-----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, FeRNJyHXh6ltKkFzTDzmK/Z1eDGpzvoGv1Kx3PB2kWVWrhQQH5vrYuSEZUxlHL0j X3/ZVSNdyikpbrwhJJf0Mg== 0000859368-96-000004.txt : 19961104 0000859368-96-000004.hdr.sgml : 19961104 ACCESSION NUMBER: 0000859368-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961101 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICIS PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000859368 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 521574808 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18443 FILM NUMBER: 96651713 BUSINESS ADDRESS: STREET 1: 4343 EAST CAMELBACK RD CITY: PHOENIX STATE: AZ ZIP: 85018 BUSINESS PHONE: 2125992000 MAIL ADDRESS: STREET 1: 4343 E CAMELBACK RD STREET 2: SUITE 250 CITY: PHOENIX STATE: AZ ZIP: 85018 10-Q 1 MEDICIS PHARMACEUTICAL CORPORATION FORM 10-Q, 9/30/96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or the transition period from to ------------------- ------------------- Commission file number 0-18443 MEDICIS PHARMACEUTICAL CORPORATION (Exact name of Registrant as specified in its charter) Delaware 52-1574808 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4343 East Camelback Road, Suite 250 Phoenix, Arizona 85018-2700 (Address of principal executive offices) (602) 808-8800 (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 latest practicable date. Class Outstanding at October 28, 1996 ----- ------------------------------- Class A Common Stock $.014 Par Value 9,096,782 Class B Common Stock $.014 Par Value 125,322 Series B Preferred Stock $.01 Par Value 62,660 2 MEDICIS PHARMACEUTICAL CORPORATION Table of Contents
PART I. FINANCIAL INFORMATION Page Item 1-- Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1996, and June 30, 1996 3 Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 1996, and 1995 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1996, and 1995 6 Notes to the Condensed Consolidated Financial Statements 7 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6 -- Exhibits and Reports on Form 8-K 11 SIGNATURE 12
2 3 Part I. Financial Information Item 1. Financial Statements MEDICIS PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
September 30, 1996 June 30, 1996 Assets Current assets: Cash and cash equivalents $11,014,687 $7,956,050 Accounts receivable, net 4,673,939 5,210,704 Inventories, net 1,834,820 2,080,014 Deferred tax assets 5,000,000 3,000,000 Other current assets 866,806 738,911 ----------- ----------- Total current assets 23,390,252 8,985,679 ----------- ----------- Property and equipment: Furniture and equipment 344,714 336,544 Leasehold improvements 170,000 170,000 Less accumulated depreciation (125,054) (100,897) ----------- ----------- Net property and equipment 389,660 405,647 ----------- ----------- Intangible assets: Intangible assets related to the Esoterica(R) products acquisition 9,168,853 9,168,853 Other intangible assets 303,326 203,326 Less accumulated amortization (2,573,018) (2,450,705) ----------- ----------- Net intangible assets 6,899,161 6,921,474 ----------- ----------- $30,679,073 $26,312,800 =========== ===========
The accompanying notes are an integral part of this statement. 3 4 MEDICIS PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1996 June 30, 1996 LIABILITIES Current liabilities: Accounts payable $3,405,423 $3,371,184 Accrued salaries and wages - 204,750 Notes payable 10,000 10,000 Accrued incentives 733,507 1,184,111 Accrued royalties 639,049 552,952 Other accrued liabilities 1,370,511 1,262,134 ----------- ----------- Total current liabilities 6,158,490 6,585,131 ----------- ----------- Long-term liabilities: Notes payable 116,580 116,580 Other non-current liabilities 144,227 151,437 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, $0.01 par value, 4,937,340 shares authorized; no shares issued - - Series B Automatically Convertible Preferred Stock, $0.01 par value, shares authorized, issued and outstanding: 62,660 at September 30, 1996 and at June 30, 1996 627 627 Class A Common Stock, $0.014 par value, shares authorized: 10,000,000; 6,939,614 and 6,816,318 issued and outstanding at September 30, 1996 and at June 30, 1996, respectively 97,155 95,429 Class B Common Stock, $0.014 par value, 125,322 shares authorized, issued and outstanding at September 30, 1996 and at June 30, 1996 1,754 1,754 Additional paid-in capital 45,446,435 44,251,722 Accumulated deficit (21,286,195) (24,889,880) ----------- ----------- Total stockholders' equity 24,259,776 19,459,652 ----------- ----------- $30,679,073 $26,312,800 =========== ===========
The accompanying notes are an integral part of this statement. 4 5 MEDICIS PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1996 September 30, 1995 Net sales $7,268,227 $4,574,009 -------------- -------------- Operating costs and expenses: Cost of product revenue 1,954,608 1,317,370 * Selling, general and administrative 3,410,390 2,191,645 * Research and development 159,764 250,528 Depreciation and amortization 148,297 141,040 -------------- -------------- Operating costs and expenses 5,673,059 3,900,583 -------------- -------------- Operating income 1,595,168 673,426 Interest income 121,624 20,970 Interest expense (9,331) (23,503) Income tax benefit (expense) 1,896,224 (24,914) * -------------- -------------- Net Income $3,603,685 $645,979 ============== ============== Net income per common and common equivalent share $0.46 $0.10 ============== ============== Shares used in computing net income per common and common equivalent share: 7,756,961 6,686,804 ============== ==============
