-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DvCsIy/jHCOxrearGlUkIbRzOCThdXCssksmGdxMBy+PsjvgIv7FRiVevS3U0KTl SvQEXTUgThNdPZ0ElFmFXg== 0000950110-96-000890.txt : 19960816 0000950110-96-000890.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950110-96-000890 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIO TECHNOLOGY GENERAL CORP CENTRAL INDEX KEY: 0000722104 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 133033811 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15313 FILM NUMBER: 96612532 BUSINESS ADDRESS: STREET 1: 70 WOOD AVE S CITY: ISELIN STATE: NJ ZIP: 08830 BUSINESS PHONE: 9086328800 MAIL ADDRESS: STREET 1: 70 WOOD AVENUE SOUTH CITY: ISELIN STATE: NJ ZIP: 08830 10-Q 1 QUARTERLY REPORT ================================================================================ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 Commission File Number 0-15313 BIO-TECHNOLOGY GENERAL CORP. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-3033811 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 70 Wood Avenue South, Iselin, New Jersey 08830 ---------------------------------------------- (Address of principal executive offices) (908) 632-8800 ---------------------------------------------------- (Registrant's telephone number, including area code) Former address: Not Applicable ____________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, par value $.01 per share, outstanding as of August 9, 1996 44,504,547 ---------- ================================================================================ BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES ------------ INDEX Page ---- Part I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets at June 30, 1996 and December 31, 1995........................ 3 Consolidated Statements of Operations for the six months ended June 30, 1996 and 1995 and for the three months ended June 30, 1996 and 1995............................... 4 Consolidated Statement of Changes in Stockholders' Equity for the six months ended June 30, 1996................................. 5 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995..................................... 6 Notes to Consolidated Financial Statements................................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 9 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders.............................................. 14 Item 6. Exhibits and Reports on Form 8-K.............................. 14 -2- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
June 30, 1996 December 31, 1995 (Unaudited) - --------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents ................................... $ 15,809 $ 6,886 Short-term investments ...................................... 2,951 3,989 Accounts receivable ......................................... 9,445 6,347 Inventories ................................................. 2,699 2,118 Prepaid expenses and other current assets ................... 1,232 1,247 -------- -------- Total current assets ....................................... 32,136 20,587 Property and equipment, net .................................. 5,267 4,922 Intangibles, net ............................................. 3,781 5,078 Patents, net ................................................. 509 457 Other assets ................................................. 550 693 -------- -------- Total assets ............................................... $ 42,243 $ 31,737 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt ........................... $ 27 $ 27 Accounts payable ............................................ 1,636 1,123 Other current liabilities ................................... 5,872 4,237 -------- -------- Total current liabilities .................................. 7,535 5,387 -------- -------- Long-term liabilities ........................................ 609 661 -------- -------- Stockholders' equity: Preferred stock -- $.01 par value; 4,000,000 shares authorized; no shares issued ........................ -- -- Common stock -- $.01 par value; 150,000,000 shares authorized; issued: 44,417,000 (43,275,000 at December 31, 1995) ......................................... 444 433 Capital in excess of par value .............................. 121,991 117,390 Deficit ..................................................... (87,826) (91,528) Less -- treasury stock at cost, 83,000 shares ............... (340) (340) -- deferred compensation ............................... (170) (266) -------- -------- Total stockholders' equity ................................. 34,099 25,689 -------- -------- Total liabilities and stockholders' equity ................. $ 42,243 $ 31,737 ======== ======== The accompanying notes are an integral part of these consolidated balance sheets.
