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Critical Therapeutics Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 3, 2011 10:31AM

Critical Therapeutics Inc. (CRTX) filed Quarterly Report for the period ended 2011-09-30. Cornerstone Therapeutics Inc. has a market cap of $167.9 million; its shares were traded at around $6.47 with a P/E ratio of 11.4 and P/S ratio of 1.4.



Highlight of Business Operations:

In March 2011, the FDA announced that it intended to initiate enforcement action against marketed unapproved prescription cough, cold and allergy products manufactured on or after June 1, 2011 or shipped on or after August 30, 2011 (this announcement is referred to as the March 2011 FDA Announcement). All of our marketed unapproved products had already been manufactured and shipped prior to December 31, 2010 and this action did not require the recall or withdrawal of any products. However, during the three months ended September 30, 2011, certain wholesalers indicated that they interpreted the March 2011 FDA Announcement to cover distribution of ALLERX Dose Pack products by wholesalers and requested to return approximately $26.4 million of those products to us. In connection with the expected returns, we reclassified $26.4 million of deferred revenue and related accrued expenses to accrued product returns. During September 2011, we satisfied $16.7 million of our accrued product return liability for ALLERX Dose Pack returns by disbursing cash of $5.7 million and reducing accounts receivable by $11.0 million. Approximately $3.0 million of accounts receivable related to previously deferred sales of ALLERX Dose Packs remains recorded on the consolidated balance sheet as of September 30, 2011 and will be reversed (along with the associated accrued product return liability) when we receive the returned product. We anticipate a future negative impact on our cash flows from these returns of ALLERX Dose Pack product of approximately $6.7 million.

Net product sales from other products decreased $2.9 million, or 97%, during the three months ended September 30, 2011 compared to the three months ended September 30, 2010, primarily due to the November 2010 withdrawal from the market of our propoxyphene/acetaminophen products, which included BALACET® 325; APAP 325, our generic formulation of BALACET 325; and APAP 500. We voluntarily withdrew these products in response to the FDA’s actions requiring the withdrawal of the branded versions of propoxyphene, specifically Darvon®, Darvon-N® and Darvocet-N®. Net product sales for these products during the three months ended September 30, 2010 were $2.9 million, whereas we had no product sales from these products during the three months ended September 30, 2011.

ALLERX Dose Pack net product sales increased $4.1 million, or 18%, during the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Excluding the impact of an additional reserve of $3.4 million for product returns in excess of our estimates during the nine months ended September 30, 2010, net product sales increased approximately $700,000 during the nine months ended September 30, 2011. This increase was due to increased prescription volume. At September 30, 2011, we had deferred revenue of approximately $1.7 million related to previous sales of our ALLERX Dose Pack products.

In connection with the March 2011 FDA Announcement, during the three months ended September 30, 2011, certain wholesalers indicated that they interpreted the March 2011 FDA Announcement to cover distribution of ALLERX Dose Pack products by wholesalers and requested to return approximately $26.4 million of ALLERX Dose Pack product to us. In connection with the expected returns, we reclassified $26.4 million of deferred revenue and related accrued expenses to accrued product returns. During September 2011, we satisfied $16.7 million of our accrued product return liability for ALLERX Dose Pack returns by disbursing cash of $5.7 million and reducing accounts receivable by $11.0 million. Approximately $3.0 million of accounts receivable related to previously deferred sales of ALLERX Dose Packs remains recorded on the consolidated balance sheet as of September 30, 2011 and will be reversed (along with the associated accrued product return liability) when we receive the returned product. We anticipate a future negative impact on our cash flows from these returns of ALLERX Dose Pack products of approximately $6.7 million.

Net cash provided by operating activities for the nine months ended September 30, 2011 reflected our net income of $2.1 million, adjusted by non-cash expenses totaling $19.6 million and changes in accounts receivable, inventories, deferred revenue, income taxes payable, accrued expenses and other operating assets and liabilities totaling $8.7 million. Non-cash items included amortization and depreciation of $11.1 million, impairment of product rights of $2.5 million, changes in allowances for prompt payment discounts and inventory obsolescence totaling $3.1 million, stock-based compensation of $1.6 million and changes in deferred income tax of $1.2 million. Accounts receivable decreased by $56.6 million from December 31, 2010 to September 30, 2011, primarily due to collections of receivables and expected returns of our 2010 sales of ALLERX Dose Pack and HYOMAX products. Inventories decreased by $2.5 million from December 31, 2010 to September 30, 2011, primarily due to reductions in ZYFLO CR and ZYFLO active pharmaceutical ingredient and samples, partially offset by a reduction in inventory allowances due to write-offs of ALLERX Dose Pack and ZYFLO CR sample inventory. Prepaid expenses, long-term accounts receivable and other assets decreased by $7.5 million, primarily due to the decrease of long-term accounts receivable and long-term deferred cost of product sales. Accounts payable increased by $2.0 million from December 31, 2010 to September 30, 2011, primarily due to timing of payments. Accrued expenses and license agreement liability decreased by $3.1 million from December 31, 2010 to September 30, 2011, primarily due to a decrease in accrued price adjustments and chargebacks as well as a decrease in the bonus accrual, partially offset by an increase in accrued product returns. Deferred revenue decreased by $54.9 million from December 31, 2010 to September 30, 2011 due to expected product returns and revenue that was recognized based on prescriptions filled for our ALLERX Dose Pack and HYOMAX products. Income taxes receivable increased by $2.0 million from December 31, 2010 to September 30, 2011 due to a decrease in our estimated taxable income for the year ending December 31, 2011.

Read the The complete Report



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