0000726512-95-000004.txt : 19950815 0000726512-95-000004.hdr.sgml : 19950815 ACCESSION NUMBER: 0000726512-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIOS NOVA INC CENTRAL INDEX KEY: 0000726512 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 953701481 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11749 FILM NUMBER: 95562381 BUSINESS ADDRESS: STREET 1: 2450 BAYSHORE PKWY CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4159661550 MAIL ADDRESS: STREET 1: 2450 BAYSHORE PARKWAY CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 FORMER COMPANY: FORMER CONFORMED NAME: SCIOS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA BIOTECHNOLOGY INC DATE OF NAME CHANGE: 19920302 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) * QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 * TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 0-11749 SCIOS NOVA INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 95-3701481 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 2450 Bayshore Parkway, Mountain View, California 94043 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: 415-966-1550 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 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 * No ______ The number of shares outstanding of Registrant's Common Stock, $.001 par value, on June 30, 1995 was 35,946,030. SCIOS NOVA INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements Incorporated herein is the following financial information: Consolidated Balance Sheets as of June 30, 1995 (unaudited) and December 31, 1994 (audited). Consolidated Statements of Operations for the three month periods ended June 30, 1995 and June 30, 1994, and for the six month periods ended June 30, 1995 and June 30, 1994 (unaudited). Consolidated Statements of Cash Flows for the six month periods ended June 30, 1995 and June 30, 1994 (unaudited). Notes to Consolidated Financial Statements. SCIOS NOVA INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share data) ASSETS
June 30, December 31, 1995 1994 (Unaudited) Current assets: Cash and cash equivalents $9,890 $29,674 Available-for-sale securities 15,951 22,441 Accounts receivable 3,693 3,529 Other receivables 59 70 Prepaid expenses 745 1,147 Total current assets 30,338 56,861 Available-for-sale securities, non-current 67,686 52,324 Investment in affiliates 1,974 -- Property and equipment, net 36,237 35,118 Other assets 1,705 1,793 _______ _______ TOTAL ASSETS $137,940 $146,096 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,514 $3,301 Other accrued liabilities 7,276 11,557 Deferred contract revenue 6,116 2,444 Current portion of long-term debt 636 617 Total current liabilities 15,542 17,919 Long-term debt 1,417 1,739 Stockholders' equity: Preferred stock; $.001 par value; 20,000,000 shares authorized; issued and outstanding: 16,053 and 21,053, respectively -- -- Common stock; $.001 par value; 150,000,000 shares authorized; issued and outstanding: 35,946,030 and 35,283,200, respectively 36 35 Additional paid-in capital 396,592 391,745 Notes receivable (27) (27) Unrealized gains (losses) on securities 609 (2,309) Accumulated deficit (276,229) (263,006) Total stockholders' equity 120,981 126,438 _______ _______ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $137,940 $146,096
See notes to consolidated financial statements. SCIOS NOVA INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except share data)
Three months ended Six months ended June 30, June 30, 1995 1994 1995 1994 (Unaudited) (Unaudited) Revenues: Product sales $9,672 $9,201 $21,557 $21,359 Co-promotion commissions 334 857 1,042 1,500 Research & development contracts 1,758 2,365 2,845 4,274 11,764 12,423 25,444 27,133 Costs and expenses: Cost of goods sold 5,571 5,852 13,092 13,544 Research and development 7,761 8,958 14,725 17,626 Marketing, general and administration 4,346 4,633 8,923 8,241 Profit distribution to third parties 1,278 995 2,566 2,464 18,956 20,438 39,306 41,875 Loss from operations (7,192) (8,015) (13,862) (14,742) Other income: Investment income 1,409 1,244 2,379 2,556 Other income (expense), net 17 (189) 70 (191) 1,426 1,055 2,449 2,365 Equity in net loss of affiliates (832) (308) (1,810) (308) Minority interests -- 464 -- 596 Net loss ($6,598) ($6,804) ($13,223) ($12,089) Net loss per common share ($0.18) ($0.19) ($0.37) ($0.34) Weighted average number of common shares outstanding 35,691,268 35,202,241 35,438,934 35,167,010
See notes to consolidated financial statements. SCIOS NOVA INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
