Marc S. Hermelin, Chairman of the Board and Chief Executive Officer,stated, "During the first quarter, KV delivered sharply improved profits andnearly $16.0 million in cash flow from operating activities. Performance wasled by strong growth at ETHEX Corporation and continued competitiveness of ourcategory-leading branded products at Ther-Rx. Both of these businesses arepoised for further growth over the balance of fiscal 2009 helped by recentintroductions like metoprolol succinate extended-release tablets and ourbranded transdermal spray Evamist(TM). The Company's pipeline remains strongas well, with expectations of receiving one NDA approval and at least six ANDAapprovals during the current fiscal year."
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First Quarter Review
Revenues Increased 30% and Gross Profits Rose 39%
Net revenues for the first quarter increased 30.2%, or $34.5 million, to$148.9 million, compared with $114.4 million in the first quarter of fiscal2008. Gross profits increased 38.6%, or $28.9 million, to $103.6 millioncompared to $74.8 million in the first quarter of fiscal 2008. Revenue growthduring the quarter was impacted by:
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-- The later-than-expected approval and launch of the 50 mg strength ofgeneric metoprolol succinate extended-release tablets in May 2008; and
-- A net sales gain of 52.6% over the prior year period at the Company'sETHEX generic/non-branded marketing subsidiary, contributed to by sales of 25mg, 50 mg, 100 mg, and 200 mg strengths of metoprolol succinateextended-release tablets.
At the close of the first quarter of fiscal 2009, due tohigher-than-expected demand from our customers for certain of our genericproducts, the Company had an unusually large volume of unshipped open ordersfor generic products, representing approximately $10 million of net revenues.Net revenues were also affected by a $5.9 million reduction related to theexecution of a price increase on our generic potassium chloride capsules andthe impact of the previously disclosed discontinuation of cough/cold productswhich generated revenue of $0.5 million in the current quarter compared with$9.3 million in the first quarter of last year.
Operating Expenses
Operating expenses were $83.1 million, an increase of $17.0 million overthe prior year period. The increases included $18.6 million of higher sellingand administrative expenses, a $4.2 million increase in R&D spending and a$2.2 million increase in amortization expenses related primarily to theacquisition of Evamist(TM). These increases were partially offset by an $8.0million reduction in purchased in-process R&D charges.
Selling and administrative expenses of $63.8 million were slightly higherthan the $61.2 million spent in the fourth quarter of fiscal 2008. We expecta quarterly run rate of selling and administrative expenses of approximately$61 million during the rest of fiscal 2009, resulting in an approximate 18%increase on an annual basis over the prior fiscal year. The 41.1% increase inselling and administrative expenses for the first quarter compared to the yearago quarter reflected the following:
-- $4.6 million related to one-time launch related marketing expenses forthe initial launch and supply of the 25 mg and 50 mg strength of metoprololsuccinate extended-release tablets;
-- $1.5 million increase in expense associated with foreign currencytransaction losses on investments denominated in the Indian Rupee;
-- $3.8 million of launch-related marketing and promotion expensesrelated to Evamist(TM);
-- $2.6 million increase in personnel costs due to increases inmanagement, sales and other personnel, of which $1.4 million was related tothe expansion for our branded sales force initi
