-----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, EMUruDS7Sooh61jNh/qrQb/cOVGQUYrIeg+Mm9n1SUnH7HTn5zqQUKKoqC7tEhGq 0tkroFJzjmuXC9rWCP07Sg== 0000950144-97-012124.txt : 19971113 0000950144-97-012124.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950144-97-012124 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 000-17254 FILM NUMBER: 97716894 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, INC. 10-Q 9/30/97 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 SEPTEMBER 30, 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 OCTOBER 30, 1997 ----- ---------------------------------- Common stock $.0001 par value 20,471,596 Page 1 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 September 30, 1997 and 1996 3 Statements of Operations and Accumulated Deficit for the nine months ended September 30, 1997 and 1996 4 Balance Sheets as of September 30, 1997 and December 31, 1996 5 Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 6 Notes to Financial Statements 7 - 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 12 SIGNATURES 13
Page 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOVEN PHARMACEUTICALS, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
THREE MONTHS ENDED ------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1996 -------------- --------------- REVENUES: Product sales $ 4,042,314 $ 5,170,415 License revenue 1,677,499 306,499 Interest income 256,547 303,634 ------------ ------------ Total revenues 5,976,360 5,780,548 ------------ ------------ EXPENSES: Cost of products sold 1,834,616 2,701,259 Research and development 2,177,771 1,384,247 Marketing, general and administrative 1,968,084 1,130,640 ------------ ------------ Total expenses 5,980,471 5,216,146 ------------ ------------ NET (LOSS) INCOME FOR THE PERIOD (4,111) 564,402 ACCUMULATED DEFICIT BEGINNING OF PERIOD (28,836,058) (22,500,921) ------------ ------------ ACCUMULATED DEFICIT END OF PERIOD $(28,840,169) $(21,936,519) ============ ============ NET (LOSS) INCOME PER SHARE $ 0.00 $ 0.03 ============ ============ WEIGHTED AVERAGE SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS 20,352,928 21,451,911 ============ ============
The accompanying notes are an integral part of this statement. Page 3 4 NOVEN PHARMACEUTICALS, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT NINE MONTHS ENDED ------------------------------ SEPTEMBER 30, SEPTEMBER 30, 1997 1996 -------------- -------------- REVENUES: Product sales $ 9,307,544 $ 15,493,421 License revenue 1,815,497 669,497 Interest income 666,982 885,128 Other income 31,325 36,250 ------------ ------------ Total revenues 11,821,348 17,084,296 ------------ ------------ EXPENSES: Cost of products sold 4,009,432 8,289,637 Research and development 6,659,611 5,743,534 Marketing, general and administrative 5,945,159 2,924,282 ------------ ------------ Total expenses 16,614,202 16,957,453 ------------ ------------ NET (LOSS) INCOME FOR THE PERIOD (4,792,854) 126,843 ACCUMULATED DEFICIT BEGINNING OF PERIOD (24,047,315) (22,063,362) ------------ ------------ ACCUMULATED DEFICIT END OF PERIOD $(28,840,169) $(21,936,519) ============ ============ NET (LOSS) INCOME PER SHARE $ (0.24) $ 0.01 ============ ============ WEIGHTED AVERAGE SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS 20,066,563 21,602,070 ============ ============ The accompanying notes are an integral part of this statement. Page 4 5 NOVEN PHARMACEUTICALS, INC. BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1997 1996 -------------- -------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 13,385,336 $ 5,456,826 Securities held to maturity 5,806,263 13,692,010 Accounts receivable 3,010,331 3,366,489 Inventories 3,573,231 4,151,020 Prepaid and other current assets 106,484 248,357 ------------ ------------ Total current assets 25,881,645 26,914,702 ------------ ------------ PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $3,582,924 at September 30, 1997 and $2,873,401 at December 31, 1996 15,425,016 15,701,474 ------------ ------------ OTHER ASSETS: Patent development costs, net 1,678,605 1,547,434 Deposits and other assets 64,069 65,128 ------------ ------------ Total other assets 1,742,674 1,612,562 ------------ ------------ TOTAL $ 43,049,335 $ 44,228,738 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 1,814,878 $ 2,055,780 ------------ ------------ DEFERRED LICENSE REVENUE 5,926,518 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 40,000,000 shares, par value $.0001 per share; issued and outstanding - 20,471,596 shares at September 30, 1997 and 19,831,538 shares at December 31, 1996 2,047 1,983 Additional paid-in capital 64,146,061 60,122,275 Accumulated deficit (28,840,169) (24,047,315) ------------ ------------ Total stockholders' equity 35,307,939 36,076,943 ------------ ------------ TOTAL $ 43,049,335 $ 44,228,738 ============ ============
