ICOS Icos

Guidance Raised for 2006 Worldwide Sales of Cialis(R) (tadalafil)(1) and ICOS and Lilly ICOS Net Income ICOS Corporation (NASDAQ:ICOS) today released its financial results for the three and six months ended June 30, 2006 and summarized recent events. "ICOS achieved quarterly profitability earlier than anticipated due to the strong sales performance of Cialis and the increased profitability of Lilly ICOS(2)," said Paul Clark, ICOS Chairman and CEO. "We are delighted that ICOS is now on track, for the first time in its history, to report full-year net income in 2006." During the second quarter of 2006, ICOS announced an exciting opportunity to expand the commercial potential for Cialis using low doses, once daily, to treat erectile dysfunction (ED). Lilly ICOS has already submitted regulatory filings in Europe and Canada, and plans to seek approval in the United States later this year. "When Cialis was launched, our objective was to establish the brand as a new, best-in-class alternative among the on-demand treatments for ED," commented Leonard Blum, Senior Vice President, Sales and Marketing. "We are proud that Lilly ICOS has built worldwide awareness of Cialis and its unique benefits. Currently, we are developing a daily treatment for ED and other medical conditions. Cialis, with its extended duration of effectiveness, is well suited for once-a-day dosing." Tadalafil, the active pharmaceutical ingredient in Cialis, is being evaluated as a potential once-a-day treatment for benign prostatic hyperplasia, hypertension and pulmonary arterial hypertension. Later this year, we expect to initiate a Phase 2b clinical study to evaluate the efficacy and safety of tadalafil in patients with benign prostatic hyperplasia, also known as enlarged prostate. A Phase 2 proof-of-concept study in hypertension is expected to conclude and provide top-line results later this year. And, patient enrollment is continuing in a Phase 3 study designed to enroll 400 patients with pulmonary arterial hypertension, a life threatening disease. Financial Results For the three months ended June 30, 2006, ICOS reported net income of $6.1 million ($0.09 per share), compared to a proforma net loss of $30.6 million ($0.48 per share) for the three months ended June 30, 2005.(3) Our 50% share of Lilly ICOS earnings was $38.0 million in the second quarter of 2006, compared to equity in losses of Lilly ICOS of $0.7 million in the second quarter of 2005. The $38.7 million improvement primarily reflects growth in the sales of Cialis around the world and planned reductions in marketing and selling expenses. For the three months ended June 30, 2006, Lilly ICOS reported net income of $75.8 million, a $77.5 million improvement compared to the net loss of $1.7 million reported for the 2005 second quarter. On a sequential basis, Lilly ICOS' second quarter net income was up $10.8 million, or 17%, compared to the 2006 first quarter. Worldwide sales of Cialis totaled $233.2 million during the 2006 second quarter, a 22% increase compared to the second quarter of 2005. Sales of Cialis in North America and Europe totaled $182.7 million in the second quarter of 2006, an increase of 25% compared to the corresponding period of 2005, and up 9% compared to the 2006 first quarter. Cialis sales in the United States were $93.8 million in the 2006 second quarter, an increase of 32% compared to the 2005 second quarter, and up 14% compared to the first quarter of 2006. ICOS Corporation's total revenue was $18.5 million in the second quarter of 2006, compared to $18.1 million in the second quarter of 2005. Collaboration revenue from Lilly ICOS totaled $15.9 million in the 2006 second quarter, compared to $12.7 million in the second quarter of 2005. The increase primarily reflects incremental research and development activities performed by ICOS personnel on behalf of Lilly ICOS and reimbursable costs of 40 contract (non-employee) sales representatives retained to promote Cialis in the U.S. beginning in January 2006. Co-promotion services revenue was $1.9 million in the 2005 second quarter, representing fees earned under a co-promotion arrangement which ended in December 2005. Total operating expenses were $50.2 million for the three months ended June 30, 2006, compared to proforma $48.1 million for the three months ended June 30, 2005. The increase was primarily due to the aforementioned research and development activities being performed on behalf of Lilly ICOS and costs for the 40 contract sales representatives. Operating expenses for the three months ended June 30, 2006 include $5.8 million in stock-based compensation, due to a change in accounting for employee stock options effective January 1, 2006. Accompanying Schedules 3 and 4 provide additional information regarding stock-based compensation expense. For the six months ended June 30, 2006, ICOS reported net income of $5.4 million ($0.08 per share), compared to a proforma net loss of $84.7 million ($1.33 per share) for the six months ended June 30, 2005.