone's operating results as reported under GAAP. The non-GAAP
calculations and reconciliation to comparable GAAP measures were
derived principally as a result of the NovaMed acquisition and are
provided in the accompanying table titled "Reconciliation of GAAP to
Non-GAAP Net Income." 
Sales and marketing expenses for the third quarter of 2012 were $17.0
million, compared with $15.2 million for the same period in the prior
year. The increase of $1.8 million was primarily a result of the
additional expansion in China by approximately 130 sales, marketing,
and sales support representatives since last year, which
significantly expanded SciClone's sales and marketing capabilities.
The Company now has a combined sales organization comprised of
approximately 850 sales and marketing focused professionals in China.
For the nine months ended September 30, 2012, sales and marketing
expenses were $52.4 million, compared with $33.3 million, for the
same period last year.  
Research and development (R&D) expenses for the third quarter of 2012
totaled $0.9 million, compared with $3.0 million for the same period
in the prior year. Following the Company's announcement on March 2,
2012 regarding the futility of our SCV-07 clinical development
program in oral mucositis, the Company has reduced its future
US-based clinical development expenses this year and expects further
substantial decreases in R&D expenses in 2013. For the nine months
ended September 30, 2012, research and development expenses were $5.8
million, compared with $9.2 million, for the same period last year.  
General and administrative expenses for the third quarter of 2012
were $5.7 million, compared with $5.2 million for the same period in
the prior year. The increase in 2012 was primarily due to higher
professional expenses related to legal, accounting and tax matters.
For the nine months ended September 30, 2012, general and
administrative expenses were $14.1 million, compared with $19.4
million, for the same period last year.  
At September 30, 2012, cash and cash equivalents, restricted cash,
and investments totaled $89.2 million, compared with $67.0 million at
December 31, 2011. The increase in SciClone's cash balance was
primarily due to the cash generated by the Company's commercial
operations, partially offset by $18.5 million used in the nine months
ended September 30, 2012 for the repurchase of SciClone stock. 
We concluded that certain deficiencies in the design and operation of
internal controls primarily related to a NovaMed product represented,
in aggregate, a material weakness. We have taken steps to correct
that material weakness in the fourth quarter and additional
information on the material weakness is contained in the company's
Form 10-Q which will be filed on November 9, 2012. 
Revised Financial Outlook for 2012 
Since the acquisition of NovaMed, we have put strategies in place
designed to expand and strengthen our sales and marketing
infrastructure in China, with the goal of meeting the growing demand
for pharmaceuticals in the China market. The expansion of our sales
force, with the addition of more than 130 sales, marketing, and sales
support representatives since last year, and organization of the
sales force into business units focusing on ZADAXIN, primary care and
oncology, were consistent with this goal. We believe that these
strategies had a positive effect on our business in the year
following the acquisition. However, we believe that several
developments in the third quarter of 2012 had, or may yet have,
material impacts on the growth rate of our business in China and the
Company's financial results in the second half of 2012. These
developments pertain to: a reduction in the retail price for ZADAXIN
and other products which we believe had been anticipated by the
market but occurred later in the year than expected; the channel
inventory and sales growth of ZADAXIN; NovaMed acquisition matters,
including our licensing and product services agreements with third
parties and contingent consideration remeasurement; internal control
issues primarily within the NovaMed organization; and management
turnover. These issues are discussed in detail in the Management
Discussion and Analysis section of the company's Form 10-Q filed on
November 9, 2012.  
We believe that these and other factors contributed to the increase
in channel inventory, and due to that increase SciClone is revising
down its anticipated 2012 revenues to be between $152 and $157
million, from previously anticipated revenues of between $165 and 170
million. The Company is also revising its previously anticipated
non-GAAP earnings per share for the full year 2012 to be between
$0.62 and $0.68 from the previously anticipated range of between
$0.72 and $0.78. The Company is revising up the anticipated year-end
cash, restricted cash and investments balances to greater than $90
million from previously anticipated cash balances of greater than $85
million, exclud
ing the cash impact of any future repurchase of common
stock from its share repurchase program. 
Increase in Share Repurchase Plan Reserve 
Our Board of Directors approved an increase in our reserve for our
share repurchase program of $10.0 million. We have been repurchasing
