UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------
FORM 10-Q
---------
Mark One
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from ______ to _______
Commission File Number 0-24249
PROFESSIONAL DETAILING, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-2919486
------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Mountainview Road
Upper Saddle River, New Jersey 07458
------------------------------------
(Address of principal executive offices)
(201) 258-8450
--------------
(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 |_|
As of November 10, 2000 the Registrant had a total of 13,744,500 shares of
Common Stock, $.01 par value, outstanding.
<PAGE>
INDEX
PROFESSIONAL DETAILING, INC.
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Consolidated Financial Statements
Balance Sheets -- September 30, 2000 and December 31, 1999...... 3
Statements of Operations -- Three and Nine Months
Ended September 30, 2000 and 1999............................... 4
Statements of Cash Flows -- Nine Months
Ended September 30, 2000 and 1999 ....................... 5
Notes to Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................. Not Applicable
Item 2. Changes in Securities and Use of Proceeds....................... 16
Item 3. Default Upon Senior Securities...................... Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable
Item 5. Other Information................................... Not Applicable
Item 6. Exhibits and Reports on Form 8-K.................... Not Applicable
SIGNATURES.............................................................. 18
2
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 118,630,688 $ 57,787,334
Short-term investments .......................................... -- 1,677,317
Contract payments receivable .................................... 28,769,600 28,940,944
Unbilled costs and accrued profits on contracts in progress ..... 3,486,349 2,257,400
Deferred training ............................................... 7,789,444 998,675
Other current assets ............................................ 4,890,311 2,438,511
Deferred tax asset .............................................. 210,544 352,312
------------- -------------
Total current assets ............................................... 163,776,936 94,452,493
Net property, plant & equipment .................................... 6,109,046 3,707,357
Other long-term assets ............................................. 4,857,742 4,800,120
------------- -------------
Total assets ....................................................... $ 174,743,724 $ 102,959,970
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 3,559,134 $ 6,033,665
Payable to affiliate ............................................ -- --
Accrued incentives .............................................. 12,129,961 10,361,480
Accrued salaries and wages ...................................... 6,958,327 3,870,745
Unearned contract revenue ....................................... 21,364,884 17,672,640
Other accrued expenses .......................................... 8,893,263 3,370,620
------------- -------------
Total current liabilities .......................................... 52,905,569 41,309,150
------------- -------------
Long-term liabilities:
Deferred tax liability .......................................... 575,009 575,009
Other long-term liabilities ..................................... 259,911 256,176
------------- -------------
Total long-term liabilities ........................................ 834,920 831,185
------------- -------------
Total liabilities .................................................. $ 53,740,489 $ 42,140,335
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares authorized;
shares issued and outstanding September 30, 2000 - 13,651,488;
December 31, 1999 - 11,975,097 ............................... 136,515 119,751
Preferred stock, $.01 par value, 5,000,000 shares authorized, no
shares issued and outstanding ................................ -- --
Additional paid-in capital ......................................... 90,080,364 47,413,320
Retained earnings .................................................. 30,786,356 14,633,627
Accumulated other comprehensive income ............................. -- 92,224
Deferred compensation .............................................. -- (11,293)
Loan to officer .................................................... -- (1,427,994)
------------- -------------
Total stockholders' equity ......................................... 121,003,235 60,819,635
------------- -------------
Total liabilities & stockholders' equity ........................... $ 174,743,724 $ 102,959,970
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue, net .................................................. $ 84,366,996 $ 43,124,685 $231,444,986 $124,442,572
Program expenses (including related party amounts of
$730,937 and $563,176 for the quarters ended September 30,
2000 and 1999, and $1,795,088 and $1,309,965 for the nine
months ended September 30, 2000 and 1999, respectively) .... 63,232,879 32,953,869 171,461,216 93,047,750
------------ ------------ ------------ ------------
Gross profit .................................................. 21,134,117 10,170,816 59,983,770 31,394,822
Compensation expense .......................................... 7,846,773 4,581,393 23,034,046 13,633,708
Other selling, general & administrative expenses .............. 5,862,602 2,095,357 12,841,128 5,914,024
Acquisition and related expenses .............................. -- 406,255 -- 1,741,102
------------ ------------ ------------ ------------
Total selling, general & administrative expenses .............. 13,709,375 7,083,005 35,875,174 21,288,834
Operating income .............................................. 7,424,742 3,087,811 24,108,596 10,105,988
Other income, net ............................................. 1,983,878 901,243 2,922,921 2,504,769
------------ ------------ ------------ ------------
Income before provision for taxes ............................. 9,408,620 3,989,054 27,031,517 12,610,757
