-----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, SBVmKD0oAqxEOCiE/kzau5zZ6lWBC4HPB+/CBWZU1Y2Y+sKNMP4f90VHJgcDKksJ i9kcV3QU6Ox95o6kqhLykw== 0000950144-97-005785.txt : 19970515 0000950144-97-005785.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950144-97-005785 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVEN PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000815838 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 592767632 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17254 FILM NUMBER: 97605567 BUSINESS ADDRESS: STREET 1: 11960 SW 144TH ST CITY: MIAMI STATE: FL ZIP: 33186 BUSINESS PHONE: 3052535099 MAIL ADDRESS: STREET 1: 11960 SW 144TH STREET CITY: MIAMI STATE: FL ZIP: 33185 10-Q 1 NOVEN PHARMACEUTICALS FORM 10-Q DATED 03/31/97 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange - ---- Act of 1934 For the quarterly period ended March 31, 1997 -------------- or ____ Transition Report Pursuant to Section 13 of the Securities Exchange Act of 1934 For the transition period from ____________ to_____________ Commission file number 0-17254 ------- NOVEN PHARMACEUTICALS, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) STATE OF DELAWARE 59-2767632 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 11960 S.W. 144th Street, Miami, FL 33186 --------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (305) 253-5099 -------------- 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 last practicable date. Class Outstanding at April 29, 1997 ----- ------------------------------- Common stock $.0001 par value 19,961,284 Page 1 of 12 2 NOVEN PHARMACEUTICALS, INC. INDEX TO FORM 10-Q PART I - FINANCIAL INFORMATION
Page No. Item 1 - Financial Statements Statements of Operations and Accumulated Deficit for the three months ended March 31, 1997 and 1996 3 Balance Sheets as of March 31, 1997 and December 31, 1996 4 Statements of Cash Flows for the three months ended March 31, 1997 and 1996 5 Notes to Financial Statements 6 - 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 11 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 11 SIGNATURES 12
Page 2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements NOVEN PHARMACEUTICALS, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
THREE MONTHS ENDED ------------------------------ MARCH 31, MARCH 31, 1997 1996 ------------ ------------ REVENUES: Product sales $ 1,346,521 $ 5,171,991 License revenue 81,499 106,499 Interest income 221,934 276,035 Other income 31,325 0 ------------ ------------ Total revenues 1,681,279 5,554,525 ------------ ------------ EXPENSES: Cost of products sold 593,256 2,891,843 Research and development 2,139,560 2,409,604 Marketing, general and administrative 1,708,072 873,002 ------------ ------------ Total expenses 4,440,888 6,174,449 ------------ ------------ NET LOSS FOR THE PERIOD (2,759,609) (619,924) ACCUMULATED DEFICIT BEGINNING OF PERIOD (24,047,315 (22,063,362) ------------ ------------ ACCUMULATED DEFICIT END OF PERIOD $(26,806,924) $(22,683,286) ============ ============ NET LOSS PER SHARE $ (0.14) $ (0.03) ============ ============ WEIGHTED AVERAGE SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS 19,883,435 19,756,549 ============ ============
The accompanying notes are an integral part of this statement. Page 3 4 NOVEN PHARMACEUTICALS, INC. BALANCE SHEETS
MARCH 31, DECEMBER 31, 1997 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 13,636,343 $ 5,456,826 Securities held to maturity 1,967,003 13,692,010 Accounts receivable 3,310,817 3,366,489 Inventories 4,540,769 4,151,020 Prepaid and other current assets 273,566 248,357 ------------ ------------ Total current assets 23,728,498 26,914,702 ------------ ------------ PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $3,103,531 at March 31, 1997 and $2,873,401 at December 31, 1996 15,635,206 15,701,474 ------------ ------------ OTHER ASSETS: Patent development costs, net 1,398,775 1,547,434 Deposits and other assets 64,069 65,128 ------------ ------------ Total other assets 1,462,844 1,612,562 ------------ ------------ TOTAL $ 40,826,548 $ 44,228,738 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 1,465,847 $ 2,055,780 ------------ ------------ DEFERRED LICENSE REVENUE 6,039,516 6,096,015 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock - authorized 100,000 shares of $.01 par value; no shares issued or outstanding Common stock - authorized 30,000,000 shares, par value $.0001 per share; issued and outstanding - 19,948,948 shares at March 31, 1997 and 19,831,538 shares at December 31, 1996 1,995 1,983 Additional paid-in capital 60,126,114 60,122,275 Accumulated deficit (26,806,924) (24,047,315) ------------ ------------ Total stockholders' equity 33,321,185 36,076,943 ------------ ------------ TOTAL $ 40,826,548 $ 44,228,738 ============ ============
