-----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, HqE6Lh4gLGqArwPtpEBxR+C9u84F1rdnNLxCBLAzVHByj2UTyVB8Xu2+tkbvAVva kkCY7pYN0Rc04ZkQ+OZdKg== 0000726512-98-000007.txt : 19980814 0000726512-98-000007.hdr.sgml : 19980814 ACCESSION NUMBER: 0000726512-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIOS INC CENTRAL INDEX KEY: 0000726512 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 953701481 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11749 FILM NUMBER: 98685373 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 FORM 10-Q FOR QUARTER ENDED 6/30/98 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR _ 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 Inc. (Exact name of Registrant as specified in its charter) Delaware 95-3701481 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Scios Inc. 2450 Bayshore Parkway Mountain View, CA 94043x (Address of principal executive offices) (Zip code) (650) 966-1550 (Registrant's telephone number including area code) 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 registrant's classes of common stock, as of the latest practicable date. Title Outstanding Common Stock, $.001 par value 38,368,652 SCIOS INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements SCIOS INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share data)
ASSETS June 30, December 31, 1998 1997 ------------- ----------- (Unaudited) Current assets: Cash and cash equivalents $6,697 $10,197 Marketable securities 3,144 13,322 Accounts receivable 11,355 5,215 Prepaid expenses 313 600 ------------- ----------- Total current assets 21,509 29,334 Marketable securities, non-current 67,852 41,181 Investment in affiliate 9,569 10,537 Property and equipment, net 32,773 33,583 Other assets 1,869 2,236 ------------- ----------- TOTAL ASSETS $133,572 $116,871 ------------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $3,813 $1,685 Other accrued liabilities 6,131 11,134 Deferred contract revenue 11,681 11,652 Current portion of long-term debt and capital leases 42 339 ------------- ----------- Total current liabilities 21,667 24,810 Long-term debt and capital leases 33,194 31,919 ------------- ----------- Total liabilities 54,861 56,729 ------------- ----------- Stockholders' equity: Preferred stock; $.001 par value; 20,000,000 shares authorized; none issued and outstanding: -- -- Common stock; $.001 par value; 150,000,000 shares authorized; issued and outstanding: 38,368,652 and 38,032,120, respectively 38 38 Additional paid-in capital 415,903 411,045 Treasury stock (2,299) (4,758) Notes receivable from stockholders (384) (13) Net unrealized gains on securities 284 288 Accumulated deficit (334,831) (346,458) ------------- ----------- Total stockholders' equity 78,711 60,142 ------------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $133,572 $116,871 ------------- -----------
The accompanying notes are an integral part of these consolidated financial statements. SCIOS INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except share data)
Three months ended Six months ended June 30, June 30, 1998 1997 1998 1997 --------------- -------------- ---------------- -------------- (Unaudited) (Unaudited) Revenues: Product sales $4,729 $7,537 $13,159 $13,696 Co-promotion commissions 1,985 1,423 3,253 3,119 Research & development contracts 22,881 1,922 27,473 2,396 --------------- -------------- ---------------- -------------- 29,595 10,882 43,885 19,211 --------------- -------------- ---------------- -------------- Costs and expenses: Cost of goods sold 2,985 4,369 7,790 8,223 Research and development 11,930 13,059 22,457 23,939 Marketing, general and administration 4,486 5,022 9,198 10,348 Profit distribution to third parties 128 896 1,198 1,463 --------------- -------------- ---------------- -------------- 19,529 23,346 40,643 43,973 --------------- -------------- ---------------- -------------- Income (loss) from operations 10,066 (12,464) 3,242 (24,762) Other income: Investment income 962 1,136 1,948 1,927 Interest expense (643) (750) (1,292) (884) Realized gains (losses) on securities 39 (74) 8,077 (179) Other income, net 460 1 477 149 --------------- -------------- ---------------- -------------- 818 313 9,210 1,013 Equity in net loss of affiliates (581) (525) (825) (1,136) Minority interests -- -- -- 77 --------------- -------------- ---------------- -------------- Net income (loss) $10,303 ($12,676) $11,627 ($24,808) --------------- -------------- ---------------- -------------- Earnings (loss) per common share: Basic $0.27 ($0.35) $0.31 ($0.69) --------------- -------------- ---------------- -------------- Diluted $0.26 ($0.35) $0.30 ($0.69) --------------- -------------- ---------------- -------------- Weighted average number of common shares outstanding used in calculation of: Basic 37,850,807 35,826,469 37,562,172 35,829,065 --------------- -------------- ---------------- -------------- Diluted 42,092,920 35,826,469 38,733,164 35,829,065 --------------- -------------- ---------------- --------------
