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Alcon's Third Quarter Sales Rise 14.1 Percent

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Posted 22 October 2008 @ 06:25 pm ET

Alcon, Inc. (NYSE:ACL) reported global sales of $1,524.6 million for the third quarter of 2008, an increase of 14.1 percent compared to the third quarter of 2007, or 10.3 percent excluding the impact of foreign exchange fluctuations. The acquisition of WaveLight AG contributed 1.4 percentage points of sales growth in the third quarter. Net earnings for the third quarter of 2008 increased 51.0 percent to $627.1 million, or $2.07 per share on a diluted basis, compared to $415.3 million, or $1.38 per share for the third quarter of 2007. Net earnings for the quarter included a $239.5 million tax benefit associated with losses on the value of the company's investment in and advances to the former Summit Autonomous, Inc.

"Alcon's continued focus on brand development and strategically increasing our sales presence in key geographic areas like Japan and emerging markets led to solid organic sales growth across all of our major product lines," said Cary Rayment, Alcon's chairman, president and chief executive officer. "While the current economic environment has had an impact on us, the fundamentals of our business are strong and we are maintaining our long-term commitment to growing eye care markets, developing our global brands and bringing new products to market."

Third Quarter Sales Highlights

Highlights of sales for the third quarter of 2008 are provided below. Unless otherwise noted, all comparisons are versus the third quarter of 2007.

  • International sales rose 23.8 percent to $843.3 million, or 16.2 percent excluding foreign exchange, with sales in emerging markets increasing 27.8 percent, or 19.8 percent excluding foreign exchange. Sales in the United States increased 4.1 percent to $681.3 million.
  • Pharmaceutical sales grew 11.4 percent, or 7.8 percent on a constant currency basis, to $609.6 million. Sales of glaucoma products increased 15.8 percent, mainly due to growth in sales of the family of TRAVATAN® ophthalmic solutions. DuoTravTM ophthalmic solution continues to gain market share of the prostaglandin/timolol combination market outside the United States and the successful launch of TRAVATANZTM ophthalmic solution in Japan also has increased sales. Infection/inflammation product sales rose 10.1 percent as a result of strong international performance and market share gains by Vigamox® ophthalmic solution, NEVANAC® ophthalmic suspension and sales growth for TobraDex® ophthalmic suspension and ointment globally. Sales of allergy products, which include Patanol® ophthalmic solution and Pataday™ ophthalmic solution, rose 1.6 percent as market share gains for Pataday™ in the United States and for Patanol® in Japan offset a decline in prescriptions for allergy drops in the U.S. Sales of otic/nasal products grew 22.7 percent to $83.9 million primarily due to sales growth of CIPRODEX® otic suspension.
  • Surgical sales rose 18.0 percent, or 13.7 percent on a constant currency basis, to $691.3 million. Sales of intraocular lenses increased 18.6 percent to $255.5 million, driven by the global performance of AcrySof® IQ lenses and strong sales of advanced technology lenses. Advanced technology intraocular lens sales were $50.0 million, an increase of 42.4 percent. This strong performance in advanced technology lenses was attributable to the AcrySof® Toric and the AcrySof® ReSTOR® Aspheric lenses, both of which posted strong gains compared to the prior year. Sales of cataract and vitrectomy products rose 12.6 percent, mainly as a result of continued conversion to advanced technologies such as the Infiniti® vision system with OZil™ torsional hand piece, 23 and 25-gauge micro-incision vitrectomy instruments and DuoVisc® viscoelastic solution. Refractive revenue increased 230.6 percent due to the acquisition of WaveLight® AG. The company noted a 21 percent decline in total refractive procedures for combined LADARVISION® and Allegretto Wave systems, which was less than the overall market rate of decline in refractive laser procedures.
  • Consumer eye care sales increased 10.5 percent, or 7.0 percent on a constant currency basis, to $223.7 million. Sales of contact lens disinfectants grew 2.6 percent, as OPTI-FREE® RepleniSH® and OPTI-FREE® Express® multipurpose disinfecting solutions continued to maintain their combined market share in the United States. Sales of artificial tears products increased 28.0 percent, led by increases in the global sales of Systane® lubricant eye drops and the U.S. launch of Systane Ultra® in July 2008.
Third Quarter Earnings Details

Highlights of earnings for the third quarter of 2008 are provided below. Unless otherwise noted, all comparisons are versus the third quarter of 2007.

