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LYPHOMED THIRD QUARTER SALES DECLINE NEARLY 40%, BUT COMPANY REPORTS REMOVAL FROM FDA ALERT LIST; ALCO NET INCOME IS UP 12% IN FISCAL 1988

Executive Summary

LyphoMed's third quarter financial results reflected continued lower production levels at its three manufacturing facilities, stemming from earlier FDA regulatory actions. LyphoMed reported that sales for the three months ended Sept. 30 declined 39% to $26.8 mil., from $43.9 mil. a year ago, and booked a net loss of $3.5 mil. compared to net income of $5.4 mil. in the third quarter of 1987. "The lower sales for the third quarter and year-to-date were primarily due to reduced production at the company's Melrose Park, Illinois and Grand Island, New York plants, and halted production at the company's Orlando, Florida plant," the generic injectables manufacturer explained. "Operating results were impacted by lower plant utilization, the delay in processing of new product approvals, and increased investment in the company's proprietary product R&D programs." Through the first nine months of 1988, LyphoMed reported revenues of about $95 mil., a 23% decline over the previous year. The company's $15.3 mil. net income for the first three quarters of 1987 turned into a $15.3 mil. net loss in 1988. However, LyphoMed appears to be on the verge of a turnaround. The company indicated several encouraging developments, including an end to its difficulties with the FDA ("The Pink Sheet" Sept. 26, T&G-11). "Perhaps most significant of these events is LyphoMed's removal from the FDA alert list," CEO John Kapoor remarked. "We were extremely pleased with the FDA's action, as it clears the way for approval of the company's ANDA and supplemental drug applications. As the supplements are approved and we continue the implementation of enhanced manufacturing and quality assurance procedures, we will gradually resume manufacturing of a number of products that have been unavailable for much of 1988." One of the challenges LyphoMed will then face is regaining market share lost to other suppliers while its products were unavailable. To do so may require an aggressive promotional effort. LyphoMed also noted the creation of four new senior-level management slots for manufacturing, quality assurance and control, R&D and regulatory affairs. On Nov. 1, Gary Nei joined the company as president and chief operating officer. Alco Health Services reported a 13% Increase in fourth quarter revenues to $528.7 mil., but a corresponding 9% decline in net income to $5.1 mil. for the three months ended Sept. 30. Total fiscal 1988 revenues grew 19% to $2.1 bil., while net income was up 12% to $20.2 mil. The wholesaler attributed its shrinking bottom line during the fourth quarter to one-time charges that included $400,000 for professional fees in connection with the failed merger with McKesson and a $2.1 mil. writeoff of amounts receivable for Revco, which filed for protection under Chapter 11 in August. The McKesson merger was terminated in October following objections raised by the Federal Trade Commission. Connaught BioSciences attributed a 35% increase in third quarter net earnings to $9.2 mil. in part to a strong performance of its conjugate Haemophilus influenzae b vaccine ProHIBiT in the U.S. and Canada. Earnings were reduced by a $3.5 mil. charge in connection with the second quarter tender offer by Institut Merieux, Connaught said. Revenues were up 4.2% for the three months ended Sept. 30 to about $51 mil. "Equity income from Nordic Labs increased by $1.3 mil. over 1987 due to continued sales growth of its major drugs, Cardizem and sucralfate," Connaught added. "During the quarter, Nordic launched the sustained-release version of Cardizem, for the treatment of mild to moderate hypertension, with encouraging early results." Nine-month revenues were off almost 5% to $132 mil., Connaught BioScience reported, while net income jumped almost 20% to $22.2 mil. A.L. Labs reported volume gains in all business segments for the three months and nine months ended Sept. 30, with further gains anticipated for the fourth quarter. "Our pharmaceutical business revenue and operating profits were further boosted by Barre-National, the leading domestic manufacturer of liquid generic pharmaceuticals, with revenues of $15.7 mil. and $45.9 mil. respectively for the third quarter and nine-month periods," CEO Roy Cohen remarked. "We are expecially pleased with the performance of our animal health business, which benefitted from volume increases of the company's BMD feed antibiotic, as well as continuing production efficiencies at our fermentation facility in Chicago Heights, Illinois." Overall, A.L. Labs reported sales of about $57 mil. for the three months ended Sept. 30, an increase of 66% from a year ago. Net income rose 53% to $2.3 mil. For the nine months, volume was up 60% to $170 mil., while net earnings increased 28% to nearly $6 mil. "Our operating results are especially impressive in light of the substantial interest and acquisition costs arising from the acquisition of Barre-National in October of last year," Cohen continued. "The fourth quarter traditionally marks the beginning of Barre's strong winter selling season and, coupled with the improving strength of our Dumen and ParMed pharmaceutical activities and animal health businesses, we are optimistic that 1988 will be a record year for A.L. Labs." Table or Chart Omitted
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