Provision for income taxes .................................... 3,700,586 1,793,654 10,871,184 5,062,490
------------ ------------ ------------ ------------
Net income .................................................... $ 5,708,034 $ 2,195,400 $ 16,160,333 $ 7,548,267
============ ============ ============ ============
Basic net income per share .................................... $ 0.42 $ 0.18 $ 1.21 $ 0.63
============ ============ ============ ============
Diluted net income per share .................................. $ 0.41 $ 0.18 $ 1.19 $ 0.62
============ ============ ============ ============
Basic weighted average number of shares outstanding ........... 13,646,817 11,965,222 13,414,680 11,953,558
============ ============ ============ ============
Diluted weighted average number of shares outstanding ......... 13,960,762 12,179,361 13,639,397 12,171,307
============ ============ ============ ============
Pro forma data (unaudited) (see note 5):
Income before provision for taxes, as reported ................ $ 12,610,757
Pro forma provision for income tax ............................ 5,740,744
------------
Pro forma net income .......................................... $ 6,870,013
============
Pro forma basic net income per share .......................... $ 0.57
============
Pro forma diluted net income per share ........................ $ 0.56
============
Pro forma basic weighted average number of shares outstanding . 11,953,558
============
Pro forma diluted weighted average number of shares outstanding 12,171,307
============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income ................................................. $ 16,160,333 $ 7,548,267
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ...................................... 1,011,107 703,468
Non-cash compensation expense - stock options ..... 11,293 33,948
Deferred taxes, net ............................... -- 150,459
Amortization of goodwill .......................... 314,475 32,442
Loss on other investments ......................... 2,500,000 --
Other changes in assets and liabilities:
Decrease (increase) in contract payments receivable 171,343 (3,069,618)
(Increase) decrease in unbilled costs ............. (1,228,949) 463,094
(Increase) in deferred training ................... (6,790,769) (762,935)
(Increase) in other current assets ................ (2,451,800) (105,885)
(Increase) in other long-term assets .............. (410,545) (340,895)
(Decrease) increase in accounts payable ........... (2,474,531) 2,466,405
Increase in accrued liabilities ................... 4,856,063 1,978,735
Increase (decrease) in unearned contract revenue .. 3,692,244 (3,379,838)
(Decrease) in payable to affiliate ................ -- (56,236)
Increase (decrease) in other current liabilities .. 5,702,859 (314,995)
Increase in other long-term liabilities ........... 3,736 112,713
------------- -------------
Net cash provided by operating activities .................. 21,066,859 5,459,129
------------- -------------
Cash Flows From Investing Activities
Sale of short-term investments ....................... 1,585,093 972,856
Other investment ..................................... (2,500,000) --
Purchase of property and equipment ................... (3,412,796) (775,895)
Cash paid for acquisition ............................ -- (4,100,000)
------------- -------------
Net cash (used in) provided by investing activities ........ (4,327,703) (3,903,039)
------------- -------------
Cash Flows From Financing Activities
Net proceeds from secondary offering ................. 41,610,543 --
Net proceeds from the exercise of stock options ...... 1,073,264 390,192
Distributions to S corporation stockholders .......... (7,603) (670,000)
Repayment of loan from officer ....................... 1,427,994 --
------------- -------------
Net cash provided by (used in) financing activities ........ 44,104,198 (279,808)
------------- -------------
Net increase in cash and cash equivalents .................. 60,843,354 1,276,282
Cash and cash equivalents - beginning ...................... 57,787,334 56,989,233
------------- -------------
Cash and cash equivalents - ending ......................... $ 118,630,688 $ 58,265,515
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited interim financial statements and related notes
should be read in conjunction with the financial statements of Professional
Detailing, Inc. and its subsidiaries (the "Company" or "PDI") and related notes
as included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 as filed with the Securities and Exchange Commission. The
unaudited interim financial statements of the Company have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The unaudited interim financial statements include all adjustments (consisting
only of normal recurring adjustments) which, in the judgement of management, are
necessary for a fair presentation of such financial statements. Operating
results for the three and nine-month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. Certain prior period amounts have been reclassified to
conform with the current presentation with no effect on financial position, net
income or cash flows.
2. Secondary Public Offering of Common Stock
On January 26, 2000, a secondary public offering of 2,800,000 shares of
the Company's common stock was completed at a public offering price per share of
$28.00, yielding net proceeds per share after deducting underwriting discounts
of $26.35 (before deducting expenses of the offering). Of the shares offered,
1,399,312 shares were sold by the Company and 1,400,688 shares were sold by
certain selling shareholders. In addition, in connection with the exercise of
the underwriters' over-allotment option, an additional 420,000 shares were sold
to the underwriters on February 1, 2000 on the same terms and conditions
(210,000 shares were sold by the Company and 210,000 shares were sold by a
selling shareholder). Net proceeds to the Company after expenses of the offering
were approximately $41.6 million.
