Noven Reports Record Financial Results For 2002

Revenues, Pre-Tax Income and Cash Increase for Fifth Consecutive Year

U.S. Prescriptions for Noven Hormone Therapy Patches Increase 6% in 2002

Vivelle-Dot Prescriptions Increase 28% Over 2001

-- Noven Pharmaceuticals, Inc. (NASDAQ: NOVN), a leading developer of advanced transdermal drug delivery technologies and prescription transdermal products, today announced financial results for the quarter and year ended December 31, 2002.

"Noven's revenues, pre-tax income and cash increased for the fifth consecutive year," said Robert C. Strauss, Noven's President, CEO & Chairman. "For the year, revenues and net income increased 21% and 15%, respectively, which are very respectable growth rates considering the disruption in the hormone therapy market following the announcement of early termination of the Women’s Health Initiative (WHI) studies. We believe that the expected launch of MethyPatch in the second half of 2003, a stabilizing U.S. hormone business, and the advancement of new development projects, together will position Noven for growth in the years ahead."

Full Year Results
Noven. For the year ended December 31, 2002, Noven reported revenues of $55.4 million, compared to $45.9 million in 2001. Noven recognized $14.4 million in earnings from Novogyne Pharmaceuticals, Noven's U.S.-based joint venture with Novartis Pharmaceuticals Corporation of East Hanover, New Jersey ("Novartis"), compared to $14.0 million in 2001. Net income was $13.9 million ($0.60 diluted earnings per share) for 2002, compared to $12.1 million ($0.51 diluted earnings per share) for 2001.

Novogyne. Novogyne revenues increased 14% to $102.5 million in 2002, reflecting increased sales of Vivelle-Dot® and the full-year contribution of CombiPatch®. Novogyne’s selling, general and administrative expenses increased to $33.1 million from $27.3 million in 2001, reflecting higher promotional expenses and the full-year effect of a larger Novogyne sales force. Novogyne amortized $6.2 million of CombiPatch acquisition cost during 2002. Net income at Novogyne was $37.4 million, slightly lower than the $37.9 million reported in 2001.

Year-Over-Year Prescriptions. "In 2002, Noven’s U.S. hormone therapy products significantly outperformed their respective markets, illustrating the strength of our products and marketing efforts," said Strauss. The overall HRT market declined 11.3% in 2002 compared to 2001, due principally to the publication of the WHI studies in mid-2002. For the same period, aggregate prescriptions for Noven's products (Vivelle, Vivelle-Dot and CombiPatch) increased 5.9%.

Vivelle family prescriptions increased 10.7% in 2002, while the estrogen segment of the HRT market declined 9.2%. Vivelle-Dot, which represents approximately two-thirds of total prescriptions for Noven’s U.S. products, increased 28.5%. At the end of 2002, the Vivelle family held a 37.7% share (Vivelle-Dot 30.5%; Vivelle 7.2%) of total prescriptions in the estrogen segment, compared to a 33.1% share (Vivelle-Dot 23.8%; Vivelle 9.3%) at the end of 2001, extending Vivelle family’s lead as the most dispensed estrogen patch brand in the U.S.

Noven's CombiPatch declined 9.3% in 2002, while the fixed combination hormone therapy segment declined 17.6%. At the end of 2002, CombiPatch had increased its share of total prescriptions in the fixed combination segment to 3.9% from 2.7% at the end of 2001.

Fourth Quarter Results
Noven. Revenues for the quarter ended December 31, 2002 (the "current quarter") were $13.3 million, compared to $10.3 million for the quarter ended December 31, 2001 (the "2001 quarter"), largely reflecting higher international sales. In the current quarter, Noven recognized $3.7 million in earnings from Novogyne, compared to $5.0 million in the 2001 quarter. Net income was $3.0 million ($0.13 diluted earnings per share) in the current quarter, compared to $3.7 million ($0.16 diluted earnings per share) in the 2001 quarter.

Novogyne. Novogyne's current quarter revenues decreased 23% to $20.5 million, principally reflecting the impact of WHI. Its selling, general and administrative expenses decreased to $6.2 million from $7.6 million in the 2001 quarter. Novogyne amortized $1.5 million of CombiPatch acquisition cost in the current quarter. Net income at Novogyne decreased 28% to $8.1 million.

Sequential Quarter Prescriptions. "In the current quarter, Noven’s U.S. products showed signs of stabilization – and in some cases growth – following WHI," said Strauss. Total prescriptions for HRT products declined 10.4% in the current quarter compared to the third quarter of 2002. For the same period, aggregate prescriptions for Noven's products (Vivelle, Vivelle-Dot and CombiPatch as a group) increased 0.3%. The estrogen segment of the market declined 7.9% in the current quarter, while the Vivelle family increased 1.2% and Vivelle-Dot increased 3.7%. Compared to the 2002 third quarter, the fixed combination segment declined 20.3%, while Noven’s CombiPatch declined 3.3%.

