On February 28, 2017 Endo International plc (NASDAQ/TSX: ENDP) reported fourth-quarter 2016 financial results (Press release, Endo Health Solutions, FEB 28, 2017, View Source [SID1234517871]).

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Revenues of $1,242 million, a 16 percent increase compared to fourth-quarter 2015 revenues of $1,074 million.
Reported net loss from continuing operations of $3,333 million compared to fourth-quarter 2015 reported net income from continuing operations of $444 million.

Reported diluted loss per share from continuing operations of $14.96 compared to fourth-quarter 2015 reported diluted earnings per share (EPS) from continuing operations of $1.97.

Adjusted net income from continuing operations of $396 million, a 29 percent increase compared to fourth-quarter 2015 adjusted net income from continuing operations of $307 million.1

Adjusted diluted EPS from continuing operations of $1.77, a 30 percent increase compared to fourth-quarter 2015 adjusted diluted EPS from continuing operations of $1.36.1

EXECUTIVE COMMENTARY
"After I was named CEO last September, Endo began a comprehensive strategic review that has resulted in a series of definitive actions. First, we streamlined our global supply chain and restructured our Pain franchise, including the divestiture of BELBUCA. We then executed a Corporate restructuring and have begun divesting non-core businesses with today’s announced sale of Litha Healthcare Group. All of these measures better position Endo to focus on its core assets, drive margin expansion and de-lever over a period of time," said Paul Campanelli, President and CEO of Endo.
"Endo’s core assets include a Generics business, which is the fourth largest in the U.S. based on sales, that possesses a growing sterile injectables portfolio and a promising ANDA pipeline. Complementing our generics unit is a revamped specialty Branded business focusing on our flagship product XIAFLEX. Despite industry headwinds and other challenges, we are excited about our future and have the people, products, and pipeline in place that we believe will enable us, in time, to create value for our shareholders," Mr. Campanelli concluded.
Blaise Coleman, Executive Vice President and Chief Financial Officer, added, "Expected 2017 revenues of between $3.45 billion and $3.60 billion are forecasted to be lower than 2016 revenues primarily due to the expected revenue decline in our Generics base business and legacy Branded pain franchise, as well as the impact of divestitures and product discontinuations. We estimate 2017 adjusted EBITDA from continuing operations of between $1.50 billion and $1.58 billion due, in part, to cost reduction initiatives undertaken in 2016 and early 2017 that have resulted in a significant year-over-year increase in Endo’s adjusted EBITDA margin as a percentage of revenue. Finally, estimated 2017 adjusted diluted EPS from continuing operations of between $3.45 and $3.75 is significantly impacted by a higher adjusted effective tax rate and an anticipated increase in variable-rate interest expense."
FINANCIAL PERFORMANCE
(in thousands, except per share amounts)


Three Months Ended
December 31,



Year Ended December 31,



2016

2015

Change

2016

2015

Change
Total Revenues
$
1,241,513


$
1,073,697


16
%

$
4,010,274


$
3,268,718


23
%
Reported Income (Loss) from
Continuing Operations
$
(3,333,325)


$
443,709


NM


$
(3,223,772)


$
(300,399)


NM

Reported Diluted Weighted
Average Shares
222,870


225,321


(1)
%

222,651


197,100


13
%
Reported Diluted Income (Loss)
per Share from Continuing Operations
$
(14.96)


$
1.97


NM


$
(14.48)


$
(1.52)


NM

Adjusted Income from
Continuing Operations
$
395,791


$
307,430

1
29
%

$
1,054,382


$
933,235

1
13
%
Adjusted Diluted Weighted
Average Shares
223,178


225,321


(1)
%

223,090


200,438


11
%
Adjusted Diluted EPS from
Continuing Operations
$
1.77


$
1.36

1
30
%

$
4.73


$
4.66

1
2
%

(1) Refer to footnote 14 in the Reconciliation of GAAP and Non-GAAP Financial Measures tables for the twelve months ended December 31, 2016 and 2015, for further discussion.

