- Third quarter 2018 revenue of $128 million
- Third quarter net income of $1.8 billion, which includes a $1.9 billion gain on debt settlement as part of the Company's recently completed transaction to realign its capital structure (the "Recapitalization Transaction")
- Third quarter 2018 Adjusted EBITDA2 of $59 million
- Generated cash flow from operations of $98 million in the first nine months of 2018 and concluded the third quarter of 2018 with a cash balance of $209 million
MISSISSAUGA, ON, Nov. 14, 2018 /CNW/ - Concordia International Corp. ("Concordia" or the "Company") (TSX: CXR), an international specialty pharmaceutical company focused on becoming a leader in European specialty, off-patent medicines, today announced its financial and operational results for the three and nine months ended September 30, 2018. All financial references are in U.S. dollars ("USD") unless otherwise noted.
"Our third quarter results are consistent with our expectations," said Graeme Duncan, Chief Executive Officer of Concordia. "When combined with our recently completed recapitalization, we believe that the Company is on a path towards stabilization, while laying the foundation for long-term growth."
Consolidated Third Quarter 2018 Financial and Operational Results
- Reported third quarter revenue of $127.7 million, compared to $154.6 million for the third quarter of 2017, and $139.5 million for the second quarter of 2018.
- Generated GAAP net income for the third quarter of 2018 of $1.8 billion. The increase in net income compared to the second quarter of 2018 is primarily due to a gain on debt settlement of $1.9 billion arising from the Company's Recapitalization Transaction, partially offset by higher costs associated with the Recapitalization Transaction.
- Reported third quarter Adjusted EBITDA2 of $59.0 million, compared to $78.6 million for the third quarter of 2017, and $66.8 million for the second quarter of 2018.
- Generated cash flows from operating activities of $98.1 million in the first nine months of 2018, compared to $227.4 million during the same period in 2017.
- As of September 30, 2018, the Company had a cash balance of $209.5 million
- On September 6, 2018, Concordia announced the completion of the Recapitalization Transaction described in the Company's management information circular dated May 15, 2018, and implemented pursuant to the court-approved plan of arrangement dated June 26, 2018, under the Canada Business Corporations Act.
- Subsequent to quarter end, in October, Concordia announced the election of Maurice Chagnaud and the appointment of Frances Cloudto its board of directors effective November 1, 2018, and its intention to change the Company's name to Advanz Pharma Corp. subject to shareholder approval.
- Subsequent to quarter end, on November 12, 2018, the UK Competition and Markets Authority (CMA) notified the Company that it has closed the investigations into three Concordia products (Trazodone, Nefopam and Dicyloverine) on the grounds of administrative priority. This decision does not prevent the CMA from opening a new investigation into these products in the future. The remaining investigations continue.
Third Quarter 2018 Segment Results
Concordia International segment revenue of $91.9 million for the third quarter of 2018 decreased by $14.7 million, or 14%, compared to second quarter 2018 revenue of $106.7 million.
Approximately $4.6 million of the $14.7 million sequential decline in revenue is the result of foreign exchange arising from the weakening of the Great British Pound ("GBP") against the U.S. dollar. The remaining $10.1 million sequential quarterly decline is attributable to lower sales in the UK market of approximately $6 million, mostly resulting from competition on certain key products, and lower sales in other global markets of approximately $4 million primarily due to timing of shipments.
Concordia International segment revenue for the third quarter of 2018 decreased by $25.7 million, or 22% compared to the corresponding period in 2017. A $25.2 million decrease in revenue was combined with a further decrease of $0.5 million in revenue as a result of the GBP weakening against the USD, when compared to the corresponding period in 2017, given a significant portion of the segment revenues are earned in GBP.
Declines to revenue attributable to key products during the quarter, excluding the impact of foreign currency translation, were a $8.1 milliondecrease from Liothyronine Sodium; a $1.5 million decrease from Flurbiprofen; a $1.2 decrease from Acetylsalicylic Acid; a $1.2 milliondecrease from Trazodone; and a $1.1 million decrease from Levothyroxine Sodium. These lower product volumes and revenues are primarily due to ongoing competitive market pressures resulting in market share erosion in the UK market and timing of shipments for certain products in non-UK markets.
The decline in revenue for Liothyronine Sodium is reflective of the impairment charges taken in the second quarter of 2017 on the product rights attributable to Liothyronine Sodium as a result of market competition that had not yet had a significant impact on the third quarter of 2017 reported revenue for Liothyronine Sodium.
These declines to revenue were partially offset by a $0.9 million increase in revenue from Nitrofurantoin; and a $0.8 million increase in revenue from Hydralazine HCL, as a result of product volume increases. The remaining decrease was primarily due to general competitive market pressures across the segment's product portfolio.
Revenue of $311.6 million for the first nine months of 2018 decreased by $40.2 million, or 11%, compared to the corresponding period in 2017. A $61.3 million decrease in revenue was partially offset by a $21.1 million increase in revenue as a result of the GBP strengthening against the USD in the first half of 2018.
