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Questcor Reports Record Second Quarter Financial Results

July 24, 2014

Net Sales $279 Million; Increase of 42% over Prior Year Non-GAAP Results

ANAHEIM, Calif., July 24, 2014 /PRNewswire/ — Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR) today reported financial results for the second quarter ended June 30, 2014.


                Three Months Ended    Three Months Ended
                          06/30/14              06/30/13  Percentage Change
             --------------------- ---------------------  -----------------

    GAAP
     Net
     Sales          $278.8 Million        $184.6 Million                    51%
    ------          --------------        --------------                    ---

    Non-
     GAAP
     Net
     Sales          $278.8 Million        $196.1 Million                    42%
    ------          --------------        --------------                    ---

    GAAP
     Diluted
     EPS                     $1.54                  $1.12                     37%
    --------                 -----                  -----                     ---

    Non-
     GAAP
     Diluted
     EPS                     $1.85                  $1.35                     37%
    --------                 -----                  -----                     ---


                 Six Months Ended    Six Months Ended
                         06/30/14            06/30/13  Percentage Change
              ------------------- -------------------  -----------------

    Net Sales      $505.9 Million      $319.7 Million                    58%
    ---------      --------------      --------------                    ---

    Non-GAAP
     Net
     Sales         $505.9 Million      $331.2 Million                    53%
    --------       --------------      --------------                    ---

    GAAP
     Diluted
     EPS                    $2.75                $1.79                     54%
    --------                -----                -----                     ---

    Non-GAAP
     Diluted
     EPS                    $3.25                $2.13                     53%
    --------                -----                -----                     ---

Net sales for the second quarter ended June 30, 2014 were $278.8 million, up 51% from $184.6 million in GAAP net sales and up 42% from $196.1 million in non-GAAP net sales in the second quarter of 2013. Net sales for H.P. Acthar(®) Gel (repository corticotropin injection) for the second quarter ended June 30, 2014 were $261.4 million, up 48% from $177.0 million in GAAP net sales and up 39% from $188.5 million in non-GAAP net sales in the second quarter of June 2013. The significant increase in net sales was driven by increased prescribing of Acthar by physicians for patients suffering from rheumatoid arthritis, systemic lupus erythematosus, dermatomyositis, polymyositis, nephrotic syndrome, multiple sclerosis exacerbations, infantile spasms and symptomatic sarcoidosis – all FDA-approved indications for Acthar. BioVectra, the Company’s specialty manufacturing subsidiary, had net sales of $17.4 million in the second quarter of 2014, an increase of 131% from $7.5 million in the second quarter of 2013. This increase was driven by increased demand for BioVectra’s specialty pharmaceutical fermentation and synthetic manufacturing capabilities. GAAP earnings for the second quarter of 2014 were $1.54 per diluted common share, up 37% from the year ago quarter. Second quarter 2014 non-GAAP earnings per share were $1.85, an increase of 37% from the prior year period.

Net sales for the second quarter of 2013 included the effect of the Company’s decision to accrue, based on information received in the quarter, an incremental Medicaid rebate liability of $11.5 million related to Questcor’s 2001 entry into the Medicaid system subsequent to Questcor’s acquisition of Acthar in 2001.

Questcor shipped 8,850 vials of Acthar during the second quarter of 2014, which represents a new record for Acthar shipments in a quarter and an increase of 26% from the 7,050 vials shipped in the year ago quarter. Quarterly vial shipments are subject to significant variation due to several factors, including the size and timing of individual orders received from Questcor’s distributor. The timing of when these orders are received and filled can significantly affect net sales and net income in any particular quarter. The Company believes that investors should consider the Company’s results over several quarters when analyzing the Company’s performance.

“Acthar prescription activity accelerated in the quarter, resulting in record net sales and earnings,” said Don M. Bailey, President and CEO of Questcor. “Similar to 2013, Acthar prescription activity picked up significantly in the second quarter, led by growth in our rheumatology indications and a resurgence in prescriptions for nephrotic syndrome. In addition, BioVectra experienced significantly improved results and we are in the process of expanding BioVectra’s specialty fermentation capacity in order to meet the growing demand for their contract manufacturing services.”

To allow comparable analysis, the Company has defined “new paid” prescriptions in the below paragraphs to include prescriptions covered by commercial carriers, Medicare, Medicaid and Tricare in all periods regardless of the rebate percentage applicable in those periods. The numbers are based on internal company estimates.

