-----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, MYa5yAnPa/HPJqYjcQVTSYBfio7fVVd6Ksso0kGQ+/q/7ZcWERjRC366NRqGHoXG ZkVEzgcP1YofxJgRnRLZLQ== 0000950144-00-006437.txt : 20000515 0000950144-00-006437.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950144-00-006437 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 627937 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 3/31/2000 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, 2000 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 28, 2000 ----- ----------------------------- Common stock $.0001 par value 21,767,680 2 NOVEN PHARMACEUTICALS, INC. INDEX
Page No. -------- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Statements of Operations for the Three Months Ended March 31, 2000 and 1999 3 Balance Sheets as of March 31, 2000 and December 31, 1999 4 Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 5 Notes to Financial Statements 6 - 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 10 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 10 PART II - OTHER INFORMATION Item 5 - Other Information 11 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. Statements of Operations Three Months Ended March 31, (in thousands, except per share amounts) (unaudited)
2000 1999 ------- ------- Revenues: Product sales $ 9,456 $ 7,421 License revenues 147 56 ------- ------- Total revenues 9,603 7,477 Expenses: Cost of products sold 4,511 3,244 Research and development 1,825 1,657 Marketing, general and administrative 2,082 1,903 ------- ------- Total operating costs and expenses 8,418 6,804 ------- ------- Income from operations 1,185 673 Equity in earnings of Novogyne 477 -- Interest income, net 200 52 ------- ------- Net income before income taxes 1,862 725 Provision for income taxes 35 9 ------- ------- Net income $ 1,827 $ 716 ======= ======= Basic earnings per share $ .08 $ .03 ======= ======= Diluted earnings per share $ .08 $ .03 ======= ======= Weighted average number of common shares outstanding: Basic 21,682 21,531 ======= ======= Diluted 22,827 21,730 ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 3 4 NOVEN PHARMACEUTICALS, INC. Balance Sheets (in thousands, except share data)
March 31, 2000 December 31, 1999 (unaudited) (audited) -------------- ----------------- ASSETS Current Assets: Cash and cash equivalents $ 15,247 $ 15,338 Accounts receivable (less allowance for doubtful accounts of $182 in 2000 and $167 in 1999) 2,481 3,048 Due from Novogyne 4,956 3,651 Inventories 4,369 3,578 Prepaid and other current assets 409 415 -------- -------- 27,462 26,030 Property, Plant and Equipment - net 15,241 15,329 Other Assets: Investment in Novogyne 8,842 8,365 Net deferred income tax asset 5,000 5,000 Patent development costs, net 1,787 1,805 Deposits and other assets 310 359 -------- -------- 15,939 15,529 -------- -------- $ 58,642 $ 56,888 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 5,270 $ 5,085 Notes payable - current portion 355 348 Accrued compensation and related liabilities 1,139 2,237 Other accrued liabilities 1,075 1,193 Deferred license revenue - current portion 586 586 -------- -------- 8,425 9,449 Long Term Liabilities: Notes payable 513 604 Deferred license revenue 7,295 7,442 -------- -------- 16,233 17,495 Shareholders' 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 21,767,680 shares at March 31, 2000 and 21,546,271 at December 31, 1999 3 2 Additional paid-in capital 67,802 66,614 Accumulated deficit (25,396) (27,223) -------- -------- 42,409 39,393 -------- -------- $ 58,642 $ 56,888 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 4 5 NOVEN PHARMACEUTICALS, INC. Statements of Cash Flows Three Months Ended March 31, (in thousands, except share data) (unaudited)
2000 1999 -------- -------- Cash flows from operating activities: Net income $ 1,827 $ 716 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 351 392 Amortization of patent costs 52 52 Recognition of deferred license revenue (147) (56) Equity in earnings of Novogyne (477) -- Decrease (increase) in accounts receivable 567 (1,286) (Increase) decrease in due from Novogyne (1,305) 86 (Increase) decrease in inventories (791) 1 Decrease in prepaid and other current assets 6 217 Decrease in deposits and other assets 49 1 Increase (decrease) in accounts payable 185 (105) (Decrease) increase in accrued compensation and related liabilities (316) 57 (Decrease) increase in other accrued liabilities (118) 160 -------- -------- Cash flows (used in) provided by operating activities (117) 235 Cash flows from investing activities: Purchase of fixed assets, net (263) (141) Payments for patent development costs (34) (90) -------- -------- Cash flows (used in) investing activities (297) (231) Cash flows from financing activities: Issuance of common stock 407 -- Notes payable (84) (66) -------- -------- Cash flows provided by (used in) financing activities 323 (66) -------- -------- Net (decrease) in cash and cash equivalents (91) (62) Cash and cash equivalents - beginning of period 15,338 5,573 -------- -------- Cash and cash equivalents - end of period $ 15,247 $ 5,511 ======== ========
