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Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-05535
Prospectus Supplement No. 7, dated March 3, 1998
(To Prospectus dated April 1, 1997, as supplemented
on April 29, 1997, May 15, 1997, August 20, 1997,
November 12, 1997, November 17, 1997 and February 4, 1998)
[AAI LOGO]
Applied Analytical Industries, Inc.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
On March 3, 1998, the Company issued a press release reporting its
financial results for the quarter and fiscal year ended December 31, 1998. A
copy of the press release is attached.
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APPLIED ANALYTICAL INDUSTRIES, INC. (AAI) ANNOUNCES FOURTH QUARTER
AND FULL YEAR FINANCIAL RESULTS
WILMINGTON, NC, March 3 /PRNewswire/ -- Applied Analytical Industries,
Inc. (Nasdaq: AAII) today announced financial results for the fourth quarter and
year ended December 31, 1997.
Net sales for the fourth quarter of 1997 rose 86% to $20.4 million from
net sales of $11.0 million reported in the fourth quarter of 1996. The Company
reported net income for the fourth quarter of 1997 of $0.9 million, or $0.06 per
share, versus a net loss of $(5.3) million, or $(0.33) per share, for the same
period a year ago. Quarterly net sales of the Company's core fee-for-service
business increased by 69% to $18.0 million in 1997 from $10.7 million for the
same period of 1996. Licensing and royalty revenues for the fourth quarter were
$2.3 million, compared to $0.3 million in 1996. In the fourth quarter of 1996,
the Company recognized an unusual item, representing the write-off of in-process
research and development costs of $6.6 million in connection with the
acquisition of L.A.B. Gesellschaft fur pharmakologische Untersuchungen mbH & Co.
("L.A.B.").
For the twelve months ended December 31, 1997, net sales were $65.4
million, an increase of 55% from the net sales of $42.2 million reported for
1996. Net income was $1.3 million, or $0.08 per share, versus a net loss of
$(3.1) million, or $(0.23) per share in 1996. Net sales of the Company's core
fee-for-service business increased by 47% to $59.6 million in 1997 from $40.6
million in 1996. Licensing and royalty revenues in 1997 increased by almost 300%
to $5.8 million versus licensing and royalty revenues of $1.5 million in 1996.
As described above, in 1996 the Company recognized an unusual item, representing
the write-off of in-process research and development costs of $6.6 million.
Overall gross margin for the fourth quarter of 1997 was 49% as compared
to 58% for the equivalent period of 1996; however, the gross margin from
fee-for-service work increased to 43% compared to 37% in the third quarter of
1997, showing an improvement of six percentage points quarter-over-
sequential-quarter. The Company's margins eroded in 1997 primarily due to the
acquisition of L.A.B.; however, planned improvement in those margins are
beginning to show results. Research and development ("R&D") expenses were 10.0%
of net sales in the fourth quarter of 1997, compared to 9.3% in the fourth
quarter of 1996. Fourth quarter 1997 R&D expenses decreased by seven percentage
points versus the third quarter 1997 level of 17.0%. The year-to-date expenses
for R&D were 11.9% of net sales compared to 10.0% for the full year 1996.
Dr. Frederick Sancilio, AAI's Chief Executive Officer and Chairman
commented on the fourth quarter by saying, "Operations in the fourth quarter
moved closer to historical levels, with margins gaining substantially from the
prior quarter." Dr. Sancilio continued, "Demand for our internally developed
products, which are licensed to the pharmaceutical industry leaders, continues
to increase. Generally, for every U.S. product license signed, the Company will
receive milestone license fees followed by royalties upon the approval of the
product and subsequent launch. Our current financial statements reflect the
recognition of the development
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milestones from a number of products and royalties from only one product. The
compounding of royalties should increase as the years progress and more of our
licensed products are approved and then launched."
Dr. Sancilio closed by commenting, "1997 has been a year of growth and
change for the Company. We expanded into the international marketplace through
the acquisition and subsequent turnaround of L.A.B. The integration of AAI with
L.A.B. required the addition of significant management. We responded by hiring
several recognized leaders in the field of pharmaceutical clinical trials. The
Company also restructured to accommodate its expanded client base and added both
facilities and talent, to maintain its dominant position in the non-clinical
segment of the CRO market. We are now positioned to continue the growth of our
dual business strategy, and take advantage of both markets and scientific
resources on a worldwide basis."
Founded eighteen years ago, AAI is a leading contract research and
development organization (CRO) providing pharmaceutical product development and
support services to the worldwide pharmaceutical and biotechnology industries.
The Company offers seamless outsourcing as well as an integrated broad spectrum
of pharmaceutical services, both clinical and non-clinical. Additionally, AAI
leverages its drug development expertise to generate licensing and royalty
revenues by licensing internally developed drugs and drug technologies to
pharmaceutical client companies worldwide.
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.
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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 Twelve months ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 20,391 $ 10,992 $ 65,401 $ 42,162
Operating costs and expenses:
Cost of sales 10,327 4,612 33,378 17,621
Selling 2,430 1,781 8,362 6,357
General and administrative 3,970 2,237 15,207 8,908
Research and development 2,041 1,027 7,791 4,216
Unusual item (1) -- 6,600 -- 6,600
18,768 16,257 64,738 43,702
Income (loss) from operations 1,623 (5,265) 663 (1,540)
Other income (expense), net (93) 556 1,373 494
Income (loss) before income taxes
1,530 (4,709) 2,036 (1,046)
Provision for income taxes 604 634 781 2,102
Net income (loss) $ 926 $ (5,343) $ 1,255 $ (3,148)
Basic earnings (loss) per share $ 0.06 $ (0.33) $ 0.08 $ (0.23)
Weighted average shares outstanding 16,294 16,286 16,290 13,405
Diluted earnings (loss) per share $ 0.06 $ (0.33) $ 0.08 $ (0.23)
Weighted average shares outstanding 16,435 16,407 16,459 13,475
</TABLE>
(1) The unusual item in 1996 represents the write-off of in-process
research and development cost in connection with the L.A.B.
acquisition.
SOURCE Applied Analytical Industries, Inc.
-0- 03/03/98
/CONTACT: Pamela S. Dietze, Investor Relations Coordinator, Applied
Analytical Industries, Inc., 910-392-1606/
(AAII)
