Adare Pharmaceuticals

Eurand, a global specialty pharmaceutical company, today reported revenues for the second quarter of 2010 of €32.9m ($40.5m), an increase of 8%, or 3% in constant currency, from the second quarter of 2009. For the six months ended 30 June 2010, revenues totaled €64m ($78.7m), up 7% from the first half of 2009 both in current and constant currency.

“The highlight of our second quarter performance was the substantial market share gains made by our ZENPEP franchise,” said Gearoid Faherty, chairman and chief executive officer. “Clearly, the sampling and other promotional initiatives we undertook earlier in 2010 have begun to pay off, and we are delighted with the progress we have made. I believe we are taking full advantage of the competitive situation created by the FDA’s enforcement of its 28 April deadline and the decision by the Centers for Medicare & Medicaid Services (CMS) to cease Medicaid rebates for unapproved PEPs. We look forward to continued growth of the ZENPEP franchise in the second half of 2010.”

Sales of ZENPEP in the second quarter of 2010 more than offset lower product sales and royalties from Axcan for ULTRASE® compared with the second quarter of 2009. In addition, gross margins improved significantly during the second quarter versus the second quarter of 2009, reflecting a shift in the product mix to higher-margin products, notably ZENPEP. Other factors affecting the 2010 second quarter results were higher operating expenses, primarily due to costs associated with the ZENPEP launch.

ZENPEP launch update

In late March 2010, the US Food and Drug Administration declared 28 April 2010 a stop distribution date for unapproved PEPs. On April 29, 2010, the Centers for Medicare & Medicaid Services (CMS) announced that, effective immediately, certain unapproved PEPs would no longer be reimbursed.

Using the week ended 23 April 2010 as the benchmark, total weekly retail prescriptions for ZENPEP grew nearly four-fold through the week ended 23 July 2010, from 585 to 2,140, and prescriptions filled with the authorized generic roughly doubled, from 581 to 1,070. In addition, ZENPEP has gained seven share points during that time and its share of total prescriptions in the PEP market has risen to 15%, including the authorized generic.

“As one of only two available FDA-approved PEPs on the market until recently, we have clearly seized the opportunity to gain share for the ZENPEP franchise,” Faherty said. “We see this trend continuing in the second half of 2010 due primarily to the investments we have made in generating awareness and adoption of both ZENPEP and the authorized generic and the progress we have made in securing reimbursement for these products. We expect that other market entrants will face varying reimbursement hurdles, adding to the favorable competitive climate for ZENPEP. In addition, approximately 30% of total prescriptions are currently being written and dispensed for unapproved PEPs, and we believe ZENPEP – with good access to managed-care and government reimbursement plans, increasing brand awareness and competitive share of voice – is well-positioned to take advantage of the market conversion to FDA-approved products.”

As previously disclosed by Axcan, Axcan did not receive approval for the new drug application (NDA) of its coated PEP, ULTRASE MT, by the FDA’s 28 April 2010 deadline or by the 5 May 2010 Prescription Drug User Fee Act (PDUFA) date. Eurand licenses, manufactures and supplies ULTRASE capsules to Axcan and receives royalties based on a percentage of Axcan’s net sales of the product. On 6 May 2010, Axcan announced that the FDA issued a complete response letter, requiring that deficiencies with respect to the manufacturing and control processes at the manufacturer of the active ingredient of ULTRASE be addressed before approval can be granted. (Eurand is not the manufacturer of the active ingredient.)

Axcan has stated publicly that they are confident that ULTRASE will be approved but cannot give any guidance at this point as to when that might occur. In accordance with the FDA’s guidance, Axcan has stated that they stopped distribution of ULTRASE, effective 28 April 2010. As a result, in the second quarter of 2010 Eurand revenues from ULTRASE decreased substantially compared with the second quarter of 2009 and the first quarter of 2010. Pending FDA approval and launch, Eurand anticipates lower product sales and royalties from Axcan for ULTRASE in the second half of 2010 compared with the first half. Eurand expects that, compared with the second half of 2009, the revenue decrease due to ULTRASE should be more than offset by increasing ZENPEP franchise revenues.

Product development pipeline update

EUR-1008 – ZENPEP®: in late 2009, the European Medicines Agency (EMA) finalized its draft guidelines on the clinical development and evaluation of medicinal products, including PEPs, for the treatment of cystic fibrosis. Based on these guidelines and the feedback Eurand received from the EMA on the clinical and regulatory path forward for EUR-1008 (ZENPEP), the company anticipates initiating a Phase III study in Europe in the second half of 2010.

The EMA has deemed a ZENPEP marketing authorization application eligible for evaluation under the centralized procedure, which enables a single marketing authorization that is valid across the European Union and provides for ten years of marketing exclusivity once the product is approved. The company believes that ZENPEP could be the first product to be filed under the centralized procedure since the EMA guidelines were issued.

Eurand plans to out-license the distribution rights for this product in Europe and Asia, and discussions are ongoing with potential partners in those regions.

EUR-1025 – once-daily formulation of ondansetron: following a meeting with the FDA in late 2009, Eurand submitted a protocol to the FDA for two Phase III studies evaluating EUR-1025, a proprietary once-a-day oral modified-release formulation of ondansetron, in the prevention of nausea and vomiting. The FDA recently provided its response, and Eurand is incorporating this feedback into the protocol design.