3. Acquisitions
On May 12, 1999, the Company acquired 100% of the capital stock of TVG,
Inc. ("TVG") in a merger transaction. In connection with the transaction, the
Company issued 1,256,882 shares of its common stock in exchange for the
outstanding shares of TVG. The acquisition has been accounted for as a pooling
of interests and, accordingly, all prior periods presented in the accompanying
consolidated financial statements have been restated to include the accounts and
operations of TVG. TVG is a provider of marketing research and consulting
services as well as professional education and communication services to the
pharmaceutical industry.
Net revenue and net income of the separate companies for the three months
ended March 31, 1999, the period preceding the acquisition, were as follows:
Revenue, net Net income
------------ -----------
PDI $34,580,979 $ 2,696,097
TVG 5,730,771 625,482
----------- -----------
Combined $40,311,750 $ 3,321,579
=========== ===========
6
<PAGE>
In August 1999, the Company, through its wholly-owned subsidiary,
ProtoCall, Inc. ("ProtoCall"), acquired substantially all of the operating
assets of ProtoCall, LLC, a leading provider of syndicated contract sales
services to the United States pharmaceutical industry. The purchase price was
$4.5 million (of which $4.1 million was paid at closing) plus up to an
additional $3.0 million in contingent payments payable during 2000 if ProtoCall
achieves defined performance benchmarks. This acquisition was accounted for as a
purchase. In connection with this transaction, the Company recorded $4.3 million
in goodwill (included in other long-term assets) which is being amortized over a
period of 10 years.
4. Other Investments
In February 2000, the Company signed a three-year agreement with
iPhysicianNet Inc. ("iPhysicianNet"). In connection with this agreement, the
Company made an investment of $2.5 million in preferred stock of iPhysicianNet.
Under the agreement PDI was appointed as the exclusive contract sales
organization in the United States to be affiliated with the iPhysicianNet
network, prospectively allowing PDI to offer e-detailing capabilities to its
existing and potential clients. For the three and nine months ended September
30, 2000, the Company recorded net losses related to this investment of $0 and
$2,500,000, respectively, which represented its share of iPhysicianNet's losses
for the respective periods, up to the Company's original investment amount.
5. Pro Forma Information
Prior to its acquisition in May 1999, TVG was an S corporation and not
subject to Federal income tax. During such periods the net income of TVG had
been reported by and taxed directly to the pre-acquisition shareholders rather
than TVG. Accordingly, for informational purposes, the accompanying statements
of operations for the three and nine months ended September 30, 1999 include a
pro forma adjustment for the income taxes which would have been recorded had TVG
been a C corporation for the periods presented based on the tax laws in effect
during those periods. The pro forma adjustment for income taxes is based upon
the statutory rates in effect for C corporations during the three and nine
months ended September 30, 1999. The pro forma adjustment for income taxes for
the three and nine months ended September 30, 1999 also reflects the
non-deductibility of certain acquisition related costs.
6. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 was originally effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS
137). SFAS 137 defers the effective date of SFAS 133 for all fiscal quarters of
all fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Company). In June 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133" (SFAS 138). SFAS 138 amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and certain hedging
activities. The Company is evaluating the impact that the adoption of these
pronouncements will have on its earnings, comprehensive income and financial
position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No 101 ("SAB 101") which provides guidelines in
applying generally accepted accounting principles to certain revenue recognition
issues. Subsequently, the SEC has issued related guidance, which
7
<PAGE>
has extended the implementation date of SAB 101 until the fourth quarter of
2000. The Company does not expect this statement to have a material impact on
its financial statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" (FIN 44). The interpretation clarifies and provides additional
guidance in connection with the application of APB Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company does not expect this interpretation
to have a material impact on its financial statements.
7. Basic and Diluted Net Income Per Share
A reconciliation of the number of shares used in the calculation of basic
and diluted earnings per share for the three-month and nine-month periods ended
September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic weighted average number
of common shares outstanding .. 13,646,817 11,965,222 13,414,680 11,953,558
Dilutive effect of stock options .... 313,945 214,139 224,717 217,749
---------- ---------- ---------- ----------
Diluted weighted average number
of common shares outstanding .. 13,960,762 12,179,361 13,639,397 12,171,307
========== ========== ========== ==========
</TABLE>
8. Investments
At December 31, 1999, the Company had investments of $1.7 million, which
were classified as available-for-sale securities and recorded at fair market
value. These investments were sold during the quarter ended March 31, 2000. The
sale resulted in a gain of $163,815, which was recognized in "Other income, net"
during the quarter ended March 31, 2000 and nine months ended September 30,
2000. As of September 30, 2000, the Company had no investments classified as
available-for-sale securities.