“There were between 2,775 and 2,800 total new paid prescriptions for Acthar in the second quarter, an increase of approximately 23% compared with the second quarter of 2013 and an increase of 19% sequentially,” commented Steve Cartt, Chief Operating Officer of Questcor. “Of particular note, we continue to see increased prescribing of Acthar by rheumatologists as a result of our ongoing educational efforts in rheumatology that, until very recently, have focused primarily on dermatomyositis and polymyositis. For all combined FDA-approved rheumatology-related Acthar indications, pharmacies filled between 665 and 675 new paid Acthar prescriptions during the second quarter, more than double the 315 to 320 prescriptions filled in the year ago quarter and an increase of 16% sequentially. Rheumatology prescriptions now account for approximately one-third of our total Acthar business. Overall, we had a strong second quarter, and we are seeing similar trends in the first few weeks of the current quarter.”

Mr. Cartt continued, “We have recently increased our promotional emphasis within rheumatology on systemic lupus erythematosus due to the recent publication in the journal LUPUS of an independent investigator-initiated, 10-patient study of Acthar in the treatment of lupus patients suffering from significant disease activity. Rheumatologists and patient organizations tell us that lupus patients have a significant need for new therapeutic options, and we are excited about the potential for Acthar to help select lupus patients in need of an additional FDA-approved treatment alternative.”

“In addition, our pilot effort focused on educating pulmonologists about Acthar in the treatment of respiratory manifestations of symptomatic sarcoidosis has generated a positive response over the last few months, consistent with our previous pilot detailing efforts in both nephrology and rheumatology. Prescribing activity by pulmonologists has exceeded our expectations since the pilot detailing effort began in February 2014, with approximately 40 to 45 new paid prescriptions shipped by pharmacies in the second quarter. As a result of these encouraging early results, we will be expanding the pulmonology sales force from 7 to 35 Acthar representatives and expect to complete this expansion by January 2015,” concluded Mr. Cartt.

Pharmacies filled between 480 and 490 new paid prescriptions for Nephrotic Syndrome (NS) in the quarter, an increase of about 20% compared with the second quarter of 2013 and an increase of 37% sequentially. Net sales resulting from NS prescriptions currently account for approximately one-third of our total Acthar business. During the second quarter, pharmacies filled between 1,350 and 1,360 new paid prescriptions for MS relapse patients as well, representing an increase of about 5% compared with the second quarter of 2013 and an increase of 18% sequentially. Net sales generated from MS relapse prescriptions currently represent approximately one-quarter of our total Acthar business. Lastly, pharmacies filled between 215 and 220 new paid prescriptions for Infantile Spasms during the quarter, compared to between 215 to 220 new paid prescriptions for Infantile Spasms in the year ago quarter.

The Company believes that insurance coverage for Acthar continues to remain favorable and relatively consistent. The Company believes that reimbursement rates for Acthar have remained favorable and relatively consistent in large part because Acthar is generally reserved by physicians for patients with more severe forms of the medical conditions for which the drug is being prescribed, the patient has often not properly responded to other therapies and Acthar is approved by the FDA for that difficult to treat medical condition.

Year-to-Date Financial Results

Net sales for the first six months of 2014 were $505.9 million, with BioVectra contributing $34.8 million. Net sales in the first six months of 2013 were $319.7 million, with BioVectra contributing $15.9 million. On a non-GAAP basis, net sales for the six months ended June 30, 2013 were $331.2 million. GAAP earnings for the first six months of 2014 were $2.75 per diluted common share, compared to $1.79 per diluted common share for the comparable period of 2013. Non-GAAP earnings for the six months ended June 30, 2014 were $3.25 per diluted common share excluding non-cash share-based compensation expense, depreciation and amortization expense, other non-cash expense related to the acquisitions of BioVectra and Synacthen and Synacthen Depot, and transaction-related expenses in connection with our pending merger with Mallinckrodt public limited company (NYSE: MNK). Non-GAAP earnings for the comparable period of 2013 were $2.13 per diluted common share. The reconciliation between GAAP and non-GAAP financial measures is provided with the financial tables included with this release.

Research and Development Progress

Research and development (R&D) expense increased 80% to $22.0 million in the three months ended June 30, 2014, compared with $12.2 million for the year ago period. The increased R&D expense reflects the Company’s ongoing efforts to further build the body of clinical evidence for Acthar, clarify the potential immune-modulating properties of Acthar and Synacthen Depot, and identify mechanisms of action that potentially could be applicable to other inflammatory and auto-immune diseases with high unmet medical needs. R&D expense in the second quarter of 2014 includes an upfront payment of $3.3 million to a third party in connection with a research and development agreement.