The accompanying notes are an integral part of these consolidated financial statements. SCIOS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
Six months ended June 30, 1998 1997 ----------- ------------ (Unaudited) Cash flows from operating activities: Net income (loss) $ 11,627 ($24,808) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,909 2,738 Accrued long-term interest payable 1,275 638 Equity in net loss of affiliates 824 1,136 Minority interest -- (77) Change in assets and liabilities: Accounts receivable (6,140) (1,202) Accounts payable 2,128 (824) Other accrued liabilities (5,004) (2,600) Other 282 508 Deferred contract revenue 29 8,120 ----------- ------------ Net cash provided by (used in) operating activities 6,930 (16,371) ----------- ------------ Cash flows from investing activities: Purchases of property and equipment (1,099) (1,953) Proceeds from sale of investment in affiliate 144 -- Sales/maturities of marketable securities 148,264 101,525 Purchases of marketable securities (164,759) (98,115) ----------- ------------ Net cash provided by (used in) investing activities (17,450) 1,457 ----------- ------------ Cash flows from financing activities: Issuance of common stock and collection of notes receivable from stockholders, net 7,317 -- Purchase of treasury stock -- (1,767) Payment of notes payable and capital leases (297) (275) Proceeds from notes payable and capital leases -- 30,000 ----------- ------------ Net cash provided by financing activities 7,020 27,958 ----------- ------------ Net increase (decrease) in cash and cash equivalents (3,500) 13,044 Cash and cash equivalents at beginning of period 10,197 1,587 =========== ============ Cash and cash equivalents at end of period $ 6,697 $ 14,631 =========== ============ Supplemental cash flow data: Cash paid during the period for interest ($12) ($246) Supplemental disclosure of non-cash investing and financing: Change in net unrealized gains on securities ($4) ($86) Investment in affiliate ($969) $ 4,948
The accompanying notes are an integral part of these consolidated financial statements. SCIOS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 1. Basis of Presentation and Accounting Policies The unaudited consolidated financial statements of Scios Inc. ("Scios" 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 consolidated financial position at June 30, 1998 and the Company's consolidated results of operations and cash flows for the three- and six-month periods ended June 30, 1998 and 1997. 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 accompanying them should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1997. Investors are encouraged to review the Form 10-K for a broader discussion of the Company's business and the opportunities and risks inherent in the Company's business. Copies of the 10-K are available from the Company on request. The year-end balance sheet data were derived from audited financial statements, but do not include all disclosures required by generally accepted accounting principles. The Company has adopted the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," effective January 1, 1998. This statement requires the disclosure of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as net income plus revenues, expenses, gains, and losses that, under generally accepted accounting principles, are excluded from net income. The components of comprehensive income which are excluded from net income are not significant, individually or in aggregate, and therefore, no separate statement of comprehensive income has been presented. Effective December 31, 1997, the Company adopted Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share" and, accordingly, all prior periods presented have been restated. Basic net income (loss) per share is calculated using the weighted average number of common shares outstanding for the period. Diluted net income (loss) is calculated using the weighted average number of common and dilutive common equivalent shares outstanding during the period. The following table sets forth the computation of the Company's basic and diluted earnings (loss) per share (in thousands, except per share amounts):
