cxrx

Concordia International Corp (NASDAQ:CXRX) announced its financial and operational results for the three and nine months ended September 30, 2016. All financial references are in U.S. dollars unless otherwise noted.

Financial Results for the Third Quarter 2016

  • Revenue of $185.5 million, a decrease of 19.9% compared with the second quarter of 2016 or a 14.4% decrease on a constant currency basis2. Revenue for the quarter represented an increase of 99.5% over the third quarter of 2015
  • GAAP net loss from continuing operations of $75.1 million and GAAP loss per share of $1.47
  • Net operating cash flows from continuing operations of $309.8 million for the nine month period, compared to $67.9 million in the comparative period in 2015
  • Adjusted EBITDA1 of $104.4 million and adjusted earnings per share1 of $0.69
  • Concordia’s International segment launched 24 new products since October 21, 2015; the Company remains on track to meet or exceed its target of 60 launches by the end of 2018
  • Concordia is suspending guidance as the Company assesses the business under new leadership

The Company commented, “Concordia’s International segment, on a constant currency basis2, delivered consistent results in the third quarter compared to the second quarter of 2016. In addition, the International segment remains on track to meet or exceed our target of 60 new product launches by the fourth quarter of 2018. The Company continues to assess the competitive environment affecting the North America and International segments, and is implementing actions to manage these challenges. Due to recent pressures from generic competition on Plaquenil® and Nilandron®, as well as increased pressure on Donnatal® from competition in the category and what we consider to be an illegal commercial product, we have experienced variability in forecasting the North American business. Additionally, with the recent leadership changes, the Company has determined it will suspend its financial guidance. Concordia’s management team is committed to expeditiously evaluating all aspects of its business to ensure appropriate actions are taken to rebuild value for all stakeholders.”

Third Quarter 2016 Segmental Results

  • On a constant currency basis2 the Concordia International segment delivered results in the third quarter consistent with the second quarter of 2016. Concordia International segment revenue for the third quarter was $137.4 million, compared with $151.5 million in the second quarter of 2016, representing a $14.1 million or 9.3% decrease. This represented a 0.2% decrease on a constant currency basis2.
  • Since October 21, 2015, the Company’s International segment has launched 24 products. These products include branded and generic therapies for the treatment of prostate cancer, pain, depression, and obesity.
  • Concordia North America segment revenue of $45.5 million compared to $90.6 million in the third quarter of 2015. The decrease was due to competitive market pressures as further described below.
  • Orphan Drug segment revenue of $2.6 million, compared with $2.4 million in the third quarter of 2015.

Management and Board of Directors Changes

On November 2, 2016 the Company announced that its Board of Directors appointed Allan Oberman as the Company’s  new Chief Executive Officer and Jordan Kupinskyas Chairman of the Board of Directors. The new appointments will now be effective November 8, 2016 as Mr. Thompson’s departure will be effective on November 8, 2016.

Consolidated Operating Results

The Company’s consolidated operating results are generated by three operating segments: Concordia’s North America segment, International segment and Orphan Drugs segment and a Corporate cost centre.

Revenue for the three and nine months ended September 30, 2016 increased by $92.5 million, or 99%, and increased by $443.4 million, or 219%, respectively, compared with the corresponding periods in 2015. The increases were primarily due to $137.4 million and $428.8 million of revenue for the three and nine month periods, respectively, from the Concordia International segment acquired on October 21, 2015 which was not included in the comparative period. This revenue increase attributable to the Concordia International segment was partially offset in the three month period ended September 30, 2016 by decreased revenue of $45.2 million from the Concordia North America segment. The decrease in the Concordia North America segment revenue was primarily due to lower revenue from Donnatal® of $11.3 million, which was driven by lower product demand as a result of competitive pressures, as well as decreased revenue from Dibenzyline® of $9.2 million, Nilandron® of $5.5 million and Plaquenil® authorized generic of $13.3 million. Revenue from these three products, compared with the corresponding period in 2015, was significantly lower due to the impact of new generic products entering the market since September 30, 2015.

Gross profit for the three and nine months ended September 30, 2016 increased by $52.1 million, or 61%, and $290.3 million or 158%, respectively, compared with the corresponding periods in 2015. The increase for the three months ended September 30, 2016 was primarily as a result of increased gross profit of $96.3 from the Concordia International segment, which was acquired during the fourth quarter of 2015 and therefore not included in the comparative period in 2015. This gross profit increase from the Concordia International segment was offset by a $44.1 million decrease in the gross profit from the Concordia North America segment primarily due to the business impacts described above. The increase for the nine months ended September 30, 2016 was primarily due to the timing of the Concordia International segment acquisition described above and the acquisition of the portfolio of products (the “Covis Portfolio”) acquired from Covis Pharma, S.a.r.l. and Covis Injectables, S.a.r.l. on April 21, 2015 as described above, and is therefore not representative in the comparative 2015 period. Gross profit in 2016 was also impacted by non-cash inventory fair value adjustments of $1.5 million and $21.0 million for the three and nine month periods, respectively. This results in an increase to cost of sales due to the fair value adjustment to inventory which were associated with the acquisition of certain products on June 1, 2016 and the Concordia International segment acquisition.

Adjusted gross profit for the three and nine months ended September 30, 2016, which represents gross profit removing the impact of the non-cash fair value adjustments described above, increased by $53.6 million, or 63%, and $311.3 million, or 169%, respectively, compared with the corresponding periods in 2015. The change in gross profit and adjusted gross profit as a percentage of revenue in the current quarter and year to date compared with the corresponding periods in 2015 reflects the impact of lower margins related to the Concordia International business segment, offset in part by higher margins associated with certain products included in the Concordia North America business segment.