The Company is also identifying new patient populations in which to evaluate both Acthar and Synacthen Depot through exploratory clinical studies. Questcor is presently funding research and development for Acthar in the following indications:

New Indications for Label Enhancement Programs:

    --  Amyotrophic Lateral Sclerosis (ALS): Patient enrollment has been
        completed in a company-sponsored dose-ranging Phase 2 clinical trial to
        evaluate the safety and tolerability of Acthar in patients with ALS,
        often referred to as Lou Gehrig's disease. ALS is a life-threatening,
        progressive neurodegenerative disease that affects nerve cells in the
        brain and the spinal cord.
    --  Diabetic Nephropathy: Enrollment continues in a company-sponsored Phase
        2 trial to evaluate the efficacy and safety of Acthar in patients with
        diabetic nephropathy, one of the most common causes of end-stage renal
        disease in the United States.
    --  Acute Respiratory Distress Syndrome (ARDS): Site selection has been
        initiated for a Phase 2 study to explore the safety and efficacy of
        Acthar in patients with ARDS. ARDS is an acute life threatening lung
        condition that can result from pulmonary and non-pulmonary infections or
        a multitude of other serious conditions.

Clinical Trials Supporting Approved Indications:

    --  Idiopathic Membranous Nephropathy: Enrollment continues in a
        company-sponsored Phase 4 trial in idiopathic membranous nephropathy.
        Patients enrolled in this study are refractory, or non-responsive, to
        current standard therapies or have relapsed after partial remission on
        current standard therapies. (NOTE:  for clarity, this trial is separate
        and distinct from the independent investigator-initiated study in
        idiopathic membranous nephropathy patients discussed in Questcor's April
        21, 2014 press release.)
    --  Lupus: Enrollment continues in a company-sponsored multi-site Phase 4
        clinical trial to evaluate the efficacy and safety of daily Acthar
        administration during a 6-month period in patients with persistently
        active lupus.

Preclinical work related to the evaluation of a select group of potential Synacthen Depot indications is in process.

Cash and Dividends

Cash flow from operations was $99 million during the second quarter of 2014 compared to $82 million during the second quarter of 2013. As of July 18, 2014, Questcor had cash, cash equivalents and short-term investments of $474.6 million, including $75 million in restricted cash to secure certain post-closing payment obligations related to Questcor’s acquisition of Synacthen and Synacthen Depot.

On July 8, 2014, Questcor paid its second quarter dividend of $0.30 per share to shareholders of record at the close of business on July 1, 2014.

Definitive Merger Agreement with Mallinckrodt

On April 7, 2014, Questcor announced that it had entered into a definitive merger agreement under which Mallinckrodt public limited company will acquire Questcor in a transaction valued, based on the closing price of Mallinckrodt common stock on July 18, 2014, at approximately $6.3 billion. Under the terms of the transaction, Questcor shareholders will receive $30.00 per share in cash and 0.897 Mallinckrodt shares for each share of Questcor common stock they own, which, based on the closing price of Mallinckrodt common stock on July 18, 2014, is $97.37 per share. Following completion of the merger, Mallinckrodt shareholders will own approximately 50.5% and former Questcor shareholders will own approximately 49.5% of the combined company’s stock (calculated on a fully diluted basis using the treasury stock method). Mallinckrodt has filed with the SEC a registration statement on Form S-4 containing a joint proxy statement of Mallinckrodt and Questcor that also constitutes a prospectus of Mallinckrodt. The SEC declared the registration statement effective on July 11, 2014 and the Company commenced mailing of the definitive joint proxy/prospectus to its shareholders on July 14, 2014. The merger, which is subject to the approval of the shareholders of both companies, is currently expected to be completed in August 2014. In light of the pending transaction, Questcor has suspended conducting quarterly conference calls.

Acthar Label Information

The product label for Acthar includes 19 FDA-approved indications. Substantially all of the Company’s net sales currently result from Acthar prescriptions for the following on-label indications:

