Ipsen's First Half 2007 Results and Financial Objectives for the Full Year 2007
-- Increased effort in Research & Development
-- Results in line with management expectations: full year 2007 operating margin guidance confirmed
The Board of Directors of Ipsen (Paris:IPN), chaired by Jean-Luc
Belingard, met on 28 August 2007 to review the Group's results for the
first half of 2007, published today.
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Summary of consolidated half year results for 2007 and 2006
(in millions of euros) % change
2007 2006 2007/2006
-------------------------------------- ---------- ---------- ---------
Sales 463.2 430.6 +7.6%
Other revenues 35.5 46.6 (23.8)%
Total revenues 498.6 477.2 +4.5%
-------------------------------------- ---------- ---------- ---------
Operating income 112.9 108.4 +4.2%
Operating margin (in % of sales) 24.4% 25.2%
-------------------------------------- ---------- ---------- ---------
Consolidated net profit
(attributable to the Group) 78.0 88.1 (11.6)%
Earnings per share - fully diluted
(EUR ) 0.927 1.049 (11.6)%
-------------------------------------- ---------- ---------- ---------
Average number of shares
Non diluted 84,020,364 84,013,049
Fully diluted 84,101,862 84,031,717
-------------------------------------- ---------- ---------- ---------
Net cash, end of period (1) 198.4 193.3
-------------------------------------- ---------- ---------- ---------
*T
(1) Net cash: cash, cash equivalents and securities held for sale
minus bank overdrafts, bank borrowings and other financial liabilities
plus or minus derivative financial instruments
Commenting on the performance in the first half 2007, Jean-Luc
Belingard, President of the Ipsen Group, stated: "The Group's
performance in the first half 2007 has been up to our expectations.
Despite a yet more difficult environment, where price pressure and
competition have further increased, Ipsen has achieved a sound sales
growth performance. Our financial results this half are fully in line
with our full year objectives and reflect our key strategic decisions,
notably to continue to actively invest in R&D and to create an
endocrinology platform in North America. These decisions are fully
validated by our news flow: we have continued to achieve key
objectives for the Group's development, notably with the marketing
approval of Increlex(R) in Europe. We have also launched Adrovance(TM)
in France, closed the 051 study on Dysport(R) in Cervical Dystonia in
the US and completed the sale of Ginkor Fort(R) to an OTC specialist.
In this framework, we are able to confirm all of our financial
objectives for the year and expect to fully offset in 2007 the price
cut on Tanakan(R) implemented on 1 July 2007 in France. The
foundations to accelerate Ipsen's development have therefore been
further strengthened and we look forward to the second half 2007 with
confidence, with the actual commercial start of our partnership with
Tercica, through the launch of Increlex(R) in Europe and the expected
approval of Somatuline(R) in the US."
Review of half year 2007 results
Consolidated Group sales reached EUR 463.2 million, up 7.6%
year-on-year. This increase was fuelled by the strong growth of
Somatuline(R), NutropinAq(R) and Dysport(R) and by the strong
performance of gastroenterology products in international markets.
Group sales were negatively impacted by price pressure, amounting to
EUR 6.9 million, due notably to price cuts enforced by health
authorities.
Other revenues totalled EUR 35.5 million, down 23.8% year-on-year.
In the first half 2007, the Group ceased billings for R&D services
within the framework of partnership agreements, mainly with Roche for
the development of BIM 51077.
Total revenues therefore reached EUR 498.6 million during the
period, up 4.5% year-on-year.
R&D expenses amounted to EUR 88.4 million, up 5.4% year-on-year,
despite lower revenues received from third parties stemming from
partnership agreements (notably BIM 51077), implying an increased
self-financed R&D effort.
Operating income reached EUR 112.9 million in the first half 2007,
up 4.2% year-on-year, despite the significant negative impact of price
cuts in major Western European countries and the fall of other
revenues. Operating margin stood at 24.4% of sales versus 25.2% a year
ago.
The Group's effective tax rate in the first half 2007 reached
27.3% of net profit from continuing operations before tax and share in
the results of associated companies, compared with a reported
effective tax rate of 18.7% and with a recurring effective tax rate of
25.0% in the first half 2006.
The Group's loss from associates amounted to EUR (3.5) million
($(4.6) million) and was solely composed of the Group's share in the
net losses of Tercica Inc., stated as required under IFRS. Tercica
Inc. has been reported in "loss from associates" in the Group's
financial statements since October 2006.
Consolidated net profit for the first half 2007 was EUR 78.2
million, down 11.6% compared with EUR 88.5 million for the same period
in 2006.
Net cash flow generated by operating activities amounted to EUR
47.3 million in the first half 2007, compared with EUR 130.2 million a
year ago, when the Group benefited from important payments received in
relation to its partnership agreements. At 30 June 2007, the Group's
net cash position was EUR 198.4 million, compared with EUR 193.3
million at 30 June 2006.