Cash payments for interest were $19 in 2000 and $2 in 1999. Accrued compensation and related liabilities for the years ended December 31, 1999 and 1998 includes bonuses for employees and officers of $782 and $329 that were settled by issuance of 55,000 and 62,000 shares of common stock during the quarters ended March 31, 2000 and 1999, respectively. 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, 2000, and the results of its operations for the three months ended March 31, 2000 and 1999. The results of operations and cash flows for the three months ended March 31, 2000 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2000. 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, 1999. 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, 1999. Noven and Novartis Pharmaceuticals Corporation ("Novartis") entered into a joint venture, Vivelle Ventures LLC (d/b/a Novogyne Pharmaceuticals) ("Novogyne"), effective May 1, 1998, to market and sell women's healthcare products in the United States and Canada, including Noven's transdermal estrogen delivery systems marketed under the brand names Vivelle(R) and Vivelle-Dot(TM). Noven accounts for its 49% investment in Novogyne under the equity method. Noven has eliminated 49% of its profit on products sold to Novogyne that remain in Novogyne's inventory. 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 inventories (in thousands): March 31, December 31, 2000 1999 --------- ------------ Finished goods $ 12 $ 125 Work in process 823 973 Raw materials 3,534 2,480 ------ ------ Total $4,369 $3,578 ====== ====== 6 7 3. Income Taxes: Provisions for income taxes for the three months ended March 31, 2000 and 1999 are provisions for the alternative minimum tax. 4. Investment in Novogyne: Noven shares in the income of Novogyne according to an established formula after an annual preferred return of $6.1 million to Novartis. Noven's share of income increases as product sales increase, subject to a cap of 49%. Novogyne produced sufficient income in the three months ended March 31, 2000 to meet Novartis' preferred return and for Noven to recognize income from Novogyne under the established formula. During the three months ended March 31, 2000 and 1999, Noven recognized $6.1 million and $2.0 million of product sales to Novogyne, which included $0.9 million and $0.3 million in royalties, and was reimbursed for $3.2 million and $2.7 million of sales and marketing expenses incurred on behalf of Novogyne, respectively. As of March 31, 2000 and 1999, Noven had amounts due from Novogyne of $5.0 million and $3.4 million, respectively, representing products sold to and marketing expenses reimbursable from Novogyne. Subject to the approval of Novogyne's management committee, cash may be distributed quarterly to Novartis and Noven based upon a contractual formula. In April 2000, Noven received a cash distribution of $2.2 million from Novogyne based upon the results of operations for the year ended December 31, 1999, which will be recorded as a reduction in the investment in Novogyne in the second quarter of 2000. 5. Notes Payable: In May 1999, Noven entered into a Master Finance Lease Agreement (the "Master Lease") for $1 million with a base lease term of three or four years depending upon the equipment type. The terms of the Master Lease include, among other provisions, minimum net worth, revenue and operating results requirements, as well as certain financial ratios, measured on a quarterly basis. Transactions under the Master Lease have been accounted for as financing arrangements. 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, 1999 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. Noven recognizes revenues from product sales at the time of shipment. Noven accrues royalty revenue, which is included in product sales, based on its best estimates of its licensee's product sales. When no reasonable basis for estimating exists because the information is not in Noven's control, Noven will recognize royalty revenue when actual results are available. Because substantially all of Noven's product sales are to its licensees, Noven's product sales may fluctuate from quarter to quarter depending on various factors not in Noven's control, including but not limited to the marketing efforts of each licensee, inventory requirements of each licensee, the product pricing of each licensee and the timing of certain royalty reconciliations and payments under Noven's license agreements. Royalty reconciliations and payments under the license agreements are generally made once or twice per year for product sales made in the prior period. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 Total revenues for the three months ended March 31, 2000 were $9.6 million, an increase of $2.1 million, or 28%, over the same period in the prior year. The increase was primarily attributable to increased sales of Vivelle(R) and Vivelle-Dot(TM), partially offset by lower sales of CombiPatch(TM) in the United States. Gross profit (product sales less cost of products sold) for the three months ended March 31, 2000 was $4.9 million (52% of product sales), compared to $4.2 million (56% of product sales) for the same period in the prior year. The decrease in gross margins resulted primarily from the elimination of 49% of Noven's profit on product sold to Novogyne that remains in Novogyne's inventory at March 31, 2000. This profit will be recognized by Noven at the time such inventory is sold by Novogyne. The inventory increase at Novogyne was the result of an expected increase in product demand. Research and development expenses increased approximately $0.2 million, or 10%, for the three months ended March 31, 2000 compared to the same period in the prior year, primarily resulting from increased expenses related to clinical studies. Noven expects a significant increase in research and development expenses in the remainder of 2000, primarily related to clinical studies for Noven's methylphenidate transdermal delivery system. The future level of research and development 8 9 expenditure will depend on, among other things, the status of products under development and the outcome of clinical trials, strategic decisions by management, the consummation of new license agreements and Noven's liquidity. Marketing, general and administrative expenses increased approximately $0.2 million, or 9%, for the three months ended March 31, 2000 compared to the same period in the prior year. This increase primarily resulted from an increase in staffing and associated office expenses. Provision for income taxes for the three months ended March 31, 2000 is a provision for the alternative minimum tax. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2000 and December 31, 1999, Noven had $15.2 million and $15.3 million, respectively, in cash and cash equivalents. Net cash of approximately $0.1 million was used in operating activities during the first three months of 2000, compared to approximately $0.2 million provided by operating activities during the same period in the prior year, despite higher net income in the 2000 period. This use in cash from operating activities primarily resulted from increases in raw material inventory, equity in earnings of Novogyne and due from Novogyne, partially offset by a decrease in accounts receivable. The increase in due from Novogyne was attributed to higher sales of Vivelle and Vivelle-Dot during the quarter. Net cash of approximately $0.3 million was used in investing activities during the first three months of 2000, compared to approximately $0.2 million used in investing activities during the same period of the prior year. Net cash used in investing activities during 2000 and 1999 resulted from the purchase of fixed assets and payment of patent development costs. Net cash of approximately $0.3 million was provided by financing activities during the first three months of 2000, compared to approximately $0.1 million used in financing activities during the same period of the prior year. The increase in the 2000 period resulted from the issuance of common stock in connection with the exercise of stock options. Noven's principal sources of short term liquidity are existing cash and cash generated from product sales, fees and royalties under license agreements and distributions from Novogyne, which Noven believes will be sufficient to meet its operating needs and anticipated capital requirements over the short term. In April 2000, Noven received a cash distribution of $2.2 million from Novogyne based upon the results of operations for the year ended December 31, 1999. 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. Noven expects that its cash requirements will continue to increase, primarily as a result of expected increases in expenditures associated with clinical studies for products under development. There can be no assurance that Noven will successfully complete the development of such products, that Noven will obtain regulatory approval for any such products, that any approved product may be produced in commercial quantities, at reasonable costs, and be successfully marketed, or that Noven will successfully negotiate future licensing arrangements. To the extent that capital requirements exceed available capital, Noven will seek alternative sources of financing to fund its operations. 9 10 Other than the Master Lease, Noven has no credit facility. Noven is pursuing financing alternatives, which include a revolving credit facility, and expects to complete a financing arrangement in the near future. 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, in order to meet its future obligations. 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. 10 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 27 Financial Data Schedule (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Registrant during the three months ended March 31, 2000. 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 12, 2000 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, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 15,247 0 2,663 182 4,369 27,462 21,580 6,339 58,642 8,425 0 0 0 3 42,409 58,642 9,456 9,603 4,511 8,418 0 0 200 1,862 35 1,827 0 0 0 1,827 .08 .08
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