    --  Nephrotic Syndrome (NS): "to induce a diuresis or a remission of
        proteinuria in the nephrotic syndrome without uremia of the idiopathic
        type or that due to lupus erythematosus." NS can result from several
        underlying conditions, and prescribing physicians indicate that Acthar
        is most commonly being prescribed for patients who have proteinuria and
        suffer from NS due to idiopathic membranous nephropathy, focal segmental
        glomerulosclerosis (FSGS), IgA nephropathy, minimal change disease and
        lupus nephritis.
    --  Rheumatology Related Conditions:  Acthar is approved for the following
        rheumatology related conditions: (i) Collagen Diseases: Acthar is
        indicated "during an exacerbation or as maintenance therapy in selected
        cases of systemic lupus erythematosus, systemic dermatomyositis
        (polymyositis)" and (ii) Rheumatic Disorders: Acthar is indicated as
        "adjunctive therapy for short-term administration (to tide the patient
        over an acute episode or exacerbation) in: Psoriatic arthritis,
        Rheumatoid arthritis, including juvenile rheumatoid arthritis (selected
        cases may require low-dose maintenance therapy), Ankylosing
        spondylitis."
    --  Multiple Sclerosis (MS): "for the treatment of acute exacerbations of
        multiple sclerosis in adults. Clinical controlled trials have shown H.P.
        Acthar Gel to be effective in speeding the resolution of acute
        exacerbations of multiple sclerosis. However, there is no evidence that
        it affects the ultimate outcome or natural history of the disease." When
        Acthar is used, it is typically prescribed as second line treatment for
        patients with MS exacerbations.
    --  Infantile Spasms (IS): "as monotherapy for the treatment of infantile
        spasms in infants and children under 2 years of age."

Non-GAAP Financial Measures

The Company believes it is important to share non-GAAP financial measures with investors as these measures may better represent the ongoing economics of the business and reflect how we manage the business. Accordingly, management believes investors’ understanding of the Company’s financial performance is enhanced as a result of the disclosure of these non-GAAP financial measures. Non-GAAP financial measures should not be viewed in isolation, or as a substitute for, or as superior to, reported GAAP financial measures. The reconciliation between GAAP and non-GAAP financial measures are provided with the financial tables included with this release.

About Questcor

Questcor Pharmaceuticals, Inc. is a biopharmaceutical company focused on the treatment of patients with serious, difficult-to-treat autoimmune and inflammatory disorders. Questcor also provides specialty contract manufacturing services to the global pharmaceutical industry through its wholly-owned subsidiary BioVectra Inc. For more information about Questcor, please visit www.questcor.com.

For more information, please visit www.questcor.com or www.acthar.com.



                                                                               QUESTCOR PHARMACEUTICALS, INC.

                                                            CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                                                      (In thousands, except net income per share data)

                                                                                        (unaudited)

                                                    Three Months Ended                                       Six Months Ended

                                                         June 30,                                                June 30,
                                                         --------                                                --------

                                               2014                    2013                      2014                     2013
                                               ----                    ----                      ----                     ----

    Revenue

    Pharmaceutical net sales                          $261,412                                          $177,045                          $471,180           $303,817

    Contract manufacturing net
     sales                                   17,418                               7,528                                           $34,754            $15,885
                                             ------                               -----                                           -------            -------

    Total net sales                         278,830                             184,573                                          $505,934           $319,702

    Cost of sales                            23,152                              17,221                                44,562                33,410
                                             ------                              ------                                ------                ------

    Gross profit                            255,678                             167,352                               461,372               286,292

    Operating expenses:

    Selling and marketing                    56,792                              37,900                               103,859                73,362

    General and administrative               26,848                              13,126                                49,475                25,675

    Research and development                 22,008                              12,240                                41,937                23,033

    Depreciation and amortization             1,065                               1,014                                 2,092                 2,084

    Change in fair value of
     contingent consideration                 1,201                                   -                                2,382                     -

    Impairment of goodwill and
     intangibles                                  -                                  -                                    -                  719
                                                ---                                ---                                  ---                  ---

    Total operating expenses                107,914                              64,280                               199,745               124,873
                                            -------                              ------                               -------               -------

    Income from operations                  147,764                             103,072                               261,627               161,419

    Interest and other income
     (expense), net                           (226)                                 20                               (1,018)                (322)

    Foreign currency transaction
     gain (loss)                                 60                                   -                                 (94)                (488)
                                                ---                                 ---                                  ---                  ----

    Income before income taxes              147,598                             103,092                               260,515               160,609

    Income tax expense                       51,162                              33,969                                89,769                52,424
                                             ------                              ------                                ------                ------

    Net income                                         $96,436                                           $69,123                          $170,746           $108,185

    Change in unrealized gains or
     losses on available-for-
     sale securities, net of
     related tax effects                         31                                (29)                                   37                  (34)

    Change in foreign currency
     translation adjustments                  1,479                             (1,451)                                  242               (2,640)
                                              -----                              ------                                   ---                ------

    Comprehensive income                               $97,946                                           $67,643                          $171,025           $105,511
                                                       =======                                           =======                          ========           ========

    Net income per share:

    Basic                                                $1.62                                             $1.17                             $2.87              $1.86
                                                         =====                                             =====                             =====              =====