Total milestones received in cash but not yet recognised as
revenues amounted to EUR 192.7 million, compared with EUR 94.3 million
in the first half 2006.
2007 financial objectives
On the basis of its performance in the first half 2007 and
currently available information, in particular after taking into
account the 10% price decrease implemented on 1 July 2007 on
Tanakan(R) in France, the Group is confirming the objectives it has
set for itself for the full year 2007:
-- Sales growth of 6.5% to 7.5%;
-- Total revenue growth of 4.0% to 5.0%;
-- Operating margin of 22.0% to 23.0% of sales.
The objectives announced by the Group on March 19, 2007 did not
take into account this price decrease of Tanakan(R), implemented since
then.
Ipsen - Analyst and Investor conference call and webcast (in
English)
Ipsen will host a conference call on 29 August 2007 at 2.00 p.m.
(Paris time). A live webcast will be available at www.ipsen.com.
The webcast will be archived on the Ipsen website for 3 months
following the live call. Callers should dial in approximately 5 to 10
minutes prior to the start of the call.
No reservation is necessary to participate in the call. The
telephone numbers to join the conference call are, from France and
Europe: +33 (0) 1 72 28 01 50 and from the United States: +1 866 907
5932
A replay will be available soon after the live call. The telephone
numbers to access the replay are, from France and Europe: +33 (0) 1 72
28 01 49 and from the United States: +1 866 828 2261. The access code
is 203862#. The replay will be available for two weeks following the
live call.
About Ipsen
Ipsen is a European pharmaceutical group with over 20 products on
the market and a total worldwide staff of nearly 4,000. The company's
development strategy is based on a combination of products in targeted
therapeutic areas (oncology, endocrinology and neuromuscular
disorders) which are growth drivers, and primary care products which
contribute significantly to its research financing. This strategy is
also supported by an active policy of partnerships. The location of
its four R&D centres (Paris, Boston, Barcelona, London) gives the
Group a competitive edge in gaining access to leading university
research teams and highly qualified personnel. In 2006, Research and
Development expenditure was EUR 178.3 million, i.e. 20.7% of
consolidated sales, which amounted to EUR 861.7 million while total
revenues amounted to EUR 945.3 million (in IFRS). 700 people in R&D
are dedicated to the discovery and development of innovative drugs for
patient care. Ipsen's shares are traded on Segment A of Eurolist by
Euronext(TM) (stock code: IPN, ISIN code: FR0010259150). Ipsen's
shares are eligible to the "Service de Reglement Differe" ("SRD") and
the Group is part of the SBF 250 index. For more information on Ipsen,
visit our website at www.ipsen.com.
Forward-looking statements
The forward-looking statements and targets contained herein are
based on Ipsen's management's current views and assumptions. Such
statements involve known and unknown risks and uncertainties that may
cause actual results, performance or events to differ materially from
those anticipated herein. The targets contained herein were prepared
without taking into account external growth assumptions, which may
alter the parameters. These targets are based on data and assumptions
regarded as reasonable by the Group and depend on conditions or facts
likely to happen in the future, and not exclusively on historical
data. Actual results may depart significantly from the targets given
the occurrence of certain risks and uncertainties. The Group does not
commit nor gives any guarantee that it will meet the targets mentioned
above. Moreover, the Research and Development process involves several
stages at each of which there is a substantial risk that the Group
will fail to achieve its objectives and be forced to abandon its
efforts in respect of a product in which it has invested significant
sums. Therefore, the Group cannot be certain that favourable results
obtained during pre-clinical trials will be confirmed subsequently
during clinical trials, or that the results of clinical trials will be
sufficient to demonstrate the safe and effective nature of the product
concerned. Ipsen expressly disclaims any obligation or undertaking to
update or revise any forward looking statements, targets or estimates
contained in this press release to reflect any change in events,
conditions, assumptions or circumstances on which any such statements
are based, unless so required by applicable law. Ipsen's business is
subject to the risk factors outlined in its information documents
filed with the French Autorite des Marches Financiers.
About Tercica
Tercica is a biopharmaceutical company committed to improving
endocrine health by partnering with the endocrine community to develop
and commercialize new therapeutics for pediatric and adult growth
disorders, and for adult metabolic disorders. For further information
on Tercica Inc., please visit www.tercica.com.