9. Comprehensive Income
A reconciliation of net income as reported in the Consolidated Statements
of Operations to comprehensive income, net of taxes is presented in the table
below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 5,671,700 $ 2,195,400 $ 16,160,333 $ 7,548,267
Other comprehensive income, net of tax:
Unrealized holding gain on
available-for-sale securities
arising during period -- (72,499) -- 84,440
Reclassification adjustment for
gains included in net income -- -- (92,224) --
------------ ------------ ------------ ------------
Comprehensive income $ 5,671,700 $ 2,122,901 $ 16,068,109 $ 7,632,707
============ ============ ============ ============
</TABLE>
8
<PAGE>
10. Segment Information
PDI is organized primarily on the basis of its four principal service
offerings, which include customized contract sales services, marketing research
and consulting services, professional education and communication services and
commercialization services. Marketing research and consulting services,
professional education and communication services and commercialization services
have been combined to form the "All other" category.
The accounting policies of the segments are the same as those described in
the "Nature of Business and Significant Accounting Policies" footnote to the
Company's financial statements, which is included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999. Segment data includes a
charge allocating all corporate headquarters costs to each of the operating
segments. PDI evaluates the performance of its segments and allocates resources
to them based on revenue, net. The Company does not utilize information about
assets for its operating segments and, accordingly, no asset information is
presented in the following table.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Contract sales services $ 79,478,572 $ 37,220,198 $ 216,146,282 $ 106,188,847
All other 4,888,424 5,904,487 15,298,704 18,253,725
------------- ------------- ------------- -------------
Total $ 84,366,996 $ 43,124,685 $ 231,444,986 $ 124,442,572
============= ============= =============
Operating income, adjusted for
acquisition expenses
Contract sales services $ 9,694,073 $ 2,714,557 $ 25,326,379 $ 9,540,448
All other (2,269,331) 779,509 (1,217,783) 2,306,642
------------- ------------- ------------- -------------
Total $ 7,424,742 $ 3,494,066 $ 24,108,596 $ 11,847,090
============= ============= ============= =============
Reconciliation of operating
income to income before
provision for income taxes
Total operating income
for operating groups $ 7,424,742 $ 3,494,066 $ 24,108,596 $ 11,847,090
Acquisition and related expenses -- (406,255) -- (1,741,102)
Other income, net 1,983,878 901,243 2,922,921 2,504,769
------------- ------------- ------------- -------------
Income before provision
for income taxes $ 9,408,620 $ 3,989,054 $ 27,031,517 $ 12,610,757
============= ============= ============= =============
Capital expenditures
Contract sales services $ 1,503,181 $ 178,891 $ 2,952,758 $ 686,511
All other 211,323 36,161 460,038 89,384
------------- ------------- ------------- -------------
Total $ 1,714,504 $ 215,052 $ 3,412,796 $ 775,895
============= ============= ============= =============
Depreciation expense
Contract sales services $ 299,486 $ 149,188 $ 756,953 $ 409,317
All other 89,209 100,393 254,154 294,151
------------- ------------- ------------- -------------
Total $ 388,695 $ 249,581 $ 1,011,107 $ 703,468
============= ============= ============= =============
</TABLE>
11. Subsequent Events
In October 2000, our wholly owned subsidiary, LifeCycle Ventures, Inc.
(LCV), signed an agreement with Glaxo Wellcome Inc., extending through December
31, 2005, for the exclusive U.S. marketing, sales and distribution rights for
Ceftin Tablets and Ceftin for Oral Suspension (cefuroxime axetil), two dosage
forms of a cephalosporin antibiotic. Ceftin is indicated for acute bacterial
respiratory
9
<PAGE>
infections such as acute sinusitis, bronchitis and otitis media. Glaxo Wellcome
retains certain regulatory responsibilities for Ceftin and ownership of all
intellectual property relevant to Ceftin. Glaxo Wellcome will continue to
manufacture the product. In connection with this agreement the Company has
entered into a product purchase commitment with Glaxo Wellcome. This agreement
provides for the Company to purchase certain minimum levels of product, in
various dosage forms, during each calendar quarter of the agreement. This
agreement is cancelable by either party upon not less than 120 days written
notice.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Various statements made in this Quarterly Report on Form 10-Q are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. The
forward-looking statements included in this report are based on current
expectations that involve numerous risks and uncertainties. Our plans and
objectives are based, in part, on assumptions involving judgements about, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Although we believe that
our assumptions underlying the forward-looking statements are reasonable, any of
these assumptions could prove inaccurate and, therefore, we cannot assure you
that the forward-looking statements included in this report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included in this report, the inclusion of these
statements should not be interpreted by anyone that our objectives and plans
will be achieved. Factors that could cause actual results to differ materially
from those expressed or implied by forward-looking statements include, but are
not limited to, the factors set forth in "Certain Factors That May Affect Future
Growth," under Part I, Item 1, of the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 as filed with the Securities and Exchange
Commission.