The accompanying notes are an integral part of this statement Page 4 5 NOVEN PHARMACEUTICALS, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED ------------------------------ MARCH 31, MARCH 31, 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,759,609) $ (619,924) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 272,659 335,898 Increase in inventories (389,749) (812,160) (Increase) decrease in prepaid and other current assets (25,209) 25,241 Decrease in accounts receivable 55,672 233,788 Decrease in accounts payable and accrued liabilities (589,933) (196,700) Decrease in deferred license revenue (56,499) (56,499) ------------ ------------ Cash flows used in operating activities (3,492,668) (1,090,356) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Maturity of securities, net 11,725,007 1,951,441 Purchase of fixed assets, net (163,862) (325,999) Reimbursements (payments) for patent development costs 106,131 (55,300) Refund of deposits 1,059 0 ------------ ------------ Cash flows provided by investing activities 11,668,335 1,570,142 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Sale of common stock 3,850 13,000 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 8,179,517 492,786 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 5,456,826 16,131,263 ------------ ------------ CASH AND CASH EQUIVALENTS - END OF PERIOD $ 13,636,343 $ 16,624,049 ============ ============
The accompanying notes are an integral part of this statement. Page 5 6 NOTES TO FINANCIAL STATEMENTS ----------------------------- 1. BASIS OF PRESENTATION The financial statements of Noven Pharmaceuticals, Inc. (the "Company"), included herein, do not include all footnote disclosures normally included in annual financial statements and, therefore, should be read in conjunction with the Company's financial statements and notes thereto for each of the three years in the period ended December 31, 1996 included in the Company's annual report on Form 10-K. The interim financial statements for the three months ended March 31, 1997 are unaudited and, in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary for fair presentation of the balance sheets, statements of operations and cash flows of the Company. The statements of operations for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for the year ending December 31, 1997. 2. SUMMARY OF ACCOUNTING POLICIES The following is a summary of the significant accounting policies consistently applied in the preparation of the Company's financial statements: "INVENTORIES" Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Inventories at March 31, 1997 related primarily to the Company's transdermal estrogen delivery system. To date the Company has not experienced and does not anticipate in the future, any difficulty acquiring materials necessary to manufacture its transdermal systems. The following are the major classes of inventory:
March 31, December 31, 1997 1996 ------------ ------------- Finished goods $ 1,963,660 $ 1,399,858 Work in process 404,528 491,014 Raw materials 2,172,581 2,260,148 ------------ ------------- Total $ 4,540,769 $ 4,151,020 ============ =============
"PROPERTY AND EQUIPMENT" Property and equipment is recorded at cost. Depreciation is provided over the estimated useful lives of the assets. Leasehold improvements are amortized over the life of the lease or the service life of the improvements, whichever is shorter. The straight-line method of depreciation is primarily followed for financial purposes. Page 6 7 NOTES TO FINANCIAL STATEMENTS ----------------------------- (CONTINUED) ----------- "PATENT DEVELOPMENT COSTS" Costs, principally legal fees related to the development of patents, are capitalized and amortized over the lesser of their estimated economic useful lives or their remaining legal lives. "LOSS PER SHARE" Loss per share is based on the weighted average number of shares outstanding. "NEW ACCOUNTING STANDARDS" In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." The statement is effective for financial statements for periods ending after December 15, 1997, and changes the method in which earnings per share will be determined. Adoption of this statement by the Company will not have a material impact on earnings per share. 3. STOCKHOLDERS' EQUITY A schedule of the transactions in the common stock and the additional paid in capital accounts is as follows:
Common Stock Additional ------------ Paid-In Shares Amount Capital ------ ------ ------- Balance, January 1, 1997 19,831,538 $ 1,983 $60,122,275 Issuance of 117,410 shares of stock pursuant to stock option plan, net 117,410 12 3,839 ---------- ------- ----------- Balance, March 31, 1997 19,948,948 $ 1,995 $60,126,114 ========== ======= ===========
Page 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL From inception (1987) through 1994, the Company primarily engaged in the research and development of transdermal drug delivery systems. During this period, the Company's revenues were principally generated by license fees, milestone payments pursuant to various license agreements and interest earned on funds raised through the sale of its common stock. In 1995, due to the receipt of regulatory approvals for its transdermal estrogen delivery system, a significant portion of the Company's revenues were derived from the sale of this product to the Company's two licensing partners. In 1996, revenues from the sale of these products increased substantially as the Company's licensing partners initiated marketing and distribution. Noven expects that revenues from product sales to its licensing partners