-3- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands except per share data)
Six Months Ended Three Months Ended June 30, June 30, ----------------- ------------------ 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------- Revenues: Product sales ................................ $19,313 $11,582 $11,618 $ 6,399 Contract fees ................................ 2,795 316 70 221 Research and development revenues under collaborative agreements .............. -- 363 -- 175 Other revenues ............................... 338 327 238 270 Interest income .............................. 453 452 262 226 ------- ------- ------- ------- 22,899 13,040 12,188 7,291 ------- ------- ------- ------- Expenses: Research and development ..................... 5,934 5,615 2,830 2,771 Cost of product sales ........................ 3,368 1,817 2,202 1,165 General and administrative ................... 4,250 3,473 2,330 1,813 Marketing and sales .......................... 2,904 -- 1,695 -- Commissions and royalties .................... 1,281 337 313 186 Interest and finance ......................... 77 81 42 41 Research and development financing ........... -- 856 -- 856 Write-off in connection with litigation ................................. 1,383 -- -- -- ------- ------- ------- ------- 19,197 12,179 9,412 6,382 ------- ------- ------- ------- Net income (loss) ............................. $ 3,702 $ 861 $ 2,776 $ 459 ======= ======= ======= ======= Earnings (loss) per share ..................... $ 0.08 $ 0.02 $ 0.06 $ 0.01 ======= ======= ======= ======= Weighted average number of shares outstanding.. 47,351 43,580 47,602 43,765 ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated statements. -4- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (in thousands)
Common Stock -------------- Capital in Par Excess of Treasury Deferred Stockholders' Shares Value Par Value Deficit Stock Compensation Equity - ---------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995......... 43,275 $433 $117,390 $(91,528) $(340) $(266) $25,689 Issuance of common stock........... 5 37 37 Exercise of stock options.......... 553 5 1,132 1,137 Exercise of warrants............... 567 6 3,394 3,400 Issuance of common stock on Series B note conversions (including capitalized interest)........................ 17 38 38 Amortization of deferred compensation...................... 96 96 Net income for six months ended June 30, 1996............... 3,702 3,702 ------ ---- -------- --------- ------ ------ ------- Balance, June 30, 1996............. 44,417 $444 $121,991 $(87,826) $(340) $(170) $34,099 ====== ==== ======== ========= ====== ====== =======
The accompanying notes are an integral part of this consolidated statement. -5- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, -------------------- 1996 1995 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income ............................................ $ 3,702 $ 861 Adjustments to reconcile net income to net cash provided by operating activities: Write-off in connection with litigation .............. 1,383 -- Depreciation and amortization ........................ 1,534 1,659 Gain on disposal of fixed assets ..................... (17) (7) Common stock as payment for services ................. 37 43 Change in: receivables ............................... (3,098) (3,098) inventories ............................... (581) (317) prepaid expenses and other current assets.. (543) (143) accounts payable .......................... 513 (279) other assets .............................. (8) (75) other current liabilities ................. 1,835 (774) ------- ------- Net cash provided (used) by operating activities ...... 4,757 (2,130) ------- ------- Cash flows from investing activities: Short-term investments ................................ (1,963) -- Capital expenditures .................................. (1,290) (596) Intangibles ........................................... (56) (316) Proceeds from sales of short-term investments ......... 3,002 -- Change in patents ..................................... (95) (94) Proceeds from sales of fixed assets and investment .... 45 25 ------- ------- Net cash used in investing activities ................. (357) (981) ------- ------- Cash flows from financing activities: Proceeds from issuance of common stock ................ 4,537 44 Repayment of common stock subscriptions ............... -- 75 Interest on Series A and Series B Notes ............... (14) (21) Purchase of treasury stock ............................ -- (37) Repayment of Series A Notes ........................... -- (31) ------- ------- Net cash provided by financing activities .............. 4,523 30 ------- ------- Net increase (decrease) in cash and cash equivalents ... 8,923 (3,081) ------- ------- Cash and cash equivalents at beginning of year ......... 6,886 16,891 ------- ------- Cash and cash equivalents at end of period ............. $15,809 $13,810 ======= ======= Supplementary Information Non-cash investing and financing activities: Series A and Series B note conversions ................ $ 38 $ 185 Other information: Interest paid ......................................... $ 25 $ 37 The accompanying notes are an integral part of these consolidated statements. -6- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Statement on Adjustments In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, considered necessary for a fair presentation. Due to fluctuations in quarterly revenues earned, operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The accounting policies continue unchanged from December 31, 1995. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. Note 2: Research and Development Financing On December 31, 1993, the Company and Bio-Cardia Corporation ("Bio-Cardia") completed a private placement of 375 units (the "Offering"), each unit ("Unit") consisting of four shares of common stock of Bio-Cardia and Warrants to purchase 15,000 shares of the Company's common stock. All of the cash proceeds of the financing were to be received by Bio-Cardia. In consideration of the Warrants included in the Units, the Company received from each purchaser of Units an option (the "Stock Purchase Option"), exercisable at any time on or prior to December 31, 1997, to purchase the Bio-Cardia stock at a purchase price beginning at 125% and increasing over time to 200% of the cash portion of the price paid for such stock. In connection with the closing of the financing, the Company licensed to Bio-Cardia the right to pursue the development and commercialization of certain of the Company's products, and the Company entered into a research and development agreement pursuant to which the Company conducted research, development and clinical testing of these products. Bio-Cardia was unable to pay certain amounts due BTG in respect of research and development conducted by BTG on behalf of Bio-Cardia and in reimbursement of previously incurred research and development expenses as a result of defaults by certain investors in Bio-Cardia. In May 1995, Bio-Cardia, with the Company's consent, completed an exchange offer with those Bio-Cardia stockholders who were not in default of their obligations to Bio-Cardia (the "Exchange Offer"). In connection with the Exchange Offer, the Company returned to Bio-Cardia the cash of approximately $2,726,000 necessary to make the Exchange Offer, which cash included $1,920,000 received from Bio-Cardia in 1994 and the six months ended June 30, 1995 but not recognized as revenues. As a result of the Company's return of cash to Bio-Cardia in connection with the Exchange Offer, BTG recognized a research and development financing expense of approximately $806,000 in the three months ended June 30, 1995. The Company reacquired from Bio-Cardia all rights to the products licensed to Bio-Cardia in December 1995. Note 3: Write-Off in connection with Litigation On December 1, 1994, Genentech, Inc. filed a lawsuit against BTG in the United States District Court for the District of Delaware alleging that BTG's importation of human growth hormone ("hGH") infringed two Genentech process patents. In January 1995, BTG commenced an action against Genentech in the United States District Court for the Southern District of New York -7- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES seeking, among other things, declaratory judgment as to the non-infringement, invalidity and unenforceability of such Genentech patents. The Delaware action was consolidated with the New York action, and in August 1995 the United States District Court for the Southern District of New York granted a preliminary injunction prohibiting the commercial introduction in the U.S. of BTG's hGH. BTG appealed to the United States Court of Appeals for the Federal Circuit ("CAFC"), which in April 1996 affirmed the preliminary injunction obtained by Genentech, finding that Genentech had established before the District Court a reasonable likelihood of success on the merits of its patent infringement claim. The case now returns to the Federal District Court in New York for further proceedings and trial. During 1995, the Company incurred total legal fees relating to this litigation of $824,000, which amount was capitalized but subsequently written-off in the first quarter of 1996. In addition, the Company wrote-off previously capitalized expenses incurred in connection with the preparation for launch of hGH in the United States. The Company is currently evaluating its options in light of the CAFC decision. Note 4: Income Taxes The Company has not provided any income taxes for the three and six month periods ended June 30, 1996 and 1995 as any interim tax provision would be offset by available net operating loss carryforwards. -8- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three and six months ended June 30, 1996 compared with three and six months ended June 30, 1995 This Report contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below and in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Results of Operations: The Company reported net income of approximately $2.8 