  • Gross profit margin improved 1.4 percentage points to 77.1 percent of sales. Gross profit margin in 2008 increased due to favorable sales mix, continuous improvement in our global manufacturing processes and the effects of exchange rate fluctuations related to goods within our internal distribution channels. These positive contributions were partially offset by costs associated with the integration of the company's refractive operations.
  • Selling, general and administrative expenses increased faster than sales and were 32.9 percent of sales due to costs related to the establishment and relocation of the company's shared service center in Switzerland and sales force expansions in the United States, Japan, western Europe and emerging markets to support product launches and market development activities.
  • Research and development expenses increased 33.1 percent to 174.2 million, or 11.4 percent of sales. The rise in research and development expenses was attributable to an increase in clinical activities and targeted in-licensing collaborations as well as timing of projects.
  • Operating income increased 6.1 percent to $494.3 million, or 32.4 percent of sales, a 2.5 percentage point decline as a percent of sales over the reported results for the third quarter of 2007. This occurred because of R&D expenses growing faster than sales, the WaveLight® AG acquisition, sales force additions and the costs of establishing and relocating the company's shared services center in Switzerland.
  • Total non-operating income fell by $51.8 million primarily because of losses on investment securities due to instability in the global investment markets.
  • The company reported an overall net tax benefit of $177.6 million making the effective tax rate not meaningful. The overall tax benefit was mainly the result of the company reaching agreement with the U.S. Internal Revenue Service on all issues surrounding the acquisition and liquidation of the company's investment in the former Summit Autonomous, Inc. As a result of this agreement, the company recognized a related tax benefit of $239.5 million associated with losses on the value of its investment in and advances to the former Summit Autonomous, Inc.
  • Net earnings increased 51.0 percent to $627.1 million as a result of solid sales growth, gross profit margin improvement and the large tax benefit from its investment losses in Summit Autonomous, Inc. These positive factors were partially offset by declines in the value of and income from its investment portfolio.
New Product and R&D Pipeline Update

Summarized below are updates on new products and significant research and development activities.

  • The AcrySof® ReSTOR® +3.0 Add and AcrySof® Phakic lens gained their CE marks in the third quarter 2007 and August 2008, respectively, based on extensive clinical trials. Both of these lenses were introduced outside the U.S. in September 2008 at the European Society of Cataract and Refractive Surgeons (ESCRS) conference in Berlin, Germany.
  • Alcon Research, Ltd. (ARL) entered into a licensing agreement with GlaxoSmithKline for the ophthalmic rights to cilomilast, a phosphodiesterase IV inhibitor. The company plans to develop this compound for the treatment of dry eye and other ophthalmic conditions.
  • ARL also announced it had expanded and extended its existing drug research alliance with Origenis GmbH to focus on discovery and development of small molecules which could be used in the treatment of eye diseases.
  • The Japanese Ministry of Health, Labor and Welfare (MHLW) approved the AcrySof® Toric intraocular lens on August 8, 2008.
  • In July 2008 in the United States, Alcon launched Systane® Ultra lubricant eye drops, a novel dry eye therapy that provides extended protection by rebuilding the eye's tear film.
  • The European Medicines Agency's (EMEA) Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion recommending Azarga® ophthalmic solution, a fixed combination of brinzolamide and timolol, to decrease intraocular pressure in patients with open-angle glaucoma or ocular hypertension.
  • During the third quarter, the company submitted its revised laboratory studies for Tobradex ST® ophthalmic suspension to the United States Food and Drug Administration (FDA).
Financial Guidance

Financial guidance for the full year 2008 and factors impacting this guidance are provided below.