Recent Developments
MethyPatch Transaction. Concurrently with this release, Noven announced the signing of an agreement granting global rights to market MethyPatch (methylphenidate transdermal system) to Shire Pharmaceuticals for payments of up to $150 million and ongoing manufacturing revenues. "The Shire transaction is a further validation of the value of Noven's technology," said Strauss. "Shire is the U.S. market share leader in ADHD therapy, and its existing ADHD products address the large market for amphetamine-based ADHD therapies. We are proud that MethyPatch represents Shire’s entry into the large market for methylphenidate-based ADHD products."

Shire has agreed to pay Noven $25 million upon closing of the transaction, $50 million upon final FDA approval, and sales milestone payments of up to $75 million. Payments will be deferred and recognized as license revenue over a period of years. The Shire transaction is expected to close within 45 days, subject to expiration of any regulatory waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976.

Noven filed a New Drug Application for MethyPatch in late June 2002. "Under the Prescription Drug User Fee Act, the FDA is obligated to provide its initial response to our application in late April 2003, ten months after filing, and we remain hopeful that MethyPatch will be approved by the FDA and launched in the second half of 2003," said Strauss.

Outlook
2003 First Quarter. "Noven and Novogyne’s fourth quarter results reflect the impact of a previously-announced inventory management initiative intended to align inventory with post-WHI demand," said James Messiry, Noven's Chief Financial Officer. "Novogyne has initiated actions to reduce inventories, and we continue to expect to match inventories with demand by mid-2003."

"As part of this initiative, Noven expects to ship less U.S. product in the 2003 first quarter than in the 2002 fourth quarter," said Messiry. "Also, as required by our agreements, Novogyne will pay Novartis the first $6.1 million of Novogyne profit. As a result, we expect Noven’s first quarter revenues to be in the $10 million range, and Noven’s net income to be approximately breakeven. As is customary due to payment of Novartis’ preferred distribution, we expect the first quarter to be the weakest quarter of the year."

Full Year 2003. Messiry continued: "Assuming the Shire transaction closes and MethyPatch is approved this year, Noven expects to receive $75.0 million from Shire in 2003. Because we will recognize a portion of the Shire payment as revenue and will not incur significant MethyPatch launch costs, the transaction will be immediately accretive to Noven's earnings. In addition, Noven expects Shire to place launch orders around the time of MethyPatch product approval, which would further contribute to Noven’s 2003 revenue and net income."

Future Growth. Strauss offered a concluding comment: "Some may remember 2002 as the year Noven was impacted by the findings of WHI, but it was much more than that. We achieved meaningful growth in the face of business adversity, significant clinical achievement, and the filing of a MethyPatch New Drug Application. We expect 2003 achievements to include the MethyPatch launch, further clinical advancements, and the formation of additional strategic relationships that leverage Noven's industry-leading patch technology. We believe these initiatives, together with expected improvement in our profitable hormone therapy business, will fuel growth and encourage a fair valuation of our prospects by the financial markets."

Analyst Conference Call
A conference call with management relating to Noven's financial results will be broadcast live via the Internet at www.noven.com beginning at 11:00 a.m. Eastern time this morning, February 27. Thereafter, a rebroadcast of the call will be accessible at the same website. A taped replay of the conference call will be available by telephone from February 27 at 1:00 p.m. Eastern time until March 1 by calling 877-660-6853 (from within the U.S.) or 201-612-7415 (from outside the U.S.) and entering the access code 1628 and I.D. # 58943. The conference call will contain forward-looking information in addition to that contained in this press release.

 

                      Noven Pharmaceuticals, Inc.


Statements of Operations Data:      Three Months      Twelve Months
                                       Ended              Ended
(amounts in thousands, except       December 31,       December 31,
                                   -----------------------------------
 per share amounts)                2002      2001      2002     2001
                                   -----------------------------------
                              (Unaudited)(Unaudited)

Revenues:
     Product sales                $12,401    $9,527  $51,986  $43,096
     License revenue                  882       734    3,386    2,851
                                 --------- --------- -------- --------
     Total revenues                13,283    10,261   55,372   45,947

Expenses:
     Cost of products sold          5,941     4,684   22,973   20,376
     Research and development       2,367     2,620   11,634   10,973
     Marketing, general and
      administrative                4,153     2,335   14,257   11,554
                                 --------- --------- -------- --------
     Total  expenses               12,461     9,639   48,864   42,903
                                 --------- --------- -------- --------
Income from operations                822       622    6,508    3,044

