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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 1, 1999
APPLIED ANALYTICAL INDUSTRIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 0-21185 04-2687849
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(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
2320 Scientific Park Drive
Wilmington, North Carolina 28405
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(Address of Principal Executive Offices)
(Zip Code)
(910) 254-7400
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former name or address, if changed from last report)
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Item 5. Other Events.
On November 1, 1999, Applied Analytical Industries, Inc. (the
"Company") issued two press releases concerning a contract between the Company
and AstraZeneca. Both press releases are filed as Exhibit 99.1 hereto and are
incorporated by reference herein. In addition, on November 2, 1999, the Company
issued a press release reporting the Company's unaudited consolidated financial
results for the period ended September 30, 1999. The press release is filed as
Exhibit 99.2 hereto and is incorporated by reference herein.
Item 7. Financial Statements and Exhibits.
(a) Exhibits
Exhibit 99.1 -- Press releases dated November 1, 1999
Exhibit 99.2 -- Press release dated November 2, 1999
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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 hereunto duly authorized.
Date: November 4, 1999
APPLIED ANALYTICAL INDUSTRIES, INC.
By: /s/ Eugene T. Haley
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Eugene T. Haley
Vice President and Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Exhibit
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Exhibit 99.1 -- Press releases dated November 1, 1999
Exhibit 99.2 -- Press release dated November 2, 1999
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Exhibit 99.1
AAI ANNOUNCES RESEARCH AND DEVELOPMENT, LICENSING, AND PRODUCT COOPERATION
AGREEMENT WITH ASTRAZENECA FOR MAJOR DRUG CLASS
AAI And AstraZeneca Expand Existing Relationship
and Take New Approach to Pharmaceutical Product Life Cycle
Management and Cooperative Research and Development
WILMINGTON, NC -- (November 1, 1999)-- AAI (NASDAQ: AAII) and AstraZeneca (NYSE:
AZN) have signed a multi-year agreement for research and development, licensing
and product cooperation it was announced today by Dr. Frederick Sancilio,
Chairman and CEO of AAI. The terms of the agreement call for AstraZeneca to
license AAI intellectual property and the establishment of a cooperative
research and development program for AstraZeneca's family of gastrointestinal
products.
Dr. Sancilio said, "This agreement represents much more than a vote of
confidence by a valued customer in AAI's research abilities. AstraZeneca is a
world leader in the field of gastroenterology and we look forward to assisting
them in expanding both the efficacy and proprietary value of these important
pharmaceuticals in their product portfolio. We think this agreement provides a
another concrete example of our strategy of partnering with major pharmaceutical
companies to craft unique solutions rather than merely providing task-oriented
services."
This agreement between AstraZeneca and AAI highlights AAI's strategy of entering
into shared partnering arrangements with select customers. Terms of the contract
call for the licensing of AAI intellectual property, an initial signing payment,
guaranteed funding of AAI resources dedicated to the development of additional
strategic intellectual property useful in the field of proton pump inhibition,
and potential royalties on worldwide sales of certain related pharmaceutical
products and derivatives, based upon attainment of certain milestones. AAI has
also been awarded preferred provider status for certain contract research and
development services to AstraZeneca.
"This contract is the realization of several years of planning and research at
AAI, and millions of dollars in investment," continued Dr. Sancilio, "It marks a
major milestone in our continuing strategy of moving from a service provider to
a product development company."
This agreement builds on a long-standing relationship between AAI and
AstraZeneca in contract research, analytical testing and related services and
significantly increases AAI's working relationship with AstraZeneca, which ranks
as one of the top five pharmaceutical companies in the world.
"We are very pleased to expand our relationship with AAI in this way. AAI has
been a valued supplier of ours for many years," noted Jim Coyne, Leader,
Gastrointestinal Public Relations of
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AstraZeneca. "We believe that we can employ AAI's product development and
related management expertise to leverage AstraZeneca's R&D investment and
significant GI experience. We view this relationship as a true marriage of
strengths that has the potential to add substantial additional value to our
gastrointestinal product franchise. This agreement provides AstraZeneca with the
ability to add significant resources to this franchise in a manner in which our
economic and scientific interests are clearly aligned with AAI."
