-----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, E3LdFxwzMWbT6voR9Rz8E9mX83ck6qbZowLie4ymMKP/qvaS3ynDYWt28dnv2lEL UchDS+arPEL3Fo+zNPry8g== 0000950144-99-006299.txt : 19990518 0000950144-99-006299.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950144-99-006299 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99626820 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 3-31-99 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1999 Commission file number 0-17254 NOVEN PHARMACEUTICALS, INC. 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) (305) 253-5099 - -------------------------------------------------------------------------------- (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 issuer's classes of common stock, as of the last practicable date. CLASS OUTSTANDING AT APRIL 30, 1999 - ------------------------------ ----------------------------- Common stock, $.0001 par value 21,447,272 2 NOVEN PHARMACEUTICALS, INC. INDEX
PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Unaudited Statements of Operations for the Three Months Ended March 31, 1999 and 1998 3 Balance Sheets as of March 31, 1999 and December 31, 1998 4 Unaudited Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 5 Notes to Unaudited Financial Statements 6 - 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 11 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 11 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 11 SIGNATURES 12
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOVEN PHARMACEUTICALS, INC. Unaudited Statements of Operations Three Months Ended March 31, (in thousands, except per share amounts)
1999 1998 -------- -------- Revenues: Product sales $ 7,421 $ 2,489 License revenue 56 59 -------- -------- Total revenues 7,477 2,548 Expenses: Cost of products sold 3,244 1,033 Research and development 1,657 2,000 Marketing, general and administrative 1,903 2,981 -------- -------- Total operating costs and expenses 6,804 6,014 Income (loss) from operations 673 (3,466) Interest income, net 52 190 -------- -------- Net income (loss) before income taxes 725 (3,276) Income taxes 9 -- -------- -------- Net income (loss) $ 716 $ (3,276) ======== ======== Basic and diluted income (loss) per share $ 0.03 $ (0.16) ======== ======== Basic weighted average of common stock 21,531 20,476 ======== ======== Diluted weighted average of common stock 21,730 20,476 ======== ========
The accompanying notes are an integral part of these statements 3 4 NOVEN PHARMACEUTICALS, INC. Balance Sheets (in thousands, except share data)
March 31, 1999 DECEMBER 31, 1998 -------------- ----------------- (unaudited) ASSETS Current Assets: Cash and cash equivalents $ 5,511 $ 5,573 Accounts receivable (less allowance for doubtful accounts of $162 in 1999 and $268 in 1998) 4,330 3,044 Due from Vivelle Ventures LLC 3,403 3,489 Inventories 2,732 2,733 Prepaid and other current assets 204 421 -------- -------- 16,180 15,260 Property, Plant and Equipment: Property, plant and equipment, at cost 20,517 20,376 Less: accumulated depreciation and amortization 5,202 4,859 -------- -------- 15,315 15,517 Other Assets: Investment in Vivelle Ventures LLC 7,451 7,500 Patent development costs, net 1,803 1,765 Deposits and other assets 113 114 -------- -------- 9,367 9,379 -------- -------- $ 40,862 $ 40,156 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 4,849 $ 4,954 Note payable 113 179 Accrued compensation and related liabilities 641 913 Other accrued liabilities 301 141 -------- -------- 5,904 6,187 Deferred License Revenue 5,588 5,644 Commitments and Contingencies -- -- -------- -------- 11,492 11,831 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 21,544,372 shares at March 31, 1999 and 21,482,423 at December 31, 1998 2 2 Additional paid-in capital 66,998 66,669 Accumulated deficit (36,967) (37,683) Treasury stock, 97,100 shares, at cost (663) (663) -------- -------- 29,370 28,325 -------- -------- $ 40,862 $ 40,156 ======== ========
The accompanying notes are an integral part of these statements 4 5 NOVEN PHARMACEUTICALS, INC. Unaudited Statements of Cash Flows Three Months Ended March 31, (in thousands, except share date)
1999 1998 -------- -------- Cash flows from operating activities: Net income (loss) $ 716 $ (3,276) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 392 247 Amortization of patent costs 52 52 Decrease (increase) in inventories 1 (705) Decrease (increase) in prepaid and other current assets 217 (155) (Increase) decrease in accounts receivable (1,286) 235 Decrease in due from Vivelle Ventures LLC 86 -- (Decrease) increase in accounts payable (105) 290 Increase in compensation and other accrued liabilities 217 14 Decrease in deferred license revenue (56) (56) -------- -------- Cash flows provided by (used in) operating activities 234 (3,354) Cash flows from investing activities: Maturity of securities, net -- 4,901 Purchase of fixed assets (141) (203) Payments for patent development costs (90) (73) Refund of deposits 1 6 -------- -------- Cash flows (used in) provided by investing activities (230) 4,631 Cash flows from financing activities: Note payable (66) -- -------- -------- Net (decrease) increase in cash and cash equivalents (62) 1,277 Cash and cash equivalents - beginning of period 5,573 11,268 -------- -------- Cash and cash equivalents - end of period $ 5,511 $ 12,545 ======== ========