our stock over the last several quarters as the Board believes such
purchases are in the interest of all of our stockholders. The balance
available for repurchases as of today is $16.2 million. 
Conference Call Today 
SciClone is hosting a conference call today at 8:30 am ET to provide
a financial update. The call will be hosted by Friedhelm Blobel,
Ph.D., President and CEO, Gary Titus, Senior Vice President and CFO.  
LIVE CALL:
 877 261 8992 (U.S./Canada)
 847 619 6548 (International) 
Passcode: 33695874 
REPLAY:
 888-843-7419 (U.S./Canada)
 630-652-3042
(International)
 Passcode: 33695874 
 (Replay available from Friday,
November 9, 2012, at 11:00 am ET until 11:59 pm ET on Wednesday,
November 14, 2012) 
The conference call will contain forward-looking statements.
Interested parties who wish to listen to the webcast should visit the
Investor Relations section of SciClone's website at www.sciclone.com.
The information provided on the teleconference is accurate only at
the time of the conference call, and SciClone will take no
responsibility for providing updated information except as required
by law.  
About SciClone  
SciClone Pharmaceuticals is a revenue-generating, profitable,
specialty pharmaceutical company with a substantial commercial
business in China and a product portfolio of therapies for oncology,
infectious diseases and cardiovascular, urological, respiratory, and
central nervous system disorders. SciClone's ZADAXIN(R) (thymalfasin)
is approved in over 30 countries and may be used for the treatment of
hepatitis B (HBV), hepatitis C (HCV), and certain cancers, and as a
vaccine adjuvant, according to the local regulatory approvals.
Besides ZADAXIN, SciClone markets about 14 mostly partnered products
in China, including Depakine(R), the most widely prescribed
broad-spectrum anti-convulsant in China; Tritace(R), an ACE inhibitor
for the treatment of hypertension; Stilnox(R), a fast-acting hypnotic
for the short-term treatment of insomnia (marketed as Ambien(R) in
the US); and Aggrastat(R), a recently-launched interventional
cardiology product. SciClone is also pursuing the registration of
several other therapeutic products in China. SciClone is
headquartered in Foster City, California. For additional information,
please visit www.sciclone.com.  
Forward-Looking Statements  
This press release contains forward-looking statements regarding
expected financial results and expectations. Readers are urged to
consider statements that include the words "may," "will," "would,"
"could," "should," "might," "believes," "estimates," "projects,"
"potential," "expects," "plans," "anticipates," "intends,"
"continues," "forecast," "designed," "goal," "unaudited,"
"approximately" or the negative of those words or other comparable
words to be uncertain and forward-looking. These statements are
subject to risks and uncertainties that are difficult to predict and
actual outcomes may differ materially. These include risk and
uncertainties relating to: the course, cost and outcome of regulatory
matters, including further pricing decisions by authorities in China;
the on-going regulatory investigations; the Company's ability to
execute on its goals in China and on its objectives for revenue in
fiscal 2012; the challenges presented by integrating an acquired
business into existing operations; the variability in earnings on a
GAAP basis that may result from non-cash charges related to the
NovaMed acquisition; the effect of management changes and turnover in
our China operations; the potential effect over the coming quarters
of increased channel inventory, the dependence on third-party
license, promotion or distribution agreements including the need to
renew such agreements or end arrangements that we do not believe are
beneficial; operating an international business; the clinical trial
process, including the regulatory approval and the process of
initiating trials at, and enrolling patients at, clinical sites; the
effect of changes in its practices and policies related to the
Company's compliance programs. SciClone cannot predict the timing or
outcome of the SEC and DOJ investigations, or of the level of its
efforts required to cooperate with those investigations, however the
Company has incurred substantial expenses in connection with the
investigations and related litigation and expects to incur additional
expense and the investigations could result in fines and further
changes in its internal control or other remediation measures that
could adversely affect its business. Please also refer to other risks
and uncertainties described in SciClone's filings with the SEC. All
forward-looking statements are based on information currently
available to SciClone and SciClone assumes no obligation to update
any such forward-looking statements.  
Ambien, Depakine, Stilnox and Tritace are registered trademarks of
Sanofi and/or its affiliates. 
Aggrastat is a registered trademark of Medicure International Inc. in
the United States, and Iroko Cardio LLC in numerous other countries. 
SciClone, SciClone Pharmaceuticals, the SciClone Pharmaceuticals
design, the SciClone logo and ZADAXIN are registered trademarks of
SciClone Pharmaceuticals, Inc. in the United States and numerous
other countries. 