Six months ended June 30, 1995 1994 (Unaudited) Cash flows from operating activities: Net loss $(13,223) $(12,089) Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 1,749 2,277 Deferred contract revenue 3,672 3 Other 1,658 (310) Changes in assets and liabilities: Accounts receivable (164) (520) Other receivables 11 87 Prepaid expenses 402 622 Other assets 88 40 Accounts payable (1,787) (630) Other accrued liabilities (2,307) (640) Net cash used by operating activities (9,901) (11,160) Cash flows from investing activities: Payments for property and equipment, net (3,964) (2,447) Sales of marketable securities 87,266 90,860 Purchases of marketable securities (93,220) (89,698) Net cash used by investment activities (9,918) (1,285) Cash flows from financing activities: Issuance of common stock and collection of notes receivable from stockholders, net 357 208 Debt repayments (322) (315) Net cash provided (used) by financing activities 35 (107) Net decrease in cash and cash equivalents (19,784) (12,552) Cash and cash equivalents at beginning of period 29,674 13,587 Cash and cash equivalents at end of period $ 9,890 $ 1,035 Supplemental cashflow data: Net unrealized securities gains (losses) $ 2,918 $ (1,639)
See notes to consolidated financial statements. SCIOS NOVA INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 1. Basis of Presentation and Accounting Policies The unaudited consolidated financial statements of Scios Nova Inc. ("Scios Nova" or the "Company") reflect, in the opinion of management, all adjustments, consisting only of normal and recurring adjustments, necessary to present fairly the Company's financial position at June 30, 1995 and the Company's results of operations for the three- and six- month periods ended June 30, 1995 and 1994. Interim-period results are not necessarily indicative of results of operations or cash flows for a full-year period. These financial statements and the notes thereto should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1994. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The Company has adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". All marketable securities at June 30, 1995 were deemed by management to be available for sale and therefore are reported at fair value with net unrealized gains or losses reported in stockholders' equity. 2. On May 25, 1995, the Company was served with three complaints filed in the U.S. District Court for the Northern District of California by three stockholders. The actions were filed against the Company and Richard Casey, its Chairman and Chief Executive Officer, on behalf of the individual plaintiffs and on behalf of other purchasers of the Company's stock during the period from October 6, 1993 to May 2, 1995. The complaints allege violations of federal securities laws, claiming that the defendants issued a series of false and misleading statements, including filings with the Securities and Exchange Commission, regarding the Company and clinical trials involving one of its products, AURICULIN [registered trademark] anaritide. The complaints seek unspecified compensatory and punitive damages, attorneys fees and costs. Discovery has not yet commenced. The Company believes it has meritorious defenses and intends to defend the lawsuits vigorously. The ultimate outcome of this action cannot presently be determined. Accordingly, no provision for any liability or loss that may result from adjudication or settlement thereof has been made in the accompanying consolidated financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results The net loss for the quarter ended June 30, 1995 was $6.6 million compared to a net loss of $6.8 million in the corresponding quarter of 1994. For the six-month periods ended June 30, 1995 and 1994, the net losses were $13.2 million and $12.1 million, respectively. The increase in net loss between the six-month periods was primarily due to a reduction in research and development contract revenues. A $1.5 million increase in equity in net loss of affiliates from 1994 to 1995 was offset by a $1.5 million reduction in research and development and general and administration expenses attributable to the Company's affiliate, Guilford Pharmaceuticals ("Guilford"). Total revenues for the three months ended June 30, 1995 declined to $11.8 million from $12.4 million in the corresponding period of 1994 due to reductions in co-promotion commissions and contract revenues. The decrease in co-promotion commissions resulted from a lowering of the Company's expectations for year-over-year sales growth of HALDOL [registered trademark] Decanoate, a product co-promoted with McNeil Pharmaceutical ("McNeil"). Contract revenues declined because a final $0.8 million payment was received in 1994 from E. Merck related to the termination of a license under the Company's basic fibroblast growth factor ("bFGF") program. The decreases in co-promotion commissions and contract revenues were partly offset by an increase in product sales from psychiatric products under license from SmithKline Beecham Corporation (the "SB Products"). Product sales were $9.7 million and $9.2 million for the three months ended June 30, 1995 and 1994, respectively. Gross margins increased to 42% from 36% for the quarters ending June 30, 1995 and 1994, respectively, as a result of a reduction in Medicaid rebate expense and a shift towards a higher margin product mix. For the six months ended June 30, 1995 and June 30, 1994, total revenues were $25.4 million and $27.1 million, respectively. The year-to- year revenue decrease resulted from the second quarter