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FOR IMMEDIATE RELEASE
NASDAQ: AAII
APPLIED ANALYTICAL INDUSTRIES ANNOUNCES SECOND QUARTER
AND SIX MONTH RESULTS FOR 2000
WILMINGTON, NC, JULY 27, 2000 - Applied Analytical Industries, Inc. (NASDAQ:
AAII), today reported financial results for the second quarter and six months
ended June 30, 2000.
Net revenues for the second quarter grew 28% to $27.8 million over the
$21.7 million reported in the comparable quarter of 1999. Net income was $1.5
million, or $0.09 per diluted share, compared to a net loss of $3.0 million, or
($0.17) per diluted share, reported in last year's second quarter.
Overall gross margins for the quarter were higher, both in terms of
dollars and as a percentage of revenues compared to last year. These positive
comparisons were achieved primarily as a result of strong revenues from the
product development (R&D) program. Selling, general and administrative expenses
increased by approximately 14%, reflecting the strengthening of the Company's
management team and additions to reserves for accounts receivable and
work-in-progress. The Company stated that it expects SG&A costs to be lower as a
percentage of revenues over the remainder of the year.
For the six months ended June 30, 2000, revenues were $52.7 million
compared to $47.8 million in the comparable 1999 period. Net income was $2.1
million, or $0.12 per diluted share, compared to a net loss of $6.7 million, or
($0.39) per diluted share, reported in the first half of 1999. The increase,
year-over-year, for the six-month comparable period reflects strong product
development (R&D) revenues in both the first quarter as well as the second
quarter of 2000.
Gross margins for the first half were nearly five percentage points
higher than the comparable 1999 period, principally due to cost control programs
initiated in the latter part of last year and increased product development
revenues. Although research and development expenses were lower than the prior
year, a substantial increase in such expenditures is anticipated in the second
half, in continuing support of the product development pipeline.
Dr. Fred Sancilio, Chairman and Chief Executive Officer, commented, "We
fully expect R&D costs to average between 8 and 10% of revenue for the year.
Second quarter R&D expenses were down a bit but will resume at normal levels for
the remainder of the year. Expenditures for R&D have traditionally been highest
in the third quarter, and I don't expect this year to be any different than
prior years."
The cash balance increased during the quarter by over $1.4 million,
despite lower debt levels. Cash flow from operations was a strong $3.4 million
as a result of better working capital management and increased net income. Cash
flow also benefited from a lower level of capital expenditures, which are still
significantly below depreciation charges through the first six months.
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Dr. Sancilio continued by saying, "We are extremely pleased with the
growth rate reflected in our results for the second quarter and first half of
the year. While the earnings impact from our product development efforts is not
necessarily a quarterly event, from a fundamental perspective we continue to
successfully grow earnings associated with our R&D program and look forward to
continuing our annual trend. We announced late last year that we expect 2000
product development (R&D) revenue growth of about 50%, year over year. We also
expect year over year research (fee-for-service) revenue to continue to grow at
historical levels. Our balance sheet remains strong, with increased cash on hand
and lower receivables and debt since year-end, reflecting our improved profits
and cash flows in 2000."
Consistent with prior disclosures the Company announced acceleration of
efforts to launch a series of niche pharmaceutical products under its own label.
The Company has four applications pending approval at FDA and technologies in
pre-clinical and early stage development. "After years of investment, several
new products are nearing commercialization. We expect our first product launch
in the first half of 2001, with a goal of launching one product during each half
for the next couple of years. Our products will focus on a therapeutic area not
actively pursued by our major clients, with an initial emphasis on
immunosuppression. As you know, we have made major investments in research in
this area, and built the necessary facilities to handle and support these highly
toxic materials. As such, these products have high barriers to entry, present
difficult analytical and formulation challenges, and occupy a unique market
position," he said.
Other significant events that occurred during the first half include:
o The Company received FDA approval of Methimazole for the treatment of
hyperthyroidism and subsequent selling of the product to a third party
while retaining manufacturing rights.
o The Pharmaceutical Research and Manufacturers of America (PhRMA)
organization elected AAI as a Research Affiliate. To earn this status,
a company must be conducting biological research on its own behalf
directly related to the development or production of ethical products.
o Strategic alliances were signed with the Pharmaceutical Development
Center (PDC) of Charleston, S.C., Laboratorios Phoenix S.A.I.C.F. of
Humahuaca, Argentina, and Guildford Clinical Pharmacology of Surrey,
England, further strengthening our service, technology and product
portfolios.
o The Company signed its first major research contract utilizing its
newly established laboratories in Shanghai, China.
o The Company received tentative approval of three dosage strengths of
Buspirone tablets, a generic product previously licensed to a third
party marketing company.
o AAI initiated three major "fully integrated" product development
programs for three multinational pharmaceutical firms.
o Three additional Product Life Cycle Management programs were added to
our R&D portfolio.
Looking ahead, Dr. Sancilio said, "We remain optimistic about our
operating performance as a whole, for the remainder of the year, anticipating
continued profitability. However, as I've said many times before, our business
is cyclical, and shows seasonality. Therefore, we expect our
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normal third quarter slow down due to vacations at both AAI and at our clients
particularly those in Europe, despite our record backlog levels of $98 million,
a 76% increase over the $55.6 million backlog at the end of July 1999."