The accrued 1998 bonuses for employees and officers of $329 were settled by issuance of 62,000 shares of common stock during the quarter ended March 31, 1999. Cash payments for interest were $2.1 in 1999; no interest payments were made in prior year. The accompanying notes are an integral part of these statements 5 6 NOVEN PHARMACEUTICALS, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. Basis of presentation In management's opinion, the accompanying unaudited financial statements of Noven Pharmaceuticals, Inc. ("Noven") contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of Noven as of March 31, 1999, and the results of its operations for the three months ended March 31, 1999 and 1998. The results of operations and cash flows for the three months ended March 31, 1999 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 1999. The accompanying financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The financial statements should be read in conjunction with the financial statements and the notes to the financial statements included in Noven's Annual Report on Form 10-K for the year ended December 31, 1998. The accounting policies followed for interim financial reporting are the same as those disclosed in Note 1 of the notes to the financial statements included in Noven's Annual Report on Form 10-K for the year ended December 31, 1998. Certain amounts presented in the financial statements for prior periods have been reclassified to the current period's presentation. 2. Inventories: The following are the major classes of inventory (in thousands): March 31, December 31, 1999 1998 --------- ------------ Finished goods $ 549 $ 685 Work in process 376 337 Raw materials 1,807 1,711 ------ ------ Total $2,732 $2,733 ====== ====== 3. Income Taxes: Income taxes for the three months ended March 31, 1999 represent the provision for the alternative minimum tax. 6 7 4. Investment in Vivelle Ventures LLC: Noven shares in the income of Vivelle Ventures LLC d/b/a Novogyne Pharmaceuticals (the "Joint Venture") according to an established formula after an annual preferred return of $6.1 million to Novartis Pharmaceuticals Corporation ("Novartis"). Noven's share of income increases as product sales increase, subject to a cap of 50%. The Joint Venture did not produce sufficient income in the three months ended March 31, 1999 under the established formula for Noven to recognize income from the operations of the Joint Venture. During the quarter ended March 31, 1999, Noven sold $2.0 million of products to, and earned $300,000 in royalties from, the Joint Venture and was reimbursed for $2.7 million of sales and marketing expenses incurred on behalf of the Joint Venture. As of March 31, 1999, Noven has a receivable from the Joint Venture of $3.4 million, representing products sold to and marketing expenses reimbursable from the Joint Venture. All intercompany balances are generally paid by the 15th day of the following month. Subject to the approval of the Joint Venture's management committee, cash may be distributed quarterly to Novartis and Noven based upon a contractual formula. In April 1999, Noven received a cash distribution of $622,000 from the Joint Venture based upon the results of operations for the year ended December 31, 1998. This distribution will be recorded as a return of capital in the second quarter of 1999. 5. Stockholders' Equity: In January 1999, Noven issued approximately 62,000 shares of its common stock to certain officers and employees as a bonus for their performance during 1998. The value of the shares issued was based upon market price at the time of grant. The bonus amount was recognized as compensation expense in 1998. In April 1999, Noven retired 97,100 shares of treasury stock valued at $663,000. 6. Subsequent Events: In May 1999, Noven entered into a Master Finance Lease Agreement (the "Master Lease") with a major bank for a maximum principal amount of $1 million with a base lease term of three or four years depending upon the equipment type. The Master Lease contains certain financial covenants. Any transactions under the Master Lease will be accounted for as financial arrangements. Under the Master Lease, Noven has entered into one lease in the amount of $624,000 with an expiration date of May 2003. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements, the related notes and management's discussion and analysis of financial condition and results of operations included in Noven's Annual Report on Form 10-K for the year ended December 31, 1998 and the financial statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q. Except for historical information contained herein, the matters discussed below are forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting Noven's operations, markets, products and prices, and other factors. These factors, which are discussed elsewhere in this report and in the documents filed by Noven with the Securities and Exchange Commission ("SEC"), may cause Noven's results to differ materially from the forward looking statements made in this report or otherwise made by or on behalf of Noven. RESULTS OF OPERATIONS - Three Months Ended March 31, 1999 Compared to the Three Months Ended March 31, 1998. Total revenues for the three months ended March 31, 1999 were $7.5 million, an increase of approximately $4.9 million, or 193%, over the same period in the prior year. This increase in revenues was primarily attributable to sales of CombiPatch(TM), which was launched by Rhone Poulenc Rorer Inc. ("RPR") in September 1998, and to a lesser extent, increased sales of Vivelle(R) and