declines in co-promotion commissions and contract revenues noted above, and from a first quarter 1994 milestone payment from Pfizer Inc for the Company's insulinotropin product. Product sales for the six months ended June 30, 1995 and 1994 were $21.6 million and $21.4 million, respectively. Gross margins of 39% and 37% for the six months ended June 30, 1995 and 1994, respectively, improved year-over-year because of a higher margin product mix. Despite the short-term improvement, margins are expected to decline over time as a result of generic drug competition. For both the three- and six-month periods, the decline in revenues from 1994 to 1995 was offset by a reduction in costs and expenses. Total costs and expenses for the three months ended June 30, 1995 were $19.0 million versus $20.4 million for the same period in 1994. Spending for research and development declined to $7.8 million from $9.0 million and for marketing, general and administration to $4.3 million from $4.6 million for the three-month periods ended June 30, 1995 and 1994, respectively. The declines resulted from the closure of the Company's Baltimore, Maryland research and development facility in the fourth quarter of 1994 and from a reduction in Guilford expenses resulting from the Company's adoption of the equity method of accounting for its Guilford investment. The increase in profit distribution to third parties to $1.3 million for the three months ended June 30, 1995 from $1.0 million for the corresponding period in 1994 was a result of higher 1995 margins on the sales of the SB Products. Total costs and expenses for the six-month period ended June 30, 1995 were $39.3 million versus $41.9 million for the same period in 1994. Research and development spending declined to $14.7 million in the first half of 1995 from $17.6 million in 1994 as a result of savings from the closure of the Baltimore research and development facility and the change in accounting for Guilford. Marketing, general and administrative spending increased to $8.9 million from $8.2 million for the six-month periods ended June 30, 1995 and 1994, respectively, primarily because of higher sales and marketing spending. Other income increased to $1.4 million in the quarter ended June 30, 1995 from $1.1 million in the comparable quarter of 1994. The increase was principally due to lower royalty expenses in 1995 because of lower contract revenue and a net gain on sales of securities in 1995 versus a net loss for the same period in 1994. The equity in the net loss of affiliates of $0.8 million in 1995 is the Company's proportional share of Guilford's losses. The increase from $0.3 million in the corresponding 1994 period was due to the change in accounting for the Company's investment in Guilford. The $0.5 of minority interest in 1994 was the minority owners' share of Guilford losses incurred prior to the Company's adoption of the equity method of accounting for Guilford. For both six-month periods ended June 30, 1995 and 1994, other income was $2.4 million. Higher rental income and lower royalty expenses in the first half of 1995 offset a decrease in investment income versus the comparable period in 1994. The increase in equity in net loss of affiliates to $1.8 million in 1995 from $0.3 million in 1994, and the reduction in minority interest over the same periods, were the result of the change in accounting for Guilford. Scios Nova's operating results have fluctuated from period to period and are expected to continue to fluctuate in the future as a result of, among other things: the outcome and timing of clinical trials and the regulatory approval process; the timing and composition of funding under the Company's collaborative research and development agreements; the continuation or renewal of existing collaborations by Scios Nova's partners; the level of sales of SB Products, which face increasing price pressure from competitive generic drugs and from government and private cost-control initiatives; and the level of commissions resulting from the Company's 1993 co-promotion agreement with McNeil for HALDOL [registered trademark] Decanoate, which may be affected by increased competition from other products. In addition, because the Company participates in a highly dynamic industry, the Company's common stock price may also experience significant volatility as a result of industry developments as well as fluctuations resulting from the status of the Company's research, development and clinical prospects. During the quarter, the Company announced the results of a Phase III clinical trial of its AURICULIN [registered trademark] anaritide product in the treatment of acute renal failure ("ARF"). The Company's primary objective in this study was to determine if AURICULIN decreased the need for dialysis in patients diagnosed with ARF. The analysis of the results revealed that AURICULIN did not decrease the need for dialysis in the total patient population. AURICULIN did, however, have a positive clinical benefit in patients with a particular form of ARF called oliguria (patients producing