CONSOLIDATED RESULTS
Total revenues increased by 16 percent to $1,242 million in fourth-quarter 2016 compared to the same period in 2015, primarily attributable to the launch of key first-to-file generic products, quetiapine and ezetimibe. GAAP net loss from continuing operations in fourth-quarter 2016 was $3,333 million compared to GAAP net income from continuing operations of $444 million during the same period in 2015, primarily attributable to the amount of goodwill and intangible asset impairment charges recorded during fourth-quarter 2016. GAAP net loss per share from continuing operations for the three months ended December 31, 2016 was $14.96, compared to GAAP net earnings from continuing operations of $1.97 in fourth-quarter 2015.
Adjusted net income from continuing operations in fourth-quarter 2016 increased by 29 percent to $396 million compared to fourth-quarter 2015, driven primarily by the contribution of quetiapine and ezetimibe. Adjusted net income per share from continuing operations for the three months ended December 31, 2016 increased 30 percent to $1.77 compared to fourth-quarter 2015.
U.S. GENERIC PHARMACEUTICALS
During fourth-quarter 2016, the U.S. Generic Pharmaceuticals business unit completed the restructuring of its product portfolio as well as its manufacturing facility network, including the divestiture of the Charlotte, North Carolina facility.
Fourth-quarter 2016 U.S. Generic Pharmaceuticals results include:
Revenues of $882 million, a 45 percent increase compared to fourth-quarter 2015; this increase was primarily attributable to the launches of quetiapine extended-release tablets, the generic version of SEROQUEL XR, and ezetimibe tablets, the generic equivalent of ZETIA. Par has first-to-file status and associated marketing exclusivity for each product. The introduction of ezetimibe tablets represented the largest product launch in Par Pharmaceutical’s history.
Sterile injectables increased 43 percent compared to fourth-quarter 2015; this increase was driven primarily by VASOSTRICT, which benefited from the market withdrawal of its only competitor’s product in 2015.
Generics base business decreased 23 percent compared to fourth-quarter 2015; this decrease resulted from continued pricing pressure due to increased competition, particularly among Solid Oral Immediate Release (IR) products.
U.S. BRANDED PHARMACEUTICALS
During fourth-quarter 2016, Endo announced highly statistically significant Phase 2b study results on the primary composite endpoint and all secondary endpoints for XIAFLEX in patients with cellulite. The Company also announced its intention to return the BELBUCA (buprenorphine) buccal film product to its developer, eliminate its U.S. Branded pain sales field force and manage the Company’s legacy pain portfolio as mature brands. Endo’s U.S. Branded segment will now focus on its core Specialty products, including its flagship product XIAFLEX, as well as SUPPRELIN LA, TESTOPEL, and AVEED.
Fourth-quarter 2016 U.S. Branded Pharmaceuticals results include:
Revenues of $289 million, a 24 percent decrease compared to fourth-quarter 2015; this decrease was primarily attributable to generic erosion adversely impacting the Company’s Pain and Established Products portfolios, including VOLTAREN Gel, LIDODERM and FROVA, along with the divestiture of STENDRA.
Among Endo’s Specialty products, net sales of XIAFLEX increased 11 percent compared to fourth-quarter 2015; this increase was primarily attributable to double-digit demand growth for the product. Net sales of SUPPRELIN LA increased 23 percent, driven, in part, by continued demand growth.
In January 2017, the U.S. Food and Drug Administration announced that it will hold an advisory committee meeting in March 2017 to discuss certain pre- and post-marketing data relating to OPANA ER, and the overall risk-benefit of that product. The advisory committees will also discuss generic oxymorphone extended-release and oxymorphone immediate-release products.
INTERNATIONAL PHARMACEUTICALS
As with Endo’s U.S. businesses, International Pharmaceuticals underwent a product-by-product and business-by-business assessment. Today, the Company announced the divestiture of Litha Healthcare Group to Acino for approximately $100 million. As part of Endo’s strategic assessment and comprehensive asset review, the Company determined that Litha no longer aligned with its strategy and was not considered a core asset. The divestiture of Litha helps simplify the Endo organization and permits it to better focus on the core Generics and Specialty Branded Pharmaceutical businesses. The transaction is expected to close in the second quarter of 2017, subject to customary conditions, including the expiration or termination of any waiting periods under applicable competition laws. The final purchase price will be subject to cash, debt, working capital and other potential contractual adjustments.
Endo’s International Pharmaceuticals unit continued to effectively manage its business operations in anticipation of the impact of the loss-of-exclusivity for certain Paladin products, during the fourth-quarter 2016, while continuing its efforts to improve adjusted operating margins.
Fourth-quarter 2016 International Pharmaceuticals results include:
Revenues of $70 million, an 18 percent decrease compared to fourth-quarter 2015.
Paladin revenues of $28 million, a 2 percent decrease compared to fourth-quarter 2015, due to expected competition on certain products. In the fourth quarter, Paladin began promoting XIAFLEX and NUCYNTA in Canada. Paladin also retains Canadian marketing rights to serelaxin and looks forward to the results of a Phase III clinical trial expected in 2017.
Emerging market revenues from Litha and Somar of $38 million, a 25 percent decrease compared to fourth-quarter 2015, attributable, in part, to a decrease in Litha revenues as the result of the divestiture of non-core assets in first-quarter 2016. Revenues were also impacted by lower demand for certain products in Mexico and the unfavorable impact of foreign exchange.
2017 FINANCIAL GUIDANCE
For the full twelve months ended December 31, 2017, at current exchange rates, Endo is providing guidance on revenue, GAAP and adjusted diluted EPS guidance from continuing operations and adjusted EBITDA from continuing operations. The Company estimates:
Total revenues to be between $3.45 billion to $3.60 billion;
Reported diluted GAAP EPS from continuing operations to be between $0.04 and $0.34;
Adjusted diluted EPS from continuing operations to be between $3.45 to $3.75; and
Adjusted EBITDA from continuing operations to be between $1.50 billion to $1.58 billion.
The Company’s 2017 non-GAAP financial guidance is based on the following assumptions:
Adjusted gross margin of approximately 62.0% to 63.0%;
Adjusted operating expenses as a percentage of revenues to be approximately 22.5% to 23.0%;
Adjusted interest expense of approximately $470 million to $480 million;
Adjusted effective tax rate of approximately 13.0% to 14.0%;
Adjusted diluted EPS from continuing operations assumes full-year adjusted diluted shares outstanding of approximately 224 million shares; and
Adoption of Accounting Standard Update 2016-09 ("ASU 2016-09") in the first quarter of 2017, changing the GAAP reporting of excess tax benefits and deficiencies associated with employee stock-based compensation. The Company estimates there could be at least a $10 million tax detriment (~$0.04 GAAP and Adjusted diluted earnings per share estimated impact) recognized primarily in the first quarter of 2017 when most employee stock awards vest or expire during the year.
BALANCE SHEET, LIQUIDITY AND OTHER UPDATES
As of December 31, 2016, the Company had $517.3 million in unrestricted cash; net debt of approximately $7.8 billion and a net debt to adjusted EBITDA ratio of 4.6.
Fourth-quarter 2016 cash provided by operating activities was $81.1 million, primarily attributable to the benefit of no interest payments related to high-yield notes and lower mesh payments during the quarter, offset partially by increases in working capital resulting from the fourth-quarter quetiapine and ezetimibe launches in our generics segment.
During fourth-quarter 2016, the Company conducted an annual goodwill impairment assessment, resulting in a pre-tax, non-cash impairment charge of $2,674 million, including the following items:
$2,342.5 million related to the Generics reporting unit, which represents the difference between the estimated implied fair value of the reporting unit’s goodwill and its book value. The impairment charge was driven by a reduction in the expected future cash flows in the Generics reporting unit primarily due to a change in pricing expectations partly driven by an expected increased level of competition and increased buying power from the continued consolidation of the generic business customer base. These charges are primarily due to industry and competitive pressures in the sector, which resulted in a reduction of the Generics reporting unit’s fair value.
$272.6 million related to the Paladin Canada reporting unit, was driven primarily by a reduction in pricing expectations and additional generic competitors for several of Paladin’s products.
$33.0 million and $26.3 million related to the Somar and Litha reporting units, respectively.
In addition to the Company’s goodwill assessment, the Company also incurred pre-tax, non-cash intangible asset impairment charges in the fourth-quarter of approximately $830.3 million, including:
$507.2 million and $285.5 million in our U.S. Generic Pharmaceutical and International Pharmaceutical segments, respectively, resulting from certain market conditions impacting the commercial potential of definite and indefinite-lived intangible assets.
$37.6 million in the U.S. Branded Pharmaceuticals segment primarily resulting from the termination of BELBUCA and the return of this product to BioDelivery Sciences International, Inc.
Conference Call Information
Endo will conduct a conference call with financial analysts to discuss this press release today at 8:30 a.m. ET. The dial-in number to access the call is U.S./Canada (866) 497-0462, International (678) 509-7598, and the passcode is 58581981. Please dial in 10 minutes prior to the scheduled start time.
A replay of the call will be available from February 28, 2017 at 11:30 a.m. ET until 12:30 p.m. ET on March 14, 2017 by dialing U.S./Canada (855) 859-2056, International (404) 537-3406, and entering the passcode 58581981.
A simultaneous webcast of the call can be accessed by visiting www.endo.com. In addition, a replay of the webcast will be available until 12:30 p.m. ET on March 14, 2017. The replay can be accessed by clicking on the Investor Relations section of the Endo website.
The following table presents Endo’s unaudited Net Revenues for the three and twelve months ended December 31, 2016 and 2015:

Endo International plc
Net Revenues (unaudited)
(in thousands)


Three Months Ended December 31,

Percent
Growth

Year Ended December 31,

Percent
Growth

2016

2015


2016

2015

U.S. Generic Pharmaceuticals:











U.S. Generics Base
$
288,142


$
372,417


(23)
%

$
1,230,097


$
1,083,809


13
%
Sterile Injectables
143,905


100,511


43
%

530,805


107,592


393
%
New Launches and Alternative Dosages
450,127


136,267


230
%

803,711


481,015


67
%
Total U.S. Generic Pharmaceuticals
$
882,174


$
609,195


45
%

$
2,564,613


$
1,672,416


53
%
U.S. Branded Pharmaceuticals:











Pain Management:











LIDODERM
$
21,122


$
40,234


(48)
%

$
87,577


$
125,269


(30)
%
OPANA ER
38,880


43,610


(11)
%

158,938


175,772


(10)
%
PERCOCET
36,029


35,181


2
%

139,211


135,822


2
%
Voltaren Gel
18,612


62,169


(70)
%

100,642


207,161


(51)
%

$
114,643


$
181,194


(37)
%

$
486,368


$
644,024


(24)
%
Specialty Pharmaceuticals:











SUPPRELIN LA
$
20,793


$
16,926


23
%

$
78,648


$
70,099


12
%
XIAFLEX
55,530


50,197


11
%

189,689


158,115


20
%

$
76,323


$
67,123


14
%

$
268,337


$
228,214


18
%
Branded Other Revenues (1)
98,330


131,092


(25)
%

411,589


412,369


—
%
Total U.S. Branded Pharmaceuticals (2)
$
289,296


$
379,409


(24)
%

$
1,166,294


$
1,284,607


(9)
%
Total International Pharmaceuticals
$
70,043


$
85,093


(18)
%

$
279,367


$
311,695


(10)
%
Total Revenues
$
1,241,513


$
1,073,697


16
%

$
4,010,274


$
3,268,718


23
%


__________
(1)
Products included within Branded Other Revenues in the table above include, but are not limited to, TESTOPEL, Testim, Fortesta Gel, including authorized generic, and Nascobal Nasal Spray.
(2)
Individual products presented above represent the top two performing products in each product category and/or any product having revenues in excess of $25 million during the three months ended December 31, 2016 or December 31, 2015.

