Actavis plc (NYSE: ACT) today reported net revenue increased 40 percent to $2.66 billion for the first quarter ended March 31, 2014, compared to $1.90 billion in the first quarter 2013. On a non-GAAP basis, diluted earnings per share for the first quarter 2014 increased to $3.49, compared to $1.99 per diluted share in the first quarter 2013. GAAP earnings per diluted share for the first quarter 2014 were $0.55, compared to a GAAP loss per share of $0.79 in the prior year period.
For the first quarter 2014, adjusted EBITDA increased 86 percent to $860 million, compared to $464 million for the first quarter 2013. Cash flow from operations for the first quarter of 2014 was $440 million and cash and marketable securities were $340 million as of March 31, 2014.
First quarter 2014 results for Actavis plc include the contribution from the Warner Chilcott acquisition. Beginning with the first quarter of 2014, Actavis plc is presenting its operating results in two revenue producing segments: Actavis Pharma and Anda Distribution. The Actavis Pharma segment includes all branded, branded generic, generic and over-the-counter products. The Anda Distribution segment includes revenue from the distribution of third-party products primarily to independent pharmacies, pharmacy chains, pharmacy buying groups and physicians' offices. Prior year comparable results have been included. Refer to the attached reconciliation tables for adjustments to GAAP earnings.
"Actavis began 2014 with our strongest quarter ever, bolstered by growth across our global business," said Paul Bisaro, Chairman and CEO of Actavis.
"Overall revenue growth of 36 percent in our commercial pharmaceutical business benefitted from the continued strength of our generics business, resulting from the launch of our generic Micardis® in the U.S. and continued strong sales of the generic versions of Lidoderm® and Cymbalta®. Our North American Brands, which includes the benefit of the expanded portfolio resulting from the acquisition of Warner Chilcott in October 2013, saw continued strong sales of core products in the U.S., including Rapaflo® and Generess® Fe. We also saw growth in international operations, driven by strong sales and new product launches in key countries including the UK, Russia and Sweden.
"Along with solid performance that exceeded our forecast, we continued to focus on future growth drivers through investment in R&D across the business, and within the U.S. generic business, the announcement of a patent settlement for our generic version of Daytrana®, and initiation of patent challenges on a number of products, including generic forms of Treanda®, Multaq® and Colcrys®. Additionally, on April 1, 2014, we completed the divestiture of our generics commercial operations in seven markets in Western Europe to Aurobindo Pharma Limited.
"Finally, we continued to focus on business development initiatives to redefine our leadership position in specialty pharmaceuticals, with the announcement in February of the proposed acquisition of Forest Laboratories. If successfully completed later this year, this transaction will create an innovative new model in specialty pharmaceuticals and enhance our company's organic growth profile well into the next decade. We also strengthened our commercial business in southeast Asia with the acquisition in April of Silom Medical in Thailand."
First Quarter 2014 Business Segment Results
Actavis Pharma net revenue increased 36 percent to $2.26 billion for the first quarter 2014, due to the acquisition of Warner Chilcott, new product launches, and higher international net revenue.
- North American Brands revenue increased 358 percent to $594 million for the first quarter 2014, driven by the acquisition of Warner Chilcott along with increased sales of key promoted legacy products including Rapaflo® and Generess® Fe. North American Brands revenue consists of branded pharmaceutical sales in the United States and Canada.
Within North American Brands, Women's Health revenue was $213 million, driven by the addition of products from the Warner Chilcott acquisition and increased sales of Generess® Fe. The promoted brands reported within our Women's Health portfolio include Atelvia®, Crinone®, Estrace® Cream, Generess® Fe, Lo Loestrin® Fe and Minastrin® 24 Fe.
Urology and Gastroenterology revenue increased 297 percent to $225 million, driven by the addition of the Warner Chilcott portfolio and increased sales of Rapaflo®. The brands reported within our Urology and Gastroenterology portfolio are Androderm®, Asacol® HD, Delzicol®, Enablex®, Rapaflo® and Trelstar® along with revenue from our co-promotion agreement on AndroGel®.
Dermatology and Established Brands revenue increased 195 percent to $156 million, driven by the addition of products from the Warner Chilcott acquisition. Key brands reported within our Dermatology and Established Brands portfolio include Doryx® and Actonel®.