This agreement with AstraZeneca furthers AAI's strategic positioning as a strong
ally in the drug development process with significant returns to the company's
R&D investments. "We have always been confident that our investments in research
and development would yield positive returns for our investors and we now have
additional confirmation of the value in our approach", said Meg Humphrey, MD, VP
Strategic Development. "We anticipate that our future business will include more
of these larger development programs and that this has the potential to increase
long-term earnings visibility."
Applied Analytical Industries Inc. is headquartered in Wilmington, NC and has
approximately 1100 employees worldwide. The company is a full-service provider
of drug development services to the pharmaceutical and biotechnology industries.
AstraZeneca PLC is one of the top five pharmaceutical companies in the world
based on sales and is a therapeutic leader in gastrointestinal, oncology,
anesthesia including pain management, cardiovascular, central nervous system
(CNS) and respiratory products. Based in the United Kingdom, AstraZeneca PLC is
a major $15.8 billion international bioscience business engaged in the research,
development, manufacture and marketing of ethical (prescription) pharmaceuticals
and agricultural products, and the supply of health care services. The U.S.
operations of AstraZeneca include AstraZeneca, a business unit of Zeneca Inc.,
AstraZeneca LP, Zeneca Ag Products and Salick Health Care. In the United States,
AstraZeneca is a $7.2 billion bioscience business with approximately 11,000
employees.
###
Information in this press release contains certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 2lE
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 meet projected
revenue and earnings, the ability to acquire and maintain large client
contracts, the ability to hire and retain qualified employees and other items
that may cause the actual results to differ materially, which may be discussed
in the Company's recent Form 1O-K filings, its registration statement, as
amended, and other filings with the Securities and Exchange Commission.
For further information contact Meg Humphrey, MD, VP of Strategic Development at
AAI at 704-367-5119, or Ken Rabb, Phoenix Communications at 919-383-7779.
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Company Press Release
Correction -- AAI
In HSM045, AAI Announces Research and Development, Licensing, and Product
Cooperation Agreement with AstraZeneca for Major Drug Class, moved earlier
today, we are advised by a representative of the company of the following
changes:
- -- The subhead should read: "AAI and AstraZeneca Expand Existing Relationship
and Take New Approach to Cooperative Research and Development" rather than "....
and Take New Approach to Pharmaceutical Product Life Cycle Management and
Cooperative Research and Development."
- -- The second paragraph, second sentence, should read: "AstraZeneca is a world
leader ..." rather than "AstraZeneca is a the world leader ..."
- -- Third paragraph, second sentence, should read: "Terms of the contract call
for the licensing of AAI intellectual property, an initial signing payment,
guaranteed funding of AAI resources dedicated to the development of additional
strategic intellectual property, and potential royalties based upon attainment
of certain milestones," rather than "... dedicated to the development of
additional strategic intellectural property, useful in the field of proton pump
inhibition, and potential royalties on worldwide sales of certain related
pharmaceutical products and derivatives, based upon attainment of certain
milestones ..."
- -- Sixth paragraph, second sentence, should read: "... noted Jim Coyne, Leader,
Gastrointestinal Public Relations at AstraZeneca" rather than "... of
AstraZeneca."
- -- Sixth paragraph, third sentence, should read: "We believe that we can employ
AAI's product development and related management expertise to leverage
AstraZeneca's R&D investment" rather than "... AstraZeneca's R&D investment and
significant GI experience."
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Exhibit 99.2
FOR IMMEDIATE RELEASE
Applied Analytical Industries, Inc. (AAI) Reports Third Quarter Results
Wilmington, North Carolina, November 2, 1999 -- Applied Analytical Industries,
Inc. (NASDAQ:AAII) today reported results for the third quarter of 1999. Net
sales for the quarter were $22.7 million, a decrease of $2.5 million, or 9.7%
from net sales of $25.2 million reported for the third quarter of 1998. The
company reported a net loss for the quarter of $1.5 million, versus net income
of $1.9 million in the year-ago quarter. This equates to a loss of $0.08 per
share compared with earnings per share of $0.11 a year ago. Research and
development expenses for the quarter were $2.8 million, or 12.2% of sales, as
compared with $1.4 million, or 5.5% of sales in the year-ago quarter. Product
development revenues in the quarter were $2.1 million, reflecting a 20.4%
increase over the $1.7 million reported in the third quarter of 1998.