    Diluted                                              $1.54                                             $1.12                             $2.75              $1.79
                                                         =====                                             =====                             =====              =====

    Shares used in computing net income per
     share:

    Basic                                    59,686                              58,938                                59,415                58,075
                                             ======                              ======                                ======                ======

    Diluted                                  62,451                              61,498                                62,172                60,581
                                             ======                              ======                                ======                ======

    Dividends declared per share
     of common stock                                     $0.30                                             $0.25                             $0.60              $0.50

    Reconciliation of Non-GAAP Adjusted Financial Disclosure
    --------------------------------------------------------

                                                                               Three Months Ended       Six Months Ended

                                                                                    June 30,                June 30,

                                                                                  2014          2013       2014          2013
                                                                                  ----          ----       ----          ----

    Adjusted net income                                                       $115,822       $83,323   $202,083      $128,987

      Stock-based Compensation (1)                                             (5,729)      (4,382)  (11,442)      (8,546)

      Depreciation & Amortization Expense, including impairment expense (2)    (3,222)      (1,882)   (6,391)      (3,615)

      Other non-cash expense (income) related to acquisition of BioVectra (3)    (573)        (219)   (1,127)        (890)

      Other non-cash expense (income) related to acquisition of Synacthen (4)  (1,133)            0    (2,247)            0

      Acquisition related expenses (5)                                         (6,607)            0    (8,001)            0

      Medicaid adjustment for 2002 - 2009 (6)                                        0       (7,717)         0       (7,751)

      Research and development milestone (7)                                   (2,122)            0    (2,129)            0

    Net income - GAAP                                                          $96,436       $69,123   $170,746      $108,185
                                                                               =======       =======   ========      ========

    Adjusted net income per share - basic                                        $1.94         $1.41      $3.40         $2.22

      Stock-based Compensation (1)                                              (0.10)       (0.07)    (0.19)       (0.15)

      Depreciation & Amortization Expense, including impairment expense (2)     (0.05)       (0.03)    (0.11)       (0.06)

      Other non-cash expense (income) related to acquisition of BioVectra (3)   (0.01)       (0.00)    (0.02)       (0.02)

      Other non-cash expense (income) related to acquisition of Synacthen (4)   (0.02)            -    (0.04)            -

      Acquisition related expenses (5)                                          (0.11)            -    (0.13)            -

      Medicaid adjustment for 2002 - 2009 (6)                                        -       (0.13)         -       (0.13)

      Research and development milestone (7)                                    (0.04)            -    (0.04)            -

    Net income per share - basic                                                 $1.62         $1.17      $2.87         $1.86
                                                                                 =====         =====      =====         =====

    Adjusted net income per share - diluted                                      $1.85         $1.35      $3.25         $2.13

      Stock-based Compensation (1)                                              (0.09)       (0.07)    (0.18)       (0.14)

      Depreciation & Amortization Expense, including impairment expense (2)     (0.05)       (0.03)    (0.10)       (0.06)

      Other non-cash expense (income) related to acquisition of BioVectra (3)   (0.01)       (0.00)    (0.02)       (0.01)

      Other non-cash expense (income) related to acquisition of Synacthen (4)   (0.02)            -    (0.04)            -

      Acquisition related expenses (5)                                          (0.11)            -    (0.13)            -

      Medicaid adjustment for 2002 - 2009 (6)                                        -       (0.13)         -       (0.13)

      Research and development milestone (7)                                    (0.03)            -    (0.03)            -

    Net income per share - diluted                                               $1.54         $1.12      $2.75         $1.79
                                                                                 =====         =====      =====         =====

    Net sales - Questcor                                                      $261,412      $177,045   $471,180      $303,817

    Net sales - BioVectra                                                       17,418         7,528     34,754        15,885
                                                                                ------         -----     ------        ------

    Consolidated net sales                                                     278,830       184,573    505,934       319,702

    Medicaid adjustment                                                              0        11,500          0        11,500

    Adjusted consolidated net sales                                           $278,830      $196,073   $505,934      $331,202
                                                                              ========      ========   ========      ========

    Notes to Reconciliation of Non-GAAP Adjusted Financial Disclosure
    -----------------------------------------------------------------

    Net income per share - basic and diluted may not foot due to rounding.

    Use of Non-GAAP Financial Measures

    Our "non-GAAP adjusted net income" excludes the following items from GAAP net income:

    1. Share-based compensation expense.

    2. Depreciation and amortization expense.

    3. Other non-cash expense (income) related to the acquisition of BioVectra, including compensation expense associated with the BV agreement.