The following table presents unaudited consolidated Statement of Operations data for the three and twelve months ended December 31, 2016 and 2015 (in thousands, except per share data):


Three Months Ended December 31,

Year Ended December 31,

2016

2015

2016

2015
TOTAL REVENUES
$
1,241,513


$
1,073,697


$
4,010,274


$
3,268,718

COSTS AND EXPENSES:







Cost of revenues
756,578


810,068


2,634,973


2,075,651

Selling, general and administrative
212,568


212,014


770,728


741,304

Research and development
46,206


43,989


183,372


102,197

Litigation-related and other contingencies, net
(4,765)


17,207


23,950


37,082

Asset impairment charges
3,518,085


139,859


3,781,165


1,140,709

Acquisition-related and integration items
7,400


54,073


87,601


105,250

OPERATING (LOSS) INCOME FROM CONTINUING OPERATIONS
$
(3,294,559)


$
(203,513)


$
(3,471,515)


$
(933,475)

INTEREST EXPENSE, NET
111,783


123,018


452,679


373,214

LOSS ON EXTINGUISHMENT OF DEBT
—


25,595


—


67,484

OTHER (INCOME) EXPENSE, NET
(740)


1,102


(338)


63,691

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX
$
(3,405,602)


$
(353,228)


$
(3,923,856)


$
(1,437,864)

INCOME TAX (BENEFIT) EXPENSE
(72,277)


(796,937)


(700,084)


(1,137,465)

(LOSS) INCOME FROM CONTINUING OPERATIONS
$
(3,333,325)


$
443,709


$
(3,223,772)


$
(300,399)

DISCONTINUED OPERATIONS, NET OF TAX
(4,531)


(562,302)


(123,278)


(1,194,926)

CONSOLIDATED NET LOSS
$
(3,337,856)


$
(118,593)


$
(3,347,050)


$
(1,495,325)

Less: Net income (loss) attributable to noncontrolling interests
—


(130)


16


(283)

NET LOSS ATTRIBUTABLE TO ENDO INTERNATIONAL PLC
$
(3,337,856)


$
(118,463)


$
(3,347,066)


$
(1,495,042)

NET LOSS PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—BASIC:







Continuing operations
$
(14.96)


$
1.98


$
(14.48)


$
(1.52)

Discontinued operations
(0.02)


(2.51)


(0.55)


(6.07)

Basic
$
(14.98)


$
(0.53)


$
(15.03)


$
(7.59)

NET LOSS PER SHARE ATTRIBUTABLE TO ENDO INTERNATIONAL PLC ORDINARY SHAREHOLDERS—DILUTED:







Continuing operations
$
(14.96)


$
1.97


$
(14.48)


$
(1.52)

Discontinued operations
(0.02)


(2.50)


(0.55)


(6.07)

Diluted
$
(14.98)


$
(0.53)


$
(15.03)


$
(7.59)

WEIGHTED AVERAGE SHARES:







Basic
222,870


224,147


222,651


197,100

Diluted
222,870


225,321


222,651


197,100



The following table presents unaudited condensed consolidated Balance Sheet data at December 31, 2016 and December 31, 2015 (in thousands):


December 31,
2016

December 31,
2015
ASSETS



CURRENT ASSETS:



Cash and cash equivalents
$
517,250


$
272,348

Restricted cash and cash equivalents
282,074


585,379

Accounts receivable
992,153


1,014,808

Inventories, net
555,671


752,493

Assets held for sale
116,985


36,522

Other assets
125,326


790,987

Total current assets
$
2,589,459


$
3,452,537

TOTAL NON-CURRENT ASSETS
11,685,650


15,897,799

TOTAL ASSETS
$
14,275,109


$
19,350,336

LIABILITIES AND STOCKHOLDERS’ EQUITY



CURRENT LIABILITIES:



Accounts payable and accrued expenses
$
2,470,016


$
3,116,841

Liabilities held for sale
24,338


20,215

Other current liabilities
140,391


337,256

Total current liabilities
$
2,634,745


$
3,474,312

LONG-TERM DEBT, LESS CURRENT PORTION, NET
8,141,378


8,251,657

OTHER LIABILITIES
797,397


1,656,391

STOCKHOLDERS’ EQUITY:



Total Endo International plc shareholders’ equity
$
2,701,589


$
5,968,030

Noncontrolling interests
—


(54)

Total shareholders’ equity
$
2,701,589


$
5,967,976

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
14,275,109


$
19,350,336



The following table presents unaudited condensed consolidated Statement of Cash Flow data for the year ended December 31, 2016 and 2015 (in thousands):

Year Ended December 31,

2016

2015
OPERATING ACTIVITIES:



Consolidated net loss
$
(3,347,050)


$
(1,495,325)

Adjustments to reconcile consolidated net loss to Net cash provided by operating activities



Depreciation and amortization
983,309


632,756

Asset impairment charges
3,802,493


1,390,281

Other
(914,313)


(465,686)

Net cash provided by operating activities
$
524,439


$
62,026

INVESTING ACTIVITIES:



Purchases of property, plant and equipment, net
$
(132,094)


$
(81,774)

Acquisitions, net of cash acquired
(30,394)


(7,650,404)

Proceeds from sale of business, net
4,108


1,588,779

Increase in restricted cash and cash equivalents, net
(831,321)


(747,649)

Decrease in restricted cash and cash equivalents
1,134,734


688,999

Other
(19,172)


(42,721)

Net cash provided by (used in) investing activities
$
125,861


$
(6,244,770)

FINANCING ACTIVITIES:



(Payments on) proceeds from borrowings, net
$
(336,361)


$
4,228,919

Issuance of ordinary shares
—


2,300,000

Other
(57,621)


(473,452)

Net cash (used in) provided by financing activities
$
(393,982)


$
6,055,467

Effect of foreign exchange rate
$
328


$
(7,068)

Movement in cash held for sale
(11,744)


997

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
$
244,902


$
(133,348)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
272,348


405,696

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
517,250


$
272,348


The following schedule presents the significant pre-tax cash outlays and cash receipts impacting our Net cash provided by operating activities for the years ended December 31, 2016 and 2015 (in thousands):


Year Ended December 31,

2016

2015
Payments for mesh-related product liability and other litigation matters (1)
$
1,195,932


$
699,347

Redemption fees paid in connection with debt retirements
—


31,496

Unused commitment fees
—


78,352

Separation and restructuring payments
97,869


73,655

Transaction costs and certain integration charges paid in connection with acquisitions
68,249


191,195

U.S. Federal tax refunds received
(759,950)


(155,814)

Total
$
602,100


$
918,231


(1) Cash payments into QSFs result in a cash outflow for investing activities (CFI). Cash releases from QSFs result in a cash inflow for investing activities and a corresponding outflow for cash provided by (used in) operating activities (CFO). The following table reflects the mesh-related payment activities for the twelve months ended December 31, 2016 and 2015 by cash flow component:


Year Ended December 31,

2016

2015

Impact on CFO (1)

Impact on CFI

Impact on CFO (1)

Impact on CFI
Cash contributions to Qualified Settlement Funds
$
—


(831,131)


$
—


$
(743,132)

Cash payments to claimants from Qualified Settlement Funds
(1,134,734)


1,134,734


(649,391)


649,391

Cash payments made directly to claimants
(7,830)


—


(27,379)


—

Total
$
(1,142,564)


$
303,603


$
(676,770)


$
(93,741)

















(1) These amounts are included in Changes in assets and liabilities which used cash in the table above.