 
                                                                            
                                                                            
                       SCICLONE PHARMACEUTICALS, INC.                       
              UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS               
                  (in thousands, except per share amounts)                  
                                                                            
                                  Three Months Ended     Nine Months Ended  
                                       Sept 30,              Sept 30,       
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
                                                                            
Net revenues:                                                               
  Product sales                  $  32,130  $  30,433  $  95,596  $  79,484 
  Promotion services                 8,556      6,992     24,546     12,711 
                                 ---------  ---------  ---------  --------- 
    Total revenues, net             40,686     37,425    120,142     92,195 
                                                                            
Operating expenses:                                                         
  Cost of product sales              5,475      5,024     15,631     13,301 
  Sales and marketing               17,042     15,222     52,371     33,311 
  Amortization of acquired                                                  
   intangible assets, related to                                            
   sales and marketing                 879        858      2,645      1,572 
  Research and development             864      3,035      5,750      9,235 
  General and administrative         5,673      5,202     14,089     19,419 
  Intangible asset impairment       42,728          -     42,728          - 
  Contingent consideration         (12,773)    (2,231)   (14,860)    (1,423)
                                 ---------  ---------  ---------  --------- 
    Total operating expenses        59,888     27,110    118,354     75,415 
                                 ---------  ---------  ---------  --------- 
                                                                            
Income from operations             
(19,202)    10,315      1,788     16,780 
                                                                            
Non-operating income (expense):                                             
  Interest income                       28         15         73         48 
  Interest expense                     (57)       (49)      (167)      (159)
  Other (expense) income, net           (7)        (5)       (22)         6 
                                 ---------  ---------  ---------  --------- 
Income (loss) before provision                                              
 for income tax                    (19,238)    10,276      1,672     16,675 
(Benefit) provision for income                                              
 tax                                (5,696)        46     (4,085)       613 
                                 ---------  ---------  ---------  --------- 
Net income (loss)                $ (13,542) $  10,230  $   5,757  $  16,062 
                                 =========  =========  =========  ========= 
                                                                            
Basic net income (loss) per                                                 
 share                           $   (0.24) $    0.18  $    0.10  $    0.30 
Diluted net income (loss) per                                               
 share                           $   (0.24) $    0.17  $    0.10  $    0.28 
                                                                            
Weighted average shares used in                                             
 computing:                                                                 
  Basic net income (loss) per                                               
   share                            56,617     58,331     57,184     54,044 
  Diluted net income (loss) per                                             
   share                            56,617     60,437     59,161     56,426 
                                                                            
                                                                            
                                                                            
                                                                            
                       SCICLONE PHARMACEUTICALS, INC.                       
               RECONCILIATION OF GAAP TO NON-GAAP NET INCOME                
                  (in thousands, except per share amounts)                  
                                (unaudited)                                 
                                                                            
                                  Three Months Ended     Nine Months Ended  
                                     September 30,         September 30,    
                                 --------------------  -------------------- 
                                    2012       2011       2012       2011   
                                 ---------  ---------  ---------  --------- 
                                                                            
