<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-05535
Prospectus Supplement No. 4, dated November 12, 1997
(To Prospectus dated April 1, 1997, as supplemented
on April 29, 1997, May 15, 1997 and August 20, 1997)
[AAI LOGO]
Applied Analytical Industries, Inc.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
On November 11, 1997, the Company issued a press release reporting
certain financial and other information for the quarter ended September 30,
1997. A copy of such press release is attached.
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[PR NEWSWIRE Logo] NEWSFAX
Applied Analytical Industries, Inc. (AAI)
Announces Third Quarter Financial Results
WILMINGTON, N.C., Nov. 11 /PRNewswire/ -- Applied Analytical
Industries, Inc. (NASDAQ: AAII) today announced financial results for the third
quarter and nine months ended September 30, 1997.
Net sales for the third quarter of 1997 rose 35% to $14.0 million from
net sales of $10.4 million reported in the third quarter of 1996. The Company
had a net loss for the third quarter of 1997 of $1.2 million, or $0.07 per
share, versus net income of $0.8 million, or $0.06 per share for the same period
a year ago. Quarterly net sales of the Company's core fee-for-service business
increased by 25% to $12.6 million in 1997 from $10.1 million for the same period
of 1996.
For the nine months ended September 30, 1997 net sales were $45.0
million, an increase of 44% from the net sales of $31.2 million reported for the
same period in 1996. Net income was $0.3 million, or $0.02 per share, versus
$2.2 million, or $0.18 per share in the first nine months of 1996. Net sales of
the Company's fee-for-service business increased by 39% to $41.6 million in 1997
from $29.9 million in 1996.
Dr. Sancilio, Chairman and CEO, stated that AAI's third quarter was
dominated by the impact of business combination discussions which were
terminated mid-quarter. These discussions resulted in the suspension of new
licensing activities, operational inefficiencies and increased expenses related
to both deal costs and management disruption during the negotiations. The
negative impact of these discussions was partially offset by a $1 million
payment to LAB, resulting in a net pre-tax credit to other income of $400,000;
however, such credit does not reflect the operational inefficiencies or the
opportunities missed had management been focused on other business. Expenses in
the third quarter were also impacted by increased Research and Development
costs, unusual executive separation costs, and accruals related to the Company's
decision to divest itself of certain previously disclosed commercial paper
investments.
The demand for AAI's services is strong with service estimate requests
for the third quarter of 1997 up 152% over the third quarter of 1996. In
response to the demand growth, AAI has been aggressively hiring and training
scientists for the U.S. operations. The Company stated that the staff build-up
and training associated with meeting demand growth caused temporary operating
inefficiencies and higher costs in the third quarter of 1997. The Company has
taken steps to reallocate resources, including re-deploying 40 scientists and
staff to revenue-producing related functions to meet client demand without
increasing costs or negatively affecting the Company's Research and Development
program.
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The Company's U.S. Operations had third quarter licensing revenues of
$524,000 compared to $312,000 for the third quarter of 1996. European dossier
licenses contributed $880,000 for the 1997 quarter. On a year-to-date basis, the
U.S. Operations had licensing revenues of $1.6 million compared to $1.2 million
for 1996, while the European dossier licenses have contributed $1.8 million to
1997. Full U.S. licensing activities were resumed in the fourth quarter.
AAI invested $2.4 million, up 70% quarter to quarter, in its Research
and Development program. Dr. Sancilio stated that "spending of 17% of net sales
on R&D is significantly higher than the planned 10% expenditure, but this was
necessary to advance several projects into the clinical stages." Dr. Sancilio
also said that he expects to manage R&D spending levels by the end of the year
to reflect a 12% target. The Company expects that this accelerated R&D
expenditure will result in two additional drug submissions in the fourth quarter
of 1997. The year-to-date spending in R&D has increased 80% to $5.8 million in
1997 compared to $3.2 million in 1996.
Significant recent achievements include:
-- Hiring of Dr. Werner Gorlich as the President of European
Operations
-- Hiring of Frances Sakers as the Chief Operating Officer of
U.S. Operations
-- Hiring of Dr. Edgar Fenzl as the Chief Operating Officer of
European Operations
-- Approval of a Nifedipine sustained release product in Germany
-- FDA approval of Methazolamide ANDA
-- Completed the upgrade of Information Technology infrastructure
within the U.S. Operations
In closing, Dr. Sancilio said "The third quarter of 1997 presented
unique challenges to AAI's management team. Transitioning from a domestic to an
international development company, with highly recognized scientific leadership
has been completed. Significant costs and inefficiencies associated with the
transition are behind us now and we look forward to resuming our eighteen year
trend of success."
AAI is a leading pharmaceutical contract research and development
organization (CRO) providing product development and support services to the
pharmaceutical and biotechnology industries. The Company offers seamless
outsourcing through integrated pharmaceutical services. Additionally, through
its own internal drug development program, AAI leverages its expertise to
generate revenue by licensing internally developed drugs and drug technologies
to pharmaceutical client companies worldwide.
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Information in the press release contains certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements involve
risks and uncertainties that could cause actual results to differ materially,
including without limitation, the ability of acquired businesses to be
integrated with AAI's operations, actual operational performance, the ability to
maintain large client contracts, and other items that may cause the actual
results to differ materially, which may be discussed in the Company's recent
Form 10-Q filings, its registration statement on Form S-1, as amended, and other
filings with the Securities and Exchange Commission.
(more)
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Applied Analytical Industries, Inc.
Condensed Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 14,021 $ 10,396 $ 45,010 $ 31,170
Operating costs and
expenses
Cost of sales 7,994 4,194 23,051 13,010
Selling 2,268 1,448 5,932 4,575
General and 4,022 2,016 11,237 6,672
administrative
Research and 2,379 1,398 5,750 3,189
development
16,663 9,056 45,970 27,446
Income (loss) from (2,642) 1,340 (960) 3,724
operations
Other income 494 (40) 1,466 (61)
(expense), net
Income (loss before (2,148) 1,300 506 3,663
income taxes
Provision for income (984) 501 177 1,468
taxes
Net (loss) income $ (1,164) $ 799 $ 329 $ 2,195
Earnings (loss) per $ (0.07) $ 0.06 $ 0.02 $ 0.18
share
Weighted average
shares outstanding 16,519 13,484 16,457 12,444
</TABLE>
SOURCE Applied Analytical Industries, Inc.
-0- 11/11/97
/CONTACT: Bill Underwood, Executive Vice President, Corporate
Development, or Pamela S. Dietze, Investor Relations Coordinator, Applied
Analytical Industries, Inc., 910-392-1606/ (AAII)
-0-