Supplemental Financial Information
To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP financial measures. For additional information on the Company’s use of such non-GAAP financial measures, refer to Endo’s Current Report on Form 8-K furnished today to the Securities and Exchange Commission, which includes an explanation of the Company’s reasons for using non-GAAP measures.
The table below provides reconciliations of our consolidated income (loss) from continuing operations (GAAP) to our adjusted income from continuing operations (non-GAAP) for the three and twelve months ended December 31, 2016 and 2015:


ENDO INTERNATIONAL PLC
Reconciliation of GAAP and Non-GAAP Financial Measures
(UNAUDITED)
(In thousands)


Three Months Ended December 31,

Year Ended December 31,

2016

2015

2016

2015
(Loss) Income from continuing operations (GAAP)
$
(3,333,325)


$
443,709


$
(3,223,772)


$
(300,399)

Non-GAAP adjustments:







Amortization of intangible assets
240,390


227,543


876,451


561,302

Inventory step-up and other cost savings
13,912


117,681


125,699


249,464

Upfront and milestone related payments
2,455


2,092


8,330


16,155

Inventory reserve (decrease) increase from restructuring
(137)


—


24,455


—

Royalty obligations
—


—


(7,750)


—

Separation benefits and other restructuring
37,216


55,151


83,036


125,407

Acceleration of Auxilium employee equity awards
—


—


—


37,603

Charges for litigation and other legal matters
(4,765)


17,207


23,950


37,082

Asset impairment charges
3,518,085


139,859


3,781,165


1,140,709

Acquisition-related and integration costs
8,356


36,112


63,778


170,890

Fair value of contingent consideration
(956)


17,961


23,823


(65,640)

Non-cash and penalty interest charges
—


1,965


4,092


8,267

Other
(1,836)


27,501


(7,273)


130,165

Tax adjustments
(83,604)


(779,351)


(721,602)


(1,177,770)

Adjusted income from continuing operations (non-GAAP)
$
395,791


$
307,430


$
1,054,382


$
933,235


__________
Refer to the following tables for additional information regarding non-GAAP financial measures.



ENDO INTERNATIONAL PLC
Reconciliation of GAAP and Non-GAAP Financial Measures
(UNAUDITED)
(In thousands, except per share data)


Three Months Ended December 31, 2016

Total revenues

Cost of revenues

Gross margin

Gross margin %

Total operating expenses

Operating expense to revenue %

Operating loss from continuing operations

Operating margin %

Other non-operating expense, net

Loss from continuing operations before income tax

Income tax benefit

Effective tax rate

Loss from continuing operations

Discontinued operations, net of tax

Net loss attributable to Endo International plc (14)

Diluted loss per share (15)
Reported (GAAP)
$ 1,241,513

$ 756,578

$ 484,935

39 %

$ 3,779,494

304 %

$ (3,294,559)

(265)%

$ 111,043

$ (3,405,602)

$ (72,277)

2 %

$ (3,333,325)

$ (4,531)

$ (3,337,856)

$ (14.96)
Items impacting comparability:































Amortization of intangible assets (1)
—

(240,390)

240,390



—



240,390



—

240,390

—



240,390

—

240,390

1.08
Inventory step-up and other costs savings (2)
—

(13,912)

13,912



—



13,912



—

13,912

—



13,912

—

13,912

0.06
Upfront and milestone-related payments (3)
—

(655)

655



(1,800)



2,455



—

2,455

—



2,455

—

2,455

0.01
Inventory reserve decrease from restructuring (4)
—

137

(137)



—



(137)



—

(137)

—



(137)

—

(137)

—
Separation benefits and other restructuring (5)
—

(9,284)

9,284



(27,932)



37,216



—

37,216

—



37,216

—

37,216

0.17
Charges for litigation and other legal matters (6)
—

—

—



4,765



(4,765)



—

(4,765)

—



(4,765)

—

(4,765)

(0.02)
Asset impairment charges (7)
—

—

—



(3,518,085)



3,518,085



—

3,518,085

—



3,518,085

—

3,518,085

15.79
Acquisition-related and integration costs (8)
—

—

—



(8,356)



8,356



—

8,356

—



8,356

—

8,356

0.04
Fair value of contingent consideration (9)
—

—

—



956



(956)



—

(956)

—



(956)

—

(956)

—
Other (11)
—

—

—



—



—



1,836

(1,836)

—



(1,836)

—

(1,836)

(0.01)
Tax adjustments (12)
—

—

—



—



—



—

—

83,604



(83,604)

—

(83,604)

(0.38)
Exclude discontinued operations, net of tax (13)
—

—

—



—



—



—

—

—



—

4,531

4,531

—
After considering items (non-GAAP)
$ 1,241,513

$ 492,474

$ 749,039

60 %

$ 229,042

18 %

$ 519,997

42 %

$ 112,879

$ 407,118

$ 11,327

3 %

$ 395,791

$ —

$ 395,791

$ 1.77

































































Three Months Ended December 31, 2015

Total revenues

Cost of revenues

Gross margin

Gross margin %

Total operating expenses

Operating expense to revenue %

Operating loss from continuing operations

Operating margin %

Other non-operating expense, net

Loss from continuing operations before income tax

Income tax benefit

Effective tax rate

Income from continuing operations

Discontinued operations, net of tax

Net loss attributable to Endo International plc (14)

Diluted earnings per share (15)
Reported (GAAP)
$ 1,073,697

$ 810,068

$ 263,629

25 %

$ 467,142

44 %

$ (203,513)

(19)%

$ 149,715

$ (353,228)

$ (796,937)

226 %

$ 443,709

$ (562,302)

$ (118,463)

$ 1.97
Items impacting comparability:































Amortization of intangible assets (1)
—

(227,543)

227,543



—



227,543



—

227,543

—



227,543

—

227,543

1.02
Inventory step-up and other costs savings (2)
—

(117,681)

117,681



—



117,681



—

117,681

—



117,681

—

117,681

0.52
Upfront and milestone-related payments (3)
—

(1,089)

1,089



(1,003)



2,092



—

2,092

—



2,092

—

2,092

0.01
Separation benefits and other restructuring (5)
—

(40,304)

40,304



(14,847)



55,151



—

55,151

—



55,151

—

55,151

0.24
Charges for litigation and other legal matters (6)
—

—

—



(17,207)



17,207



—

17,207

—



17,207

—

17,207

0.08
Asset impairment charges (7)
—

—

—



(139,859)



139,859



—

139,859

—



139,859

—

139,859

0.62
Acquisition-related and integration costs (8)
—

—

—



(36,112)



36,112



—

36,112

—



36,112

—

36,112

0.16
Fair value of contingent consideration (9)
—

—

—



(17,961)



17,961



—

17,961

—



17,961

—

17,961

0.08
Non-cash and penalty interest charges (10)
—

—

—



—



—



(1,965)

1,965

—



1,965

—

1,965

0.01
Other (11)
—

—

—



(3,079)



3,079



(24,422)

27,501

—



27,501

—

27,501

0.12
Tax adjustments (12)
—

—

—



—



—



—

—

779,351



(779,351)

—

(779,351)

(3.47)
Exclude discontinued operations, net of tax (13)
—

—

—



—



—



—

—

—



—

560,762

560,762

—
After considering items (non-GAAP)
$ 1,073,697

$ 423,451

$ 650,246

61 %

$ 237,074

22 %

$ 413,172

38 %

$ 123,328

$ 289,844

$ (17,586)

(6)%

$ 307,430

$ (1,540)

$ 306,020

$ 1.36


Notes to the reconciliation of certain line items included in the GAAP Statements of Operations to the Non-GAAP line items are as follows:

(1) Adjustments for amortization of commercial intangible assets included the following:


Three Months Ended December 31,

2016

2015
Amortization of intangible assets excluding fair value step-up from contingent consideration
$
228,876


$
218,491

Amortization of intangible assets related to fair value step-up from contingent consideration
11,514


9,052

Total
$
240,390


$
227,543


(2) Adjustments for inventory step-up and other cost savings included the following:


Three Months Ended December 31,

2016

2015
Fair value step-up of inventory sold
$
9,669


$
109,746

Excess manufacturing costs that will be eliminated pursuant to integration plans
4,243


7,935

Total
$
13,912


$
117,681


(3) Adjustments for upfront and milestone-related payments to partners included the following:


Three Months Ended December 31,

2016

2015

Cost of
revenues

Operating
expenses

Cost of
revenues

Operating
expenses
Sales-based milestones
$
655


$
—


$
1,089


$
—

Development-based milestones
—


1,800


—


1,003

Total
$
655


$
1,800


$
1,089


$
1,003


(4) To exclude decreases of restructuring related excess inventory reserves of $0.1 million recorded during the three months ended December 31, 2016.