GENERAL
We are a leading provider of customized sales solutions to the
pharmaceutical industry. We have designed and managed customized product
detailing programs for some of the world's largest pharmaceutical companies,
managed some of the largest contract sales efforts in the world and have long
standing relationships with our major clients. We provide the following
services:
o Dedicated Contract Sales Services, in which programs are customized to
client specifications;
o Syndicated Contract Sales Services, provided through our ProtoCall unit,
enabling clients to tap into an existing, large-scale sales team for
specific detail positions and periods;
o Recruitment, in which clients utilize our team of national recruiters to
outsource the building of new sales forces, for sales force expansions and
to fill vacancies;
o Medical Education and Communication Services, provided through our TVG
unit, in which clients can access continuing medical education, Sales
Force Tactical Briefings(TM) and peer to peer promotion;
o Marketing Research and Consulting Services, provided through our TVG unit,
enabling clients to study qualitative and quantitative aspects of brand
performance on a pre-launch, launch and continuing basis; and
o Commercialization Services, provided through our LCV unit, enabling all
types of pharmaceutical and biotechnology clients to extend or enhance
product growth through long-term creative risk and gain sharing
agreements.
Our primary objective is to enhance our leadership position in the growing
CSO industry and to become the premier supplier of product detailing programs
and other marketing and promotional services to the pharmaceutical industry and
other segments of the healthcare market. We have demonstrated strong internal
growth generated by renewing and expanding programs with existing clients and by
securing new business from leading pharmaceutical companies.
On May 12, 1999, we acquired 100% of the capital stock of TVG, Inc.
("TVG") in a merger transaction. In connection with that transaction, we issued
1,256,882 shares of our common stock in
11
<PAGE>
exchange for the outstanding shares of TVG. The acquisition has been accounted
for as a pooling of interests and, accordingly, all prior periods presented in
the accompanying consolidated financial statements have been restated to include
the accounts and operations of TVG. The acquisition of TVG expands the scope of
high quality services that we provide to the pharmaceutical industry. TVG has
provided services to 18 of the top 20 pharmaceutical companies. Through its
Marketing Research and Consulting division, TVG provides brand marketing
strategy, product profiling, positioning, and message development services.
Projects run across the full range of product lifecycles, with an emphasis on
the critical pre-launch planning phase. Through its Education/Communications
division, TVG provides a broad spectrum of professional education and
communication services, including teleconferences and on-site hospital programs.
Until its acquisition by us on May 12, 1999, TVG was an S corporation.
Accordingly, TVG's net income had been reported by and taxed directly to the
pre-acquisition stockholders.
On August 31, 1999, we acquired, through our wholly-owned subsidiary
ProtoCall, Inc. ("ProtoCall"), substantially all of the operating assets of
ProtoCall, LLC, a leading provider of syndicated contract sales services to the
United States pharmaceutical industry. The purchase price was $4.5 million (of
which $4.1 million was paid at closing) plus up to an additional $3.0 million in
contingent payments payable during 2000 if ProtoCall achieves defined
performance benchmarks. This acquisition was accounted for as a purchase. The
acquisition of ProtoCall adds a syndicated sales force option to our product
offerings expanding the scope and flexibility of high quality services that we
can provide to our customers. In connection with this transaction, we recorded
$4.3 million in goodwill, which is being amortized over a period of 10 years.
On January 26, 2000, a public offering of 2,800,000 shares of our common
stock was completed at a public offering price per share of $28.00, yielding net
proceeds per share after deducting underwriting discounts of $26.35 (before
deducting expenses of the offering). Of the shares offered, 1,399,312 shares
were sold by us and 1,400,688 shares were sold by certain selling shareholders.
In addition, in connection with the exercise of the underwriters' over-allotment
option, an additional 420,000 shares were sold to the underwriters on February
1, 2000 on the same terms and conditions (210,000 shares were sold by us and
210,000 shares were sold by a selling shareholder). Net proceeds to us after
expenses of the offering were approximately $41.6 million.
In February 2000, we signed a three-year agreement with iPhysicianNet Inc.
("iPhysicianNet"). In connection with this agreement, we made an investment of
$2.5 million in preferred stock of iPhysicianNet. Under the agreement we were
appointed the exclusive CSO in the United States to be affiliated with the
iPhysicianNet network, allowing us to offer e-detailing capabilities to
iPhysicianNet's and our existing and potential clients. For the three and nine
months ended September 30, 2000, we recorded net losses related to this
investment of $0 and $2,500,000, respectively, which represented our share of
iPhysicianNet's losses from the respective periods, up to the Company's original
investment amount.