Continuing he said, "We maintain a strong relationship with leading
pharmaceutical companies worldwide and are now in a position to continue to
build our pipeline with both lucrative Product Life Cycle Management Projects
for them, as well as our own products. Our transition to a company with both
products and services continues unabated. We intend to leverage 21 years of
experience, investments and relationships into growing profitability."
About AAI
AAI is a specialty pharmaceutical and product development company with
comprehensive drug development capabilities in the United States, Europe and
Asia. Since 1979, AAI has partnered with pharmaceutical companies on both a
fee-for-service and royalty and milestone payment basis, providing the expertise
and knowledge to create quality health care products. The company has earned a
reputation for solving complex pharmaceutical challenges utilizing analytical
testing and formulations development techniques, as well as validation and
regulatory affairs support services. Its stock is listed on Nasdaq (AAII). For
more information about AAI, visit the company's website at www.aaiintl.com.
Forward-Looking Statements
Information in this press release contains certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities and Exchange Act of 1934, including the statements made by Dr.
Sancilio in this press release and the foregoing statements pertaining to SG&A
costs, R&D costs, product development and research revenues and growth rates,
and products in the Company's development and regulatory approval pipelines.
These statements involve risks and uncertainties that could cause actual results
to differ materially, including, without limitation, risks and uncertainties
pertaining to the Company's ability to successfully enhance its ability to
provide strategic product development solutions to its clients while developing
and selling its own niche products, apply its technologies to new commercially
successful products which receive timely regulatory approvals, and manage its
cost and operational efficiencies. Additional factors that may cause the actual
results to differ materially are discussed in the Company's recent filings with
the Securities and Exchange Commission, including, but not limited to, its
registration statement, as amended, its Annual Report on Form 10-K filed with
the SEC on March 30, 2000, its Quarterly Report on Form 10Q filed with the SEC
on May 15, 2000, including the exhibits thereof, its Form 8-Ks and its other
periodic filings.
-TABLES TO FOLLOW -
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APPLIED ANALYTICAL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Research revenues
Non-clinical $ 13,686 $ 11,946 $ 27,073 $ 25,036
Clinical 7,542 6,949 14,533 14,565
-------- -------- -------- --------
21,228 18,895 41,606 39,601
Product development (royalties & fees) 4,538 621 6,517 4,518
Product sales 2,010 2,175 4,559 3,687
-------- -------- -------- --------
TOTAL REVENUES 27,776 21,691 52,682 47,806
-------- -------- -------- --------
Operating costs and expenses:
Direct costs 13,471 12,260 26,997 26,858
Selling, general and administrative 10,515 9,233 19,521 17,164
Research and development 1,852 4,091 3,319 5,959
Transaction, integration, and
restructuring costs -- -- -- 6,400
-------- -------- -------- --------
25,838 25,584 49,837 56,381
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 1,938 (3,893) 2,845 (8,575)
Other income (expense):
Interest expense (543) (255) (1,040) (434)
Other, net 140 (17) 254 (49)
-------- -------- -------- --------
(403) (272) (786) (483)
-------- -------- -------- --------
Income (loss) before income taxes 1,535 (4,165) 2,059 (9,058)
Provision (benefit) for income taxes -- (1,192) -- (2,322)
-------- -------- -------- --------
NET INCOME (LOSS) $ 1,535 $ (2,973) $ 2,059 $ (6,736)
======== ======== ======== ========
Basic earnings (loss) per share $ 0.09 $ (0.17) $ 0.12 $ (0.39)
======== ======== ======== ========
Weighted average shares outstanding 17,473 17,205 17,381 17,202
======== ======== ======== ========
Diluted earnings (loss) per share $ 0.09 $ (0.17) $ 0.12 $ (0.39)
======== ======== ======== ========
Weighted average shares outstanding 17,737 17,205 17,726 17,202
======== ======== ======== ========
</TABLE>
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APPLIED ANALYTICAL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
2000 1999
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,262 $ 2,013
Accounts receivable 34,584 35,064
Work-in-progress 11,246 12,689
Prepaid and other current assets 12,723 11,426
--------- ---------
Total current assets 61,815 61,192
Property and equipment, net 43,349 45,026
Goodwill and other intangibles, net 11,655 13,040
Other assets 3,770 4,228
--------- ---------
TOTAL ASSETS $ 120,589 $ 123,486
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and short-term debt $ 27,323 $ 28,387
Accounts payable 9,088 6,969
Customer advances 6,922 9,146
Accrued wages and benefits 3,935 4,081
Other accrued liabilities 3,195 6,102
--------- ---------
Total current liabilities 50,463 54,685
Long-term debt, less current portion 692 962
Other long-term liabilities 730 1,281
Stockholders' equity:
Common stock 17 17
Paid-in capital 70,146 69,732
Accumulated deficit (201) (2,260)
Accumulated other comprehensive losses (1,234) (906)
Stock subscriptions receivable (24) (25)
--------- ---------
Total stockholders' equity 68,704 66,558
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,589 $ 123,486
========= =========
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