(5) Adjustments for separation benefits and other restructuring included the following:


Three Months Ended December 31,

2016

2015

Cost of
revenues

Operating
expenses

Cost of
revenues

Operating
expenses
Separation benefits
$
6,150


$
21,772


$
40,304


$
1,828

Accelerated depreciation
3,134


5,729


—


10,361

Other
—


431


—


2,658

Total
$
9,284


$
27,932


$
40,304


$
14,847


(6) To exclude litigation settlement charges or reimbursements.

(7) To exclude goodwill and intangible asset impairment charges. During the three months ended December 31, 2016, we recorded total impairment charges of $3.5 billion. These charges primarily related to the Company’s annual goodwill impairment assessment, which resulted in non-cash impairment charges of $2,343 million, $273 million, $33 million and $26 million for its U.S. Generics, Paladin, Somar and Litha reporting units, respectively. Intangible asset impairment charges of $830 million primarily included non-cash impairment charges of $507 million and $285 million in the Company’s U.S. Generic Pharmaceuticals and International Pharmaceuticals segments, respectively, resulting from certain market conditions, including price erosion and increased competition, and $38 million in our U.S. Branded Pharmaceuticals segment resulting primarily from the termination of our BELBUCA product. During the three months ended December 31, 2015, we recorded impairment charges of $140 million resulting primarily from a non-cash goodwill impairment charge of $86 million related to our Paladin reporting unit, non-cash intangible asset impairment charges of $38 million related to our U.S. Generic Pharmaceuticals segment and $10 million related to our U.S. Branded Pharmaceuticals segment.

(8) Adjustments for acquisition and integration items primarily relate to various acquisitions, including Par Pharmaceuticals and Auxilium Pharmaceuticals, and included the following:


Three Months Ended December 31,

2016

2015
Integration costs (primarily third-party consulting fees)
$
6,441


$
17,892

Transaction costs
—


8,498

Transition services
—


8,858

Other
1,915


864

Total
$
8,356


$
36,112


(9) To exclude the impact of the change in fair value of contingent consideration resulting from certain market conditions impacting the commercial potential of the underlying products.

(10) To exclude penalty interest charges of $1,965.

(11) Adjustments to other included the following:


Three Months Ended December 31,

2016

2015

Operating
expenses

Other
non-operating
expenses

Operating
expenses

Other
non-operating
expenses
Costs associated with unused financing commitments
$
—


$
—


$
—


$
—

Foreign currency impact related to the re-measurement of intercompany debt instruments
—


(1,192)


—


(1,130)

Loss on extinguishment of debt
—


—


—


25,595

Other miscellaneous
—


(644)


3,079


(43)

Total
$
—


$
(1,836)


$
3,079


$
24,422


(12) Adjusted income taxes are calculated by tax effecting adjusted pre-tax income at the applicable effective tax rate that will be determined by reference to statutory tax rates in the relevant jurisdictions in which the Company operates and includes current and deferred income tax expense commensurate with the non-GAAP measure of profitability.

(13) To exclude the results of the Astora business reported as discontinued operations, net of tax.

(14) This amount includes non-controlling interest of $(130) for the three months ended December 31, 2015.

(15) Calculated as income (loss) from continuing operations divided by the applicable weighted average share number. The applicable weighted average share number for the three months ended December 31, 2016 is 222,870 and 223,178 for the GAAP and non-GAAP EPS calculations, respectively. The applicable weighted average share number for the three months ended December 31, 2015 is 225,321 for both the GAAP EPS calculation and the non-GAAP EPS calculations.


ENDO INTERNATIONAL PLC
Reconciliation of GAAP and Non-GAAP Financial Measures
(UNAUDITED)
(In thousands, except per share data)


Year Ended December 31, 2016

Total revenues

Cost of revenues

Gross margin

Gross margin %

Total operating expenses

Operating expense to revenue %

Operating loss from continuing operations

Operating margin %

Other non-operating expense, net

Loss from continuing operations before income tax

Income tax benefit

Effective tax rate

Loss from continuing operations

Discontinued operations, net of tax

Net loss attributable to Endo International plc (16)

Diluted loss per share (17)
Reported (GAAP)
$ 4,010,274

$ 2,634,973

$ 1,375,301

34 %

$ 4,846,816

121 %

$ (3,471,515)

(87)%

$ 452,341

$ (3,923,856)

$ (700,084)

18 %

$ (3,223,772)

$ (123,278)

$ (3,347,066)

$ (14.48)
Items impacting comparability:































Amortization of intangible assets (1)
—

(876,451)

876,451



—



876,451



—

876,451

—



876,451

—

876,451

3.94
Inventory step-up and other costs savings (2)
—

(124,349)

124,349



(1,350)



125,699



—

125,699

—



125,699

—

125,699

0.56
Upfront and milestone-related payments (3)
—

(2,628)

2,628



(5,702)



8,330



—

8,330

—



8,330

—

8,330

0.04
Inventory reserve increase from restructuring (4)
—

(24,455)

24,455



—



24,455



—

24,455

—



24,455

—

24,455

0.11
Royalty obligations (5)
—

7,750

(7,750)



—



(7,750)



—

(7,750)

—



(7,750)

—

(7,750)

(0.03)
Separation benefits and other restructuring (6)
—

(28,678)

28,678



(54,358)



83,036



—

83,036

—



83,036

—

83,036

0.37
Charges for litigation and other legal matters (8)
—

—

—



(23,950)



23,950



—

23,950

—



23,950

—

23,950

0.11
Asset impairment charges (9)
—

—

—



(3,781,165)



3,781,165



—

3,781,165

—



3,781,165

—

3,781,165

16.98
Acquisition-related and integration costs (10)
—

—

—



(63,778)



63,778



—

63,778

—



63,778

—

63,778

0.29
Fair value of contingent consideration (11)
—

—

—



(23,823)



23,823



—

23,823

—



23,823

—

23,823

0.11
Non-cash and penalty interest charges (12)
—

—

—



—



—



(4,092)

4,092

—



4,092

—

4,092

0.02
Other (13)
—

—

—



8,350



(8,350)



(1,077)

(7,273)

—



(7,273)

—

(7,273)

(0.03)
Tax adjustments (14)
—

—

—



—



—



—

—

721,602



(721,602)

—

(721,602)

(3.25)
Exclude discontinued operations, net of tax (15)
—

—

—



—



—



—

—

—



—

123,278

123,278

—
After considering items (non-GAAP)
$ 4,010,274

$ 1,586,162

$ 2,424,112

60 %

$ 901,040

22 %

$ 1,523,072

38 %

$ 447,172

$ 1,075,900

$ 21,518

2 %

$ 1,054,382

$ —

$ 1,054,366

$ 4.73

































































Year Ended December 31, 2015

Total revenues

Cost of revenues

Gross margin

Gross margin %

Total operating expenses

Operating expense to revenue %

Operating loss from continuing operations

Operating margin %

Other non-operating expense, net

Loss from continuing operations before income tax

Income tax benefit

Effective tax rate

Loss from continuing operations

Discontinued operations, net of tax

Net loss attributable to Endo International plc (16)

