-----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, FZF9dAQ0PLix92LkUSy01LuKoxQOFCHDL4v4yMYzmygvbHEWYd1jPGJuwFAsmiIo nKkbzIS4Tn4gAWm/r8wM7w== 0000916641-96-000666.txt : 19960814 0000916641-96-000666.hdr.sgml : 19960814 ACCESSION NUMBER: 0000916641-96-000666 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDCO RESEARCH INC CENTRAL INDEX KEY: 0000723385 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 953318451 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13948 FILM NUMBER: 96611040 BUSINESS ADDRESS: STREET 1: 85 T W ALEXANDER DRIVE P O BOX 13886 STREET 2: STE 308 CITY: RESEARCH TRIANGLE PA STATE: NC ZIP: 27709 BUSINESS PHONE: 9195498117 MAIL ADDRESS: STREET 1: 85 T W ALEXANDER DRIVE STREET 2: STE 308 CITY: RESEARCH TRIANGLE PA STATE: NC ZIP: 27709 10-Q 1 MEDCO RESEARCH, INC. 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [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 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-9771 MEDCO RESEARCH, INC. (Exact name of registrant as specified in its charter) Delaware 95-3318451 (State or other Jurisdiction of (I.R.S. Identification No.) Employer incorporation or organization) 85 T W Alexander Drive, Research Triangle Park, North Carolina 27709 (Address of principal executive offices) (Zip Code) (919) 549-8117 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock American Stock Exchange (Title of Class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (b) 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 common stock, as of the latest practical date 10,935,032 as of August 5, 1996. Pursuant to the Securities Exchange Act of 1934 Release 15502 and Rule 240.03 (b), the pages of this document have been numbered sequentially. The total pages contained herein are 13. Consolidated Financial Statements
June 30 December 31 1996 1995* ------------------------------------------------------- (in thousands except per share data) (Unaudited) Assets Current assets: Cash and cash equivalents $ 7,861 $ 4,305 Investments Securities available for sale - 5,665 Securities held to maturity 11,356 17,571 Accounts and notes receivable: Royalties 3,652 2,204 Other 2,314 1,531 Accrued interest income 229 252 Prepaid expenses 472 327 ------------------------------------------------------- Total current assets 25,884 31,855 Investments held to maturity 13,976 9,005 Deferred asset 1,330 1,852 Property and equipment, at cost, net of accumulated depreciation and amortization 309 330 Patent, trademark and distribution rights, at cost, net of accumulated amortization 395 80 ======================================================= Total assets $41,894 $43,122 ======================================================= Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued expenses $ 2,116 $ 2,812 Accrued royalties 1,390 1,309 ------------------------------------------------------ Total current liabilities 3,506 4,121 Deferred revenue 300 1,300 Deferred royalty payments 2,340 2,601 ------------------------------------------------------ Total liabilities 6,146 8,022 Stockholders' equity Common stock, no par value, authorized 40,000,000 shares; shares issued of 11,155,832 and 11,155,832 at June 30, 1996, and December 31, 1995 respectively; shares outstanding of 10,938,532 and 11,013,732 at June 30, 1996 and December 31, 1995 respectively. 52,216 52,216 Unrealized gain on investment securities available for sale - 134 Cost of stock held in treasury, 217,300 shares at June 30, 1996 and 142,100 shares at December 31, 1995 (2,313) (1,535) Accumulated deficit (14,155) (15,715) ------------------------------------------------------- Total stockholders' equity 35,748 35,100 ------------------------------------------------------- Commitments and contingencies ======================================================= Total liabilities and stockholders' equity $41,894 $ 43,122 =======================================================
See accompanying notes to consolidated financial statements. *Abstracted from audited year-end financial statements. Consolidated Statements of Operations
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------------------------------------------------ June 30 June 30 June 30 June 30 (in thousands except per share data) 1996 1995 1996 1995 ------------------------------------------------------------------------ Net Revenues: Royalty revenue $3,293 $2,824 $6,040 $5,292 Royalty expense 729 1,412 1,390 2,646 ------------------------------------------------------------------------ Gross Margin 2,564 1,412 4,650 2,646 Operating Expenses: Research & development costs 1,380 2,107 2,758 3,627 General and administrative expenses 1,013 1,906 1,692 2,519 ---------------------------------------------------------------------------- 2,393 4,013 4,450 6,146 Other Income: Interest income 487 578 1,024 1,165 Other income 350 - 350 - ------------------------------------------------------------------------ 837 578 1,374 1,165 ------------------------------------------------------------------------ Net income (loss) before income taxes 1,008 (2,023) 1,574 (2,335) Provisions for income taxes 7 - 14 - Net income (loss) 1,001 (2,023) 1,560 (2,335) ======================================================================== Net income (loss) per share $ 0.09 $(0.18) $0.14 $(0.21) ======================================================================== Weighted average number of common shares and common share equivalents outstanding 10,943 11,007 10,955 11,008 ========================================================================