initial sales of Vivelle-Dot(TM) to Vivelle Ventures LLC (the "Joint Venture"). Royalties are included in product sales. Cost of products sold increased approximately $2.2 million, or 214%, for the three months ended March 31, 1999 compared to the same period in the prior year. Gross profit was $4.2 million (56% of product sales), compared to $1.5 million (58% of product sales) for the same period in the prior year. The decrease in gross margin resulted (i) primarily from the elimination of 49% of Noven's profit from sales to the Joint Venture of products held in the Joint Venture's inventory at March 31, 1999, and (ii) to a lesser extent, from the decrease in manufacturing efficiency caused by initial manufacturing costs associated with Vivelle-Dot(TM), and (iii) from a shift in product mix. Research and development expenses decreased approximately $343,000, or 17%, for the three months ended March 31, 1999, compared to the same period in the prior year. This decrease was attributable to fewer clinical studies in 1999, as a result of completion of studies relating to, and FDA approval of, Vivelle-Dot(TM). The future level of research and development expenditures will depend on, among other things, the status of products under development and the outcome of clinical trails, strategic decisions by management, the consummation of new license agreements and Noven's liquidity. Marketing, general and administrative expenses decreased approximately $1.1 million, or 36%, for the three months ended March 31, 1999 from the same period in the prior year. This decrease was primarily due to lower sales and marketing expenses associated with Dentipatch(R), offset by an increase in administrative staffing and associated office expenses. 8 9 Interest income decreased approximately $138,000, or 73%, for the three months ended March 31, 1999, compared to the same period in 1998, primarily due to lower average balances in cash and cash equivalents. Income taxes for the three months ended March 31, 1999 represent the provision for the alternative minimum tax. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1999 and December 31, 1998, Noven had $5.5 million and $5.6 million, respectively, in cash and cash equivalents. Net cash of approximately $234,000 was provided by operating activities during the first quarter of 1999, compared to approximately $3.4 million used for operating activities during the first quarter of 1998. The increase in cash provided by operating activities, as compared to the first quarter of 1998, was primarily the result of improved operating income, partially offset by an increase in accounts receivable and a reduction in accounts payable. The higher accounts receivable is a direct result of higher sales of Vivelle(R) and Vivelle-Dot(TM) for the three months ended March 31, 1999. Net cash of approximately $230,000 was used for investing activities during the first quarter of 1999, compared to approximately $4.6 million provided by investing activities during the same period of the prior year. The difference in cash flows was primarily attributable to the maturity of securities in the 1998 period. Net cash used during 1999 in investing activities resulted primarily from the purchase of fixed assets and payment of patent development costs. In April 1999, Noven received a cash distribution of $622,000 from the Joint Venture based upon the results of operations ended December 31, 1998. This distribution will be recorded as a return of capital in the second quarter of 1999. Noven's principal sources of short term liquidity are existing cash and cash generated from product sales, royalties under license agreements and distributions from the Joint Venture, which Noven believes will be sufficient to meet its operating needs and anticipated capital requirements over the short term. For the long term, Noven intends to utilize funds derived from these sources, as well as funds generated through sales of products under development. Noven expects that such funds will be comprised of payments received pursuant to future licensing arrangements, as well as Noven's direct sales of its own products. There can be no assurance that Noven will successfully complete the development of products under development, that Noven will obtain regulatory approval for any such products, or that any approved product may be produced in commercial quantities, at reasonable costs, and be successfully marketed. To the extent that capital requirements exceed available capital, Noven will need to seek alternative sources of financing to fund its operations. As of March 31, 1999, Noven had no existing credit facility and no assurance can be given that alternative financing will be available, if at all, in a timely manner, on favorable terms. If Noven is unable to obtain satisfactory alternative financing, Noven may be required to delay or reduce its proposed expenditures, including expenditures for research and development, or sell assets 9 10 in order to meet its future obligations. In May 1999, Noven entered into a Master Lease with a major bank for a maximum principal amount of $1 million with a base lease term of three or four years depending upon the equipment type. The Master Lease contains certain financial covenants. Any transactions under the Master Lease will be accounted for as financial arrangements. Under the Master Lease, Noven has entered into one lease in the amount of $624,000 with an expiration date of May 2003. YEAR 2000 