Diluted loss per share (17)
Reported (GAAP)
$ 3,268,718

$ 2,075,651

$ 1,193,067

36 %

$ 2,126,542

65 %

$ (933,475)

(29)%

$ 504,389

$ (1,437,864)

$ (1,137,465)

79 %

$ (300,399)

$ (1,194,926)

$ (1,495,042)

$ (1.52)
Items impacting comparability:































Amortization of intangible assets (1)
—

(561,302)

561,302



—



561,302



—

561,302

—



561,302

—

561,302

2.84
Inventory step-up and other costs savings (2)
—

(249,464)

249,464



—



249,464



—

249,464

—



249,464

—

249,464

1.26
Upfront and milestone-related payments (3)
—

(6,955)

6,955



(9,200)



16,155



—

16,155

—



16,155

—

16,155

0.08
Separation benefits and other restructuring (6)
—

(41,210)

41,210



(84,197)



125,407



—

125,407

—



125,407

—

125,407

0.63
Acceleration of Auxilium employee equity awards (7)
—

—

—



(37,603)



37,603



—

37,603

—



37,603

—

37,603

0.19
Charges for litigation and other legal matters (8)
—

—

—



(37,082)



37,082



—

37,082

—



37,082

—

37,082

0.19
Asset impairment charges (9)
—

—

—



(1,140,709)



1,140,709



—

1,140,709

—



1,140,709

—

1,140,709

5.78
Acquisition-related and integration costs (10)
—

—

—



(170,890)



170,890



—

170,890

—



170,890

—

170,890

0.86
Fair value of contingent consideration (11)
—

—

—



65,640



(65,640)



—

(65,640)

—



(65,640)

—

(65,640)

(0.34)
Non-cash and penalty interest charges (12)
—

—

—



—



—



(8,267)

8,267

—



8,267

—

8,267

0.04
Other (13)
—

—

—



(3,879)



3,879



(126,286)

130,165

—



130,165

—

130,165

0.65
Tax adjustments (14)
—

—

—



—



—



—

—

1,177,770



(1,177,770)

—

(1,177,770)

(6.00)
Exclude discontinued operations, net of tax (15)
—

—

—



—



—



—

—

—



—

1,236,760

1,236,760

—
After considering items (non-GAAP)
$ 3,268,718

$ 1,216,720

$ 2,051,998

63 %

$ 708,622

22 %

$ 1,343,376

41 %

$ 369,836

$ 973,540

$ 40,305

4 %

$ 933,235

$ 41,834

$ 975,352

$ 4.66




Notes to the reconciliation of certain line items included in the GAAP Statements of Operations to the Non-GAAP line items are as follows:

(1) Adjustments for amortization of commercial intangible assets included the following:


Year Ended December 31,

2016

2015
Amortization of intangible assets excluding fair value step-up from contingent consideration
$
834,966


$
532,670

Amortization of intangible assets related to fair value step-up from contingent consideration
41,485


28,632

Total
$
876,451


$
561,302


(2) Adjustments for inventory step-up and other cost savings included the following:


Year Ended December 31,

2016

2015

Cost of
revenues

Operating
expenses

Cost of
revenues

Operating
expenses
Fair value step-up of inventory sold
$
108,768


$
957


$
232,460


$
—

Excess manufacturing costs that will be eliminated pursuant to integration plans
15,581


393


17,004


—

Total
$
124,349


$
1,350


$
249,464


$
—


(3) Adjustments for upfront and milestone-related payments to partners included the following:


Year Ended December 31,

2016

2015

Cost of
revenues

Operating
expenses

Cost of
revenues

Operating
expenses
Sales-based milestones
$
2,628


$
—


$
6,955


$
—

Development-based milestones
—


5,702


—


9,200

Total
$
2,628


$
5,702


$
6,955


$
9,200


(4) To exclude charges due to increases of restructuring related excess inventory reserves related to the 2016 U.S. Generic Pharmaceuticals restructuring initiative.

(5) To adjust for the reversal of the remaining Voltaren Gel minimum royalty obligations as a result of a generic entrant.

(6) Adjustments for separation benefits and other restructuring included the following:


Year Ended December 31,

2016

2015

Cost of
revenues

Operating
expenses

Cost of
revenues

Operating
expenses
Separation benefits
$
18,119


$
39,780


$
41,210


$
60,176

Accelerated depreciation and product discontinuation charges
10,559


8,532


—


18,681

Other
—


6,046


—


5,340

Total
$
28,678


$
54,358


$
41,210


$
84,197


(7) To exclude the acceleration of Auxilium employee equity awards at closing of acquisition.

(8) To exclude litigation settlement charges or reimbursements.

(9) To exclude asset impairment charges. During the year ended December 31, 2016 we recorded total impairment charges of $3.8 billion. These charges primarily related to the Company’s annual goodwill impairment assessment, which resulted in non-cash impairment charges of $2,343 million, $273 million, $33 million and $26 million for its U.S. Generics, Paladin, Somar and Litha reporting units, respectively. Intangible asset impairment charges for the year ended December 31, 2016 primarily included non-cash impairment charges of $677 million, $302 million and $110 million in our U.S. Generic Pharmaceuticals, International Pharmaceuticals and U.S. Branded Pharmaceuticals segments, respectively. During the year ended December 31, 2015, we recorded pre-tax, non-cash impairment charges of $1.1 billion primarily as a result of a $674 million goodwill impairment charge related to the Company’s former UEO reporting unit, an $86 million goodwill impairment charge related to the Company’s Paladin reporting unit and non-cash intangible asset impairment charges of $371 million.

(10) Adjustments for acquisition and integration items primarily relate to various acquisitions, including Par Pharmaceuticals and Auxilium Pharmaceuticals, and included the following:


Year Ended December 31,

2016

2015
Integration costs (primarily third-party consulting fees)
$
44,752


$
41,248

Transaction costs
—


99,081

Transition services
9,729


21,769

Other
9,297


8,792

Total
$
63,778


$
170,890


(11) To exclude the impact of the change in fair value of contingent consideration resulting from certain market conditions impacting the commercial potential of the underlying products.

(12) Adjustments to interest charges included the following:


Year Ended December 31,

2016

2015
Penalty interest charges
$
4,092


$
6,634

Non-cash interest expense related to our 1.75% Convertible Senior Subordinated Notes
—


1,633

Total
$
4,092


$
8,267


(13) Adjustments to other included the following:


Year Ended December 31,

2016

2015

Operating
expenses

Other
non-operating
expenses

Operating
expenses

Other
non-operating
expenses
Costs associated with unused financing commitments
$
—


$
—


$
800


$
78,352

Other than temporary impairment of equity investment
—


—




18,869

Foreign currency impact related to the re-measurement of intercompany debt instruments
—


366


—


(25,121)

Loss on extinguishment of debt
—


—




67,484

Other miscellaneous expense (income)
(8,350)


711


3,079


(13,298)

Total
$
(8,350)


$
1,077


$
3,879


$
126,286


(14) During the third quarter of 2016, Endo completed a legal entity reorganization that moved the Generics business to a new U.S. holding company structure that is separate from the legacy Branded business structure. The reorganization also provides operating flexibility and benefits and reduces the potential impact related to any future limits that could apply to the use of tax attributes by utilizing most of the Company’s attributes to offset the gain in the intercompany sale that stepped-up the tax basis of the U.S. Generics business assets. The utilization of acquired attributes in the reorganization would have had an unfavorable impact of $157 million on our full-year 2016 adjusted tax expense under Endo’s non-GAAP policy prior to the adoption of the SEC’s updated guidance on Non-GAAP measures (see below). The elimination of this acquired attribute benefit was largely offset by an improved mix of jurisdictional adjusted pre-tax income resulting primarily from the reorganization. The reorganization also gave rise to a discrete GAAP tax benefit of $636 million arising from outside basis differences. This benefit has been excluded from our adjusted effective tax rate in accordance with our policy.