    4.  Other non-cash expense (income) related to the acquisition of Synacthen Depot, including net present value adjustment of the Synacthen Depot liability.

    5.  Transaction costs related to the pending merger with Mallinckrodt plc.

    6.  Medicaid adjustment for prior period 2002 - 2009.

    7. Upfront payment to a third party in connection with a research and development agreement.

                                             QUESTCOR PHARMACEUTICALS, INC.

                                          CONDENSED CONSOLIDATED BALANCE SHEETS

                                        (In thousands, except share information)

                                                       (unaudited)

                                                             June 30,              December 31,
                                                                  2014                      2013
                                                                  ----                      ----

                                ASSETS

    Current assets:

    Cash and cash equivalents                                             $331,679                        $175,840

    Short-term investments                                      61,074                             69,166
                                                                ------                             ------

    Total cash, cash equivalents and
     short-term investments                                    392,753                            245,006

    Accounts receivable, net of
     allowances for doubtful accounts of
     $408 and $475 at June 30, 2014 and
     December 31, 2013, respectively                           106,954                             87,069

    Inventories, net of allowances of
     $1,441 and $1,329 at June 30, 2014
     and December 31, 2013, respectively                        16,382                             16,368

    Restricted cash - current portion                           50,000                             25,000

    Prepaid income taxes                                         9,970                                  -

    Prepaid expenses and other current
     assets                                                      7,668                              7,124

    Deferred tax assets                                         11,512                             16,209
                                                                ------                             ------

    Total current assets                                       595,239                            396,776

    Property and equipment, net                                 36,409                             31,733

    Goodwill                                                    20,527                             20,464

    In process R&D asset                                       186,530                            191,451

    Intangibles and other non current
     assets, net                                                28,589                             30,131

    Restricted cash                                             25,000                             50,000

    Deposits and other assets                                      134                                389

    Deferred tax assets                                         15,410                             15,410
                                                                ------                             ------

    Total assets                                                          $907,838                        $736,354
                                                                          ========                        ========

                 LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities:

    Accounts payable                                                       $37,264                         $14,302

    Accrued compensation                                        23,019                             16,489

    Sales-related reserves                                      26,913                             35,370

    Accrued royalties                                           46,398                             35,163

    Dividend payable                                            18,426                             18,093

    Current portion of contingent
     consideration associated with the
     acquisition of BioVectra                                    4,124                              4,238

    Current portion of non-contingent
     liability  associated with the
     acquisition of Synacthen and
     Synacthen Depot                                            23,810                             24,398

    Income taxes payable                                         2,219                              3,693

    Current portion of long-term debt                            1,701                              1,665

    Other accrued liabilities                                    3,860                              7,159
                                                                 -----                              -----

    Total current liabilities                                  187,734                            160,570

    Long-term debt, less current portion                        13,181                             13,998

    Contingent consideration associated
     with acquisition of BioVectra                              30,642                             33,224

    Non-contingent liability associated
     with the acquisition of Synacthen
     and Synacthen Depot                                        22,675                             45,378

    In process R&D liability                                    72,011                             70,290

    Non current deferred tax liability                          10,602                             10,569

    Other non current liabilities                                2,853                              2,961
                                                                 -----                              -----

    Total liabilities                                          339,698                            336,990
                                                               -------                            -------

    Shareholders' equity:

    Preferred stock, no par value,
     5,334,285 shares authorized; none
     outstanding                                                     -                                 -

    Common stock, no par value,
     105,000,000 shares authorized,
     61,448,937 and 60,137,758 shares
     issued and outstanding at June 30,
     2014 and December 31, 2013,
     respectively                                               64,927                             30,386

    Retained earnings                                          506,187                            372,231

    Accumulated other comprehensive
     (loss) income                                             (2,974)                           (3,253)
                                                                ------                             ------

    Total shareholders' equity                                 568,140                            399,364
                                                               -------                            -------

    Total liabilities and shareholders'
     equity                                                               $907,838                        $736,354
                                                                          ========                        ========

                                             QUESTCOR PHARMACEUTICALS, INC.