Operating expenses for the three and nine months ended September 30, 2016 increased by $54.0 million, or 134%, and $772.8 million, or 732%, respectively, compared with the corresponding periods in 2015. Operating expenses were higher in both periods due to the increased size and scale of the Company’s business after the completion of the acquisition of the Covis Portfolio and the acquisition of the Concordia International segment. Operating expenses were significantly higher in the nine months ended September 30, 2016 due to the impairment recorded during the second quarter of 2016 of $567.1 million.

General and administrative expenses reflect costs related to salaries and benefits, professional and consulting fees, ongoing public company costs, travel, facility leases and other administrative expenditures. General and administrative expenses for the three and nine months ended September 30, 2016 increased by $8.7 million, or 154%, and $24.9 million, or 138%, respectively, compared with the corresponding periods in 2015. The increases are reflective of the increased size and scale of the Company’s business. General and administrative expenses for the quarter and year to date as a percentage of revenue were 8% and 7%, respectively, compared with 6% and 9% in the corresponding periods in 2015.

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 Concordia North America, Concordia International and Orphan Drugs segments. Selling and marketing costs for the three and nine months ended September 30, 2016 increased by $5.5 million, or 98%, and $25.4 million, or 203%, respectively, compared with the corresponding periods in 2015. These costs have increased due to the expansion of Concordia’s product portfolio from 6 core products in the first quarter of 2015 to over 200 products and the related selling and marketing efforts mainly in the Concordia North America and Concordia International segments.

Research and development expenses reflect non-capitalized 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 (Pharmacovigilence) of the Company. Research and development costs for the three and nine months ended September 30, 2016 increased by $6.3 million, or 271%, and $19.0 million, or 233%, respectively, compared with the corresponding periods in 2015. This is due to costs incurred in the Concordia International segment for product expansion efforts and the costs associated with the Concordia North America segment.

Operating income (loss) from continuing operations for the three months ended September 30, 2016 reflects the increase in gross profit from the Concordia International segment, partially offset by the decrease in gross profit from the Concordia North America segment and an increase in operating expenses compared with 2015 as a result of the increased size and scale of the Company’s business.

Operating income (loss) from continuing operations for the nine months ended September 30, 2016 reflects the increase in operating expenses compared with 2015 as a result of the impairment charge recorded during the second quarter of 2016 and costs associated with the increased size and scale of the Company’s business, partially offset by the increased gross profit from the Concordia International segment and the Covis Portfolio.

The net loss from continuing operations for the three and nine months ended September 30, 2016 was $75.1 million and $650.3 million, respectively and earnings per share loss was $1.47 per share and $12.75 per share for the three and nine months ended September 30, 2016. Significant drivers of the net loss are total foreign exchange losses of $55.7 million, an impairment charge of $567.1 million recorded during the second quarter of 2016 and result after deducting certain other significant cash and non-cash expenses which include, but are not limited to, amortization expense, interest expense and deferred financing accretion expense.

Adjusted EBITDA for the three and nine months ended September 30, 2016 increased by $33.1 million or 46% and $242.1 million or 166%, respectively, compared with the corresponding periods in 2015. The increase is due to results from the Concordia International segment which were not included in the comparative period and the Covis Portfolio included in the comparative period since April 21, 2015.

As of September 30, 2016 the Company had cash of $162.6 million and had up to $200 million available from a secured revolving credit facility, which available amount is subject to compliance with certain incurrence covenants under the Company’s debt agreements. The Company has not drawn upon the $200 million revolving credit facility, and it is currently not subject to any financial maintenance covenants which apply only when the aggregate principal amount of certain outstanding loans under the Company’s credit agreement are greater than 30% of the aggregate amount of the available revolving facility.

The Company has an improved liquidity position after the end of the third quarter with cash and cash equivalents of $492.6 million, which includes approximately $330 million of net cash received3 on October 13, 2016 in connection with the closing of the senior secured note offering.

Cash flows from continuing operations for the nine months ended September 30, 2016 were $309.8 million. The Company’s business continues to generate sustained cash flows from operating activities. The Company intends to use cash on hand and cash flows generated from operating activities to settle debt and other obligations as they become due, to fund future acquisitions and continue to fund the launch of pipeline products.

As at September 30, 2016 and November 7, 2016, the Company had 51,017,004 common shares issued and outstanding. (Original Source)

Shares of Concordia Healthcare are currently trading at $2.05, down $1.14 or -36%. CXRX has a 1-year high of $44 and a 1-year low of $2.03. The stock’s 50-day moving average is $4.51 and its 200-day moving average is $17.20.

On the ratings front, Concordia has been the subject of a number of recent research reports. In a report issued on October 24, Canaccord analyst Neil Maruoka reiterated a Buy rating on CXRX, with a price target of $10.00, which implies an upside of 341% from current levels. Separately, on September 27, Goldman Sachs’ Stephan Stewart maintained a Hold rating on the stock and has a price target of $4.00.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Neil Maruoka and Stephan Stewart have a yearly average loss of 43.8% and 18.8% respectively. Maruoka has a success rate of 12% and is ranked #4018 out of 4162 analysts, while Stewart has a success rate of 0% and is ranked #3333.

Concordia International Corp. develops pharmaceutical products and medical devices. The company is an integrated, specialty healthcare company that focuses on legacy pharmaceutical products, orphan drugs and medical devices for the diabetic population.