very low levels of urine). As a result, if the Company elects to seek marketing approval for AURICULIN in the treatment of oliguric ARF, further clinical trials and associated product development expenses will be necessary. Thus, the Company will not meet the previously anticipated filing date for an application for marketing approval in the United States. Liquidity and Capital Resources Combined cash, cash equivalents and marketable securities (both current and non-current) totaled $93.5 million at June 30, 1995, a decrease of $10.9 million from December 31, 1994. The decrease was principally attributable to $9.9 million to fund operating activities and $4.0 million for capital acquisitions, which was partially offset by $2.9 million of unrealized gains on marketable securities resulting from a change in market interest rates during the six-month period. Capital spending of $4.0 million included $3.1 million for the purchase of the Company's former Baltimore research and development facility pursuant to an option contained in the lease. The Company is currently seeking to lease-out and/or sell the facility. The $2.0 million increase in investment in affiliates reflects the write-up of the Company's equity investment in Guilford as a result of Guilford's 1994 public stock offering, reduced by the Company's proportional share of Guilford's losses since the offering. The $1.1 million increase in net property and equipment balances from December 31, 1994 to June 30, 1995 was principally due to the purchase of the Baltimore facility, offset in part by the sale and write-off of surplus equipment and by on-going depreciation expense. The decrease in accounts payable of $1.8 million during the six- month period ended June 30, 1995 was the result of payment of year-end 1994 accruals. The decrease in other accrued liabilities of $4.3 million from December 31, 1994 to June 30, 1995 was the result of reductions in the Baltimore restructuring reserve of $2.2 million and accrued expenses of $2.1 million. Of the $2.2 million change in the restructuring reserve, severance and related costs accounted for 30%, asset write-downs 47%, facility carrying costs 17% and chemical disposal and other expenses 6%. The asset write-downs of $1.0 million were non-cash expenses. The increase in deferred contract revenue of $3.7 million was principally due to a payment from Kaken Pharmaceutical Company, Ltd. associated with achieving future milestones in the commercialization of the Company's FIBLAST -TM- bFGF product in Japan. The increase in additional paid-in capital of $4.8 million was the result of the write-up of the Company's equity investment in Guilford, incentive compensation stock payments and proceeds from the exercise of employee stock options. The unrealized gain on securities of $0.6 million at June 30, 1995 represents the difference between the cost and market value of the Company's marketable securities on that date. The $2.9 million increase from December 31, 1994 to June 30, 1995 was the result of a reduction in market interest rates which took place during the first six months of the year. The Company's cash resources of $93.5 million at June 30, 1995, together with revenues from product sales, collaborative agreements and interest income, will be used to fund current and new clinical trials for proprietary products under development, to support continuing research and development programs and for other general purposes. The Company believes its cash resources will be sufficient to meet its operating and capital requirements for at least the next two years. The Company has experienced net operating losses since its inception and expects to continue to incur losses for at least several more years. The Company's ability to achieve and sustain profitability will depend upon a number of factors, particularly the success and timeliness of its product development, clinical trial, regulatory approval and product introduction efforts. Other contributing factors will be the Company's success in developing new revenue sources to support research and development programs and its success in marketing and promoting the SB Products, HALDOL Decanoate and any other third-party products that may be in-licensed by the Company. In May, 1995, the Company and its Chairman and Chief Executive Officer, Richard Casey were named in three complaints filed by certain stockholders on behalf of purchasers of the Company's common stock in the United States District Court for the Northern District of California alleging violations of federal securities laws. The Company believes it has meritorious defenses and intends to defend the lawsuit vigorously. While the outcome of the actions cannot be predicted with certainty, management does not believe the outcome will have a material adverse impact on the Company's financial position or results of operations. For additional information, see footnote 2 in the Notes to Consolidated Financial Statements. The Company may need to seek additional funding to support future operations, including the commercialization of products currently under development. Potential funding sources include collaborative arrangements and additional public or private financings, including additional equity financings. There can be no assurances that such additional funding, if required, can be obtained on reasonable terms. SCIOS NOVA INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on May 9, 1995. (a) The following individuals were elected directors of the Company, each to serve until a successor is elected:
