fwiw and for later ref.
VIVUS, INC.
SECOND QUARTER FINANCIAL RESULTS
CONFERENCE CALL
July 19, 2000
4:30 p.m. ET
Moderator: Ladies and gentlemen, thank you for standing by. Welcome to the VIVUS Second Quarter Financial Results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. At that time, if you have a question, you will need to press the "1" followed by the "4" on your push button phone. As a reminder, this conference is being recorded today, Wednesday, July 19, 2000. I would now like to turn the conference over to Mr. Leland Wilson, President and Chief Executive Officer with VIVUS. Please go ahead, sir.
Wilson: Thank you very much. Welcome everybody. I'm joined today by Dick Walliser, our Chief Financial Officer, and also Dan Shields, our Controller. Dick unfortunately returned this morning from his father's funeral, and so I've asked Dan to handle the financial section today. So with that, I'm going to turn it over to Dan.
Shields: Thank you, Lee. Good afternoon ladies and gentlemen. We would like to thank you for taking the time to attend our call today.
Our focus today will be on the financial results for the second quarter of this year (2000) and will provide an update on the progress of the Company. Following my discussion, Lee will address the state of the business, followed by a limited opportunity for questions and answers. In the event we are not able to respond to all of your questions, please feel free to contact Barbara Clark, our Manager of Investor Relations.
I would also like to remind you that this conference call and its transcript are available through the Internet at www.vcall.com and www.streetfusion.com for the next 90 days. A phone replay will be available for the next 24 hours. Please call our California office at 650-934-5200 for details if you are interested.
During the course of this call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the Company. We wish to caution you that such statements are just predictions and that actual events or results may differ materially. We refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's most recent Annual Report (Form-10K) and Quarterly Report (Form 10Q) filed with the SEC in March and May of 2000, respectively. These document contains and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.
For the second quarter of this year, we reported net income of $890,000 and earnings per share of $0.03. This compares to net income of $292,000 and earnings per share of $0.01 for the same period last year. For the six months ended June 30th of this year, net income was $2.4 million for earnings per share of $0.07, compared with $4.1 million and earnings per share of $0.13 for the same period last year, which included a $4.0 million in milestone revenue.
In the United States, gross product revenue for the second quarter of 2000 increased 13 percent to $5.9 million, compared with $5.2 million in the second quarter of 1999. For the six months ended June 30th, gross product revenue in the United States increased 20 percent to $11.7 million, compared to $9.8 million in the same period of last year. During the first six months of 1999, wholesale inventory levels were much higher than normal, which resulted in lower shipments in the U.S. to support market demand. We continue to work closely with these wholesalers to maintain their inventory levels in line with current demand for MUSE. Since July of 1999, wholesale inventories in the United States have represented about a two-week supply, according to the data published by IMS America.
Internationally, product revenue for the second quarter 0f 2000 was $1.1 million, a decrease of 27 percent compared to the same quarter last year. During the second quarter, we signed an international distribution and marketing agreement for MUSE and ALIBRA with Abbott Laboratories. We expect to begin supplying MUSE to Abbott in September of this year for certain European markets. During this transition, international revenue is expected to remain about the same as current levels throughout the remainder of this year.
The Company recorded a returns allowance of $338,000 and $667,000 in the three and six months ended June 30, 2000, respectively. This compared to $1.3 million and $1.8 million for the same periods last year. Higher returns in 1999 were primarily the result of shipments that were made during the fourth quarter of 1997 and first quarter of 1998. Following the launch of sildenafil in April of 1998, demand for MUSE declined, resulting in excess inventories in the wholesale channel.
Cost of goods sold for the second quarter were $2.9 million, a decrease of 7 percent from the same period last year. This decrease is the result of production efficiencies and continued expense management.
Research and development expenses of $1.2 million for the second quarter of 2000 were approximately the same as the first quarter of this year, and $553,000 lower than the same period last year when we were completing Phase III clinical trials for ALIBRA. We expect that R&D expenses will increase from the current levels as we begin clinical trials for our FSD product, ALISTA, which is expected to begin in Q4 of this year.
Selling, general and administrative expenses of $2.3 million for the second quarter of 2000 were $728,000 higher than the same period in 1999, resulting from our increased investment in U.S. Sales and Marketing efforts here in the U.S. We expect that these expenses will increase slightly from this level as we continue to strategically invest in the U.S. sales of MUSE.