In October 2000, our wholly owned subsidiary, LifeCycle Ventures, Inc.
(LCV), signed an agreement with Glaxo Wellcome Inc., extending through December
31, 2005, for the exclusive U.S. marketing, sales and distribution rights for
Ceftin(R) Tablets and Ceftin(R) for Oral Suspension (cefuroxime axetil), two
dosage forms of a cephalosporin antibiotic. Ceftin, which is indicated for acute
bacterial respiratory infections such as acute sinusitis, bronchitis and otitis
media, generated over $332 million in U.S. sales in 1999. Ceftin is the top
selling oral cephalosporin in the U.S. and throughout the world. In July 2000,
Ceftin was recommended by the Sinus and Allergy Health Partnership as first-line
treatment for acute bacterial rhinosinusitis. In January 1999, the Centers for
Disease Control and Prevention issued guidelines recommending Ceftin as one of
only two oral antibiotics as second-line treatment of acute bacterial otitis
media. Glaxo Wellcome retains certain regulatory responsibilities for Ceftin and
ownership of all intellectual property relevant to Ceftin. Glaxo Wellcome will
continue to manufacture the product. In connection with this agreement the
Company has entered into a product purchase commitment with
12
<PAGE>
Glaxo Wellcome. This agreement provides for the Company to purchase certain
minimum levels of product, in various dosage forms, during each calendar quarter
of the agreement. This agreement is cancelable by either party upon not less
than 120 days written notice.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statements of operations data as a percentage of revenue. The trends illustrated
in this table may not be indicative of future results.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue, net ........................................ 100.0% 100.0% 100.0% 100.0%
Program expenses .................................... 74.9 76.4 74.1 74.8
----- ----- ----- -----
Gross profit ..................................... 25.1 23.6 25.9 25.2
Compensation expense ................................ 9.3 10.6 9.9 11.0
Other selling, general and administrative expenses .. 7.0 4.9 5.6 4.7
Acquisition and related expenses .................... 0.0 0.9 0.0 1.4
----- ----- ----- -----
Total selling, general and administrative expenses 16.3 16.4 15.5 17.1
----- ----- ----- -----
Operating income .................................... 8.8 7.2 10.4 8.1
Other income, net ................................... 2.3 2.1 1.3 2.0
----- ----- ----- -----
Income before provision for income taxes ......... 11.1 9.3 11.7 10.1
Provision for income taxes .......................... 4.4 4.2 4.7 4.0
----- ----- ----- -----
Net income ....................................... 6.7% 5.1% 7.0% 6.1%
===== ===== ===== =====
</TABLE>
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999
Revenue. Revenue for the quarter ended September 30, 2000 was $84.4
million, an increase of 95.6% over revenue of $43.1 million for the quarter
ended September 30, 1999. This increase in revenue was generated primarily from
the continued renewal and expansion of existing product detailing programs and
the expansion of our client base, including several product detailing programs
that started during the fourth quarter of 1999 and the first and third quarters
of 2000.
Program expenses. Program expenses for the quarter ended September 30,
2000 were $63.2 million, an increase of 91.9% over program expenses of $33.0
million for the quarter ended September 30, 1999. As a percentage of revenue,
program expenses decreased to 74.9% in the quarter ended September 30, 2000
period from 76.4% in the corresponding 1999 period. This decrease is due
primarily to various efficiencies attained within the contract sales programs in
the quarter ended September 30, 2000.
Compensation expense. Compensation expense for the quarter ended September
30, 2000 was $7.8 million, an increase of 71.3% over compensation expense of
$4.6 million for the quarter ended September 30, 1999. As a percentage of
revenue, compensation expense decreased to 9.3% in the third quarter of 2000
from 10.6% in the comparable 1999 period. This decrease as a percentage of
revenue is a result of continued operating efficiencies that we have realized
through our growth.
Other selling, general and administrative expenses. Other selling, general
and administrative expenses for the quarter ended September 30, 2000 were $5.9
million, an increase of 179.8% over other selling, general and administrative
expenses of $2.1 million for the quarter ended September 30, 1999. As a
percentage of revenue, other selling, general and administrative expenses
increased to 7.0% in the third quarter of 2000 from 4.9% in the comparable 1999
period. This increase as a percentage of revenue is a result of start-up costs
incurred by our wholly owned subsidiary LCV in connection with our five-year
distribution agreement with Glaxo Wellcome Inc. Excluding start-up costs of $2.4
million, other selling,
13
<PAGE>
general and administrative expenses decreased to 4.2% in the third quarter of
2000 from 4.9% in the comparable 1999 period.