  • The company revised its sales guidance to a range of $6,260 million to $6,290 million, due to strengthening of the U.S. dollar versus several major currencies and slower than expected U.S. pharmaceutical sales.
  • The company also revised its guidance for diluted earnings per share to a range of $6.67 to $6.75 for the full year 2008. This range includes the impact of the Summit Autonomous, Inc. tax benefit in the third quarter and the passage of the Research and Development Tax Credit in the United States on October 3, 2008. The range also includes SG&A expenses related to the expansion and relocation of the company's Swiss operations, as well as integration expenses related to the company's refractive surgery manufacturing and other operations, which are booked to cost of goods sold.
Company Description

Alcon, Inc. is the world's leading eye care company, with sales of approximately $5.6 billion in 2007. Alcon, which has been dedicated to the ophthalmic industry for more than 60 years, researches, develops, manufactures and markets pharmaceuticals, surgical equipment and devices, contact lens care solutions and other vision care products that treat diseases, disorders and other conditions of the eye. Alcon's majority shareholder is Nestlé, S.A., the world's largest food company. All trademarks noted in this release are the property of Alcon, Inc., with the exception of Cipro® and CIPRODEX®, which are the property of Bayer AG and licensed to Alcon, Inc. by Bayer HealthCare AG. Moxifloxacin, the active ingredient in Vigamox®, is licensed to Alcon, Inc. by Bayer HealthCare AG.

 
ALCON, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings (Unaudited)

(USD in millions, except share and per share data)

 
Three months ended Nine months ended
September 30, September 30,
2008   2007 2008   2007
 
Sales $ 1,524.6 $ 1,335.7 $ 4,796.2 $ 4,129.9
Cost of goods sold   348.4   324.6   1,161.2   1,026.9
 
Gross profit 1,176.2 1,011.1 3,635.0 3,103.0
 
Selling, general and administrative 501.0 403.8 1,512.1 1,252.4
Research and development 174.2 130.9 461.3 404.3
Amortization of intangibles   6.7   10.3   21.6   40.6
 
Operating income 494.3 466.1 1,640.0 1,405.7
 
Other income (expense):
Gain (loss) from foreign currency, net (10.0) 3.6 (7.3) 8.6
Interest income 19.8 11.0 66.0 45.8
Interest expense (13.4) (9.5) (45.2) (30.7)
Other, net   (41.2)   1.9   (51.3)   20.2
 
Earnings before income taxes 449.5 473.1 1,602.2 1,449.6
 
Income taxes   (177.6)   57.8   (20.7)   239.7
 
Net earnings $ 627.1 $ 415.3 $ 1,622.9 $ 1,209.9
 
 
Basic earnings per common share $ 2.10 $ 1.39 $ 5.44 $ 4.05
 
Diluted earnings per common share $ 2.07 $ 1.38 $ 5.38 $ 4.00
 
Basic weighted average common shares 299,076,483 297,829,693 298,426,116 298,601,255
Diluted weighted average common shares

302,636,080 301,516,463 301,920,346 302,457,862
 
ALCON, INC. AND SUBSIDIARIES

Global Sales

(USD in millions)

       
Three months ended Foreign %Change in
September 30,   Currency Constant
2008   2007 %Change %Change Currency
GEOGRAPHIC SALES
United States:
Pharmaceutical $ 301.2 $ 299.6 0.5 % - % 0.5 %
Surgical 274.5 255.4 7.5 - 7.5
Consumer Eye Care 105.6   99.5   6.1 - 6.1
 
Total United States Sales 681.3   654.5   4.1 - 4.1
 
International:
Pharmaceutical 308.4 247.7 24.5 7.9 16.6
Surgical 416.8 330.5 26.1 7.6 18.5
Consumer Eye Care 118.1   103.0   14.7 6.9 7.8
 
Total International Sales 843.3   681.2   23.8 7.6 16.2
 
Total Global Sales $ 1,524.6   $
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