million and $3.7 million in the three and six month periods ended June 30, 1996, respectively, or $0.06 and $0.08 per share, respectively, compared to a net income of $0.5 million and $0.9 million, or $0.01 and $0.02 per share, in the three and six months ended June 30, 1995, respectively. The Company had approximately 3.8 million additional shares outstanding on a fully-diluted basis for both the three and six month periods ended June 30, 1996 as compared to the same periods in 1995, primarily as a result of the increase in the Company's stock price (which resulted in more outstanding options being considered common equivalent shares because their exercise price was below the fair market value of the common stock), the issuance of approximately 567,000 shares upon the exercise of warrants which expired in May 1996 and the issuance of approximately 553,000 shares upon the exercise of outstanding options. Revenues from product sales, derived primarily from the Company's human growth hormone ("hGH"), Oxandrolone ("Oxandrin(R)") and pharmaceutical grade hyaluronic acid ("BioLon(R)") products, amounted to $11,618,000 and $19,313,000, or 97% and 86% of revenues (exclusive of interest income), for the three and six month periods ended June 30, 1996, respectively. For the comparable periods in 1995, product sales of $6,399,000 and $11,582,000, or 91% and 92% of revenues (exclusive of interest income), were earned, respectively. Sales of hGH were $6,677,000 and $11,884,000 in the three and six months ended June 30, 1996, or 57% and 62% of product sales, respectively, as compared with $5,201,000 and $9,041,000, or 81% and 78% of product sales, respectively, in the comparable periods in 1995. The increase in sales of hGH was primarily the result of increased sales to JCR Pharmaceuticals Co., Ltd., the Company's exclusive distributor in Japan, and to the Ferring Group, the Company's exclusive distributor in Europe. In December 1995 the Company launched Oxandrin in the United States and revenues from Oxandrin product sales were $3,493,000 and $3,995,000, or 30% and 21% of total product sales, in the three and six months ended June 30, 1996, respectively. Substantially all the Oxandrin sales were to Quantum Health Resources, BTG's exclusive distributor in the United States. Sales of BioLon were $1,237,000 and $2,110,000, or 11% of product sales, in the three and six month periods ended June 30, 1996, respectively, as compared with $868,000 and $1,594,000, or 14% of product sales, in the three and six month periods ended June 30, 1995, respectively. The increase in sales of BioLon was mainly due to new product launches during 1996 as well as increased sales to its distributors who had launched the product prior to January 1, 1996. In aggregate, $214,000 and $1,324,000 were earned from sales of other products for the three and six month periods ended June 30, 1996, respectively, as compared with $130,000 and $575,00, respectively, in the comparable periods in 1995. For the six month period ended June 30, 1996, contract fees of $2,795,000, or 12% of revenues (exclusive of interest income), were earned as compared to $316,000 or 3% in the comparable period in 1995. Of the contract fees earned in the six months ended June 30, 1996, $2,500,000, or 89% of total contract fees, -9- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES were earned in respect of vitamin D, of which $2,000,000 was earned in respect of a fee paid in lieu of royalties in connection with termination of a European sublicense and $500,000 was earned in connection with the license of distribution rights in the United States. Of the contract fees earned in the six months ended June 30, 1995, $265,000, or 84% of total contract fees, were earned in respect of the license of marketing rights for hGH in South America and the Far East and $51,000, or 16% of total contract fees, were earned in respect of the license of marketing rights for BioLon in South America and Europe.). Contract fees for the three months ended June 30, 1995, which amounted to $221,000, or 3% of revenues (exclusive of interest income), were earned in respect of the license of marketing rights for hGH in South America and the Far East and BioLon in South America and Europe. Other revenues consist primarily of partial funding of several of the Company's research and development projects by the Chief Scientist of the Israeli government. For the three and six months ended June 30, 1996, Chief Scientist funding represented 92% and 95%, respectively, of other revenues as compared with 100% and 98%, respectively, in the same periods in 1995. The Company conducts research on potential products for which it has retained future rights for its own account and on behalf of its partners for which it receives certain current revenues and, if successful, future revenues in the form of royalties or manufacturing rights. Expenditures for research and development in the three and six month periods ended June 30, 1996 were $2,830,000 and $5,934,000, respectively, as compared with $2,771,000 