Declines to revenue attributable to key products during the year-to-date period, excluding the impact of foreign currency translation, consisted of a $23.2 million decrease from Liothyronine Sodium; a $5.2 million decrease from Trazodone; a $3.1 million decrease from Prednisolone; a $2.9 million decrease from Levothyroxine Sodium; and a $2.7 million decrease from Prochlorperazine Mesilate, due to the competitive pressures described above.
These declines to revenue were partially offset by $6.6 million increased revenue from Nitrofurantoin; and $2.3 million increased revenue from Argipressin, as a result of product volume increases. The remaining decrease was primarily due to general competitive market pressures across the segment's product portfolio.
North America Segment
Concordia North America segment revenue of $35.7 million for the third quarter of 2018 increased by $2.9 million, or 9%, compared to second quarter, 2018 revenue of $32.8 million.
The sequential increase is primarily attributable to timing of shipments to wholesaler partners and lower co-pay utilization on Donnatal® rather than an underlying increase in prescriptions.
Revenue of for the third quarter of 2018 decreased by $1.2 million or 3%, compared to the corresponding period in 2017. The decrease was primarily due to a $2.8 million decrease from Plaquenil® authorized generic as a result of lower product volumes; and a $2.0 million decrease from Donnatal® as a result of additional competitive pressures that have resulted in a loss of market share. In the third quarter of 2018, Donnatal® tablets continued to face pressure from two competitive products. As well, during the second quarter of 2018, the Company became aware of the launch of additional non-FDA approved competitive products to Donnatal® elixir, which has resulted in lower product volumes of the elixir in the third quarter of 2018 compared to the corresponding period in 2017.
These declines in revenue were partially offset by a $1.7 million increase in revenue from Nilandron® as a result of higher product volumes; a $1.3 million increase in revenue from Kapvay®; and a $0.8 million increase in revenue from Orapred®. The remaining decrease was primarily due to general competitive market pressures across the segment's product portfolio.
Revenue of $107.8 million for the year-to-date decreased by $16.4 million or 13% compared to the corresponding period in 2017. The decrease was primarily due to a $9.0 million decrease from Donnatal®; a $3.8 million decrease from Dibenzyline® authorized generic; a $3.5 milliondecrease from Plaquenil® authorized generic; and a $2.3 million decrease from Lanoxin® authorized generic. These declines in revenue were partially offset by a $3.5 million increase in revenue from Orapred®; a $3.0 million increase in revenue from Dibenzyline®; and a $2.5 millionincrease in revenue from Zonegran®. The remaining decrease was primarily due to general competitive market pressures across the segment's product portfolio.
Pipeline Update
Consistent with Concordia's prior disclosure, with its leadership and board transition, the Company will continue to evaluate the composition of its pipeline of medicines.
In the third quarter of 2018, Concordia launched one new product.
Concordia also has 27 products that have already been approved or are awaiting approval by the regulators.
In addition, the Company currently has 12 products under development that are anticipated to launch in the next three to five years.
The Company believes that these products include several second-to-market or early-to-market opportunities for difficult-to-make products.
Additionally, Concordia has 10 products identified for potential development.
Therefore, in total, Concordia's current pipeline is now comprised of approximately 49 products.
Over the near term, the Company is not expecting material incremental revenue contributions from its pipeline.
In the longer term, the Company is optimistic about a number of products in its pipeline that could potentially come to market during 2020 through to 2023.
In addition, Concordia intends to continue investing in its pipeline expansion as a key strategic priority going forward.
Consolidated Financial Results
| | Three months ended | Nine months ended |
| (in $000's, except per share data) | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2018 | Sep 30, 2017 |
| Revenue | 127,662 | 154,622 | 419,413 | 475,964 |
| Gross profit | 86,751 | 108,610 | 282,944 | 335,337 |
| Gross profit % | 68% | 70% | 67% | 70% |
| Adjusted gross profit (2) | 86,751 | 108,610 | 282,944 | 335,648 |
| Adjusted gross profit % (2) | 68% | 70% | 67% | 71% |
| Total operating expenses | 135,693 | 99,021 | 384,399 | 1,288,637 |
| Operating income (loss) for the period | (48,942) | 9,589 | (101,455) | (953,300) |
| | | | | |
| Gain on debt and purchase consideration settlement | 1,924,520 | - | 1,931,828 | - |
| Income tax expense (recovery) | 6,555 | 3,661 | 3,358 | (28,953) |
| Net income (loss) for the period | 1,787,881 | (69,485) | 1,552,233 | (1,158,962) |
| | | | | |
| Earnings (loss) per share | | | | |
| Basic (1) | 147.76 | (407.46) | 370.37 | (6,801.94) |
| Diluted (1) | 147.76 | (407.46) | 370.37 | (6,801.94) |
| | | | | |
| EBITDA (2) | 1,923,696 | 63,144 | 1,976,828 | (783,487) |
| Adjusted EBITDA (2) | 58,958 | 78,582 | 197,763 | 244,632 |
Consolidated Results of Operations
Revenue for the third quarter of 2018 and year-to-date decreased by $27.0 million or 17%, and $56.6 million, or 12%, respectively, compared to the corresponding periods in 2017. These decreases were primarily due to lower sales from both segments, partially offset on a year-to-date basis by higher foreign exchange rates impacting translated revenues from the Concordia International segment.