Equity in earnings of Novogyne      3,711     5,003   14,368   14,013
Interest income, net                  197       271      822    1,770
                                 --------- --------- -------- --------
Income before income taxes          4,730     5,896   21,698   18,827
Provision for income taxes          1,710     2,151    7,819    6,736
                                 --------- --------- -------- --------
Net income                         $3,020    $3,745  $13,879  $12,091
                                 ========= ========= ======== ========

Basic earnings per share            $0.13     $0.17    $0.62    $0.54
                                 ========= ========= ======== ========

Diluted earnings per share          $0.13     $0.16    $0.60    $0.51
                                 ========= ========= ======== ========

Weighted average number of
 common shares outstanding:

Basic                              22,557    22,468   22,532   22,367
                                 ========= ========= ======== ========

Diluted                            23,014    23,331   23,321   23,511
                                 ========= ========= ======== ========

                                        As Of
                                 -------------------
                                  December  December
                                     31,       31,
Balance Sheet Data:                  2002      2001
                                 --------- ---------

     Cash and cash equivalents    $58,684   $49,389

     Investment in Novogyne       $34,684   $32,043

     Total assets                $137,702  $136,228

     Deferred license revenue     $29,445   $32,758

     Stockholders' equity         $96,741   $81,898


      

 

 

About Noven
Noven Pharmaceuticals, Inc., headquartered in Miami, Florida, is a leading developer of advanced transdermal drug delivery technologies and prescription transdermal products. Together with Novartis Pharmaceuticals, Noven owns a successful women's health products company called Novogyne Pharmaceuticals. Noven’s existing products include advanced estrogen transdermal delivery systems (including Vivelle-Dot®, licensed to Novogyne, and Estradot®, licensed to Novartis Pharma) and combination estrogen/progestin transdermal delivery systems (including CombiPatch®, licensed to Novogyne, and Estalis®, licensed to Novartis Pharma). With a range of additional products in development, including MethyPatch®, Noven is committed to becoming the world's premier developer, manufacturer and marketer of transdermal drug delivery systems. For additional information on Noven, visit www.noven.com.

This release contains forward-looking information related to the business of Noven that can be identified by the use of forward-looking terminology such as "may", "expect", "will", "should", "hope", "believe", "our goal", and similar words and phrases. Such statements are qualified by and subject to the risks and uncertainties specified in Noven’s most recent filings with the Securities and Exchange Commission and those specified herein, including the risk that: MethyPatch may not be approved or, if approved, that it may not be successfully commercialized by Shire due to competitive market conditions or other factors, including physician/patient preferences for other ADHD therapies; MethyPatch may not be the first transdermal ADHD therapy on the market; the timing of FDA approval is outside the control of Noven; the FDA could place limits on permitted marketing claims that could negatively impact MethyPatch's sales potential; the availability of other once-daily ADHD therapies could negatively impact MethyPatch's market penetration; Noven and Shire may not expand their relationship beyond MethyPatch; Shire may not reach the sales levels necessary to trigger some or all of the milestone payments; the transaction may not close within 45 days or at all, whether because of failure to receive antitrust clearance or otherwise; Shire may not promote MethyPatch at the expense of its other products; Noven has never manufactured MethyPatch on a commercial scale, and Noven may be unable to supply Shire with its requirements for MethyPatch; if Noven is unable to successfully scale up production of MethyPatch, it may be unable to achieve satisfactory gross margins; the timing of FDA approval may impact the success of the product launch and affect market penetration; Shire may not fund or conduct additional clinical studies involving MethyPatch or next generation products; the announcement of this transaction may not attract additional development partners to Noven; Noven and Novogyne may be unable to align inventories with demand as soon as hoped because of inaccurate estimates, lack of cooperation of third parties or otherwise; unexpected sales deductions or higher product returns at Novogyne could negatively impact Novogyne’s earnings; the U.S. hormone business may be further impacted because of mandated product label changes, the announcement of additional negative clinical results or other reasons; product development is inherently risky and Noven may be unable to advance its other development projects; Noven’s hormone therapy business may not improve, whether as a continuing result of the WHI and other studies announced in 2002 or otherwise; granting exclusive marketing rights to MethyPatch represents a departure from Noven’s announced strategy of marketing MethyPatch with its own sales force, and there can be no assurance that Noven will utilize the funds expected to be received in the transaction in a manner that will increase long-term shareholder value.

Contact:
Investor & Media Contact
Joseph C. Jones
Vice President – Corporate Affairs
Noven Pharmaceuticals, Inc.
305-253-1916