The accompanying notes are an integral part of this statement. Page 5 6 NOVEN PHARMACEUTICALS, INC. STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED ----------------------------- SEPTEMBER 30, SEPTEMBER 30, 1997 1996 -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (4,792,854) $ 126,843 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 827,053 767,763 Decrease in accounts receivable 356,158 708,221 Decrease (Increase) in inventories 577,789 (217,583) Decrease in prepaid and other current assets 141,873 195,701 Decrease in accounts payable and accrued liabilities (240,902) (2,160,353) Decrease in deferred license revenue (169,497) (169,497) ------------ ------------ Cash flows used in operating activities (3,300,380) (748,905) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Maturity (purchase) of securities, net 7,885,747 (3,711,083) Purchase of fixed assets, net (433,065) (822,052) Payments for patent development costs (248,701) (247,657) Refund of deposits 1,059 600 ------------ ------------ Cash flows provided by (used in) investing activities 7,205,040 (4,780,192) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Sale of common stock 4,023,850 20,168 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,928,510 (5,508,929) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 5,456,826 16,131,263 ------------ ------------ CASH AND CASH EQUIVALENTS - END OF PERIOD $ 13,385,336 $ 10,622,334 ============ ============
The accompanying notes are an integral part of this statement. Page 6 7 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 and nine months ended September 30, 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 and nine months ended September 30, 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 September 30, 1997 are 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: September 30, December 31, 1997 1996 -------------- --------------- Finished goods $ 1,417,855 $ 1,399,858 Work in process 300,030 491,014 Raw materials 1,855,346 2,260,148 -------------- --------------- Total $ 3,573,231 $ 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. PATENT DEVELOPMENT COST - 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. Page 7 8 NOTES TO FINANCIAL STATEMENTS (CONTINUED) EARNINGS AND LOSS PER SHARE - Earnings per share is based on the weighted average number of shares including common stock and common stock equivalent shares. Common stock equivalent shares include outstanding warrants and options (using the Treasury Stock Method). The loss per share is based only 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 140,058 shares of stock pursuant to stock option plan, net 140,058 14 23,836 Issuance of 500,000 shares of stock pursuant to partial exercise of warrant 500,000 50 3,999,950 ----------- ----------- ----------- Balance, September 30, 1997 20,471,596 $ 2,047 $64,146,061 =========== =========== ===========
On June 26, 1997 Noven extended Rhone-Poulenc Rorer's ("RPR") warrant to purchase 1,000,000 shares of common stock for a period of 18 months in consideration of RPR's agreement to purchase 500,000 shares of common stock under the warrant. On July 1, 1997 RPR purchased 500,000 shares for $4 million pursuant to the warrant. Page 8 9 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, Rhone-Poulenc Rorer, Inc. and Novartis Pharmaceuticals Corporation ("Novartis"). In 1996, revenues from the sale of these products increased substantially as the Company's licensing partners, initiated marketing and distribution. The Company anticipates that product sales will continue to comprise the bulk of its revenues. Noven experienced fluctuations in sales of its transdermal estrogen delivery systems, Vivelle(R) and MENOREST, to its licensing partners from 1996 to the first quarter of 1997, when sales to these licensing partners declined. Although in-market sales of Noven's estrogen delivery system continue to increase on a global basis, inventory balancing by the Company's licensing partners resulted in significantly lower levels of reorders during this period. During the second and third quarter of 1997 product sales increased back to the levels experienced in the fourth quarter of 1996. 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 RPR the introduction of the product into new territories. Noven also expects to generate revenues in the fourth quarter of 1997 and 1998 from licensing agreements with respect to products under development, although such revenues will fluctuate 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 on a regional basis. The product was launched nationally in the second quarter of 1997, with the first national advertising program commencing at the beginning of the fourth quarter of 1997. Revenues from this product are anticipated to increase during the remainder of the year. RESULTS OF OPERATIONS Total revenues increased approximately $196,000 or 3% for the three month period ended September 30, 1997 from the same period in the prior year and decreased approximately $5,263,000 or 31% for the comparable nine month period. This decrease in revenues was primarily the result of the decrease in sales of the Company's transdermal estrogen delivery system to its two licensing partners during the first nine months of 1997. Royalties from