Total Vote For Total Vote Withheld Name Each Director From Each Director Richard L. Casey 29,923,134 940,971 Myron Du Bain 30,473,344 390,761 William F. Miller, Ph.D. 30,499,666 364,439 Donald E. O'Neill 29,906,683 957,422 Robert W. Schrier, M.D. 30,501,869 362,236 Solomon H. Snyder, M.D. 29,278,903 1,585,202 Eugene L. Step 30,501,582 362,523
(b) The following matter was approved by stockholder vote, with votes cast as indicated: Ratification of the selection of Coopers & Lybrand as the Company's independent auditors for fiscal year 1995: Votes cast for: 30,678,263 Votes cast against: 83,309 Abstentions: 100,533 Broker Non-Votes: 2,000 Broker non-votes were not relevant to the foregoing matters. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 11.1 Statement regarding computation of per share earnings for the three months ended June 30, 1995 and June 30, 1994. 11.2 Statement regarding computation of per share earnings for the six months ended June 30, 1995 and June 30, 1994. (b) Reports on Form 8-K 1. Report on Form 8-K, dated May 5, 1995 (pursuant to Item 5) regarding the Company's announcement of preliminary results of its Phase III clinical study of AURICULIN [registered trademark] anaritide for the treatment of acute renal (kidney) failure. 2. Report on Form 8-K, dated June 8, 1995 (pursuant to Item 5) regarding three complaints filed by three stockholders against the Company and Richard L. Casey, Chairman and Chief Executive Officer, pursuant to which the plaintiffs seek to represent a class of persons who purchased the Company's Common Stock between October 6, 1993 and May 2, 1995. 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. SCIOS NOVA INC. Date: August 11, 1995 /S/ RICHARD L. CASEY Richard L. Casey Chairman of the Board, President and Chief Executive Officer Date: August 11, 1995 /S/ W. VIRGINIA WALKER W. Virginia Walker Vice President of Finance and Administration (Principal Financial Officer) INDEX TO EXHIBITS SCIOS NOVA INC. Quarterly Report on Form 10-Q For the Quarter Ended June 30, 1995
Exhibit Description Method of Filing 11.1 Statement regarding computation of per share Filed electronically herewith earnings for the three months ended June 30, 1995 and June 30, 1994. 11.2 Statement regarding computation of per share Filed electronically herewith earnings for the six months ended June 30, 1995 and June 30, 1994.
EX-11.1 2 EXHIBIT 11.1 SCIOS NOVA INC. Computation of Net Loss Per Share (Calculated in accordance with the guidelines of item 601 of Regulation S-K. The effect of stock options on loss per share is anti-dilutive)
Three months ended June 30, 1995 1994 (Unaudited) PRIMARY: Average common shares outstanding 35,691,268 35,202,241 Net effect of dilutive stock options - based on treasury stock method 84,524 220,826 Average common and common equivalent shares outstanding 35,775,792 35,423,067 Net loss ($6,596,000) ($6,804,000) Net loss per share ($0.18) ($0.19) FULLY DILUTED: Average common shares outstanding 35,691,268 35,202,241 Net effect of dilutive stock options - based on treasury stock method 84,524 220,924 Average common and common equivalent - shares outstanding 35,775,792 35,423,165 Net loss ($6,596,000) ($6,804,000) Net loss per share ($0.18) ($0.19)
See notes to consolidated financial statements. Exhibit 11.1 EX-11.2 3 EXHIBIT 11.2 SCIOS NOVA INC. Computation of Net Loss Per Share (Calculated in accordance with the guidelines of item 601 of Regulation S-K. The effect of stock options on loss per share is anti-dilutive)
Six months ended June 30, 1995 1994 (Unaudited) PRIMARY: Average common shares outstanding 35,438,934 35,167,010 Net effect of dilutive stock options - based on treasury stock method 136,998 541,606 Average common and common equivalent shares outstanding 35,575,932 35,708,616 Net loss $(13,223,000) $(12,089,000) Net loss per share ($0.37) ($0.34) FULLY DILUTED: Average common shares outstanding 35,438,934 35,167,010 Net effect of dilutive stock options - based on treasury stock method 138,870 539,772 Average common and common equivalent - shares outstanding 35,577,804 35,706,782 Net loss $(13,223,000) $(12,089,000) Net loss per share ($0.37) ($0.34)
See notes to consolidated financial statements Exhibit 11.2 EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS INCLUDED IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED 6-30-95 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1994 JUN-30-1995 9,890 83,637 3,752 0 0 30,338 64,111 27,874 137,840 15,542 1,417 36 0 0 120,981 137,910 21,557 25,444 13,092 13,862 25,444 0 0 (13,223) 0 (13,223) 0 0 0 (13,223) (0.37) (0.37)