Three months ended Six months ended June 30, June 30, 1998 1997 1998 1997 ----------------------------------------- ------------- --------------- --------------- --------------- Numerator Basic Net income (loss) $ 10,303 $ (12,676) $ 11,627 $ (24,808) ------ ------ ------ ------ Diluted Net income (loss) $ 10,303 $ (12,676) $ 11,627 $ (24,808) Add: Genentech interest 638 --- --- --- ------ ------ ------ ------ Net income (loss) $ 10,941 12,676 11,627 $ (24,808) ------ ------ ------ ------ Denominator Basic Weighted average shares 37,851 35,826 37,562 35,829 Effect of dilutive securities: Genentech conversion of loan to common stock 3,000 --- --- --- Employee stock options 1,242 --- 1,171 --- ------ ------ ------ ------ Weighted average shares and assumed conversions 42,093 35,826 38,733 35,829 ------ ------ ------ ------ Basic earnings (loss) per share $ 0.27 $ (0.35) $ 0.31 $ (0.69) ------ ------ ------ ------ Diluted earnings (loss) per share $ 0.26 $ (0.35) $ 0.30 $ (0.69) ------ ------ ------ ------ ----------------------------------------- The potentially dilutive effect of outstanding options to purchase common stock would have been anti-dilutive in 1997, and they were therefore excluded from both 1997 diluted earnings calculations. If the Genentech loan were paid through the issuance of common stock instead of cash, it would be dilutive in the three-month period ended June 30, 1998, but anti-dilutive for the same period in 1997 and for the six-month periods in 1998 and 1997. Therefore, shares for the Genentech loan were included in calculations for diluted earnings per share in the current quarter in 1998, but excluded from calculations for all other periods in 1998 and 1997.
2. Subsequent Events On July 21, 1998, Wyeth-Ayerst Laboratories, a division of American Home Products Corporation, and the Company announced the termination of the North American Phase II/III clinical study of Fiblast(R) (trafermin) in acute stroke and the continuation of a similar Phase II/III study in Europe. While the two trials were similar in design, they differed significantly in the duration over which Fiblast(R) (trafermin) was administered. A detailed review of the data from the North American stroke trial is in progress by both companies. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations In accordance with Federal law, the Company reminds readers that the following discussion contains forward-looking statements about plans, objectives, future results and intentions of the Company. These forward-looking statements are based on the current expectations of the Company, and the Company assumes no obligation to update this information. Realization of these plans and results involves risks and uncertainties, and the Company's actual results could differ materially from the historical results or future plans discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those items discussed below, as well as the considerations discussed in the Company's Form 10-K for the year ended December 31, 1997. Operating Results Net income for the quarter ended June 30, 1998 was $10.3 million compared to a net loss of $12.7 million in the corresponding quarter of 1997. For the six-month periods ended June 30, 1998 and 1997, net income was $11.6 million and the net loss was $24.8 million, respectively. For both the three- and six-month periods, the increase in net income was primarily due to the increase in contract revenue from signing an agreement with Bayer AG ("Bayer") for the commercialization of the Company's product Natrecor(R) (nesiritide). Total revenues for the three months ended June 30, 1998 were $29.6 million versus $10.9 million for the corresponding quarter in 1997, and $43.9 million and $19.2 million for the six-month periods ended June 30, 1998 and 1997, respectively. The year-to-year increase was principally due to $20.0 million in contract revenue recognized upon entering into a worldwide strategic alliance with Bayer for the commercialization of Natrecor(R) (nesiritide), receipt of a milestone payment from Novo Nordisk for development of insulinotropin, and funding for the Company's Alzheimer's research program. Product sales from psychiatric products under license from SmithKline Beecham Corporation (the "SB Products") decreased to $13.2 million from $13.7 million for the six-month periods ended June 30, 1998 and 1997, and to $4.7 million from $7.5 million for the three months ended June 30, 1998 and 1997, respectively. SB Product sales decreased year-to-year, and the Company expects that over time the sales of these products will continue to erode because of competition from new market entrants and generic drugs. For the three- and six-month periods ended June 30, 1998, co-promotion commissions were $2.0 million and $3.3 million versus $1.4 million and $3.1 million for the same periods in 1997. The increase in co-promotion commissions was the result of changes in the product lines promoted by the Company in the second quarter of 1998. In April 1998, the Company