and $5,615,000, in the three and six months ended June 30, 1995, respectively. The increase in these expenditures resulted primarily from an increase in expenses and headcount associated with the clinical studies conducted by the Company. Expenditures for research and development in the three and six months ended June 30, 1995 include $1,460,000 and $2,133,000, respectively, for research and development activities conducted on behalf of Bio-Cardia Corporation ("Bio- Cardia"), which were not reimbursed to the Company. Cost of product sales, primarily related to commercial sales of hGH, Oxandrin and BioLon, were $2,202,000 and $3,368,000 in the three and six month periods ended June 30, 1996, respectively, as compared with $1,165,000 and $1,817,000 for the same periods last year. Cost of product sales as a percentage of product sales varies from year to year and quarter to quarter depending on the quantity and mix of products sold. General and administrative expenses for the three and month periods ended June 30, 1996 were $2,330,000 and $4,250,000, respectively, as compared with $1,813,000 and $3,473,000 for the same periods last year. The increase primarily resulted from an increase in salaries, mainly in respect of business development, and some professional services. Marketing and sales expenses for the three and six months ended June 30, 1996 were $1,695,000 and $2,904,000, respectively. These expenses relate primarily to the sales and marketing force in the United States which the Company established during 1995 to promote distribution of Oxandrin and the Company's other products in the United States. Commissions and royalties expenses for the three and six months ended June 30, 1996 were approximately $313,000 and $1,281,000, respectively. In the same periods in 1995 commissions and royalties expenses were $186,000 and $337,000, respectively. These expenses consist primarily of royalties to entities from which the Company licensed certain of its products and to the Chief Scientist. Research and development financing expenses for the three and six months ended June 30, 1995 consist of funds provided to Bio-Cardia, of which $806,000 was provided in connection with the Exchange Offer consummated by Bio-Cardia in May 1995, and $50,000 was provided to allow Bio-Cardia to meet its current expenses. See -- "Liquidity and Capital Resources." -10- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES In the six months ended June 30, 1996, the Company wrote-off $1,383,000 of capitalized expenses relating to human growth hormone as a result of the affirmation by the United States Court Appeal for the Federal Circuit of a preliminary injunction obtained by Genentech, Inc. prohibiting the Company from marketing its human growth hormone in the United States. The write-off consists of legal costs related to the litigation with Genentech and U.S. hGH launch preparation costs. See "-- Liquidity and Capital Resources." Liquidity and Capital Resources The Company's working capital at June 30, 1996 was $24,601,000 as compared to $15,200,000 at December 31, 1995. The Company's cash requirements have been satisfied primarily through (i) product sales, (ii) funding of projects through collaborative research and development arrangements, (iii) contract fees, (iv) government of Israel funding of a portion of certain research and development projects, and (v) equity and debt financings. There can be no assurance that these financing alternatives will be available in the future to satisfy the Company's cash requirements. The major portion of the Company's revenues is derived from product sales and the Company's collaborative arrangements, under which the Company may earn up-front contract fees, may receive funding for additional research, is reimbursed for producing certain experimental materials, may be entitled to certain milestone payments, may sell product at specified prices and may receive royalties on sales of product. Revenues have in the past displayed and will in the immediate future continue to display significant variations due to the obtaining of new research and development contracts and licensing arrangements, the completion or termination of such contracts and arrangements, the timing and amounts of milestone payments and the timing of regulatory approvals of products. The Company manages its Israeli operations with the object of protecting against any material net financial loss in U.S. dollars from the impact of Israeli inflation and currency devaluation on its non-U.S. dollar assets and liabilities. The Bank of Israel's monetary policy is to manage the exchange rate while allowing the Consumer Price Index to rise by approximately 14% in 1994, 8% in 1995 and at a 14% annual rate in the six month period ended June 30, 1996. For those expenses linked to the Israeli Shekel, such as salaries and rent, this resulted in corresponding increases in these costs in U.S. dollars. In 1994 and 1995 the Shekel was devalued by approximately 1% and 4%, respectively, against the U.S. dollar. To the extent