GAAP net income (loss)           $ (13,542) $  10,230  $   5,757  $  16,062 
Non-GAAP adjustments:                                                       
  Employee stock-based                                                      
   compensation                      1,163        881      3,199      2,130 
  Amortization of acquired                                                  
   intangible assets                   879        858      2,645      1,572 
  Intangible assets impairment      42,728          -     42,728          - 
  Contingent consideration         (12,773)    (2,231)   (14,860)    (1,423)
  Net tax benefit related to                                                
   NovaMed deferred tax assets                                              
   and liabilities                  (6,800)         -     (6,800)         - 
  Acquisition related costs              -         28          -      3,810 
                                 ---------  ---------  ---------  --------- 
    Non-GAAP net income          $  11,655  $   9,766  $  32,669  $  22,151 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
Non-GAAP basic net income per                                               
 share                           $    0.21  $    0.17  $    0.57  $    0.41 
Non-GAAP diluted net income per                                             
 share                           $    0.20  $    0.16  $    0.55  $    0.39 
                                                                            
Weighted average shares used in                                             
 computing:                                                                 
Non-GAAP basic net income per                                               
 share                              56,617     58,331     57,184     54,044 
Non-GAAP diluted net income per                                             
 share                              58,289     60,437     59,161     56,426 

 
SciClone management uses these non-GAAP financial measures to monitor
and evaluate the Company's operating results and trends on an
on-going basis and internally for operations, budgeting and financial
planning purposes. SciClone believes the non-GAAP information is
useful for investors by offering them the ability to better
understand how management evaluates the business. These non-GAAP
measures have limitations, however, because they do not include all
items of income and expenses that affect SciClone. These non-GAAP
financial measures that management uses are not prepared in
accordance with, and should not be considered in isolation of, or as
an alternative to, measurements required by GAAP. 
SciClone's non-GAAP financial measures exclude the following items
from GAAP net income (loss) and net income (loss) per share: 


 
--  Employee stock-based compensation. The effects of non-cash employee
    stock-based compensation.
--  Amortization of acquired intangible assets. We recorded intangible
    assets in connection with the acquisition of NovaMed. The amortization
    of these intangible assets is excluded from SciClone's non-GAAP
    financial measure.
--  Intangible assets impairment. We recorded a one-time non-cash
    impairment loss to fully write-down the intangible assets acquired in
    connection with the acquisition of NovaMed. The impairment loss on
    these intangible assets is excluded from SciClone's non-GAAP financial
    measure.
--  Contingent consideration. The contingent consideration related to the
    acquisition of NovaMed is re-measured each reporting period and the
    change in fair value is recorded as an adjustment to operating
    expense. SciClone's non-GAAP financial measure excludes the change in
    fair value of the liability for contingent consideration in connection
    with the acquisition of NovaMed.
--  Net tax benefit related to NovaMed deferred tax assets and
    liabilities. We recorded a non-cash net tax benefit related to
    NovaMed, primarily due to the impairment of intangible assets, which
    resulted in reversal of related deferred tax liabilities, and the
    impact of recording a full valuation allowance on any remaining
    NovaMed deferred tax assets.
--  Acquisition related costs. We incurred certain one-time acquisition
    costs related to the acquisition of NovaMed. The effects of these
    acquisition related costs are excluded from SciClone's non-GAAP
    financial measure.

 
                                                                            
                                                                
            
                       SCICLONE PHARMACEUTICALS, INC.                       
                    UNAUDITED SELECTED BALANCE SHEET DATA                   
                               (in thousands)                               
                                                                            
                                              September 30,    December 31, 
                                                   2012            2011     
                                             --------------- ---------------
                                                                            
Cash and investments                         $        86,543 $        66,654
Restricted cash and investments                        2,674             364
Accounts receivable                                   36,974          42,226
Inventories                                            6,199           8,813
Intangible assets, net                                     -          45,185
Goodwill                                              32,135          31,973
Total assets                                         167,871         200,326
Total current liabilities                             22,972          25,284
Contingent consideration                                 562          15,400
Deferred tax liabilities                                   -           8,715
Borrowing on line of credit                                -           2,500
Total shareholders' equity                           144,630         150,458

  
Corporate Contacts 
Gary Titus
Chief Financial Officer
650.358.3456
gtitus@sciclone.com 
Jane Green 
Investors/Media
650.358.1447
jgreen@sciclone.com