entered into a new agreement with Janssen Pharmaceutica for the co-promotion of Janssen's product Risperdal(R) (risperidone). In the same time frame, the Company and Ortho-McNeil Pharmaceutical, an affiliate of Johnson and Johnson, agreed to terminate their co-promotion contract for Haldol(R) Decanoate because of new generic competition. In May 1998, the Company announced the termination of the co-promotion agreement with Wyeth-Ayerst Laboratories under which the Company had been co-promoting Effexor(R) (venlafaxine HCl). Total costs and expenses for the three and six months ended June 30, 1998 were $19.5 million and $40.6 million, respectively, versus $23.3 million and $44.0 million for the same periods in 1997. For the current quarter, spending for research and development decreased to $11.9 million in 1998 from $13.1 million in 1997, and to $22.5 million from $23.9 million in the six-month periods ended June 30, 1998 and 1997. The year-to-year decreases for both the three- and six-month periods were primarily due to a reduction in clinical trial expenses. Expenses for marketing, general and administration decreased for the six-month periods to $9.2 million from $10.3 million, and to $4.5 million from $5.0 million for the three-month periods ended June 30, 1998 and 1997, respectively. The year-to-year decreases were principally due to lower depreciation expenses for leasehold improvements in 1998 compared to 1997. The decreases in cost of goods and profit distribution to third parties from 1997 to 1998 were the result of lower SB Product sales in 1998. Other income increased to $0.8 million in the quarter ended June 30, 1998 from $0.3 million in the comparable quarter of 1997. For the six-month periods ended June 30, 1998 and 1997, other income increased to $9.2 million from $1.0 million. The increase for the six-month period was principally due to a gain on the sale of the Company's entire interest in its subsidiary, Karo Bio AB, a Swedish biotechnology company, through a public stock offering completed in March 1998. Following the sale of its stock, the Company no longer has any financial interest in the results of Karo Bio. For the six-month periods ended June 30, 1998 and 1997, interest expense increased from 1997 to 1998 due to interest on the loan from Genentech Inc., which was drawn down at the end of the first quarter of 1997. The increase in equity in the net loss of affiliates for both the three- and six-month periods, was the result of the company's share of losses of Guilford Pharmaceuticals Inc., in which it has a 7% ownership. The ability of the Company to achieve profitability depends principally on the Company's success in developing and commercializing its own products and on its ability to complete agreements with third parties that result in additional revenue. Among the factors that will determine the Company's success in commercializing its products are: the demonstrated safety and efficacy of products in development; the cost of and the time taken to complete clinical trials and regulatory submissions; the timing and scope of regulatory approvals, particularly with respect to the Company's lead products Natrecor(R) (nesiritide) and Fiblast(R) (trafermin); the Company's ability to secure a cost-effective supply of product; the Company's success in developing and implementing cost effective sales and marketing strategies either on its own behalf or in partnership with other companies; and the level of market acceptance if products are approved, both at product launch and over time. The Company's ability to raise additional revenue through third parties will be dependent on the factors described above, as well as other factors such as: its success in marketing and selling the third-party products which it may acquire the right to co-promote; the disposition of various patent proceedings related to the protection of the Company's potential products; the perceived value of the Company's current product portfolio and research programs to outside parties; and the success of third parties, such as Bayer and Wyeth-Ayerst Laboratories (in the United States and Europe), Kaken Pharmaceutical Co., Ltd. (in Japan) and Novo Nordisk A/S in developing and commercializing the Company's products. Liquidity and Capital Resources Combined cash, cash equivalents and marketable securities (both current and non-current) totaled $77.7 million at June 30, 1998, an increase of $13.0 million from December 31, 1997. The increase was due to $6.9 million from operations and $7.3 million from the exercise of stock options partially offset by $1.1 million of property and equipment purchases. Included in the cash provided by operating activities was $13.9 million received from Bayer AG