Comparison of the consolidated income statement for the first half
2007 and first half 2006:
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30 June 2007 30 June 2006
----------------- -----------------
(in % of (in % of June 2007/
thousands sales thousands sales June 2006
of euros) of euros) variation
----------------------- ---------- ------ ---------- ------ ----------
Sales 463,164 100.0% 430,607 100.0% 7.6%
Other revenues 35,472 7.7% 46,569 10.8% -23.8%
Total revenues 498,636 107.7% 477,176 110.8% 4.5%
Cost of goods sold (98,101) -21.2% (88,879) -20.6% 10.4%
Research and
development expenses (88,351) -19.1% (83,817) -19.5% 5.4%
Selling, general and
administrative
expenses (199,560) -43.1% (188,000) -43.7% 6.1%
Other operating income
and expenses 295 0.1% (8,298) -1.9%
Restructuring costs 8 nm 189 nm
Operating income 112,927 24.4% 108,371 25.2% 4.2%
- Income from cash and
cash equivalents 5,910 - 2,767
- Cost of gross
financial debt (815) - (1,208)
Cost of net financial
debt 5,095 1.1% 1,559 0.4%
Other interest income
and expense (3,877) -0.8% (1,202) -0.3%
Income tax (31,123) -6.7% (20,280) -4.7%
Share of loss/profit
from associated
companies (3,462) -0.7% - -
Net profit/loss from
continuing operations 79,560 17.2% 88,448 20.5% -10.0%
Net profit/loss from
discontinued
operations (1,340) -0.3% 33 nm
Consolidated net profit 78,220 16.9% 88,481 20.5% -11.6%
- Equity holders of
Ipsen S.A. 77,990 88,144
- Minority interests 230 337
----------------------- ---------- ------ ---------- ------ ----------
*T
Other revenues
In the first half 2007 other revenues totalled EUR 35.5 million,
down 23.8% year on year (first half 2006: EUR 46.6 million).
Other revenues break down as follows:
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30 30 June 2007
June June /June 2006
2007 2006 variation
(in thousands of euros)
Amount %
----------------------------------------- ------ ------ --------------
Breakdown by revenue type
- Royalties received 23,970 21,865 2,105 9.6%
- Milestone payments - licensing
agreements 8,538 10,845 (2,307)-21.3%
- Other (co-promotion revenues,
recharging) 2,964 13,859 (10,895)-78.6%
----------------------------------------- ------ ------ --------------
Total 35,472 46,569 (11,097)-23.8%
----------------------------------------- ------ ------ --------------
*T
-- Royalties received mainly comprised royalties from the
Kogenate(R) licence, which amounted to EUR 22.8 million for
the first half 2007, up 13.1% compared with the same period
last year (EUR 20.2 million in the first half 2006). The first
half 2007 had been particularly high due to the carry-over of
some 2006 royalties into 2007.
-- Milestone payments relating to licensing agreements represent
primarily recognition of payments received over the life of
partnership agreements. In the first half 2007, this income
mainly comprised milestones in relation to the Reloxin(R)
agreement with Medicis, the Tenstaten(R) agreement with
Recordati and the BIM 51077 (GLP-1 analogue) partnership with
Roche. Milestone payments recognised in the first half 2006
included primarily the accelerated recognition of payments
received by the Group following termination of the Reloxin(R)
distribution agreement with Inamed.
-- Other revenues amounted to EUR 3.0 million in the first half
2007, down 78.6% relative to the very high level of EUR 13.9
million achieved in the first half 2006. In the first half
2007, the Group ceased billings for R&D services within the
framework of its partnership agreement for the development of
BIM 51077, for which development works are now carried out by
Roche, as well as the agreement with Genentech concerning a
new formulation of the growth hormone, which reached the end
of the research phase at the end of 2006. Furthermore, in the
first half 2006, other revenues benefited from the effects of
the termination in April 2007 of the co-promotion agreement
with Pfizer for Zoxan(R).
Cost of goods sold
For the first half 2007, cost of goods sold amounted to EUR 98.1
million, representing 21.2% of sales compared with 20.6% a year ago,
impacted by the negative effects of price cuts implemented during the
period, which could not be offset by increases in activity or the
productivity improvements. Also higher growth of in-licensed products
and drug related activities contributed to softening the product mix
improvement.
Research and development expenses
A comparison of research and development expenses for the first
halves 2007 and 2006 is presented in the following table:
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30 30 June 2007
June June /June 2006
2007 2006 variation
(in thousands of euros)
Amount %
------------------------------------------ ------ ------ ------- -----
Breakdown by expense type
- Drug-related research and development(1) 71,908 70,645 1,263 1.8%
- Industrial development(2) 13,545 10,218 3,327 32.6%
- Strategic development(3) 2,898 2,954 (56) -1.9%
------------------------------------------ ------ ------ ------- -----
Total 88,351 83,817 4,534 5.4%
------------------------------------------ ------ ------ ------- -----
*T
(1) Drug-related research and development is aimed at identifying
new agents, determining their biological characteristics and
developing small-scale manufacturing processes. Pharmaceutical
development is the process through which active agents become drugs
approved by regulatory authorities and is also used to improve
existing drugs and to research new therapeutic indications for them.
Patent-related costs are included in this type of expense.