                                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     (In thousands)

                                                      (unaudited)

                                                                   Six Months Ended

                                                                       June 30,
                                                                       --------

                                                                  2014              2013
                                                                  ----              ----

    OPERATING ACTIVITIES

    Net income                                                            $170,746                           $108,185

    Adjustments to reconcile net income to net cash
     provided by operating activities:

    Share-based compensation expense                            17,469                        12,679

    Deferred income taxes                                        4,699                           962

    Amortization of investments                                    521                           245

    Depreciation and amortization                                9,757                         4,645

    Impairment of goodwill and
     intangibles                                                     -                          719

    Loss on disposal of property and
     equipment                                                       -                           95

    Imputed interest for contingent
     consideration and in-process R&D                            2,382                           588

    Other compensation expense                                   1,059                           494

    Changes in operating assets and liabilities, net of
     business acquisition:

    Accounts receivable                                       (17,887)                      (2,883)

    Inventories                                                     20                         4,270

    Prepaid income taxes                                       (9,970)                            -

    Prepaid expenses and other current
     assets                                                        225                         1,175

    Accounts payable                                            20,306                       (2,569)

    Accrued compensation                                         6,530                      (10,780)

    Sales-related reserves                                     (8,457)                      (1,786)

    Accrued royalties                                           11,235                         7,060

    Income taxes payable                                       (1,535)                      (2,684)

    Other accrued liabilities                                (1,714nn)                        2,555

    Other non-current liabilities                                   45                            21
                                                                   ---                           ---

    Net cash flows provided by operating
     activities                                                205,431                       122,991
                                                               -------                       -------

    INVESTING ACTIVITIES

    Purchase of property and equipment                         (8,266)                      (1,138)

    Purchase of short-term investments                        (33,570)                     (52,001)

    Proceeds from maturities of short-
     term investments                                           41,178                       116,206

    Acquisition of BioVectra, net of cash
     acquired                                                        -                     (46,692)

    Contingent consideration payment
     related to BioVectra acquisition                          (4,581)                            -

    Restricted cash associated with the
     acquisition of Synacthen                                        -                     (75,000)

    Acquisition of Synacthen                                         -                     (60,000)

    Annual cash payment for Synacthen                         (25,000)                            -

    Proceeds from sale of Doral                                      -                          700

    Deposits and other assets                                      766                             -
                                                                   ---                           ---

    Net cash flows used in investing
     activities                                               (29,473)                    (117,925)
                                                               -------                      --------

    FINANCING ACTIVITIES

    Repayment of funded long-term debt                           (591)                        (613)

    Repayment of other long-term debt                            (232)                        (212)

    Income tax benefit realized from
     share-based compensation plans                             17,699                         5,173

    Issuance of common stock, net                                1,519                         6,943

    Repurchase of common stock                                 (2,146)                            -

    Dividends paid                                            (36,457)                     (14,887)
                                                               -------                       -------

    Net cash flows used in financing
     activities                                               (20,208)                      (3,596)
                                                               -------                        ------

    Effect of cash on changes in exchange
     rates                                                          89                         (313)

    Increase in cash and cash equivalents                      155,839                         1,157
                                                               -------                         -----

    Cash and cash equivalents at
     beginning of period                                       175,840                        80,608
                                                               -------                        ------

    Cash and cash equivalents at end of
     period                                                               $331,679                            $81,765
                                                                          ========                            =======

    Supplemental Disclosures of Cash Flow Information:

    Cash paid for interest                                                    $294                               $380
                                                                              ====                               ====

    Cash paid for income taxes                                             $78,884                            $49,234
                                                                           =======                            =======

    Supplemental Disclosures of Investing and Financing
     Activities:

    Dividend payable                                                       $18,426                            $15,000
                                                                           =======                            =======

    In conjunction with the acquisition of BioVectra at
     January 18, 2013:

    Incremental fair value of assets acquired, net                                                   $80,698

    Less: fair value of contingent consideration                                         (30,383)
                                                                                          -------

                                                                                           50,315

    Loss on foreign exchange rate                                                             488

    Total cash paid for acquisition of BioVectra                                                     $50,803
                                                                                                     =======