immediately upon signing of the worldwide strategic alliance to market Natrecor(R) (nesiritide), $7.7 million received from the sale of Karo Bio stock and a $6.1 million receivable from Bayer which was temporarily withheld pending resolution of the Company's foreign tax filing status and has subsequently been received. The Company expects to continue to incur losses until it is able to achieve significant product revenues from the sale of Natrecor(R) (nesiritide). Because the Bayer agreement for Natrecor(R) (nesiritide ) provides for sizable milestone payments that are dependent on regulatory approvals in the United States and Europe, quarter to quarter financial performance during the next few years is expected to show significant fluctuation. The Company's utilization of current financial resources will depend upon a number of factors including the success of Bayer and the Company in securing regulatory approval for Natrecor(R) (nesiritide) and gaining market acceptance for this product, the timeliness of its product development efforts, clinical trials, manufacturing capabilities, regulatory approvals and product introduction efforts for additional products or indications. Other contributing factors will be the Company's ability to develop new revenue sources to support research and development programs and its success in marketing and promoting the products of third-parties that may be licensed by the Company. The Company's cash resources of $77.7 million at June 30, 1998, together with revenues from product sales, collaborative agreements and interest income, proceeds from the sale of stock held as equity investments, and any funding from existing or future debt arrangements, will be used to support current and new clinical trials for proprietary products under development, to support commercialization efforts for prospective products 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 several years. Key factors that will affect future cash use and the timing of the Company's need to seek additional financing include: the results of the Company's partnering efforts, the rate of spending required to develop the Company's products and respond to changing business conditions, the degree to which the Company will incur expenses to launch its products following the necessary regulatory approvals and the net contribution produced by the Company's ability to co-promote and market products for third parties. Over the long-term, the Company will need to arrange additional financing for the future operation of its business, including the commercialization of products currently under development, and it will consider collaborative arrangements and additional public or private financings, including additional equity financings. Factors influencing the availability of additional funding include, but are not limited to, the Company's progress in product development, investor perception of the Company's prospects and the general conditions of the financial markets. 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 12, 1998. (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 Samuel H. Armacost 32,372,299 454,188 Richard L. Casey 32,297,785 528,702 Myron Du Bain 32,293,972 532,515 Donald B. Rice, Ph.D. 32,523,439 303,048 Charles A. Sanders, M.D. 32,503,825 322,662 Robert W. Schrier, M.D. 31,699,531 1,126,956 Solomon H. Snyder, M.D. 32,521,027 305,460 Burton E. Sobel, M.D. 32,312,308 514,179 Eugene L. Step 32,506,279 320,208
(b) The following matters were approved by stockholder vote, with votes cast as indicated: To ratify and approve amendments to the Company's 1992 Equity Incentive Plan: Votes for: 31,136,905 Votes against 1,509,230 Abstentions: 180,352 To ratify the selection of Coopers & Lybrand L.L.P. as the Company's independent auditors for fiscal year 1998: Votes cast for: 32,660,707 Votes cast against: 97,870 Abstentions: 67,910 Broker non-votes were not relevant to the foregoing matters. 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 INC. August 12, 1998 By: /s/ Richard L. Casey Date Richard L. Casey, Chairman and CEO August 12, 1998 By: /s/ David Southern Date David Southern, Controller (Chief Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from the consolidated balance sheet, consolidated statement of operations, and consolidated statement of cash flows included in the Company's Form 10-Q for the period ending June 30, 1998, and is qualified in its entirety by reference to such financial statements. $ 1,000 6-MOS Dec-31-1998 Jan-01-1998 Jun-01-1998 6,697 70,996 11,355 0 0 21,509 69,807 37,034 133,572 21,667 33,194 0 0 38 78,673 133,572 13,159 43,885 7,790 40,643 0 0 1,292 11,627 0 11,627 0 0 0 11,627 0.31 0.30
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