will fluctuate from quarter to quarter and year to year depending upon various factors not in Noven's control, including, but not limited to, the inventory requirements of each licensing partner at different times throughout the year, possible special selling efforts undertaken by each licensing partner at different times during the year, and, in the case of Rhone-Poulenc Rorer, Inc. the introduction of the product into new territories. Noven experienced fluctuations in sales of its transdermal estrogen delivery systems, Vivelle(TM) and MENOREST, to its licensing partners from the first three quarters to the last quarter of 1996 and the first quarter of 1997, when sales to these licensing partners declined. Although in-market sales of Noven's transdermal estrogen delivery system continue to increase on a global basis, it is anticipated that inventory balancing by the Company's licensing partners will result in significantly lower levels of reorders during the second quarter of 1997, causing continued losses. After this circumstance has been corrected, Noven expects that product sales to its licensing partners will significantly increase in the second half of 1997. Noven also expects to generate revenues in 1997 from licensing agreements with respect to products under development, although such revenues will fluctuate from period to period depending upon such factors as the number of new agreements finalized, timely achievement of milestones and strategic decisions affecting self-funding of products. Finally, during calendar year 1996, the Company commenced the marketing of its DentiPatch(TM) system. It is anticipated that significant revenues will be generated from the sale of this product commencing in the second half of 1997. RESULTS OF OPERATIONS Total revenues decreased approximately $3,873,000 or 70% for the three month period ended March 31, 1997 from the same period in the prior year. This decrease in revenues was the result of the decrease of approximately $3,825,000 in sales of the Company's transdermal estrogen delivery system to its two licensing partners. Royalties from transdermal estrogen delivery system are included in products sales. Interest income decreased approximately $54,000 or 20% for the three month period of 1997 primarily due to lower average balances in securities. Page 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Cost of product sold decreased approximately $2,299,000 or 79% for the three month period ended March 31, 1997 from the same period in the prior year. The gross margin percentage was 56% for the first quarter of 1997 as compared to 44% for the same period of the prior year. The gross margins vary depending on the amount of product sold to each licensing partner and manufacturing efficiencies including those relating to production volumes and in the first quarter of 1997 was favorably impacted by the sale of the DentiPatch product. Research and development expenses decreased approximately $270,000 or 11% for the three month period ended March 31, 1997 from the same period in the prior year. The decrease in research and development expenses from 1996 to 1997 was attributable to less process development activity and a reduced amount of cost associated with the validation of manufacturing equipment and facilities. In 1997 research and development expenses for new product development continued at the same rate as in 1996. New product development included work related to transoral delivery systems in the areas of glucose metabolism, hormone deficiency and cardiovascular disease, in addition to transdermal delivery systems for NSAIDs and other widely sold drugs. Marketing, general and administrative expenses increased approximately $835,000 or 96% for the three month period ended March 31, 1997 from the same period in the prior year. The increase in marketing, general and administrative expenses was primarily due to initial marketing expenses to support the launch of the DentiPatch system, increases in staffing and associated office expenses. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its operations through public offerings of common stock, including the exercise of warrants issued in connection with the first such offerings, private placements of its equity securities, license and contract revenues, and interest income. However, since the launch of its first commercial product in 1995, the Company's operations have been principally financed increasingly by revenues from the sale of its transdermal estrogen delivery system to its licensing partners. The Company has neither utilized debt nor has it engaged in significant commercial lease transactions to finance its operations. Net cash used in operating activities for the three months ended March 31, 1997 was approximately $3,493,000 compared to approximately $1,090,000 for the three months ended March 31, 1996. Cash used in 1997 was primarily due to decreases in accounts payable and accrued liabilities, along with the net operating loss and increases in inventories. In 1996 net cash used by operating activities was primarily attributable to decreases in accounts payable and accrued liabilities along with the net operating loss and increases in