Separately, as a result of the SEC’s updated guidance on Non-GAAP measures issued in May 2016, Endo is no longer excluding the non-cash deferred tax expense associated with acquired attributes in our adjusted income tax expense. This change has no impact on Endo’s historic or forward looking GAAP tax or cash tax profile. The following table presents the impact of our change in policy as of the second quarter of 2016 on Adjusted Diluted EPS from Continuing Operations for each relevant period of 2015 and 2016:


Three Months Ended March 31, 2015

Three Months Ended June 30, 2015

Three Months Ended September 30, 2015

Three Months Ended December 31, 2015

Twelve Months Ended December 31, 2015

Three Months Ended March 31, 2016
Adjusted Diluted EPS from Continuing Operations
– As Previously Reported
1.17


1.08


1.02


1.36


4.66


1.08

Amount attributable to the change in approach to
Non-GAAP income taxes
(0.11)


(0.09)


(0.16)


(0.18)


(0.56)


(0.16)

Adjusted Diluted EPS from Continuing Operations
– As Revised
1.06


0.99


0.86


1.18


4.10


0.92


*Amounts in the table above may not add due to rounding

(15) To exclude the results of the Astora business reported as discontinued operations, net of tax.

(16) This amount includes noncontrolling interests of $16 and $(283) for the year ended December 31, 2016 and 2015, respectively.

(17) Calculated as income (loss) from continuing operations divided by the applicable weighted average share number. The applicable weighted average share number for the year ended December 31, 2016 is 222,651 and 223,090 for the GAAP and non-GAAP EPS calculations, respectively. The applicable weighted average share number for the year ended December 31, 2015 is 197,100 and 200,438 for the GAAP and non-GAAP EPS calculations, respectively.


Reconciliation of Projected GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share Guidance for 2017


Year Ending

December 31, 2017
Projected GAAP diluted earnings per share
$
0.04

to
$
0.34

Amortization of commercial intangible assets

3.50

Acquisition related, integration and restructuring charges and certain excess costs that will be eliminated pursuant to integration plans

0.41

Tax effect of pre-tax adjustments at applicable tax rates

(0.50)

Diluted earnings per share guidance
$
3.45

to……
$
3.75


The Company’s guidance is being issued based on certain assumptions including:
Certain of the above amounts are based on estimates and there can be no assurance that Endo will achieve these results.
Includes all completed and pending business development transactions as of February 28, 2017.
ENDO INTERNATIONAL PLC
Reconciliation of GAAP and Non-GAAP Financial Measures
For the Twelve Months Ended December 31, 2016
(UNAUDITED)
(In thousands)



Twelve Months
Ended
December 31,
2016
Net (loss) income

$
(3,347,066)

Income tax

(700,084)

Interest expense, net

452,679

Depreciation and amortization (1)

955,802

EBITDA

$
(2,638,669)




Inventory step-up

$
125,699

Other income, net

(338)

Stock-based compensation (1)

58,655

Asset impairment charges

3,781,165

Acquisition-related and integration items

87,601

Certain litigation-related charges, net

23,950

Upfront and milestone payments to partners

8,330

Separation benefits and other cost reduction initiatives

107,491

Other income

(7,750)

Discontinued operations, net of tax

123,278

Net income attributable to noncontrolling interests

16

Adjusted EBITDA

$
1,669,428




Calculation of Net Debt:


Debt

$
8,272,503

Cash (excluding Restricted Cash)

517,250

Net Debt

$
7,755,253




Calculation of Net Debt Leverage:


Net Debt Leverage

4.6


__________
(1) Depreciation and amortization does not agree to the amount reported per the Statement of Cash Flows due to certain depreciation amounts reflected in the Acquisition-related and integration items line of this Adjusted EBITDA calculation.
(2) Stock-based compensation does not agree to the amount reported per the Statement of Cash Flows as the amount presented here does not include discontinued operations balances.


Non-GAAP Financial Measures
The Company utilizes certain financial measures that are not prescribed by or prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). These Non-GAAP financial measures are not, and should not be viewed as, substitutes for U.S. GAAP net income and its components and diluted earnings per share amounts. Despite the importance of these measures to management in goal setting and performance measurement, we stress that these are Non-GAAP financial measures that have no standardized meaning prescribed by U.S. GAAP and, therefore, have limits in their usefulness to investors. Because of the non-standardized definitions, Non-GAAP adjusted EBITDA and Non-GAAP adjusted net income and its components (unlike U.S. GAAP net income and its components) may not be comparable to the calculation of similar measures of other companies. These Non-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses performance. See Endo’s Current Report on Form 8-K furnished today to the Securities and Exchange Commission for an explanation of Endo’s non-GAAP financial measures.

On February 28, 2017 Ionis Pharmaceuticals, Inc. (Nasdaq: IONS) reported that it outperformed its financial guidance by ending 2016 with pro forma operating income of $25.8 million and $665.2 million in cash, cash equivalents and short-term investments (Press release, Ionis Pharmaceuticals, FEB 28, 2017, View Source [SID1234517863]). The Company also reported a GAAP loss from operations of $46.3 million.

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"2016 was a year of significant accomplishments for Ionis, culminating in the U.S. approval of SPINRAZA, in record time and with a very broad label. The approval of SPINRAZA is a testament to the efficacy, safety and tolerability that SPINRAZA demonstrated in multiple clinical studies in multiple SMA patient populations. We are pleased with Biogen’s early launch efforts in the U.S. and their actions directed to making SPINRAZA available to patients around the world as soon as possible," said B. Lynne Parshall, chief operating officer of Ionis Pharmaceuticals.

"In 2016, we reported positive clinical data from 11 studies with six drugs. We also continued to advance over 36 drugs in development, including our Phase 3 drugs, volanesorsen and IONIS-TTRRx, which will complete pivotal trials shortly. We also added five new drugs to our pipeline, including our first Generation 2.5 LICA drug and our first oral locally acting drug for gastrointestinal autoimmune diseases.

"In the first week of 2017, we and our subsidiary, Akcea, initiated a collaboration with Novartis to develop and co-commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx for patients with cardiovascular disease. Our partner for our Factor XI program, Bayer, is advancing IONIS-FXIRx and is expanding the program by initiating development of the LICA follow-on, IONIS-FXI-LRx. In addition, our broad strategic collaborations with Biogen and AstraZeneca continue to be productive. We believe our constellation of partnerships demonstrate the potential of our antisense drugs to address a wide variety of diseases with both large and small patient populations.

"In 2017, we expect to be breakeven or profitable at the operating line on a pro forma basis, driven in part by revenue from SPINRAZA. Biogen anticipates EU approval mid-year and has filed for regulatory authorization in Japan, Canada and Australia, and is planning to file additional applications in other countries this year. Approval in additional markets could broaden access to SPINRAZA and further bolster our revenues. We and Akcea expect to report Phase 3 data in March from the APPROACH study of volanesorsen in patients with familial chylomicronemia syndrome. Together with Akcea, we are preparing the regulatory submissions and plan to file for marketing authorization in the U.S., EU and Canada this year, provided the Phase 3 data are positive. Akcea has also made progress in preparing to launch volanesorsen. In the second quarter, we plan to report Phase 3 data from the NEURO-TTR study with IONIS-TTRRx in patients with familial amyloid polyneuropathy. We and our partner, GSK, are preparing to file an NDA before year end if the Phase 3 data are positive. While progress in these late-stage programs represents key visible catalysts for the year, we also plan to provide updates from our large and diverse pipeline throughout the year.