(2) Industrial development includes chemical, biotechnical and
development-process research costs to industrialise small-scale
production of agents developed by the research laboratories.
(3) Strategic development includes costs incurred for research
into new product licences and establishing partnership agreements.
Research and development expenses increased by 5.4% to EUR 88.4
million or 17.7% of total revenues and 19.1% of sales in the first
half 2007 (first half 2006: EUR 83.8 million or 17.6% of total
revenues and 19.5% of sales).
-- Over the period, major research and development projects
included preparation for registration of Dysport(R) and
(finalisation of registration of Somatuline(R) Autogel(R))with
the Food and Drug Administration (FDA) in the United States
and the phase III trials for a longer sustained release
formulation of Triptorelin, since then discontinued. In the
first half 2006, the development of BIM 51077 in partnership
with Roche - for which Roche is now responsible - and
preparation for registration of Somatuline(R) Autogel(R) with
the FDA had represented a significant proportion of the
Group's research and development expenses.
-- In the area of industrial development, the increase was mainly
linked to costs incurred in preparation for future
pre-approval inspections by the FDA (Food and Drug
Administration) at some of the Group's manufacturing sites, in
anticipation of future launches of Somatuline(R) Autogel(R)
for which registration was requested in December 2006, as well
as Dysport(R), for which filing is expected in the United
States at the end of 2007.
Selling, general and administrative expenses
A comparison of selling, general and administrative expenses for
the first halves 2007 and 2006 is presented in the following table:
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June 2007
/June 2006
30 June 30 June variation
(in thousands of euros) 2007 2006
Amount %
--------------------------------------- ------- ------- --------------
Breakdown by expense type
Royalties paid 17,869 15,839 2,030 12.8%
Taxes and sales tax 6,386 7,548 (1,162) -15.4%
Other sales and marketing expenses 135,532 127,221 8,311 6.5%
--------------------------------------- ------- ------- --------------
Selling expenses 159,787 150,608 9,179 6.1%
--------------------------------------- ------- ------- --------------
General and administrative expenses 39,773 37,392 2,381 6.4%
--------------------------------------- ------- ------- --------------
Total 199,560 188,000 11,560 6.1%
--------------------------------------- ------- ------- --------------
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In the first half 2007, selling, general and administrative
expenses increased by 6.1% to EUR 199.6 million, representing 43.1% of
sales compared with 43.7% of sales a year earlier.
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-- Selling expenses amounted to EUR 159.8 million, representing 34.5%
of sales, up 6.1% year-on-year (first half 2006: EUR 150.6
million, representing 35.0% of sales). This increase stands below
the sales growth level, despite a significant increase in
royalties paid to third parties.
-- Royalties paid to third parties on sales of products marketed
by the Group amounted to EUR 17.9 million, up 12.8% year on
year, stemming from the sales growth of the corresponding
products.
-- Taxes reached EUR 6.4 million, down 15.4% year-on-year, mainly
due to the reduction in 2007 of the sales-based tax rate in
France from 1.76% to 1.0%.
-- Other sales and marketing expenses (i.e. marketing and sales
force costs) were up by 6.5% year on year, amounting to EUR
135.5 million in 2007, or 29.3% of sales, compared with EUR
127.2 million in the first half 2006 or 29.5% of sales. This
slight reduction in relative value is notably the result of a
sharp increase in expenses in Central Europe, China, Korea,
Algeria, Mexico and certain Western European countries, coupled
with very strong sales growth.
-- General and administrative expenses grew by 6.4% to EUR 39.8
million, representing an increase of EUR 2.4 million compared
with the first half 2006. This increase, below the sales growth
rate, stemmed mainly from an increase in the costs of corporate
functions, as well as reinforcement and adaptation of certain
administrative functions as a result of sales growth,
particularly in international markets.
*T
Other operating income and costs
For the first half 2007, other operating income and expenses were
immaterial, compared with an expense of EUR 8.4 million in the first
half 2006 relating primarily to a non-recurring payment of $10 million
to Inamed for the recovery of all rights related to Reloxin(R) in the
United States, Canada and Japan.
Operating profit
As a result of the above, the Group's operating income for the
first half 2007 reached EUR 112.9 million, representing 22.6% of total
revenues and 24.4% of sales, up 4.2% year on year, (first half 2006:
22.7% of total revenues and 25.2% of sales). Operating income in the
first half of 2007 did not include any material non-recurring
expenses, whereas in the first half 2006, recurring operating income
restated for non-recurring expenses amounted to EUR 116.7 million
representing 24.5% of total revenues and 27.1% of sales. On this
basis, recurring operating income in the first half 2007 declined by
3.3% year-on-year.
Segment reporting: Operating profit by geographical region
In compliance with IAS 14 "Segment Reporting", the Group's primary
reporting format is presented according to geographical segment, since
Ipsen operates in a single business segment, i.e. drug research and
development, production and sales.