See accompanying notes to consolidated financial statements. Consolidated Statements of Stockholders' Equity (Unaudited) SIX MONTHS ENDED JUNE 30, 1996 (in thousands, except share data)
Common Stock --------------------------------- Unrealized gain (loss) on investment Cost of securities Stock held Number of available Accumulated in shares Amount for sale deficit Treasury Total ---------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 11,013,732 $52,216 $134 $(15,715) $(1,535) $35,100 Stock held in treasury (75,200) - - - (778) (778) Unrealized gain on investment securities available for sale - - (134) - - (134) Net Income - - - 1,560 - 1,560 ================================================================================================================ Balance at June 30, 1996 10,938,532 $52,216 $ - $(14,155) $(2,313) $35,748 ================================================================================================================
See accompanying notes to consolidated financial statements Consolidated Statements of Cash Flows
SIX MONTHS ENDED -------------------------------------------- June 30 June 30 1996 1995 -------------------------------------------- (in thousands except per share data) Operating activities Net income (loss) $ 1,560 $ (2,335) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation of property and equipment 68 58 Amortization of patent, trademark and distribution rights 36 5 Gain on investments available for sale (49) (6) Net amortization of investment discount (261) (339) Settlement payment from Fujisawa - 2,000 Settlement payment to Abbott - (2,000) Compensation expense related to stock options - 44 Changes in operating assets and liabilities: Accounts and notes receivable (2,231) (1,723) Prepaid expenses (145) (92) Accounts payable and accrued expenses (696) 709 Accrued royalty expense 81 401 Accrued interest income 23 143 Deferred asset 522 (1,750) Deferred royalty payment (261) 2,550 Deferred royalty income (1,000) 220 -------------------------------------------- Net cash used in operating activities $(2,353) $(2,115) --------------------------------------------
See accompanying notes to consolidated financial statements Consolidated Statements of Cash Flows (continued)
SIX MONTHS ENDED ------------------------------------------------------ June 30 June 30 1996 1995 ------------------------------------------------------ (in thousands except per share data) Investing activities Purchase of securities held to maturity $(90,890) $(36,892) Purchase of securities available for sale (76) (178) Sale of securities available for sale 5,656 3,312 Maturity of securities held to maturity 92,395 39,484 Principal repayments on securities held to maturity - 826 Purchases of property and equipment (47) (48) Purchase of patent & license (351) - ------------------------------------------------------ Net cash provided by investing activities 6,687 6,504 ------------------------------------------------------ Financing activities Purchase of stock for retirement - (158) Purchase of stock held in treasury (778) - ------------------------------------------------------ Net cash used in financing activities (778) (158) ------------------------------------------------------ Increase in cash and cash equivalents 3,556 4,231 Cash and cash equivalents at beginning of period 4,305 1,053 ------------------------------------------------------ Cash and cash equivalents at end of period $7,861 $5,284 ======================================================
See accompanying notes to consolidated financial statements NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS General The accompanying interim financial statements have been prepared by Medco Research, Inc. (the "Company") in accordance with generally accepted accounting principles. Certain disclosures and information normally included in financial statements have been condensed or omitted. In the opinion of the management of the Company, these financial statements contain all adjustments (all of a recurring nature) necessary for a fair presentation for the interim periods. These statements should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Class Action Litigation In September 1993, the Company, and certain of its past and then directors and officers along with Kemper Securities Group, Inc. and Vector Securities International, Inc., were named in two class action lawsuits filed in the United States District Court, Northern District of Illinois. The suits allege that the Company and the other defendants violated Section 10 (b) of the Securities Exchange Act of 1934 and Rule 10 (b) (5) promulgated thereunder and made negligent misrepresentations in connection with the Company's January 1992 secondary stock offering and otherwise during the period November 19, 1990 through April 28, 1993. In September 1994, the Company's motion to dismiss was granted. Plaintiffs appealed in October 1994. On May 16, 1995 the United States Court of Appeals for the 7th Circuit reversed the dismissal. On November 7, 1995, the Company served its answers to the complaints in the two consolidated class action lawsuits. The answers denied the material allegations of the complaints and asserted affirmative defenses, including among others that the Company did not commit securities fraud, that the Company did not make any untrue representations, that the Company made adequate disclosure about the Adenoscan(R) NDA and that the complaints were not filed timely by reason of the applicable statute of limitations. On February 20, 1996, defendants moved for summary judgment on the basis that Plaintiffs' claims are barred by the statute of limitations and, in the alternative, assuming plaintiffs' allegations are true, any misrepresentations by defendants caused no losses to the plaintiffs. On May 9, 1996 the United States District Court, Northern District of Illinois, granted the summary judgment motion of the Company and the other defendants. The Court concluded that the plaintiffs' federal securities fraud claims were barred by the statute of limitations. A notice of appeal has been filed by the plaintiffs. The plaintiffs' briefs are due by August 30, 1996. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's operating results and financial position during the periods included in the accompanying financial statements. RESULTS OF OPERATIONS Second Quarter and Six Months of 1996 Compared to Second Quarter and Six Months of 1995 Net Revenues. Royalty revenues were $3.293 million and $6.040 million for the second quarter and first six months of 1996, an increase of 17% and 14%, respectively, over the comparable periods of 1995. This increase reflects continued growth of Adenoscan sales. Fujisawa USA, Inc. is responsible for substantially all of the royalty revenue of the Company. Gross Margin. Gross margin from adenosine revenues was $2.564 million and $4.650 million for the second quarter and first six months of 1996, an increase of 82% and 76%, respectively, over the comparable periods of 1995. This significant increase reflects a shift in the product sales mix to Adenoscan coupled by the fact that Medco owns the underlying patent on Adenoscan and therefore pays no third party royalty. Royalty expense represents one-half of royalty revenue earned by the Company from Adenocard sales and is payable to the University of Virginia Alumni Patents Foundation from whom the Company acquired exclusive rights to Adenocard. Royalty expense was $.729 million and $1.390 million for the second quarter and first six months of 1996, a decrease of 48% over the comparable periods of 1995. Operating Expenses. Total operating expenses were $2.393 million and $4.450 million for the second quarter and first six months of 1996, a decrease of 40% and 28%, respectively, over the comparable periods of 1995. Research and development expenditures were $1.380 million and $2.758 million for the second quarter and first six months of 1996, a decrease of 35% and 24%, respectively. Second quarter research and development expenditures returned to historical levels. Research and development expenditures were higher during the comparable periods of 1995 due to the nature of the Company's development portfolio, reflecting pivotal trial work of ViaScint and BiDil. Expenditures for the second quarter and first six months of 1996 reflect activities associated with a product portfolio in earlier stages of development. In addition, the Company and Fujisawa USA, Inc. signed a joint development agreement to develop adenosine line-extensions whereby both companies will share equally research and development expenses, including third party royalty obligations for intellectual property rights. The parties agreed that their combined responsibility for research and development funding will not exceed $4 million in 1996 (therefore Medco's share would not exceed $2 million in 1996). General and administrative expenses were $1.013 million and $1.692 million for second quarter and first six months of 1996, a decrease of 47% and 33%, respectively. This decrease is attributed to the absence of three separate events that occurred during the second quarter 1995: (1) the settlement of the litigation among Medco Research, Fujisawa USA, and Abbott Laboratories related to the manufacturing and marketing rights to Adenoscan, (2) resignation of the former President of the Company, and (3) the expenses incurred preceding the termination of a proposed merger. Other Income . Interest income for the second quarter and first six months of 1996 decreased 15% and 12%, respectively, mainly related to the utilization of cash to purchase shares of the Company's Common Stock pursuant to a repurchase program and a decrease in interest yield. The Company and Boehringer-Mannheim Pharmaceuticals Corporation ("BMPC") mutually agreed effective April 1, 1996 to terminate the November 1993 license in which the Company granted to BMPC marketing and back-up manufacturing rights to BiDil(R). The Company retained $350,000 of BMPC's $1 million license fee, which the Company accounted for as income in second quarter 1996. Income (Loss) Per Share. In the second quarter 1996 the Company had net income of $1.001 million or $0.09 per share and a six month net income of $1.560 million or $0.14 per share, compared to losses of $2.023 million or $(0.18) per share and $2.335 million or $(0.21) per share for the year earlier periods. FINANCIAL CONDITION As of June 30, 1996, the Company had total cash and investments of $33.193 million comprised of $7.861 million of cash and cash equivalents and $25.332 million of investments in U.S. Treasury Notes and debt securities of various federal governmental agencies. The Company's working capital as of June 30, 1996 was $22.378 million, compared to $27.734 million as of December 