"We believe we have the key elements in place to achieve sustained, long-term financial growth. We have multiple drivers of revenue; a partnership strategy that leverages partner resources; a mature, broad and rapidly advancing clinical pipeline; and an innovative, more efficient drug discovery platform that enables us to continue developing new drugs with the potential for significant commercial opportunity in both rare and more prevalent diseases. We are now closer to achieving our goal of becoming a profitable, multi-product company delivering innovative medicines to patients with serious diseases," concluded Ms. Parshall.

Ionis’ 2017 goals and a list of corporate and drug development highlights can be found at the end of this press release prior to the financial tables.

Financial Results

"2016 was marked by continued progress, highlighted by the approval of SPINRAZA. We earned substantial license fees and milestone payments from our many achievements, which led us to significantly improve upon our revenue, pro forma net operating loss and cash guidance for 2016. In 2016, we generated $347 million of revenue, an increase of 45 percent compared to our guidance of $240 million. Importantly, we were able to achieve all of our 2016 accomplishments with only a nominal increase in our expenses over 2015. We ended 2016 with a GAAP loss from operations of $46 million, which included $72 million in non-cash compensation expense related to equity awards resulting in pro forma operating income of $26 million. In addition, we reported GAAP and pro forma net income for the third and fourth quarters. During the year, we received more than $190 million from our partners and ended the year with $665 million in cash, exceeding our year-end cash guidance by $65 million. This cash balance does not include more than $100 million that we earned in 2016 and received payment for in 2017," said Elizabeth L. Hougen, chief financial officer of Ionis Pharmaceuticals.

"We are pleased to add commercial revenue from SPINRAZA to our already significant revenue from partnerships. Over the past five years, we have consistently increased our revenue, reflecting the successes of our partnered programs and drugs. This R&D revenue provides a base of revenue that funds most of our pro forma operating expenses. While in any year the specific sources of our R&D revenue change, the consistent growth in revenue we have achieved over the last five years supports the sustainability of this component of our operating model. In 2017, we expect to continue to have a strong R&D revenue base that funds most of our pro forma operating expenses. To that revenue base, we are adding commercial revenue from SPINRAZA royalties. This revenue is nearly all profit to us, in other words we have only a nominal amount of corresponding expense associated with it. For 2017, we expect our operating expenses to be essentially flat compared to 2016; however, the composition of our expenses will change to reflect the evolution of our business. We plan to continue to increase our commercial spending for volanesorsen as our subsidiary, Akcea, prepares to launch volanesorsen globally in 2018. These increases will be offset by a decrease in our R&D expenses, reflecting the fact that our current Phase 3 programs are coming to a close. Because of the efficiency of our technology, we can advance our earlier stage drugs and add new drugs to our pipeline while still decreasing our research and development expenses. The combination of a solid base of R&D revenue, SPINRAZA commercial revenue and prudent spending, support our projection that we will be breakeven or profitable at the operating line on a pro forma basis for 2017. As we have more visibility on SPINRAZA sales, we will provide more detailed guidance. Already in 2017, we have generated more than $250 million in cash from our partnered programs. As such, we are projecting a year-end cash balance of over $825 million," concluded Ms. Hougen.

All pro forma amounts referred to in this press release exclude non-cash compensation expense related to equity awards. Please refer to the reconciliation of GAAP to pro forma measures, which is provided later in this release.

Revenue

Ionis’ revenue for the three and twelve months ended December 31, 2016 was $160.3 million and $346.6 million, compared to $51.6 million and $283.7 million for the same periods in 2015. Ionis’ revenue in 2016 consisted of the following:

$170 million from Biogen for FDA approval, licensing and advancing the Phase 3 program for SPINRAZA;
$53 million from AstraZeneca for advancing and licensing IONIS-KRAS-2.5Rx and selecting IONIS-AZ4-2.5-LRx to move into development;
$15 million from Janssen for licensing IONIS-JBI1-2.5Rx and validating an undisclosed target to treat patients with a gastrointestinal autoimmune disease;
$15 million from Kastle Therapeutics for acquiring Kynamro;
$8 million from Biogen for advancing IONIS-SOD1Rx, IONIS-BIIB4Rx and IONIS-BIIB6Rx;
$61 million from the amortization of upfront fees; and
$25 million primarily from its partners for the manufacturing services Ionis performed.
In comparison, Ionis’ revenue in 2015 included $115.7 million in milestone payments from partnered programs, $91.2 million in connection with Bayer’s exclusive license of IONIS-FXIRx, $56.2 million from the amortization of upfront fees and $20.6 million primarily from the manufacturing services Ionis performed for its partners.

Ionis’ revenue fluctuates based on the nature and timing of payments under agreements with its partners and consists primarily of revenue from the amortization of upfront fees, milestone payments and license fees.

Operating Expenses
Ionis’ operating expenses for the three and twelve months ended December 31, 2016 on a GAAP basis were $119.2 million and $392.9 million, respectively, and on a pro forma basis were $104.0 million and $320.8 million, respectively. This is compared to GAAP operating expenses of $114.5 million and $359.5 million and pro forma operating expenses of $97.1 million and $300.2 million for the same periods in 2015. The increase in operating expenses was primarily due to Phase 3 programs for SPINRAZA, IONIS-TTRRx and volanesorsen that Ionis conducted in 2016. The Company completed target enrollment in four of the Phase 3 studies at the end of 2015, and as a result, these studies were in their most expensive stage during 2016. In addition, Akcea continued to build a global organization and prepare for the launch of volanesorsen. In addition, Ionis’ operating expenses for 2016 on a GAAP basis increased due to an increase in non-cash compensation expense related to equity awards that resulted from an increase in the exercise price of the stock options the Company has granted over the past several years.

Loss on Retirement of Debt
In December 2016, Ionis refinanced a majority of its 2¾% convertible senior notes due 2019 (2¾% Notes). In the refinancing, Ionis reduced the interest rate to 1% by issuing an additional $185.5 million of its 1% convertible senior notes due 2021 (1% Notes). Ionis also significantly reduced the potential dilution from its convertible notes and extended the maturity to November 2021. As a result of the early repurchase of the 2¾% Notes, Ionis recognized a $4.0 million non-cash loss.

Income Tax Expense
Ionis recognized income tax expense of $2.9 million for the year ended December 31, 2016 compared to $0.4 million in 2015. Ionis’ tax expense increased in 2016 compared to 2015 primarily due to an increase in taxable income resulting from Ionis’ strong financial performance in 2016.

Net Income (Loss)
Ionis reported net income of $25.9 million and a net loss of $86.6 million for the three and twelve months ended December 31, 2016 on a GAAP basis, respectively, compared to a net loss of $71.4 million and $88.3 million for the same periods in 2015. Ionis recorded pro forma net income of $41.0 million for the three months ended December 31, 2016 compared to a pro forma net loss of $54.0 million for the same period in 2015. For the twelve months ended December 31, 2016, the Company had a pro forma net loss of $14.4 million compared to a pro forma net loss of $29.0 million in 2015. Basic and diluted net income per share for the three months ended December 31, 2016 on a GAAP basis was $0.21. Basic and diluted net loss per share for the twelve months ended December 31, 2016 was $0.72. This is compared to a basic and diluted net loss of $0.59 and $0.74 per share for the three and twelve months ended December 31, 2015, respectively.

Balance Sheet
As of December 31, 2016, Ionis had cash, cash equivalents and short-term investments of $665.2 million compared to $779.2 million at December 31, 2015. Ionis’ cash balance decreased in 2016 primarily due to spending to support the Company’s ongoing Phase 3 programs. Ionis’ cash balance at the end of 2016 did not include $107 million the Company earned in the fourth quarter of 2016 and received in 2017. Since the end of 2016, Ionis has generated more than $250 million primarily from its Novartis and Bayer partnerships. Ionis’ working capital was $664.1 million at December 31, 2016 compared to $688.1 million at December 31, 2015.