EUR-1073 – CLIPPER™ (beclomethasone dipropionate): Chiesi Farmaceutici, the licensor of EUR-1073, a corticosteroid for the treatment of ulcerative colitis, completed a Phase IIIb clinical study in Europe comparing CLIPPER to the current standard of care, prednisolone, in ulcerative colitis. Following a thorough analysis of the data from this study, Eurand has decided to discontinue development of this product and return the rights to Chiesi at no cost to Eurand.

Second quarter 2010 financial results

Total revenues were €32.9m ($40.5m) in the second quarter of 2010, an increase of approximately 8%, or 3% at constant currency rates, compared with the second quarter of 2009. Product sales rose 22%, or 17% at constant currency rates, to €29.4m ($36.2m) in the second quarter of 2010 compared with the same period of 2009. This increase is due to sales of ZENPEP and its authorized generic (which were both launched in late 2009), which more than offset lower second quarter sales of ULTRASE to Axcan and no sales from Eurand’s low-cost Pancrelipase. Both ULTRASE and Pancrelipase generated significant sales in 2009.

Royalties were €1.8m ($2.3m), down 25%, or 29% at constant currency rates, from the second quarter of 2009 because of lower royalties from ULTRASE of Axcan. Development fees for the second quarter of 2010 were €1.7m ($2.0m), down 59%, or 62% at constant currency rates, from the same period in 2009, which included a milestone payment from GSK related to the launch of LAMICTAL® ODT™. Revenue from development fees can fluctuate from quarter to quarter since a significant portion of fees is recognized upon achievement of development milestones.

Cost of goods sold was €15.6m ($19.2m) for the three months ended 30 June 2010, and did not change compared with the same period in 2009. At constant currency, cost of goods sold decreased by 4%. During the second quarter of 2010, Eurand sold some inventory of ZENPEP that had been expensed in previous periods prior to receiving regulatory approval in the third quarter of 2009 for commercial launch in the US. If the related inventory had not been expensed in previous periods, cost of goods sold in the three months ended 30 June 2010 would have been higher by approximately €400,000. The margin on product sales increased from 35.4% in the second quarter of 2009 to 46.9% in the second quarter of 2010, mainly as a result of higher-margin ZENPEP product sales.

Research and development (R&D) expenses were €5.6m ($6.9m) for the three months ended 30 June 2010, up approximately 5%, or 1% at constant currency rates, compared with the same period in 2009. Certain components of Eurand’s R&D expenses, notably clinical studies, can vary significantly from quarter to quarter.

Selling, general and administrative (SG&A) expenses of €14.2m ($17.4m) were up 67%, or 58% at constant currency rates, compared with the second quarter of 2009. The increase in SG&A expenses is primarily attributable to an increase in direct sales and marketing expenses associated with the November 2009 launch of ZENPEP, the expansion of the sales force, and related marketing, patient support and managed-care programs.

The operating loss for the second quarter of 2010 was €2.8m ($3.4m) compared with a profit of €762,000 ($937,000) in the comparable period of 2009. The net loss for the second quarter of 2010 was €3.4m ($4.1m), or €(0.07) per diluted share ($(0.09) per diluted share), compared with a net loss for the second quarter of 2009 of €602,000 ($740,000), or €(0.01) per diluted share ($(0.02) per share).

At 30 June 2010, cash, cash equivalents and marketable securities were €38.3m ($47.1m), and debt was €3.0m ($3.7m).

First half 2010 financial results

Total revenues were €64m ($78.7m) for the six months ended 30 June 2010, an increase of approximately 7% compared with the first half of 2009 (the growth was not affected by changes in currency exchange rates). The increase in revenues can be primarily attributed to sales of ZENPEP and its authorized generic.

Product sales grew 17% to €56.3m ($69.2m) year to date in 2010 compared with the same period of 2009. Royalties of €4.6m ($5.7m) were down 12%, or 11% at constant currency rates, compared with the first six months of 2009. Development fees were €3.1m ($3.8m), down 52% from the prior year period.

Cost of goods sold was €28.4m ($34.9m) for the six months ended 30 June 2010, down 5% from the prior year period, or 6% at constant currency rates. During the first half of 2010, Eurand sold some inventory of ZENPEP that had been expensed in previous periods prior to receiving regulatory approval in the third quarter of 2009 for commercial launch in the US. If the related inventory had not been expensed in previous periods, cost of goods sold in the six months ended 30 June 2010 would have been higher by approximately €500,000. The margin on product sales was 49.6% in the first half of 2010 versus 38.0% a year ago as a result of higher-margin ZENPEP sales in 2010.

R&D expenses were €10.9m ($13.5m) for the six months ended 30 June 2010, down 7% compared with the same period in 2009, with no impact from foreign exchange rates. SG&A expenses of €25.1m ($30.8m) were up 51%, or 49% at constant currency, compared with the first half of 2009 due primarily to the increased direct sales and marketing costs associated with the launch of ZENPEP and expansion of the sales force.

For the first six months in 2010, the operating loss was €1.5m ($1.9m). This compares with operating income of €823,000 ($1m) for the same period of 2009.

The net loss for the first half of 2010 was €3m ($3.7m), or €(0.06) per share ($(0.08) per share), compared with a loss of €1.6m ($1.9m), or €(0.03) per share ($(0.04) per share), for the same period in 2009.