Sales, revenues and operating income for the first halves 2007 and
2006 are presented in the following table by geographical region:
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June 2007/June
30 June 2007 30 June 2006 2006 variation
(in (in (in
thousands thousands thousands
of euros) % of euros) % of euros) %
---------------- ---------- ------ ---------- ------ ---------- ------
Major Western European countries(1)
Sales 283,022 100.0% 275,645 100.0% 7,377 2.7%
Revenues 286,612 101.3% 286,345 103.9% 267 0.1%
Operating income 112,303 39.7% 113,110 41.0% (807) -0.7%
---------------- ---------- ------ ---------- ------ ---------- ------
Other European countries
Sales 106,090 100.0% 93,324 100.0% 12,766 13.7%
Revenues 106,090 100.0% 93,324 100.0% 12,766 13.7%
Operating income 42,538 40.1% 40,372 43.3% 2,166 5.4%
---------------- ---------- ------ ---------- ------ ---------- ------
Rest of the World
Sales 74,052 100.0% 61,638 100.0% 12,414 20.1%
Revenues 74,052 100.0% 61,638 100.0% 12,414 20.1%
Operating income 28,240 38.1% 24,375 39.5% 3,865 15.9%
---------------- ---------- ------ ---------- ------ ---------- ------
Allocated total
Sales 463,164 100.0% 430,607 100.0% 32,557 7.6%
Revenues 466,754 100.8% 441,307 102.5% 25,446 5.8%
Operating income 183,081 39.5% 177,857 41.3% 5,224 2.9%
---------------- ---------- ------ ---------- ------ ---------- ------
Non-allocated total(2)
Revenues 31,882 6.4% 35,869 7.5% (3,987) -11.1%
Operating income (70,154) -62.1% (69,486) -64.1% (668) 1.0%
---------------- ---------- ------ ---------- ------ ---------- ------
Ipsen total
Sales 463,164 100.0% 430,607 100.0% 32,557 7.6%
Revenues 498,636 107.7% 477,176 110.8% 21,460 4.5%
Operating income 112,927 24.4% 108,371 25.2% 4,556 4.2%
*T
(1) France, Spain, Italy, Germany and the UK
(2) Since January 1st, 2007, the Group has been able to better
allocate to regions some international market central control costs,
previously non-allocated.
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-- In Major Western European countries, sales grew by only 2.7% year
on year, reflecting government measures imposing price cuts,
primarily in France and Italy. Total revenues increased by 0.1% as
sales generated by Artotec(R) in the first half 2007 did not fully
offset the effects of the termination of the Zoxan(R) co-promotion
agreement with Pfizer in 2006. Hence, operating income declined by
0.7% to EUR 112.3 million over the period, representing 39.7% of
sales, compared with EUR 113.1 million a year ago, representing
41% of sales.
-- In Other European countries, which include other Western European
countries and Eastern European countries, sales increased by 13.7%
year on year. Operating income increased by 5.4% over the period
to EUR 42.5 million, up from EUR 40.4 million during the same
period in 2006, representing 40.1% and 43.3% of sales
respectively. During the first half 2007, the region reflected the
results of a more precise geographical allocation of international
market central control costs, which were not allocated a year ago.
Excluding changes in allocation rules, operating income increased
by 9.4% over the period. The relative weight of drug-related
activities in the region, which generate lower margins, increased
from 4.2% to 5.5% of sales.
-- In the Rest of the World, where most of the Group's products are
marketed by third-party distributors and agents, except in certain
countries where Ipsen has a direct presence, sales were up 20.1%,
a sharp increase year on year. Meanwhile, operating income
amounted to EUR 28.2 million, up 15.9% year on year. As described
above, operating income for the region was affected by a more
precise geographical allocation of international market central
control costs. Excluding changes in allocation rules, operating
income increased by 21.3% over the period.
-- Non-allocated operating loss totalled EUR 70.2 million, stable
year-on-year (first half 2006; loss of EUR 69.5 million). The non-
allocated operating loss included:
-- revenues of EUR 31.9 million compared with EUR 35.9 million in
the first half 2006. This includes primarily royalties received
from the Kogenate(R) licence, as well as the recognition over the
lives of the corresponding contracts of revenue from these
agreements. In the first half 2007, this comprised chiefly
revenue relating to agreements with Medicis for Reloxin(R), with
Recordati for Tenstaten(R) and with Roche for BIM 51077.