transdermal estrogen delivery system are included in product sales. License income increased approximately $1,371,000 or 447% for the three month period ended September Page 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 30, 1997 from the same period in the prior year and increased approximately $1,146,000 or 171% for the comparable nine month period. Interest income decreased approximately $47,000 or 16% for the three month period ended September 30, 1997 from the same period in the prior year and decreased approximately $218,000 or 25% for the comparable nine month period, primarily due to lower balances in securities. Cost of product sold decreased approximately $867,000 or 32% for the three month period ended September 30, 1997 from the same period in the prior year and approximately $4,280,000 or 52% from the comparable nine month period. The gross margin percentage was 55% for the three month period of 1997 as compared to 48% for the same period of the prior year and 57% for the first nine months of 1997 as compared to 46% in 1996. 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 1997 are favorably impacted by the sale of the DentiPatch product. Research and development increased approximately $794,000 or 57% for the three month period ended September 30, 1997 from the same period in the prior year and increased approximately $916,000 or 16% from the comparable nine month period. New product development included work related to transoral delivery systems in the areas of dental therapeutics and larger molecular entities and transdermal delivery systems for hormone deficiency, nonsteroidal anti-inflammatory agents, central nervous system and cardio vascular drugs. Marketing, general and administrative expenses increased approximately $837,000 or 74% for the three month period ended September 30, 1997 from the same period in the prior year and approximately $3,021,000 or 103% for the comparable nine month period. The increase in marketing, general and administrative expenses is primarily due to marketing and sales 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 nine months ended September 30, 1997 was approximately $3,300,000. This funded the net loss for the first nine months of 1997 of approximately $4,793,000 and a decrease in accounts payable of approximately $241,000, partially offset by decreases in accounts receivable of approximately $356,000; in inventory of approximately $578,000; and in prepaids and other current assets of approximately $142,000. For the same nine month period in 1996 operating activities used $749,000 to fund decreases in accounts payable of approximately $2,160,000 and increase in inventory of $218,000, partially offset by decreases in accounts receivable of approximately $708,000 and in prepaids and other current assets of approximately of $196,000 and a net income of approximately $127,000. Page 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) During the nine months ended September 30, 1997 the Company's investing activities provided approximately $7,200,000 compared to approximately $4,800,000 used in the nine months ended September 30, 1996. Net cash provided during 1997 in investing activities resulted primarily from the sale of securities held to maturity to finance operating activities partially offset by capital expenditures for commercial manufacturing equipment, improvements to the manufacturing facilities and investments in patents. Net cash used in 1996, resulted primarily from the purchase of securities held to maturity, partially offset by capital expenditures for manufacturing equipment, improvements at the new manufacturing site and investments in patents. As of September 30, 1997 the Company had commitments for capital expenditures of approximately $23,000. For nine months ended September 30, 1997 net cash provided by financing activities of approximately $4,023,000 resulted primarily from RPR's purchase of 500,000 shares of common stock for $4,000,000 pursuant to the partial exercise of its warrant. The balance of the cash provided by financing activities in 1997 and 1996 was due to the exercise of options pursuant to 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 continued expansion of its 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. Page 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 3. Unanticipated difficulties associated with the manufacturing process of Menorest and Vivelle(R) 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. 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 27 Financial Data Schedule (for SEC use only). Page 12 13 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: NOVEMBER 12, 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 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 13,385,336 5,806,263 3,010,331 0 3,573,231 25,881,645 19,007,940 3,582,924 43,049,335 1,814,878 0 0 0 2,047 35,305,892 43,049,335 9,307,544 11,821,348 4,009,432 4,009,432 6,659,611 0 0 (4,792,854) 0 (4,792,854) 0 0 0 (4,792,854) (.24) (.24)
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