The Concordia International segment revenue for the third quarter of 2018 decreased by $25.7 million, or 22%, due to $25.2 million lower revenue primarily as a result of volume declines on key products including Liothyronine Sodium, Flurbiprofen and Acetylsalicylic Acid, as well as unfavourable foreign exchange rates negatively impacting translated results by $0.5 million, partially offset by higher revenue due to volume increases for Nitrofurantoin and Hydralazine HCL.
The Concordia North America segment revenue for the third quarter of 2018 decreased by $1.2 million, or 3%, when compared to the corresponding period in 2017, mainly due to lower volumes on key products, including Donnatal® and Plaquenil® authorized generic, partially offset by higher revenue on certain other products, including Nilandron® and Kapvay®.
Gross profit for the third quarter of 2018 and year-to-date decreased by $21.9 million, or 20%, and $52.4 million, or 16%, respectively, compared to the corresponding periods in 2017 primarily due to the revenue declines described above.
Gross profit percentage for the third quarter of 2018 and year-to-date decreased by 2% and 3%, respectively, compared to the corresponding periods in 2017, primarily due to a change in the mix of product sales within both operating segments.
Operating expenses for the third quarter of 2018 increased by $36.7 million, or 37%, and for the year-to- date 2018 decreased by $0.9 billion, or 70%, compared to the corresponding periods in 2017. The increase in operating expenses for the third quarter of 2018, is primarily due to $30.8 million higher restructuring related, acquisition and other costs mainly associated with the Company's Recapitalization Transaction, and $10.1 million higher amortization charges on intangible assets, partially offset by $1.8 million lower-share based compensation expense and $1.1 million lower selling and marketing expense.
Operating expenses were lower for the year-to-date compared to the corresponding period in 2017, primarily due to a $1.0 billion lower impairment charge on a year-to-date basis. Excluding impairments, operating expenses for the year-to-date 2018 increased by $74.9 million, or 25%, compared to the corresponding periods in 2017. The increase in operating expenses for the year-to-date period of 2018, excluding impairments, is primarily due to $72.2 million higher restructuring related, acquisition and other costs mainly associated with the Company's Recapitalization Transaction and $15.3 million higher amortization charges on intangible assets, partially offset by $7.3 million lower share-based compensation expense and $3.8 million lower general and administrative costs.
General and administrative expenses reflect costs related to salaries and benefits, professional and consulting fees, public company costs, travel, facility leases and other administrative expenditures. General and administrative expenses for the third quarter of 2018 and year-to-date decreased by 3% and 10%, respectively, compared to the corresponding periods in 2017. These decreases are a result of the Company's objective to reduce operating costs across the business, partially offset by unfavourable foreign exchange rate movements impacting translation of general and administrative expenses from the Concordia International segment.
Selling and marketing expenses reflect costs incurred by the Company for the marketing, promotion and sale of the Company's broad portfolio of products across the Company's segments. Selling and marketing costs for the third quarter of 2018 and year-to-date decreased by $1.1 million and $0.3 million, respectively, compared to the corresponding periods in 2017, primarily as a result of lower costs associated with sales promotion and advertising activities, as well as reduced salaries and benefits costs due to lower headcount in the sales and marketing functions within the Concordia International segment. These lower selling and marketing costs are partially offset by higher selling and marketing costs associated with the co-promotion agreement for sales of Donnatal® in the Concordia North America segment.
Research and development expenses reflect costs for clinical trial activities, product development, professional and consulting fees and services associated with the activities of the medical, clinical and scientific affairs, quality assurance costs, regulatory compliance and drug safety costs (Pharmacovigilance) of the Company. Research and development costs for the third quarter of 2018 decreased by $0.7 million, or 9%, compared to the corresponding period in 2017. This decrease is primarily due to the timing of various non-recurring projects, as well as lower consulting costs related to ongoing projects. Research and development costs for the for the year-to-date 2018 decreased by $1.8 millionor 8%, primarily due to refunds of regulatory fees, timing of various non-recurring projects and lower consulting costs related to ongoing projects.
Adjusted EBITDA for the third quarter of 2018 and year-to-date decreased by $19.6 million, or 25%, and $46.9 million, or 19% respectively, compared to the corresponding periods in 2017. These declines are primarily due to lower sales and gross margins from both segments, partially offset by higher foreign exchange rates impacting translated results on a year-to-date basis. Adjusted EBITDA by segment for the third quarter of 2018 and year-to-date was $39.9 million and $140.6 million respectively, from the Concordia International segment, and $21.6 millionand $66.2 million respectively, from the Concordia North America segment. In addition, during the third quarter of 2018 and year-to-date, the Company incurred $2.5 million and $9.1 million respectively, of Corporate costs related to the Corporate Head Office. Corporate expenses decreased by $2.1 million and $6.4 million, respectively, compared to the corresponding periods in 2017, primarily due to lower general and administrative expenses, including professional fees incurred and salaries and benefits costs.
As of September 30, 2018, the Company had cash and cash equivalents of $209.5 million and 48,913,490 limited voting shares issued and outstanding.