Milestone payments recognised in the first half of the year
included the accelerated recognition of payments received by the
Group following termination of the Reloxin(R) distribution
agreement with Inamed, as well as the sale to a third party of
rights relating to one of the Group's minor products;
-- research and development expenses of EUR 80.8 million, up from
EUR 75.5 million a year ago;
-- non-allocated selling, general and administrative expenses of
EUR 21.5 million, stable compared with EUR 21.8 million a year
ago, mainly due to the effects of a more precise geographical
allocation of certain expenses in the first half 2006, as
described above;
-- other operating income of EUR 0.3 million. In 2006, the Group
recorded other operating expenses of EUR 8.3 million, relating
primarily to the sum paid to Inamed in March 2006 to recover all
rights relating to Reloxin(R).
*T
Cost of net financial debt
For the first half 2007, the cost of net financial debt was an
income of EUR 5.1 million compared with an income of EUR 1.6 million a
year earlier. This positive trend mainly reflects ongoing improvement
in the Group's cash position over the period.
Other elements represented a EUR 3.9 million expense, compared
with a EUR 1.2 million expense in the first half 2006, mainly
comprising:
-- a EUR 1.5 million charge relating to a revaluation as at 30
June 2007 - according to IAS 39 - of financial instruments
(warrants and convertible bonds) in connection with the
acquisition of Tercica Inc. in October 2006.
-- a EUR 1.0 million charge due to foreign exchange loss (EUR 0.5
million in the first half 2006), of which EUR 1.2 million
stems from the revaluation of the Tercica Inc. convertible
bond in US dollars subscribed for by the Group in October
2006.
Income tax
In the first half 2007, the Group's effective tax rate amounted to
27.3% of net profit from continuing operations and share of loss from
associated companies, compared with 18.7% a year earlier and a
recurring effective tax rate of 25.0% over the same period. The
effective tax rate for the first half 2007 was not materially affected
by non-recurring tax items.
A year ago, the effective tax rate benefited from the
non-recurring effect of the use in the United Kingdom of capital
losses of EUR 6.9 million that had previously not been recognised. In
addition, in 2006, the research tax credit system in France benefited
from a change in the published computation rules during the year,
while there were no changes to calculation rules in 2007. Lastly, the
tax charge for the first half 2007 was affected by a reduction in
value of deferred tax assets in the Netherlands following the decrease
in this country's tax rate from 29.6% to 25.5% during the first half
2007.
Share of loss from associated companies
The Group's share of loss from associated companies amounted to
EUR (3.5) million ($(4.6) million) and was solely composed of the
Group's share in the net losses of Tercica Inc. to the end of the
first half 2007, stated as required under IFRS. Tercica Inc. began
shipments of Increlex(TM) in January 2006 and recorded sales totalling
$3.1 million for the first half 2007. The cost of goods sold for the
period amounted to $2.8 million. Research and development costs came
to $8.9 million, relating to the continuation of clinical trials for
Primary IGF-1 and severe Primary IGF-1, as well as manufacturing
development costs. Selling, general and administrative expenses
amounted to $21.8 million in the first half 2007, reflecting sales and
marketing activities post-launch of Increlex(TM). Due to Tercica
Inc.'s positive net cash position of $67.5 million as at 30 June 2007,
interest income in the first half 2007 was $4.1 million. Finally, the
Group has booked $10.4 million of tax income on Tercica Inc.'s loss
before tax of $25.9 million over the period.
Net profit/loss from continuing operations
As a result of the items described above, profit from continuing
operations decreased by 10.0% to EUR 79.6 million, compared with EUR
88.5 million a year earlier. Profit from continuing operations
represented 17.2% of sales and 16.0% of total revenues, compared with
20.5% of sales and 18.5% of total revenues a year ago. Excluding the
impact of the acquisition of Tercica Inc.(1) profit from continuing
activities stood at EUR 85.3 million, down 3.5% year on year.
Net profit/loss from discontinued operations
The Group's discontinued primary care business in Spain sold in
2005 generated a loss of EUR 1.3 million in the first half 2007,
compared with a profit close to zero a year ago. This loss accompanied
the final closure in the first quarter 2007 of the Barcelona
production plant, which continued to manufacture products in
accordance with agreements signed with the buyer when the business was
sold.
Consolidated net profit
As a result of the items noted above, consolidated net profit
declined by 11.6% to EUR 78.2 million (EUR 78.0 million attributable
to equity holders of Ipsen S.A.), compared with EUR 88.5 million (EUR
88.1 million attributable to equity holders of Ipsen S.A.) a year
earlier. Consolidated profit represented 16.9% of revenues in the
first half 2007, compared with 20.5% in the first half 2006.
Milestones received in cash-in but not yet recognised as revenues
In the first half 2007, total milestones received in cash by the
Group but not yet recognised as revenues in its consolidated income
statement amounted to EUR 192.7 million, compared with EUR 94.3
million in the first half 2006.
