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Half-Year Report 2007: SCHWARZ PHARMA On Track
“The solid business developments in the first half of the year are in line with our expectations”, says Detlef Thielgen, Chairman of the Executive Board of SCHWARZ PHARMA AG. “Together with UCB, we will jointly push forward our company’s integration under the terms of the domination and profit transfer agreement.”
Interim Report – January to June 2007: Revenues: €455.8 million, -5.7%
The SCHWARZ PHARMA Group achieved revenues of €455.8 million in the first half of 2007 (-5.7%). After adjusting for exchange rate effects, revenues were down by 2.3 %. US sales fell to €192.2 million (-8.3%). The US-dollar sales level fell slightly by 0.9% to $255.4 million. After adjusting for KUDCo’s generic business (totaling €118.2 million), the group’s US business fell by 15.8% to €74.0 million. The group’s European affiliates also saw a sales decline, down 4.9% to €243.4 million. Germany recorded a sales decline of 20.0%, to a level of €87.2 million. This is particularly due to cancellation of the license agreement concerning the gastrointestinal drug Rifun® (pantoprazole) by the licenser. This product, which still achieved sales of €20.7 million in the first half of 2006, ceased being sold by SCHWARZ PHARMA as of February 1, 2007. Neupro® (rotigotine transdermal patch) for treating Parkinson’s disease was successfully launched on the German market in March of last year. It achieved sales of €6.3 million in the first half of 2007.
SCHWARZ PHARMA Group companies in the other European markets, especially France, the UK, and Poland, managed to increase sales slightly by 6.3%, reaching a level of €156.2 million. Neupro® (rotigotine transdermal patch) for treating Parkinson’s disease has now been launched in a total of 14 European countries and achieved sales of €17.2 million. Other European countries will follow during 2007. The sales of SCHWARZ PHARMA’s Asian affiliates improved by 13.7% to €20.2 million.
Earnings Trend January to June 2007: Operating result: €52.2 million; net result: €26.1 million
SCHWARZ PHARMA’s gross profit fell by 8.3% to €299.2 million in the first half of 2007. This is primarily due to lower sales and the decline in prices of former high margin products in the USA (e.g. generic omeprazole, Univasc®/Uniretic®) resulting from generics competition.
Selling, general and administrative expenses rose by 7.3% to €204.9 million. Declining selling expenses due to the restructuring of the sales force in the UK in 2006 and particularly due to the termination of marketing activities for US products and for Rifun® in Germany are contrasted by increased marketing costs for Neupro® (rotigotine transdermal patch) – especially in the USA and Spain – and personnel reduction expenses particularly in the USA and Germany.
R&D expenses fell by 14.4% to a level of €83.8 million yet remained at a high level due to the continued high number of projects that have reached a mature stage of development. Other income declined by 31.8% to €57.2 million in the first half of 2007. In the first half of 2006, SCHWARZ PHARMA had received an up-front payment of US$100 million (€79.5 million) from Pfizer for rights to fesoterodine. Milestone payments totalling €44.9 million were recorded in the first six months of 2007.
The operating result hence declined by 33.4% to €52.2 million in the first half of the year. The pre-tax result fell by 32.1% to €55.3 million. The group’s income tax expense also declined, falling 34.6% to €28.7 million Hence the net result fell by 30.0% to €26.1 million. This corresponds to earnings per share of €0.53 compared to €0.80 per share in the same period of the previous year. The average number of shares outstanding during the first six months of 2007 was 48,795 million, with 48,798 million shares (+ 3,8%) outstanding as per 30 June. This increase is due to the exercise of share options by employees, especially in 2006, as a result of the acquisition of the company by UCB.
Cash flow statement, balance sheet, and employees: Net Cash Position €121.9 million, Equity Ratio 56.5 %
Tax payments and the reduction of other liabilities led to a cash outflow from operations of €23.1 million compared to a cash inflow of €79.9 million in the same period of the previous year. Cash outflows for investments amounted to €107.7 million in the first half of 2007, against €13.5 million in the same six months of the previous year. These were capital expenditures, especially for the expansion of the company’s fine chemistry production in Shannon/Ireland, and for licence rights to Atmadisc® und Naramig®.
Cash outflows from financing activities came to €19.9 million compared to cash outflows of €4.8 million in the same period of the previous year. The cash outflows resulted from the redemption of a non-current loan and from the dividend payment. Shareholders’ equity increased slightly by 0.9% to €570.1 million compared to December 31, 2006. The equity ratio increased to 56.5% (52.5%) due to the balance sheet shortening. Debt fell to a total of €2.6 million due to the above-mentioned redemption.
Cash and cash equivalents fell by 55.1% to €124.5 million as a result of the loan redemption and tax payments. All in all the net cash position on June 30, 2007 came to €121.9 million, compared to a net cash position of €242.7 million on June 30, 2006. The number of employees working in the SCHWARZ PHARMA Group worldwide came to 3,726 at the reporting date, marking a decrease of 13.9% over 31 December 2006. Job cuts were made necessary by the expiry of patents on key US products, the termination of Rifun sales in Germany, and the said sales force restructuring measures. In addition, job vacancies were filled internally or were not refilled at all.
Outlook for 2007: unchanged
In fiscal year 2007, innovative drugs will not be able to offset significant sales declines which look likely to increase in the second half of the year. SCHWARZ PHARMA therefore expects revenues to reach €800-850 million. Despite a high level of expenses, partly for restructuring, SCHWARZ PHARMA again seeks to achieve a positive net result. In this respect, the plan also includes product disposals or partnerships. The integration measures following from the domination and profit transfer agreement and their impact on the SCHWARZ PHARMA Group cannot be adequately estimated at present.
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