- North American Generics revenue increased 7 percent to $1.02 billion for the first quarter 2014, driven by product launches including generic versions of Cymbalta® and Lidoderm® partially offset by generic competition of extended release products including our authorized generic version of Concerta®. North American Generics revenue consists of non-branded pharmaceutical revenue in the United States and Canada.
- International revenue increased 12 percent to $647 million for the first quarter 2014. GAAP results continue to include revenue from our divested European assets. International revenue consists of all brand, branded generic, generic and over-the-counter pharmaceutical revenue derived outside the United States and Canada.
Adjusted gross margin as a percentage of adjusted net revenues within Actavis Pharma increased to 65.3 percent in the first quarter of 2014 from 52.7 percent in the first quarter of 2013, as a result of the acquisition of Warner Chilcott in the fourth quarter of 2013. Adjusted gross margin excludes results from our divested Western European operations.
Selling, General & Administrative (SG&A) expenses within Actavis Pharma increased to $524 million in the first quarter of 2014 compared to $386 million in the first quarter of 2013, driven primarily by the acquisition of Warner Chilcott in the fourth quarter of 2013. On a non-GAAP basis, adjusted SG&A as a percent of adjusted net revenue was 21 percent. Non-GAAP results exclude the impact from our divested Western European operations, among other items.
Anda Distribution segment net revenues for the first quarter 2014 increased 69 percent to $390 million, compared to $231 million in the first quarter 2013, as a result of volume increases for products within the Anda portfolio. Anda Distribution segment revenues consists only of sales of third-party products and excludes sales of Actavis' brand and generic products.
Anda Distribution segment gross margin was 15.1 percent in the first quarter of 2014 compared to 15.8 percent in the prior year period. The decrease in Anda Distribution segment gross margin was primarily due to product mix in the first quarter of 2014 compared to the first quarter of 2013.
SG&A expenses within Anda Distribution increased to $35 million in the first quarter of 2014 compared to $27 million in the first quarter of 2013, driven by higher freight and personnel costs to support higher product volume. SG&A as a percent of revenue was 8.9 percent.
Other Operating Expenses
In first quarter 2014, consolidated SG&A expenses were $559 million, an increase of 35 percent from the first quarter 2013 primarily as a result of the Warner Chilcott acquisition.
Research & Development expense increased to $172 million in the first quarter of 2014 compared to $132 million in the first quarter of 2013, driven by the acquisition of Warner Chilcott and acceleration of certain R&D products following the completion of the Warner Chilcott transaction. Within Research & Development, $114 million was generic development, $33 million was invested in brand development and $24 million was invested in biosimilar development during the quarter.
Amortization expense for the first quarter 2014 was $424 million, compared to $158 million in the first quarter of 2013 primarily due to amortization expense associated with the Warner Chilcott transaction.
2014 Financial Outlook
As a result of the recently announced acquisition of Forest Laboratories, Inc., Actavis plc plans to provide an updated combined financial forecast for the year at or shortly following the close of the acquisition which is anticipated to occur mid-year 2014. For the second quarter of 2014, we have assumed additional competition on certain key products including competition on our generic version of Lidoderm. We expect second quarter non-GAAP 2014 earnings to be slightly lower than the first quarter 2014. In accordance with applicable Irish and European rules and regulations, our standalone forecast provided at our investor day on January 31, 2014 should be considered withdrawn.
Webcast and Conference Call Details
Actavis plc will host a conference call and webcast today at 8:30 a.m. Eastern Time to discuss first quarter 2014 results and recent corporate developments. The dial-in number to access the call is US/Canada (877) 251-7980, International (706) 643-1573. The Conference ID is 17008187. To access the live webcast, go to Actavis' Investor Relations Web site at http://ir.actavis.com.
A replay of the conference call will also be available beginning approximately two hours after the call's conclusion and will remain available through 12:00 midnight Eastern Time on May 14, 2014. The replay may be accessed by dialing (855) 859-2056 and entering Conference ID# 17008187. From international locations, the replay may be accessed by dialing (404) 537-3406 and entering the same Conference ID#. To access the webcast replay, go to Actavis' Investor Relations Web site at http://ir.actavis.com.