that expenses in Shekels exceed the Company's income in Shekels (which to date have consisted primarily of research and development funding from the Chief Scientist and sales of Bio-Tropin(TM), the Company's human growth hormone product in Israel, and BioLon in Israel), the devaluations of Israeli currency have been and will continue to be a benefit to the Company's financial condition. However, should the Company's income in Shekels exceed its expenses in Shekels in any material respect, the devaluation of the Shekel will adversely affect the Company's financial condition. Further, to the extent the devaluation of the Shekel with respect to the U.S. dollar does not substantially offset the increase in the costs of local goods and services in Israel, the Company's financial results will be adversely affected as local expenses expressed in U.S. dollar terms will increase. There can be no assurance that the government of Israel will continue to devalue the Shekel from time to time to offset the effects of inflation in Israel. The Company maintains its funds in money market funds, commercial paper and other liquid short-term debt instruments. The Company's investment policy is to preserve principal and to avoid risk. The cash flows of the Company have fluctuated significantly due to the impact of net income and losses, capital spending, working capital requirements and issuance of common stock and other financings. The -11- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES Company expects that cash flow in the near future will be primarily determined by the levels of net income (loss) plus depreciation and amortization, and financings, if any, undertaken by the Company. In the six months ended June 30, 1996, net cash increased by $8,923,000, primarily as a result of net income of $3,702,000, depreciation and amortization and write-off in connection with litigation aggregating $2,917,000, an increase in current liabilities of $2,340,000 and proceeds of $4,537,000 from the issuance of Common Stock upon the exercise of outstanding warrants and options, partially offset by an increase in current assets of $4,222,000. In the six months ended June 30, 1995 net cash decreased by $3,081,000, primarily as a result of an increase in current assets of $3,558,000, a decrease in current liabilities of $1,053,000 and net investing activities of $981,000 partially offset by net income of $861,000 and depreciation and amortization of $1,659,000. Net investing activities during the six months ended June 30, 1995 include capitalization as marketing rights of $316,000 of litigation expenses related to the launch of human growth hormone in the United States. These amounts were added to the "Marketing Rights" on the balance sheet, but were subsequently written-off in the first quarter of 1996. The Company does not currently have any material commitments for capital expenditures. At June 30, 1996, intangibles, net consist of (i) $2,281,000 (net of amortization) relating to the repurchase of all rights to hGH previously licensed to The DuPont Merck Pharmaceutical Company, together with all rights to all data generated in pharmacological, toxicological and clinical studies and encompassed in the Investigational New Drug Application and New Drug Application files then pending with the U.S. Food and Drug Administration for the treatment of human growth hormone-deficient children and (ii) $1,500,000 (net of amortization) relating to the reacquisition of all rights to human growth hormone licensed to Smithkline Beecham. The Company is party to several proceedings relating to patents owned by it or others. The Company cannot predict the costs of such proceedings, and there can be no assurance that such costs will not be significant. Should the Company be unsuccessful in any of these proceedings, it may be unable to commercialize the products which are the subject of such proceedings in certain countries, and may be unable to produce the products in Israel, which could have a material adverse effect on the Company's revenues and results of operations. On March 16, 1993, Genentech filed a complaint with the U.S. International Trade Commission (the "ITC") alleging, among other things, that BTG's importation of hGH into the United States violates Section 337 of the Tariff Act of 1930 because of the existence of certain claims in U.S. patents of Genentech. Genentech sought an immediate investigation and an order that BTG cease and desist from importing hGH into the United States. The trial on the Genentech complaint was held in April 1994. In January 1995 the ITC issued a final decision dismissing the complaint with prejudice as a sanction for Genentech's conduct which resulted in an incomplete record and violated the due process rights of BTG and Novo-Nordisk A/S, another respondent in the proceeding. The ITC also found no violation by BTG of Section 337 of the Tariff Act of 1930. Genentech appealed the ITC decision to the United States Court of Appeals for the Federal Circuit (the "CAFC"). The appeal was heard on December 