* Certain immaterial amounts have been reclassified to conform with current year's presentation. 5 6 MEDICIS PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1996 September 30, 1995 Net income $3,603,685 $645,979 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 148,297 141,040 Deferred income tax asset (2,000,000) - Non-cash interest - 13,100 Other non-cash expenses 5,000 - Change in operating assets and liabilities Inventories 245,194 (430,916) Accounts receivable 536,765 1,303,177 Accounts payable 34,239 (178,686) Accrued salaries and wages (204,750) - Accrued incentives (450,604) (326,338) Other current liabilities 211,142 (239,161) Other current assets (127,895) (107,628) ---------- --------- Net cash provided by operating activities 2,001,073 820,567 ---------- --------- Cash flows from investing activities: Purchase of property and equipment (9,997) (66,049) Payment of license agreement (116,667) - ---------- --------- Net cash used in investing activities (126,664) (66,049) ---------- --------- Cash flows from financing activities: Proceeds from the exercise of stock options 1,191,440 - Payments of notes payable - (84,852) Payment of other non-current liabilities (7,212) - ---------- --------- Net cash provided by/(used in) financing activities 1,184,228 (84,852) ---------- --------- Net increase in cash and cash equivalents 3,058,637 669,666 Cash and cash equivalents at beginning of period 7,956,050 953,438 ----------- ---------- Cash and cash equivalents at end of period $11,014,687 $1,623,104 ----------- ---------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $7,274 $10,403 Taxes $79,045 $51,113
The accompanying notes are an integral part of this statement. 6 7 MEDICIS PHARMACEUTICAL CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 1. ORGANIZATION AND BASIS OF PRESENTATION Medicis Pharmaceutical Corporation ("Medicis" or the "Company") is an independent pharmaceutical company in the United States that offers prescription and non-prescription (over-the-counter) products exclusively to treat dermatological conditions. Emphasizing the clinical effectiveness, quality, affordability and cosmetic elegance of its products, the Company has achieved a leading position in the treatment of acne and acne-related conditions using prescription pharmaceuticals, while also offering the leading domestic over-the-counter ("OTC") fade cream product line. The Company has built its business through the successful introduction of DYNACIN(R) and TRIAZ(R) products for the treatment of acne, and the acquisition of the ESOTERICA(R) fade cream product line. Except as otherwise specified herein, all information in this Form 10-Q has been adjusted to give effect to a 3-for-2 stock split in the form of a 50% stock dividend paid on August 2, 1996 to holders of record on July 22, 1996. The financial information is unaudited but reflects all adjustments, consisting only of normal recurring accruals, which are, in the opinion of the Company's management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the Company's audited financial statements for the fiscal year ended June 30, 1996. 2. NET INCOME PER COMMON AND COMMON EQUIVALENT Net income per common and common equivalent share have been computed by using the weighted average number of shares outstanding and common equivalent shares. 3. CONTINGENCIES The Company and certain of its subsidiaries, from time to time, are parties to certain actions and proceedings incident to their business. Liability in the event of final adverse determinations in any of these matters is either covered by insurance and/or established reserves or, in the opinion of management, after consultation with counsel, should not, in the aggregate, have a material adverse effect on the consolidated financial position or results of operations of the Company and its subsidiaries. 7 8 4. INVENTORIES Although the Company utilizes third parties to manufacture and package inventories held for sale, the Company takes title to certain inventories and records the associated liability once inventories are manufactured. Inventories are valued at the lower of cost or market as determined by net realizable value using the first-in-first-out method. Inventories, net of reserves, at September 30, 1996, and June 30, 1996, consist of the following: September 30, 1996 June 30, 1996 Raw materials $108,491 $72,633 Work in process -- 23,749 Finished goods 1,726,329 1,983,632 ---------- ---------- Total inventories $1,834,820 $2,080,014 ========== ========== 5. SUBSEQUENT EVENT On October 2, 1996, the Company completed a public offering of 1,850,000 shares of its Class A Common Stock priced at $45.00 per share. All of the shares were primary shares from the Company. The offering was managed by an underwriting group led by Robertson, Stephens and Company LLC and A.G. Edwards & Sons, Inc. The underwriters also exercised the over allotment option of 277,500 shares at a price of $45.00 per share. Gross proceeds from the offering before related expenses totaled $95,737,500. The Company anticipates using the proceeds from the offering for marketing expenses associated with new product introductions; the licensing or acquisition of formulations, technologies, products or businesses; research and development; expansion of marketing and sales capabilities and general corporate purposes. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the attached condensed consolidated financial statements and notes thereto and with the Company's audited financial statements, notes to the consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations relating thereto included or incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996. The foregoing Form 10-Q contains certain forward-looking statements which are subject to risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996. 8 9 Results of Operations Three Months Ended September 30, 1996 Compared to the Three Months Ended September 30, 1995 Net Sales Net sales for the three months ended September 30, 1996 (the "first quarter of fiscal 1997") increased 58.9%, or $2.7 million, to $7.3 million from $4.6 million for the three months ended September 30, 1995 (the "first quarter of fiscal 1996"). The Company's net sales increased in the first quarter of fiscal 1997 primarily as a result of both unit and dollar sales growth of the DYNACIN(R) products, as well as, the sales attributable to the TRIAZ(R) products launched subsequent to the first quarter of fiscal 1996. The Company's prescription products accounted for 85.4% of net sales in the first quarter of fiscal 1997 and 71.2% in the first quarter of fiscal 1996. The increase in sales of prescription products in the first quarter of fiscal 1997 was partially offset by a decrease in unit sales of the over-the-counter products, primarily the ESOTERICA(R) product line. The over-the-counter products accounted for 14.6% of net sales in the first quarter of fiscal 1997 and 28.8% in the first quarter of fiscal 1996. The Company continues to invest a majority of its marketing funds in the Company's prescription products. Gross Profit Gross profit during the first quarter of fiscal 1997 increased 63.1%, or $2.0 million, to $5.3 million from $3.3 million in the first quarter of fiscal 1996. As a percentage of net sales, gross profit grew to 73.1% in the first quarter of fiscal 1997 from 71.2% in the first quarter of fiscal 1996 primarily as a result of the change in sales mix toward the Company's prescription products, which have a higher gross profit than its over-the- counter products, and a modest increase in the average sales price of the Company's DYNACIN(R) products, which products account for a majority of the prescription sales. Selling, General and Administrative Expenses Selling, general and administrative expenses in the first quarter of fiscal 1997 increased 55.6%, or $1.2 million, to $3.4 million from $2.2 million in the first quarter of fiscal 1996, primarily due to promotional costs attributable to increased sampling and marketing of the Company's prescription products, and an increase in advertising expenses for the Company's over-the- counter products. Selling, general and administrative expenses also increased due to an increase in variable compensation commensurate with increased sales volume, and cost of living salary adjustments. Selling, general and administrative costs, as a percentage of sales, have decreased in the first quarter of fiscal 1997 relative to the first quarter of fiscal 1996. Research and Development Expenses Research and development expenses in the first quarter of fiscal 1997 decreased 36.2%, or $91,000, to $160,000 from $251,000 in the first quarter of fiscal 1996, primarily due to the timing of ongoing research and development projects. 9 10 Depreciation and Amortization Expenses Depreciation and amortization expenses remain materially unchanged, at $148,000 in the first quarter of fiscal 1997 compared with $141,000 in the first quarter of fiscal 1996. Operating Income Operating income during the first quarter of fiscal 1997 increased 136.9%, or $.9 million, to $1.6 million from $.7 million in the first quarter of fiscal 1996. This increase was primarily a result of higher sales volume, coupled with a 1.9% increase in the Company's gross profit and a decrease in selling, general, and administrative cost as a percentage of sales. Interest Income (Expense) Interest income in the first quarter of fiscal 1997 increased 480%, or $101,000, to $122,000 from $21,000 in the first quarter of fiscal 1996, primarily due to higher cash and cash equivalent balances in the first quarter of fiscal 1997. Interest expense in the first quarter of fiscal 1997 decreased 60.3%, or $14,200, to $9,300 from $23,500 in the first quarter of fiscal 1996 primarily due to the repayment of a substantial portion of the Company's debt. Income Tax Benefit (Expense) Income tax benefit (expense) during the first quarter of fiscal 1997 increased $1.9 million to a benefit of $1.9 million from an expense of $25,000 in the first quarter of fiscal 1996. During the first quarter of fiscal 