-0-
*T
These payments will be recognised in the Group's income statement as
revenues going forward as follows:
Milestones received in cash but not yet
(in million euros) recognised as revenues in the periods
ending:
----------------------------------------------------------------------
30 June 2007 30 June 2006
----------------------------------------------------------------------
Total 192.7 94.3
----------------------------------------------------------------------
These receipts will be recognised in the Group's income statement as
revenues in the future as follows:
In the second half of year N 8.3 4.0
In year N+1 17.2 8.0
In years N+2 and beyond 167.2 82.3
----------------------------------------------------------------------
*T
CASH FLOW AND CAPITAL RESOURCES
The consolidated cash flow statement shows a negative change in
the Group's net cash position during the first half 2007 of EUR 63.7
million compared with an increase of EUR 24.2 million in the first
half 2006. The first half 2006 benefited from a payment of EUR 85.4
million from Medicis under the Reloxin(R) distribution agreement.
Cash flow from discontinued operations was EUR 2.2 million over
the period compared with EUR 1.6 million in the first half 2006.
ANALYSIS OF THE CASH FLOW STATEMENT FOR THE FIRST HALVES 2007 AND
2006
-0-
*T
30 June 30 June
(in thousands of euros) 2007 2006
------------------------------------------------- --------- ----------
- Cash flow before variation in working
capital requirements 112,590 89,558
- (Increase) / decrease in working capital
requirements for operations (65,298) 40,616
-- Net cash flow generated by operating
activities 47,292 130,174
- Net cash flow relating to investment
activities (30,671) (25,204)
- Other items
- Deposits paid (4,338) -
- Variation in cash securities held for
sale (12,063) -
-- Net cash flow used in investment activities (47,072) (25,204)
-- Net cash flow used in financing activities (66,104) (82,358)
-- Net cash flow provided by discontinued
activities 2,173 1,604
Increase / (decrease) in cash flow (63,711) 24,216
Cash and cash equivalents at beginning of period 283,743 200,564
Impact of foreign exchange variations 9 (17)
------------------------------------------------- --------- ----------
Cash and cash equivalents at end of period 220,041 224,763
------------------------------------------------- --------- ----------
*T
Net cash flow generated by operating activities
During the first half 2007, net cash flow generated by operating
activities before changes in working capital totalled EUR 112.6
million, compared with EUR 89.6 million a year ago. Cash flow before
variation in working capital for the first half 2006 was affected by
an increase in deferred tax receivables, relating primarily to the
recognition of a deferred tax asset on the milestone payment received
from Medicis.
Working capital requirements for operating activities increased by
EUR 65.3 million in the first half 2007 following a decline of EUR
40.6 million a year ago. This evolution is linked to the following:
-- the balance between current assets and current liabilities
represents a debt which decreased by EUR 9.6 million in the
first half 2007 following an increase of EUR 58.4 million a
year ago. In the first half 2007, the Group recognised advance
payments of EUR 15 million received in connection with its
partnership agreements with Roche and Galderma. This income
was partly offset by the recognition in the income statement
of EUR 8.5 million mainly in relation to agreements with
Medicis, Roche, Tercica Inc. and Recordati, as well as changes
in other operating liabilities and debt, mostly resulting from
significant tax and insurance payments over the period.
-- inventories increased by EUR 7.7 million in the first half
2007 compared with an increase of EUR 3.4 million a year ago,
mainly due to the build-up of Adrovance(TM) inventories under
the joint marketing agreement signed in January 2007 with MSD.
Trade receivables rose by EUR 17.9 million, mainly due to
growth in business in international markets, compared with an
increase of EUR 30.4 million in the first half 2006, primarily
as a result of changes in payment terms for certain customers
in France. Meanwhile, trade payables decreased by EUR 5.6
million, mainly because of payment in the first half 2007 of
fees charged in 2006.
-- tax payable decreased by EUR 24.4 million in the first half
2007, mainly as a result of the reduction in the Group's tax
charge: interim payments made during the period, calculated on
the basis of 2006 taxable income, were higher than the actual
tax charge for the period. In the first half 2006, tax payable
increased by EUR 34.1 million, mainly comprising tax on income
received from Medicis and the remainder relating to tax
payable by the Group's companies in France in respect of the
first half 2006.
As a result of the above, net cash flow generated by operating
activities amounted to EUR 47.3 million in the first half 2007,
compared with EUR 130.2 million in the first half 2006, when the Group
benefited from important payments received in relation to its
partnership agreements.
Net cash flow used in investment activities
In the first half 2007, net cash flow used in investment
activities comprised two main components:
-- 1. Reflection of net cash flow relating to investment in the
strict sense;
-- 2. Reflection of other elements.
1. Net cash flow used in investment activities in the strict sense
represented EUR 30.7 million compared with EUR 25.2 million for the
same period in 2006. This comprised mainly asset acquisitions, net of
disposals, of EUR 20.4 million in the first half 2007 compared with
EUR 14.4 million in the first half 2006, as well as an increase in
working capital requirements relating to investment activities of EUR
8.2 million in the first half 2007 following an increase of EUR 7.0
million in the first half 2006.