(4) At June 30, 2006, we had cash, cash equivalents, investment securities and associated interest receivable of $179.8 million. Financial Guidance We are increasing our expectation for Lilly ICOS' full-year 2006 net income, from approximately $240 million, to between $265 million and $280 million. We are increasing our guidance for expected 2006 worldwide Cialis net product sales, from approximately $900 million, to between $920 million and $950 million. We expect that Lilly ICOS' operating expenses will increase in the 2006 third and fourth quarters, compared to the second quarter, reflecting planned research and development activities and the timing of certain marketing and selling programs. In view of the foregoing, we are increasing our guidance for ICOS Corporation's expected 2006 full-year results, from a net loss of approximately $5 million ($0.08 per diluted share), to net income in the range of $6 million to $15 million, approximately $0.09 to $0.23 per diluted share. ICOS Corporation, a biotechnology company headquartered in Bothell, Washington, is dedicated to bringing innovative therapeutics to patients. Through Lilly ICOS LLC, ICOS is marketing its first product, Cialis (tadalafil), for the treatment of erectile dysfunction. ICOS is working to develop treatments for serious unmet medical needs such as benign prostatic hyperplasia, hypertension, pulmonary arterial hypertension, cancer and inflammatory diseases. Except for historical information contained herein, this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that may cause our results and the timing and outcome of events to differ materially from those expressed in or implied by the forward-looking statements, including risks associated with product commercialization, research and clinical development, regulatory approvals, manufacturing, collaboration arrangements, liquidity, competition, intellectual property claims, litigation and other risks detailed in our latest Quarterly Report on Form 10-Q and our other public filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release represent our judgment as of the date of this release. We undertake no obligation to publicly update any forward-looking statements. The biotechnology and pharmaceutical businesses are risky and there can be no assurance that any of our products or product candidates will achieve commercial success or that competing therapies will not pre-empt market opportunities that might exist for any of our products or product candidates. Conference Call As previously announced, today, beginning at 4:30 p.m. Eastern Time, ICOS will host a conference call to review 2006 second quarter financial results and related matters, including financial guidance and plans for the remainder of 2006. The conference call can be accessed as a webcast at www.icos.com, in the Investor/Events section, or by telephone, using the Passcode 834085, live at (612) 332-1025, or as a replay at (320) 365-3844. The webcast will be available until August 10, 2006 at 5:30 p.m. Eastern Time. The telephone replay will be available until August 4, 2006 at 8:00 p.m. Eastern Time. NOTES: (1) Cialis(R) is a registered trademark of Lilly ICOS LLC. (2) Lilly ICOS LLC (Lilly ICOS) is a 50/50 joint venture between ICOS Corporation and Eli Lilly and Company that is marketing Cialis(R) in North America and Europe for the treatment of erectile dysfunction (ED). (3) Proforma net loss of $30.6 million ($0.48 per share) reflects previously reported net loss of $22.6 million ($0.35 per share), plus $8.0 million of proforma stock-based compensation expense as if we had adopted the change in accounting at the beginning of 2005. (4) Proforma net loss of $84.7 million ($1.33 per share) reflects previously reported net loss of $69.0 million ($1.08 per share), plus $15.7 million of proforma stock-based compensation expense as if we had adopted the change in accounting at the beginning of 2005. -0- *T ICOS Corporation and Subsidiaries Schedule 1 - SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) (unaudited) Three Months Ended June 30, --------------------------------- 2005 ----------------------- Proforma As 2006 (a) Reported --------- --------- ------------- Condensed Consolidated Statements of Operations: Revenue: Lilly ICOS collaboration $15,896 $12,693 $12,693 Contract manufacturing 2,652 3,502 3,502 Co-promotion services - 1,893 1,893 --------- --------- --------- Total revenue 18,548 18,088 18,088 --------- --------- --------- Equity in earnings (losses) of Lilly ICOS 38,040 (689) (689) --------- --------- --------- Operating expenses: Research and development 25,749 24,514 21,295 Marketing and selling 13,074 11,652 10,549 Cost of contract manufacturing 2,999 