COMPLIANCE Noven believes that its Year 2000 project is proceeding on schedule. The project is addressing potential problems in certain computer programs and embedded chips, which represent the calendar year with only the last two digits. There is a risk that, with respect to the change in calendar year from 1999 to 2000, some programs or chips could interpret "00" as "2000", "1900", or some other input. The project addresses issues in critical business areas related to information technology ("IT") systems, such as computer equipment and software, as well as non-IT systems, such as communication systems, alarm and security systems, manufacturing and distribution equipment and control systems, and laboratory testing and environmental control equipment and systems. STATUS Noven initiated its Year 2000 project in early 1998 and engaged an independent consulting company to assist in coordinating its Year 2000 project. The initial inventory, assessment and prioritization and planning phases were completed by May 1998. Noven has completed the testing and remediation of its IT systems and anticipates that the remediation and testing of internal non-IT systems will be completed by mid-1999. None of Noven's other IT projects have been materially delayed or impacted by the Year 2000 Project. The book value of computers, software and equipment that will need to be written off as a result of not being Year 2000 compliant is immaterial. Noven has commenced efforts to determine the extent to which it may be affected by Year 2000 issues of third parties, including suppliers, customers, service providers and certain agencies and regulatory organizations. Noven has been reviewing and continues to review with its critical suppliers and major customers the status of their Year 2000 readiness. Some third parties have either declined to provide the requested information or have limited the scope of their assurances. Noven has established a plan for the continued monitoring of critical business partners during 1999. COSTS The estimated total cost of the Year 2000 project is $250,000. As of March 31, 1999, Noven had incurred costs of approximately $160,000 related to this project. The project is being funded by cash on hand and from internally generated funds, which Noven expects to be adequate to complete the project. RISKS Noven believes that failure to correct a material Year 2000 problem could result in an interruption in, or failure of, certain normal business activities or operations. Noven is unable to 10 11 determine at this time whether the results of any Year 2000 readiness issues will have an impact on Noven's results of operations, liquidity or financial condition. The Year 2000 project is expected to significantly reduce Noven's level of uncertainty about Year 2000 problems, including the Year 2000 compliance and readiness of its material third parties. Noven believes that its programs for Year 2000 readiness will significantly improve its ability to deal with its own Year 2000 readiness issues and those of material third parties. A contingency plan has not been developed for dealing with the most reasonably likely worst case scenario, and such scenario has not yet been clearly identified. Noven currently plans to complete such analysis and develop and implement any necessary contingency plans by December 31, 1999. Such plans will not, however, guarantee that no material adverse effects will occur. The costs of Noven's Year 2000 project and the dates on which Noven believes it will complete the various phases of this project are based upon management's best estimates, which were derived using numerous assumptions regarding future events, including the continued availability of certain resources, third-party remediation plans and other factors. There can be no assurance that these estimates will prove to be accurate, and actual results could differ materially from those currently anticipated. Specific factors that could cause such material differences include, but are not limited to, the availability and cost of personnel trained in Year 2000 issues, the ability to identify, assess, remediate and test all relevant computer code and embedded technology, the performance of new systems and equipment, the reduction of productivity pending completion of employee training and similar uncertainties. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Noven does not believe that it has material exposure to market rate risk. Noven has no material debt obligations. Noven may, however, require additional financing to fund future obligations and no assurance can be given that the terms of future sources of financing will not expose Noven to material market rate risk. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 27 Financial Data Schedule, filed herewith (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Registrant during the three months ended March 31, 1999. 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. Date: May 14, 1999 By: /s/ James B. Messiry ----------- -------------------------------- James B. Messiry Vice President and Chief Financial Officer 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY UNAUDITED FINANCIAL INFORMATION EXTRACTED FROM NOVEN PHARMACEUTICALS, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 5,511 0 4,492 162 2,732 16,180 20,517 5,202 40,862 5,904 0 0 0 2 29,368 40,862 7,421 7,477 3,244 6,804 0 0 0 725 9 716 0 0 0 716 .03 .03
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