Cautionary Statement Regarding Forward-Looking Statements

Statements in this document that are not strictly historical, including statements regarding the proposed acquisition, the expected timetable for completing the transaction, future financial and operating results, benefits and synergies of the transaction, future opportunities for the combined businesses and any other statements regarding events or developments that we believe or anticipate will or may occur in the future, may be “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve a number of risks and uncertainties. There are a number of important factors that could cause actual events to differ materially from those suggested or indicated by such forward-looking statements and you should not place undue reliance on any such forward-looking statements. These factors include risks and uncertainties related to, among other things: general economic conditions and conditions affecting the industries in which Mallinckrodt and Questcor operate; the commercial success of Mallinckrodt’s and Questcor’s products, including H.P. Acthar® Gel; Mallinckrodt’s and Questcor’s ability to protect intellectual property rights; the parties’ ability to satisfy the merger agreement conditions and consummate the merger on the anticipated timeline or at all; the availability of financing, including the financing contemplated by the debt commitment letter, on anticipated terms or at all; Mallinckrodt’s ability to successfully integrate Questcor’s operations and employees with Mallinckrodt’s existing business; the ability to realize anticipated growth, synergies and cost savings; Questcor’s performance and maintenance of important business relationships; the lack of patent protection for Acthar, and the possible United States Food and Drug Administration (“FDA”) approval and market introduction of additional competitive products; Questcor’s reliance on Acthar for substantially all of its net sales and profits; Questcor’s ability to continue to generate revenue from sales of Acthar to treat on-label indications associated with nephrotic syndrome, multiple sclerosis, infantile spasms or rheumatology-related conditions, and Questcor’s ability to develop other therapeutic uses for Acthar; volatility in Questcor’s Acthar shipments, estimated channel inventory, and end-user demand; an increase in the proportion of Questcor’s Acthar unit sales comprised of Medicaid-eligible patients and government entities; Questcor’s research and development risks, including risks associated with Questcor’s work in the areas of nephrotic syndrome and lupus and Questcor’s efforts to develop and obtain FDA approval of Synacthen(TM) Depot; Mallinckrodt’s ability to receive procurement and production quotas granted by the U.S. Drug Enforcement Administration; Mallinckrodt’s ability to obtain and/or timely transport molybdenum-99 to its technetium-99m generator production facilities; customer concentration; cost-containment efforts of customers, purchasing groups, third-party payors and governmental organizations; Mallinckrodt’s ability to successfully develop or commercialize new products; competition; Mallinckrodt’s ability to achieve anticipated benefits of price increases; Mallinckrodt’s ability to integrate acquisitions of technology, products and businesses generally; product liability losses and other litigation liability; the reimbursement practices of a small number of large public or private issuers; complex reporting and payment obligations under healthcare rebate programs; changes in laws and regulations; conducting business internationally; foreign exchange rates; material health, safety and environmental liabilities; litigation and violations; information technology infrastructure; and restructuring activities. Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in (i) Mallinckrodt’s SEC filings, including its Annual Report on Form 10-K for the fiscal year ended September 27, 2013 and Quarterly Reports on Form 10-Q for the quarterly periods ended December 27, 2013 and March 28, 2014; (ii) the SEC filings of Cadence Pharmaceuticals, Inc., which was acquired by Mallinckrodt on March 19, 2014, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2013; and (iii) Questcor’s SEC filings, including its Annual Report on Form 10-K for the year ended December 31, 2013 (and the amendment thereto on Form 10-K/A), its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 and its Current Report on Form 8-K filed with the SEC on July 10, 2014. The forward-looking statements made herein speak only as of the date hereof and none of Mallinckrodt, Questcor or any of their respective affiliates assumes any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise, except as required by law.

Important Information for Investors and Shareholders

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with the proposed transaction between Mallinckrodt and Questcor, Mallinckrodt has filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 containing a joint proxy statement of Mallinckrodt and Questcor that also constitutes a prospectus of Mallinckrodt. The registration statement on Form S-4 was declared effective by the SEC on July 11, 2014. Each of Mallinckrodt and Questcor commenced mailing the joint proxy statement/prospectus to its respective shareholders on July 14, 2014. INVESTORS AND SECURITY HOLDERS OF MALLINCKRODT AND QUESTCOR ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS THAT HAVE BEEN OR WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY AS THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders can obtain free copies of the joint proxy statement/prospectus, the registration statement and other documents filed with the SEC by Mallinckrodt and Questcor through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Mallinckrodt will be available free of charge on Mallinckrodt’s internet website at www.mallinckrodt.com or by contacting Mallinckrodt’s Investor Relations Department at (314) 654-6650. Copies of the documents filed with the SEC by Questcor will be available free of charge on Questcor’s internet website at www.questcor.com or by contacting Questcor’s Investor Relations Department at (714) 497-4899.

Participants in the Merger Solicitation

Mallinckrodt, Questcor, their respective directors and certain of their executive officers and employees may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the Mallinckrodt and Questcor shareholders in connection with the proposed merger and a description of their direct and indirect interests, by security holdings or otherwise, is set forth in the joint proxy statement/prospectus filed by Questcor and Mallinckrodt with the SEC. Information about the directors and executive officers of Mallinckrodt is set forth in its proxy statement for its 2014 annual general meeting of shareholders, which was filed with the SEC on January 24, 2014 . Information about the directors and executive officers of Questcor is set forth in its amendment to Annual Report on Form 10-K/A, which was filed with the SEC on April 30, 2014.

SOURCE Questcor Pharmaceuticals, Inc.


Source: PR Newswire



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