-- In the first half 2007, tangible fixed asset acquisitions
totalled EUR 16.4 million, mostly consisting in capital
expenditure required to maintain the Group's industrial
facilities, as well as certain investment in capacity, such as
EUR 4.9 million for the new Dysport(R) secondary production
plant at the Wrexham site.
-- During the same period, intangible asset acquisitions amounted
to EUR 4.6 million, mainly relating to the first milestone
payment in connection with the acquisition from Erasmus MC of
a patent.
-- The increase of EUR 8.2 million in working capital
requirements for investment activities in the first half 2007
relates primarily to payment during the period of debts due
against fixed assets recognised at the end of 2006, mainly in
France and the United Kingdom.
2. Net cash flow used for other elements represents:
-- EUR 4.3 million for guarantee deposits paid by the Group,
notably as a security against long-term public loans received
in Spain in the context of its research activities, and in
respect of the lease contract for its future head office in
France.
-- EUR 12.1 million relating to investments, as part of an active
cash management strategy, in securities offering a higher rate
of return than monetary unit trusts while maintaining a low
rate of volatility.
Net cash flow used in financing activities.
In the first half 2007, net cash flow used in financing activities
totalled EUR 66.1 million compared with EUR 82.4 million in the first
half 2006. The Group paid out EUR 50.4 million in dividends in the
first half 2007, in line with the amount paid in the first half 2006.
It drew EUR 3.1 million from its credit lines, with outstandings of
EUR 8.4 million as at 30 June 2007, while in the first half 2006 the
Group had repaid EUR 31.1 million of its credit lines, with
outstandings of EUR 6.6 million. The Group also used EUR 18.0 million
in the first half 2007 to finance its share buyback program.
Net cash flow provided by discontinued activities.
In the first half 2007, net cash flow provided by discontinued
activities amounted to EUR 2.2 million, resulting from the decrease in
working capital requirements linked the Group's primary care business
in Spain, sold in 2005, compared with EUR 1.6 million in the first
half 2006.
ANALYSIS OF NET CASH (2)
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*T
30 June 30 June
(in thousands of euros) 2007 2006
------------------------------------------------------ ------- -------
Cash in hand 30,927 22,796
------------------------------------------------------ ------- -------
Short-term investments 184,009 195,229
------------------------------------------------------ ------- -------
Interest-bearing deposits 6,185 8,130
------------------------------------------------------ ------- -------
Cash and cash equivalents 221,121 226,155
------------------------------------------------------ ------- -------
Securities held for sale(3) "Securities held for sale"
correspond to shares in mutual funds held for trading
which the Group intends to sell in the near future.
They are included in the calculation of the Group's
net cash position. 12,063 -
------------------------------------------------------ ------- -------
233,184 226,155
------------------------------------------------------ ------- -------
Bank overdrafts liabilities (1,080) (1,392)
------------------------------------------------------ ------- -------
Closing net cash and cash equivalents 232,104 224,763
------------------------------------------------------ ------- -------
------------------------------------------------------
Non-Current
------------------------------------------------------ ------- -------
Short-term debt 8,397 6,621
------------------------------------------------------ ------- -------
Other financial liabilities 16,194 16,245
------------------------------------------------------ ------- -------
Current
------------------------------------------------------ ------- -------
Short-term debt 6,350 6,350
------------------------------------------------------ ------- -------
Financial liabilities 2,820 2,286
------------------------------------------------------ ------- -------
Debt 33,761 31,502
------------------------------------------------------ ------- -------
------------------------------------------------------ ------- -------
Derivatives (32) -
------------------------------------------------------ ------- -------
------------------------------------------------------ ------- -------
Net cash position 198,375 193,261
------------------------------------------------------ ------- -------
*T
At 30 June 2007, the Group's net cash position was EUR 198.4
million, compared with EUR 193.3 million at 30 June 2006. In addition,
the Group had three-year credit facilities totalling EUR 206.7 million
at 30 June 2007, of which EUR 8.4 million was in use, compared with
utilisation of EUR 6.6 million at 30 June 2006. Covenants included in
the loan agreements, namely net debt to equity and net debt to
EBITDA(4), are irrelevant in respect of the current positive net cash
situation.
(1) Including the impacts of convertible bonds and warrants on
financial result and losses from associates
(2) Net cash: cash, cash equivalents and securities held for sale
minus bank overdrafts, bank borrowings and other financial liabilities
plus or minus derivative financial instruments.
(3) "Securities held for sale" correspond to shares in mutual
funds held for trading which the Group intends to sell in the near
future. They are included in the calculation of the Group's net cash
position.
(4) EBITDA: earnings before interest, tax, depreciation and
amortisation.