3,596 3,231 General and administrative 8,368 8,292 4,967 --------- --------- --------- Total operating expenses 50,190 48,054 40,042 --------- --------- --------- Operating income (loss) 6,398 (30,655) (22,643) Other income (expense): Interest expense (1,705) (1,705) (1,705) Interest and other income 1,757 1,723 1,723 --------- --------- --------- Income (loss) before income taxes 6,450 (30,637) (22,625) Provision for income taxes 375 - - --------- --------- --------- Net income (loss) $6,075 $(30,637) $(22,625) ========= ========= ========= Net income (loss) per common share - basic $0.09 $(0.48) $(0.35) ========= ========= ========= Net income (loss) per common share - diluted $0.09 $(0.48) $(0.35) ========= ========= ========= Weighted average common shares outstanding - basic 64,478 63,941 63,941 ========= ========= ========= Weighted average common shares outstanding - diluted 65,034 63,941 63,941 ========= ========= ========= Six Months Ended June 30, ------------------------------- 2005 --------------------- Proforma As 2006 (a) Reported --------- --------- ----------- Condensed Consolidated Statements of Operations: Revenue: Lilly ICOS collaboration $30,872 $23,053 $23,053 Contract manufacturing 6,403 5,976 5,976 Co-promotion services - 2,843 2,843 -------- --------- --------- Total revenue 37,275 31,872 31,872 -------- --------- --------- Equity in earnings (losses) of Lilly ICOS 70,676 (21,368) (21,368) -------- --------- --------- Operating expenses: Research and development 51,568 50,065 43,508 Marketing and selling 26,630 23,240 20,983 Cost of contract manufacturing 6,789 5,738 5,082 General and administrative 16,935 16,204 9,972 -------- --------- --------- Total operating expenses 101,922 95,247 79,545 -------- --------- --------- Operating income (loss) 6,029 (84,743) (69,041) Other income (expense): Interest expense (3,409) (3,409) (3,409) Interest and other income 3,177 3,441 3,441 -------- --------- --------- Income (loss) before income taxes 5,797 (84,711) (69,009) Provision for income taxes 375 - - -------- --------- --------- Net income (loss) $5,422 $(84,711) $(69,009) ======== ========= ========= Net income (loss) per common share - basic $0.08 $(1.33) $(1.08) ======== ========= ========= Net income (loss) per common share - diluted $0.08 $(1.33) $(1.08) ======== ========= ========= Weighted average common shares outstanding - basic 64,399 63,870 63,870 ======== ========= ========= Weighted average common shares outstanding - diluted 65,117 63,870 63,870 ======== ========= ========= Condensed Consolidated Balance Sheets: June 30, December 31, 2006 2005 --------- --------- Cash, cash equivalents, investment securities and interest receivable $179,762 $162,782 Receivable from Lilly ICOS 16,346 14,300 Investment in Lilly ICOS 39,796 35,497 Property and equipment, net 18,593 17,995 Deferred financing costs and other 11,638 11,193 --------- --------- Total assets $266,135 $241,767 ========= ========= Current liabilities $23,404 $22,387 Convertible subordinated debt 278,650 278,650 Stockholders' deficit (35,919) (59,270) --------- --------- Total liabilities and stockholders' deficit $266,135 $241,767 ========= ========= (a) Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" (FAS 123R) and began recognizing expense for all stock options. 2005 proforma amounts reflect our results of operations as if we had applied the provisions of FAS 123R beginning January 1, 2005. See also accompanying Schedules 3 and 4. ICOS Corporation and Subsidiaries Schedule 2 - SUMMARIZED OPERATING RESULTS OF LILLY ICOS LLC (in thousands) (unaudited) 2006 --------------------------- Q1 Q2 Total -------- -------- --------- Revenue: Product sales, net United States $82,537 $93,779 $176,316 Europe 67,586 71,374 138,960 Canada and Mexico 17,151 17,508 34,659 -------- -------- --------- 167,274 182,661 349,935 Royalties 11,088 11,642 22,730 -------- -------- --------- Total revenue 178,362 194,303 372,665 -------- -------- --------- Expenses: Cost of sales (a) 13,382 14,370 27,752 Selling, general and administrative 86,517 90,342 176,859 Research and development 13,502 13,820 27,322 -------- -------- --------- Total expenses 113,401 118,532 231,933 -------- -------- --------- Net income (loss) $64,961 $75,771 $140,732 ======== ======== ========= ICOS Corporation's share of net income (loss) $32,636 $38,040 $70,676 ======== ======== ========= (a) Cost of sales includes $103 per month of license fee amortization applicable only to Eli Lilly and Company's interest in Lilly ICOS. 2005 ------------------------------------------- Q1 Q2 Q3 Q4 Total ------- ------- ------- ------- ------- Revenue: Product sales, net United States $42,744 $71,118 $77,438 $81,615 $272,915 Europe 56,264 60,925 61,992 65,311 244,492 Canada and Mexico 12,186 13,839 14,727 18,575 59,327 --------- -------- -------- -------- --------- 111,194 145,882 