Operating income. Operating income for the quarter ended September 30,
2000 was $7.4 million compared to operating income of $3.1 million for the
quarter ended September 30, 1999. As a percentage of revenue, operating income
increased to 8.8% for the quarter ended September 30, 2000 from 7.2% in the
corresponding 1999 period. Excluding acquisition and related expenses of $0.4
million, operating income would have been $3.5 million or 8.1% for the three
months ended September 30, 1999. Excluding start-up costs of $2.4 million
incurred by our wholly owned subsidiary LCV in connection with our five-year
distribution agreement with Glaxo Wellcome Inc, operating income would have been
$9.8 million or 11.6% for the three months ended September 30, 2000.
Other income, net. Other income for the quarter ended September 30, 2000
was $2.0 million compared to other income of $0.9 million for the quarter ended
September 30, 1999. The increase was primarily due to interest income from the
investment of the proceeds of our secondary offering, the increase in net cash
provided by operations from the fourth quarter of 1999 through September 2000
and rising interest rates.
Provision for income taxes. Income taxes of $3.7 million for the quarter
ended September 30, 2000 and $1.8 million for the quarter ended September 30,
1999 consisted of Federal and state corporate income taxes, at the approximate
combined tax rate of 40%.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Revenue. Revenue for the nine months ended September 30, 2000 was $231.4
million, an increase of 86.0% over revenue of $124.4 million for the nine months
ended September 30, 1999. This increase in revenue was generated primarily from
the continued renewal and expansion of existing product detailing programs and
the expansion of our client base, including several product detailing programs
that started during the fourth quarter of 1999 and the first and third quarters
of 2000.
Program expenses. Program expenses for the nine months ended September 30,
2000 were $171.5 million, an increase of 84.3% over program expenses of $93.0
million for the nine months ended September 30, 1999. As a percentage of
revenue, program expenses decreased to 74.1% in the 2000 period from 74.8% in
the corresponding 1999 period. This decrease was caused by the high gross profit
realized on our incentive payments and efficiencies associated with the rollout
of new programs offset by a greater proportion of larger programs with longer
term durations which have slightly lower gross profit margins but afford the
opportunity for additional compensation through the achievement of performance
incentives.
Compensation expense. Compensation expense for the nine months ended
September 30, 2000 was $23.0 million, an increase of 68.9% over compensation
expense of $13.6 million for the nine months ended September 30, 1999. As a
percentage of revenue, compensation expense decreased to 9.9% in the nine months
ended September 30, 2000 from 11.0% in the comparable 1999 period. This decrease
as a percentage of revenue is a result of continued operating efficiencies that
we have realized through our growth.
Other selling, general and administrative expenses. Other selling, general
and administrative expenses for the nine months ended September 30, 2000 were
$12.8 million, an increase of 117.1% over other selling, general and
administrative expenses of $5.9 million for the nine months ended September 30,
1999. As a percentage of revenue, other selling, general and administrative
expenses increased to 5.6% for the 2000 period from 4.7% in the corresponding
1999 period. This increase as a percentage of revenue is a result of start-up
costs incurred by our wholly owned subsidiary LCV in connection with our
five-year distribution agreement with Glaxo Wellcome Inc. Excluding start-up
costs of $2.4 million, other selling,
14
<PAGE>
general and administrative expenses decreased to 4.5% in the nine months ended
September 30, 2000 from 4.7% in the comparable 1999 period.
Operating income. Operating income for the nine months ended September 30,
2000 was $24.1 million compared to operating income of $10.1 million for the
nine months ended September 30, 1999. As a percentage of revenue, operating
income increased to 10.4% for the 2000 period from 8.1% in the corresponding
1999 period. Excluding acquisition and related expenses of $1.7 million,
operating income would have been $11.8 million, or 9.5%, for the nine months
ended September 30, 1999. Excluding start-up costs of $2.4 million incurred by
our wholly owned subsidiary LCV in connection with our five-year distribution
agreement with Glaxo Wellcome Inc, operating income would have been $26.5
million or 11.4% for the nine months ended September 30, 2000.
Other income, net. Other income for the nine months ended September 30,
2000 was $2.9 million compared to other income of $2.5 million for the nine
months ended September 30, 1999. Other income for the 2000 period consisted of
net interest income of $5.4 million which was partially offset by our share in
the losses of iPhysicianNet of $2.5 million. Other income for the 1999 period
consisted primarily of net interest income. The increase in interest income was
due to the investment of the proceeds of our secondary offering, the increase in
net cash provided by operations from the fourth quarter of 1999 through
September 2000 and rising interest rates.
Provision for income taxes. Income taxes of $10.9 million for the nine
months ended September 30, 2000 and $5.1 million for the nine months ended
September 30, 1999 consisted of Federal and state corporate income taxes. TVG
was an S corporation for Federal income tax purposes until its acquisition by us
on May 12, 1999 and therefore incurred no Federal income taxes prior to the
acquisition.