Cash, cash equivalents and available-for-sale securities increased by $3.1 million to $43.5 million at June 30, 2000, compared with $40.4 million at December 31, 1999. During this same period, total liabilities decreased by $4.9 million to $22.4 million at the end of June 2000. Working capital at June 30th was $28.5 million, an increase of $1.8 million from December 31, 1999.
I would now like to turn the meeting back over to Lee for our update on business developments.
Wilson: Thank you Dan. Clearly, the most important news event of the quarter was the announcement of the licensing agreement with Abbott Laboratories for Europe and other international markets. This agreement is important to VIVUS not only because of the flow of future product revenues, but perhaps even more importantly, we now have a powerful marketing organization that is capable of positioning transurethral therapy appropriately in the erectile dysfunction market based upon its attributes, rather than by the competition's marketing strength. We believe in the merits of transurethral therapy because of the efficacy and exceptional safety history displayed by MUSE, and as evidenced by our commitment to ALIBRA and the future generation products discussed in the last conference call.
The ED market is young and still very unsatisfied, with a large portion of potential patients either unable or unwilling to take current oral phosphodiesterase type V inhibitor therapy, such as sildenafil. I believe the oral PDE5 market is destined to become crowded and very competitive with little scientific promise that any of the new entries will be any more efficacious than the current market leader. What that means to VIVUS is that the population of new patients in this market is likely to grow, and the number of patients that should not use or fail on existing oral PDE5 therapy is also likely to grow. Transurethral therapy is well positioned to be first-line treatment for failure or contraindicated patients. In addition, because of our patent position, we will remain the only supplier of transurethral therapies for many years to come.
I'd now like to comment on the Abbott agreement itself. Our goal in constructing this agreement was to establish a partnering relationship that would provide the economic incentive for the marketer to aggressively establish a prominent market position for transurethral therapy, both now and in the future. Consequently, this is not a deal based on significant milestone payments. VIVUS will profit based upon a fair split of our partner's net revenues, and in the reduction of cost of goods because of the increased throughput in our manufacturing facility.
I have been very impressed with the progress that has been made since we signed the agreement just four weeks ago. We have already received firm orders from Abbott for certain European markets and expect to begin shipping product early in September. This, in my opinion, is a remarkable achievement considering the volume and complexity of work necessary to reach this point. For example, regulatory approval is required in each country before Abbott can begin to market. This requires such tasks as filing variances, establishing QA/QC test facilities, and transferring test methods. The point is, even though both Abbott and VIVUS are working diligently to get product into each market as soon as possible, investors should not expect a significant flow of international product revenue until next year.
We also continue to make good progress on our other R&D projects. Our premature ejaculation proof-of-principle clinical study has been completed and the data analyzed. I am pleased to report that we were able to demonstrate a statistically significant delay in the ejaculatory response time for a group of patients with severe conditions using on-demand therapy. Although we are very excited about these results, you should be aware that a substantial amount of work remains to be done before we enter formal phase II clinical studies. We will need to select the most promising compound, optimize its formulation, and establish the best dose before entering this clinical development phase.
Our female sexual dysfunction project is progressing as well. On May 24th we met with the Food and Drug Administration to obtain their guidance on the development plan, which included input on toxicity study requirements, clinical trial design and efficacy end points. I am pleased to report that we can meet all of their requirements and still meet our goal of being in clinical studies by the end of this year.
I'd now like to open the conference call up for questions.
[NOTE: Due to technical difficulties at the conference call company, NO questions could be fielded.]
Wilson: I'm surprised that there aren't any questions, but again I enjoyed the quarter. It was a very successful quarter. I appreciate all the contributions that our employees have made toward meeting our financial goals. This is the seventh consecutive profitable quarter that we've had. I think it's a rather remarkable turnaround here financially, and I'm very proud of the progress that we've made in our R&D projects. So, we feel good about the future, and we're looking forward to a successful remainder of this year. Thank you very much.
If anybody has any questions, please feel free to contact me directly or Barbara Clark. Thank you again.
Moderator: Ladies and gentlemen, that does conclude your conference call for today. We thank you for participating, and we ask that you please disconnect your lines. |