154,157 165,501 576,734 Royalties 7,790 9,010 8,172 8,997 33,969 --------- -------- -------- -------- --------- Total revenue 118,984 154,892 162,329 174,498 610,703 --------- -------- -------- -------- --------- Expenses: Cost of sales (a) 9,752 11,934 12,378 13,200 47,264 Selling, general and administrative 137,027 126,232 112,152 84,416 459,827 Research and development 13,874 18,413 18,035 15,494 65,816 --------- -------- -------- -------- --------- Total expenses 160,653 156,579 142,565 113,110 572,907 --------- -------- -------- -------- --------- Net income (loss) $(41,669) $(1,687) $19,764 $61,388 $37,796 ========= ======== ======== ======== ========= ICOS Corporation's share of net income (loss) $(20,679) $(689) $10,038 $30,849 $19,519 ========= ======== ======== ======== ========= (a) Cost of sales includes $103 per month of license fee amortization applicable only to Eli Lilly and Company's interest in Lilly ICOS. ICOS Corporation and Subsidiaries Schedule 3 - TOTAL STOCK-BASED COMPENSATION EXPENSE (in thousands) (unaudited) The following table presents stock-based compensation expense for 2006 as reported, 2005 as reported and 2005 proforma as if ICOS had applied FAS 123R during that year. 2006 ------------------------ Q1 Q2 Total ------- ------- -------- As reported Stock options $6,487 $5,766 $12,253 Restricted shares 1,121 1,285 2,406 Restricted stock units 203 265 468 ------- ------- -------- 7,811 7,316 15,127 ------- ------- -------- Proforma adjustments Stock options - - - Restricted shares - - - Restricted stock units - - - ------- ------- -------- - - - ------- ------- -------- Total (2006 as reported; 2005 proforma) Stock options 6,487 5,766 12,253 Restricted shares 1,121 1,285 2,406 Restricted stock units 203 265 468 ------- ------- -------- $7,811 $7,316 $15,127 ======= ======= ======== 2005 --------------------------------------- Q1 Q2 Q3 Q4 Total ------ ------ ------ ------ ------- As reported Stock options $ - $ - $ - $ - $ - Restricted shares - - 946 1,167 2,113 Restricted stock units - - - - - ------- ------- ------- ------- -------- - - 946 1,167 2,113 ------- ------- ------- ------- -------- Proforma adjustments Stock options 7,690 8,012 7,876 7,679 31,257 Restricted shares - - - - - Restricted stock units - - - - - ------- ------- ------- ------- -------- 7,690 8,012 7,876 7,679 31,257 ------- ------- ------- ------- -------- Total (2006 as reported; 2005 proforma) Stock options 7,690 8,012 7,876 7,679 31,257 Restricted shares - - 946 1,167 2,113 Restricted stock units - - - - - ------- ------- ------- ------- -------- $7,690 $8,012 $8,822 $8,846 $33,370 ======= ======= ======= ======= ======== ICOS Corporation and Subsidiaries Schedule 4 - ALLOCATION OF TOTAL STOCK-BASED COMPENSATION EXPENSE (in thousands) (unaudited) The following table presents the allocation of stock-based compensation expense for 2006 as reported, 2005 as reported and 2005 proforma as if ICOS had applied FAS 123R during that year. 2006 ------------------------ Q1 Q2 Total ------- ------- -------- As reported Research and development $3,178 $2,963 $6,141 Marketing and selling 1,064 1,031 2,095 Cost of contract manufacturing 282 278 560 General and administrative 3,287 3,044 6,331 ------- ------- -------- 7,811 7,316 15,127 ------- ------- -------- Proforma adjustments Research and development - - - Marketing and selling - - - Cost of contract manufacturing - - - General and administrative - - - ------- ------- -------- - - - ------- ------- -------- Total (2006 as reported; 2005 proforma) Research and development 3,178 2,963 6,141 Marketing and selling 1,064 1,031 2,095 Cost of contract manufacturing 282 278 560 General and administrative 3,287 3,044 6,331 ------- ------- -------- $7,811 $7,316 $15,127 ======= ======= ======== 2005 ------------------------------------ Q1 Q2 Q3 Q4 Total ------ ------ ------ ------ ------ As reported Research and development $ - $ - $ 487 $ 602 $ 1,089 Marketing and selling - - 96 116 212 Cost of contract manufacturing - - 45 70 115 General and administrative - - 318 379 697 ------- ------ ------ ------ ------- - - 946 1,167 2,113 ------- ------ ------ ------ ------- Proforma adjustments Research and development 3,338 3,219 3,081 2,930 12,568 Marketing and selling 1,154 1,103 1,067 1,054 4,378 Cost of contract manufacturing 291 365 376 417 1,449 General and administrative 2,907 3,325 3,352 3,278 12,862 ------- ------ ------ ------ ------- 7,690 8,012 7,876 7,679 31,257 ------- ------ ------ ------ ------- Total (2006 as reported; 2005 proforma) Research and development 3,338 3,219 3,568 3,532 13,657 Marketing and selling 1,154 1,103 1,163 1,170 4,590 Cost of contract manufacturing 291 365 421 487 1,564 General and administrative 2,907 3,325 3,670 3,657 13,559 ------- ------ ------ ------ ------- $7,690 $8,012 $8,822 $8,846 $33,370 ======= ====== ====== ====== ======= *T