inventories, partially offset by decreases in accounts receivable. During the three months ended March 31, 1997 the Company's investing activities provided approximately $11,700,000 compared to approximately $1,570,000 for the three months ended March 31, 1996. Net cash provided during 1997 in investing activities resulted primarily from the sale of securities held to maturity to finance operating activities and reimbursement of patent cost partially offset by capital expenditures for commercial manufacturing equipment and improvements at the new manufacturing site. Net cash provided Page 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) in 1996, resulted primarily from the sale of securities held to maturity to finance operating activities, partially offset by capital expenditures for manufacturing equipment, buildup of manufacturing facilities and investments in patents. As of March 31, 1997 the Company had commitments for capital expenditures of approximately $50,000. Net cash provided by financing activities of $4,000 and $13,000 for three months ended March 31, 1997 and 1996 respectively, resulted form the exercise of options in the employee stock option plan. The Company expects to incur additional costs related to product development activities, increased marketing, general and administrative expenses and the completion of its manufacturing facilities. Although the Company believes that existing cash, anticipated contract and manufacturing revenues will be adequate for the foreseeable future, circumstances could arise which may result in a desire to raise additional capital. There can be no assurance that such capital will be available on acceptable terms, or at all. FORWARD LOOKING STATEMENTS From time to time, Noven may publish forward looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, usage and development activities and some other matters. The words "may", "will", "expect", "anticipate", "continue", "estimate", "project", "intend" and similar expressions are intended to identify such forward looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward looking statements. In order to comply with the terms of the safe harbor, Noven notes that a variety of factors could cause its actual results and experience to differ materially from anticipated results and other expectations expressed by Noven's forward looking statements. The risks and uncertainties that may effect the operations, performance, development and results of Noven's business, include the following: 1. Dependence upon RPR and Novartis, its two licensing partners, with respect to (i) the commercialization and marketing of certain transdermal hormonal products and (ii) obtaining regulatory approval of certain other transdermal hormonal products. 2. Uncertainties regarding (i) the market share for Noven's transdermal hormonal products which can be captured by Noven's licensing partners, and (ii) the market for DentiPatch(TM) product and Noven's ability to successfully establish and effectuate a marketing program. 3. Unanticipated difficulties associated with the manufacturing process of Menorest and Vivelle(TM) for its licensing partners as well as its DentiPatch(TM) product, that could result in delays in delivery and shortages of product. 4. Competition from other entities engaged in transdermal and/or transoral research, development, manufacturing and marketing, as well as other entities engaged in alternative drug delivery technologies. Page 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 5. Difficulties associated with (i) identifying appropriate licensing partners capable of meeting the financial requirements of research and development and/or marketing new products, and (ii) consummating satisfactory licensing agreements. 6. The time required to obtain regulatory approval of products and its associated expenses. 7. The possible exposure to product liability suits in excess of insurance policy limits or excluded from insurance coverage. Readers are cautioned not to place undue reliance on forward looking statements when made, which speak only as of the date made. Noven undertakes no obligation to publicly release the results of any revision of these forward looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. Also, unless expressly stated, Noven does not adopt projections, forecasts or other forward looking statements which may be disseminated from time to time by analysts and others. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K None Page 11 12 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. NOVEN PHARMACEUTICALS, INC. (Registrant) Date: May 14, 1997 By: S/ Steven Sablotsky ------------------------ --------------------------------- Steven Sablotsky, Chairman of the Board and President By: S/ William A. Pecora --------------------------------- William A. Pecora Chief Financial Officer Page 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 13,636,343 1,967,003 3,310,817 0 4,540,769 23,728,498 18,738,737 3,103,531 40,826,548 1,465,847 0 0 0 1,995 33,319,190 40,826,548 1,346,521 1,681,279 593,256 593,256 2,139,560 0 0 (2,759,609) 0 (2,759,609) 0 0 0 (2,759,609) (.14) (.14)
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