1997, the Company reevaluated the estimated amount of valuation allowance required in light of the funds to be received from the public offering to reduce deferred tax assets in accordance with Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes ("SFAS No. 109") to an amount the Company believed appropriate. Accordingly, a credit to income tax benefit of $2.0 million was reflected in the first quarter of fiscal 1997's Consolidated Income Statement and the corresponding deferred tax asset on the Company's Condensed Consolidated Balance Sheet. The amount of net deferred tax assets estimated to be recoverable was based upon the Company's assessment of the likelihood of near term operating income coupled with uncertainties with respect to the impact of future competitive and market conditions. No such income tax benefit was recorded in the first quarter of fiscal 1996. Net Income Net income during the first quarter of fiscal 1997 increased approximately 457.9%, or $3.0 million, to $3.6 million from $.6 million from the first quarter of fiscal 1996. The increase is primarily attributable to an increase in sales volume, an increase in gross margin as a percentage of sales and the recording of the $2.0 million income tax benefit in the first quarter of fiscal 1997. 10 11 Liquidity and Capital Resources At September 30, 1996 and June 30, 1996, the Company had cash and cash equivalents of approximately $11.0 million and $8.0 million, respectively. The Company's working capital was $17.2 million and $12.4 million at September 30, 1996 and June 30, 1996, respectively. The increase in working capital is primarily attributable to the Company's income from operations of approximately $1.6 million, the $2.0 million income tax benefit and funds received due to the exercise of stock options of approximately $1.2 million. At September 30, 1996 and June 30, 1996, the Company had inventories of $1.8 million and $2.1 million, respectively. The decrease in the Company's inventory balance is primarily due to a decrease in the level of inventory at the Company's manufacturers, which is reflected in the Company's inventory balance. During the first quarter of fiscal 1997, the Company reevaluated the estimated amount of valuation allowance required or necessary to reduce deferred tax assets available in accordance with SFAS No. 109 to an amount the Company believed appropriate. Accordingly, a deferred tax asset of an additional $2.0 million was reflected in the consolidated balance sheet and a credit to deferred tax benefit of $2.0 million in the consolidated income statement. The amount of net deferred tax assets available that are estimated to be recoverable was based upon the Company's assessment of the likelihood of near-term operating income coupled with the uncertainties with respect to the impact of future competitive and market conditions. The amount of deferred tax asset available that ultimately will be realized will depend upon future events which are uncertain. Subsequent to September 30, 1996, the Company completed a public offering for 1,850,000 primary shares of the Company's Class A Common Stock at a price of $45.00 per share. The underwriters also exercised the over allotment option of 277,500 shares at a price of $45.00 per share. Gross proceeds from the offering before related expenses totaled $95,737,500. The Company anticipates using the proceeds from the offering for marketing expenses associated with new product introductions; the licensing or acquisition of formulations, technologies, products or businesses; research and development; expansion of marketing and sales capabilities and general corporate purposes. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit No. 11.1 Computation of Per Share Earnings (b) Reports on Form 8-K During the first quarter of fiscal 1997, the company filed the following report on Form 8-K: (i) Current Report on Form 8-K dated August 2, 1996 reporting under Item 5, the Company effected a three for two stock split in the form of a 50% stock dividend. 11 12 SIGNATURE 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. MEDICIS PHARMACEUTICAL CORPORATION Date: 11/01/96 By: /s/Jonah Shacknai --------------- ----------------------- Jonah Shacknai Chairman and Chief Executive Officer Date: 11/01/96 By: /s/ Mark A. Prygocki Sr. --------------- ------------------------- Mark A. Prygocki, Sr. Chief Financial Officer and Assistant Treasurer 12 13 EXHIBIT 11.1 COMPUTATION OF PER SHARE EARNINGS (Thousands except per share amounts)
Three Months Ended September 30, 1996 1995 PRIMARY Average shares outstanding 7,055 6,687 Net effect of dilutive stock options - based on the treasury stock method using average market price 702 -- ------ ------ TOTAL 7,757 6,687 ------ ------ Net income $3,604 $646 ------ ------ Per share amount $0.46 $0.10 ------ ------ FULLY DILUTED Average shares outstanding 7,055 6,687 Net effect of dilutive stock options - based on the treasury stock method using the quarter-end market price, if higher than the average market price 774 -- ------ ------ TOTAL 7,829 6,687 ------ ------ Net income $3,604 $646 ------ ------ Per share amount $0.46 $0.10 ------ ------
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