31, 1995. Included in liabilities at June 30, 1996 is an accrued liability (current and non-current portion) of $2.9 million relating to the balance of the Company's guaranteed royalty obligation to Abbott Laboratories pursuant to the terms of the Company's settlement of a litigation relating to the manufacturing and marketing rights to Adenoscan. Included in assets at June 30, 1996 is a deferred asset (current and non-current portion) of $2.5 million relating to royalties to be received by the Company from Fujisawa and paid by the Company to Abbott. Of the 29% of Adenoscan net sales received as royalty revenue by the Company, 4% will be applied to the deferred asset and 25% will be recognized as royalty revenue. At such time, if any, during the first five years after the approval of the Adenoscan NDA that the deferred asset is fully recovered, the Company thereafter will recognize royalty revenue of 29% through the end of the five year period. The Company will write-off any portion of this deferred asset at such time, if any, in which it becomes probable that the incremental 4% royalty revenue will be insufficient to recover the remaining balance of this deferred asset. Adenoscan and Adenocard are the Company's two commercial products, and they are marketed by the Company's exclusive licensees principally in the United States, Canada, and the United Kingdom. The Company will not generate revenues from its other products unless and until it or its licensees receive marketing clearance from the FDA and appropriate governmental agencies in other countries. The Company cannot predict the timing of any potential marketing clearance nor can assurances be given that the FDA or such agencies will approve any of the Company's products. For the near term the Company expects to receive substantially all of its royalty revenues from sales of its products in the U.S. by Fujisawa USA. IMPACT OF INFLATION Although it is difficult to predict the impact of inflation on costs and revenues of the Company in connection with the Company's products, the Company does not anticipate that inflation will materially impact its costs of operation or the profitability of its products when marketed. Part II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Incorporated herein by reference is Class Action Litigation, paragraph 4 , inclusive, set forth in the Notes to the Financial Statements set forth in Item 1 of Part I of this Report, set forth on page 7 hereof. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) June 20, 1996 Annual Meeting b) Directors Elected - Albert D. Angel William M. Bartlett Jay N. Cohn, M.D. Marvin S. Hausman, M.D. Mark B. Hirsch Manfred Mosk, Ph.D. Eugene L. Step Richard C. Williams c) Proposals voted upon: (i) Election of Directors: Albert D. Angel For: 10,732,137 Abstain: 123,963 William M. Bartlett For: 10,732,137 Abstain: 123,963 Jay N. Cohn, M.D. For: 10,804,587 Abstain: 51,513 Marvin S, Hausman, M.D. For: 10,804,587 Abstain: 51,513 Mark B. Hirsch For: 10,732,137 Abstain: 123,963 Manfred Mosk, Ph.D. For: 10,804,587 Abstain: 51,513 Eugene L. Step For: 10,732,137 Abstain: 123,963 Richard C. Williams For: 10,692,137 Abstain: 163,963 (ii) Ratification of KPMG Peat Marwick LLP as independent accountants: For: 10,515,386 Against: 22,372 Abstain: 15,892 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 11. Computation of Net Loss per Common Share b. Reports on Form 8-K: None SIGNATURES Pursuant to 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. Medco Research, Inc. Date: By: /s/ Roger D. Blevins Roger D. Blevins, Pharm.D. President and Chief Operating Officer Date: By: /s/ Glenn C. Andrews Glenn C. Andrews Chief Financial Officer EX-11 2 EXHIBIT 11 EXHIBIT 11 COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED June 30 June 30 June 30 June 30 1996 1995 1996 1995 ------------------- ------------------ ----------------- ------------------ (in thousands except per share data) PRIMARY Weighted average shares outstanding 10,943 11,007 10,955 11,008 Net effect of dilutive stock options based on the treasury stock method using average market price * * * * =================== ================== ================= ================== 10,943 11,007 10,955 11,008 =================== ================== ================= ================== Net income (loss) $1,001 $(2,023) $1,560 $(2,335) =================== ================== ================= ================== Per share $0.09 $(0.18) $ 0.14 $(0.21) =================== ================== ================= ================== FULLY DILUTED Weighted average shares outstanding 10,943 11,007 10,955 11,008 Net effect of dilutive stock options based on the treasury stock method using ending market price, if higher than average market price * * * ------------------- ------------------ ----------------- ------------------ 10,943 11,007 10,955 11,008 =================== ================== ================= ================== Net income (loss) $1,001 $(2,023) $1,560 $(2,335) =================== ================== ================= ================== Per share $0.09 $(0.18) $0.14 $(0.21) =================== ================== ================= ==================
*Antidilutive EX-27 3 EXHIBIT 27
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 7,861 11,356 6,667 0 0 25,884 711 402 41,894 3,506 0 52,216 0 0 (16,468) 41,894 0 4,130 0 3,122 3,122 0 0 1,008 7 1,001 0 0 0 1,001 0.09 0.09
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