Compared to the second quarter of 1999, sales increased by $1.0 million, or
4.7%, while the total cost of operations decreased by $1.3 million, or 5.0%.
Thus, quarter-on-quarter, sales increased by $1.0 million, while costs decreased
by $1.3 million. AAI signed $23.5 million in new fee-for-service contracts
during the quarter. In addition, the company signed two significant product
development agreements, including the single largest agreement in its history.
This agreement was signed late in the third quarter and the signing payment is
included in the quarter's product development revenue line.
CEO and Chairman Frederick Sancilio, Ph.D., noted, " We are pleased to have
concluded the HMR and AstraZeneca agreements in recent months. Both confirm
AAI's position as a recognized source for product development needs of our
clients. We look forward to working with each of these firms in a cooperative
way which will be rewarding to us all." Dr. Sancilio continued by saying "These
contracts along with others signed during the third quarter will impact the
fourth and subsequent quarters in a positive way. We are targeting fourth
quarter revenues to grow over the third quarter by approximately 10%. Again
reflecting the impact of these agreements, we expect our R&D spend rates to
return to historical levels of 9% to 10% in the fourth quarter and for the
upcoming year. We also anticipate licensing revenue growth of over 50% in 2000
compared to 1999. Additionally, consistent with the rate of new orders
accumulated recently, I am comfortable with anticipating at least a 15% growth
in our fee-for-service business next year. The third quarter results show
significant improvement over the prior quarter. We believe we will continue this
trend into subsequent quarters. The fundamentals of our business model are
strong and validated by a healthy interest from our clients and success in
recent contract negotiations. I am looking forward to the new year and
harvesting some of the seeds that were sown during 1999."
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Information in this press release contains certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 2lE
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 meet projected
revenue and earnings, the ability to acquire and maintain large client
contracts, the ability to hire and retain qualified employees, regulatory
approvals and industry outsourcing trends. Additional factors that may cause the
actual results to differ materially are discussed in the Company's recent
filings with the Securities and Exchange Commission, including, but not limited
to its registration statement , as amended, its Annual Report on form 10-K, its
form 8-Ks and its other periodic filings.
For further information contact Meg Humphrey, MD, VP of Strategic Development at
AAI at 704-367-5119, or Ken Rabb, Phoenix Communications at 919-383-7779.
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APPLIED ANALYTICAL INDUSTRIES, INC.
Condensed Consolidated Statement of Income
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net sales $ 22,715 $ 25,164 $ 70,521 $ 69,948
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Operating costs and expenses:
Direct costs 12,661 12,655 39,519 35,274
Selling 3,030 2,525 9,105 7,456
General and administrative 5,794 6,069 16,883 16,120
Research and development 2,776 1,372 8,735 4,739
Transaction, integration, and restructuring costs -- -- 6,400 --
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24,261 22,621 80,642 63,589
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Income (loss) from operations (1,546) 2,543 (10,121) 6,359
Other income (expense):
Interest income (expense), net (274) 82 (708) 343
Other, net 3 119 (46) 100
-------- -------- -------- --------
(271) 201 (754) 443
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Income (loss) before income taxes (1,817) 2,744 (10,875) 6,802
Provision (benefit) for income taxes (359) 831 (2,681) 2,283
-------- -------- -------- --------
Net income (loss) $ (1,458) $ 1,913 $ (8,194) $ 4,519
======== ======== ======== ========
Basic earnings (loss) per share $ (0.08) $ 0.11 $ (0.48) $ 0.26
======== ======== ======== ========
Weighted average shares outstanding 17,205 17,109 17,203 17,104
======== ======== ======== ========
Diluted earnings (loss) per share $ (0.08) $ 0.11 $ (0.48) $ 0.26
======== ======== ======== ========
Weighted average shares outstanding 17,205 17,666 17,203 17,693
======== ======== ======== ========
</TABLE>
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