4, 1995, and a decision is pending. During 1993 and 1994, BTG incurred total legal fees of approximately $4.2 million relating to the ITC proceeding. On December 1, 1994, Genentech filed a lawsuit against BTG in the United States District Court for the District of Delaware alleging that BTG's importation of hGH infringed two Genentech process patents. In January 1995, BTG commenced an action against Genentech in the United States District Court for the Southern District of New York seeking, among other things, declaratory judgment as to the non-infringement, invalidity and unenforceability of such Genentech patents. The Delaware action was consolidated with the New York action, and in August 1995 the United States District Court for the Southern District of New York granted a preliminary injunction prohibiting the commercial introduction in -12- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES the U.S. of BTG's hGH. BTG appealed to the CAFC, and the appeal was heard on December 4, 1995 (during the same session as the ITC appeal discussed above). In April 1996, the CAFC affirmed the preliminary injunction obtained by Genentech, finding that Genentech had established before the District Court a reasonable likelihood of success on the merits of its patent infringement claim. The case now returns to the Federal District Court in New York for further proceedings and trial. During 1995, the Company incurred total legal fees relating to this litigation of approximately $824,000, which amount was capitalized but subsequently written-off in the first quarter of 1996. The Company is currently evaluating its options in light of the CAFC decision. The Company believes that its remaining cash resources as of June 30, 1996, together with anticipated product sales, scheduled payments to be made to BTG under its current agreements with pharmaceutical partners and third parties, the proceeds from sales of equity and continued funding from the Chief Scientist at current levels, will be sufficient to fund the Company's ongoing operations for the foreseeable future. There can, however, be no assurance that product sales will occur as anticipated, that scheduled payments will be made by third parties, that current agreements will not be canceled, that the Chief Scientist will continue to provide funding at current levels, or that unanticipated events requiring the expenditure of funds will not occur. The satisfaction of the Company's future cash requirements will depend in large part on the status of commercialization of the Company's products, the Company's ability to enter into additional research and development and licensing arrangements, and the Company's ability to obtain additional equity investments, if necessary. There can be no assurance that the Company will be able to obtain additional funds if needed or, if such funds are available, that such funding will be on favorable terms. In addition, the indentures under which the Company's debt securities were issued limit the ability of the Company to satisfy its cash requirements through borrowings or the issuance of debt securities. The Company continues to seek additional collaborative research and development and licensing arrangements, in order to provide revenue from sales of certain products and funding for a portion of the research and development expenses relating to the products covered, although there can be no assurance that the Company will be able to obtain such agreements. -13- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (a) The Annual Meeting of Stockholders of Bio-Technology General Corp. was held on June 27, 1996. (c) The following persons, comprising the entire Board of Directors, were elected at the Annual Meeting pursuant to the following vote tabulation: Name Votes For Votes Withheld ---- ---------- -------------- Herbert J. Conrad ............... 39,174,436 122,676 Sim Fass ........................ 39,174,336 122,776 Hoffer Kaback ................... 39,172,936 124,176 Charles MacDonald ............... 39,173,936 123,176 Moses Marx ...................... 39,174,436 122,676 David Tendler ................... 39,173,936 123,176 Virgil Thompson ................. 39,173,936 123,176 Dan Tolkowsky ................... 39,173,816 123,296 Bradford T. Whitmore ............ 39,174,436 122,676 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None -14- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BIO-TECHNOLOGY GENERAL CORP. (Registrant) By: /s/ SIM FASS ------------------------------------------ Sim Fass President and Chief Executive Officer, Principal Executive Officer /s/ YEHUDA STERNLICHT ------------------------------------------ Yehuda Sternlicht Vice President-Finance and Chief Financial Officer, Principal Financial and Accounting Officer Dated: August 12, 1996 EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 15,809 2,951 9,445 0 2,699 32,136 5,267 0 42,243 7,535 609 0 0 444 33,655 42,243 19,313 22,899 3,368 19,120 0 0 77 3,702 0 3,702 0 0 0 3,702 0.08 0
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