Pro forma net income. We were a C corporation for the nine months ended
September 30, 2000 and therefore there is no pro forma information for that
period. Prior to its acquisition by us on May 12, 1999, TVG was an S
corporation. Pro forma net income for the nine months ended September 30, 1999
of $6.9 million assumes that TVG was taxed for Federal and state corporate
income tax purposes as a C corporation during that period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, we had cash and cash equivalents of
approximately $118.6 million and working capital of $110.9 million compared to
cash and cash equivalents of approximately $57.8 million and working capital of
$53.1 million at December 31, 1999.
For the nine months ended September 30, 2000, net cash provided by
operating activities was $21.1 million, an increase of $15.6 million from cash
provided by operating activities of $5.5 million for the same period in 1999.
The main component of cash provided by operating activities for the nine months
ended September 30, 2000 was net income from operations of $16.2 million. The
balances in "Other changes in assets and liabilities" may fluctuate depending on
a number of factors, including the number and size of programs, contract terms
and other timing issues. These fluctuations may vary in size and direction each
reporting period.
For the nine months ended September 30, 2000, net cash used in investing
activities was $4.3 million compared to net cash used in investing activities of
$3.9 million for the same period in 1999. Net cash used in investing activities
for the nine months ended September 30, 2000 consisted of $2.5 million in
connection with the investment in iPhysicianNet and $3.4 million in purchases of
property and equipment, partially offset by the sale of $1.6 million in
short-term investments.
For the nine months ended September 30, 2000, net cash provided by
financing activities of $44.1 million consisted primarily of the net proceeds
from our secondary offering of $41.6 million, the
15
<PAGE>
repayment of loan from officer of $1.4 million and proceeds from the exercise of
stock options of $1.1 million.
During the fourth quarter of 2000, LCV will begin marketing and
distributing Ceftin pursuant to our Distribution Agreement with Glaxo Wellcome
Inc. This agreement is cancelable by either party upon not less than 120 days
written notice. As part of our agreement, LCV is required to purchase certain
minimum levels of Ceftin during each calendar quarter. In addition, we purchased
Glaxo Wellcome's inventory of Ceftin product that existed as of October 1, 2000.
In order to meet anticipated demand, LCV intends to maintain an inventory of
Ceftin that we expect to average between $30 to $60 million in foreseeable
periods. In the event that management's estimates of the demand for Ceftin are
not accurate, or the timing on collections on Ceftin related receivables is
slower than anticipated, the LCV - Ceftin transaction could have a material
adverse impact on the Company's results of operations, cash flows and liquidity.
We believe that our cash and cash equivalents and future cash flows
generated from operations will be sufficient to meet our foreseeable operating
and capital requirements for the next twelve months. We continue to evaluate and
review acquisition candidates in the ordinary course of business.
Part II - Other Information
Item 1 - Not Applicable
Item 2 - Changes in Securities and Use of Proceeds
On May 19, 1998, the Company completed its initial public offering (the
"IPO") of 3,220,000 shares of Common Stock (including 420,000 shares in
connection with the exercise of the underwriters' over-allotment option) at a
price per share of $16.00. Net proceeds to the Company after expenses of the IPO
were approximately $46.4 million.
(1) Effective date of Registration Statement: May 19, 1998 (File No.
333-46321).
(2) The Offering commenced on May 19, 1998 and was consummated on May
22, 1998.
(3) Not applicable.
(4)(i) All securities registered in the Offering were sold.
(4)(ii) The managing underwriters of the Offering were Morgan Stanley Dean
Witter, William Blair & Company and Hambrecht & Quist.
(4)(iii) Common Stock, $.01 par value.
(4)(iv) Amount registered and sold: 3,220,000 shares.
Aggregate purchase price: $51,520,000.
All shares were sold for the account of the Issuer.
(4)(v) $3,606,400 in underwriting discounts and commissions were paid to
the underwriters. $1,490,758 of other expenses were incurred,
including estimated expenses.
(4)(vi) $46,422,842 of net Offering proceeds to the Issuer.
16
<PAGE>
(4)(vii) Use of Proceeds: $46,422,000 of temporary investments with average
maturities of three months as of September 30, 2000.
Item 3 - Not Applicable
Item 4 - Not Applicable
Item 5 - Not Applicable
Item 6 - Not Applicable
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
November 14, 2000 PROFESSIONAL DETAILING, INC.
By: /s/ Charles T. Saldarini
--------------------------------
Charles T. Saldarini,
Chief Executive Officer
By: /s/ Bernard C. Boyle
--------------------------------
Bernard C. Boyle
Chief Financial and Accounting
Officer
18
