SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission File Number 0-8049
ended June 30, 1994
CIRCA PHARMACEUTICALS, INC.
Incorporated under the laws 11-1966265
of the State of New York (I.R.S. Employer Identification Number)
33 RALPH AVENUE, COPIAGUE, NEW YORK 11726
Telephone number (516) 842-8383
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 No
The number of shares of Common Stock, par value $.01 per share,
outstanding were 21,711,612 as of July 27, 1994. <PAGE>
CIRCA PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGES
Item 1. Financial Statements
Consolidated Balance Sheets, June 30, 1994
and December 31, 1993 1
Consolidated Statements of Operations for the
three and six months ended June 30, 1994 and 1993 2
Consolidated Statements of Cash Flows for the
six months ended June 30, 1994 and 1993 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to Vote of Security Holders' 10
Item 6. Exhibits and Reports on Form 8-K 10<PAGE>
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ITEM 1.
June 30, December 31,
1994 1993
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 11,789,157 $ 2,410,819
Marketable securities 33,180,130 36,182,077
Securities held as collateral 5,000,000 5,000,000
Accounts receivable 360,234 638,242
Inventories 1,387,080 1,820,883
Other current assets 2,653,979 1,776,843
Total current assets 54,370,580 47,828,864
Property, plant and equipment, net 12,222,508 12,535,586
Investments in joint ventures 29,834,046 29,473,160
Securities held as collateral 6,739,555 9,147,156
Other assets 4,362,256 3,424,519
$107,528,945 $102,409,285
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 3,815,648 $ 5,102,659
Current portion of legal settlements 8,044,338 7,909,339
Total current liabilities 11,859,986 13,011,998
Deferred joint venture liability 14,881,030 15,242,000
Legal settlements 5,764,177 7,603,845
Deferred income 2,062,496 2,520,830
Commitments and contingencies:
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized 10,000,000 shares; none issued
Common stock, par value $.01 per share;
authorized - 70,000,000 shares; issued and
outstanding - 22,078,920 shares in 1994 and
22,083,420 in 1993 220,789 220,834
Capital in excess of par value 62,488,992 62,570,547
Retained earnings 14,669,916 8,486,846
Unrealized holding gain 2,156,421
Less:
Treasury stock at cost (3,168,031) (3,168,031)
Unearned compensation - stock awards (3,406,831) (4,079,584)
Total shareholders' equity 72,961,256 64,030,612
$107,528,945 $102,409,285
See accompanying notes to consolidated financial statements
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PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Net sales $961,289 $745,710 $ 2,195,498 $1,103,426
Operating costs and expenses:
Cost of goods sold 619,961 620,437 1,404,812 926,843
Research and development 1,621,761 1,070,143 3,119,598 2,109,556
Manufacturing overhead 972,884 787,931 1,922,111 1,803,542
Selling and administrative 1,492,009 3,703,539 2,952,647 5,467,344
Loss from operations (3,745,326) (5,436,340 (7,203,670) (9,203,859)
Income from joint ventures 5,514,848 5,891,426 11,041,323 11,690,563
Investment income 1,040,979 1,848,926 2,997,879 2,799,579
Partnership loss 2,460,000 6,702,000
Cost of legal settlements 847,870 3,847,870
Other expenses, net 501,911 190,567 652,462 342,577
Net income (loss) $2,308,590 $(1,194,425) $6,183,070 $(5,606,164)
Net income(loss)per share $0.11 $(0.05) $ 0.29 $(0.25)
Weighted average shares
outstanding 21,711,364 22,101,521 21,711,092 22,133,626
See accompanying notes to consolidated financial statements
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PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1994 1993
Net cash used for operating activities $(7,177,059) $(14,674,985)
CASH FLOW FROM INVESTING ACTIVITIES:
Dividends received from equity investees 9,000,000 8,888,078
Decrease in marketable securities and
securities held as collateral 7,359,153 5,373,261
Proceeds from sale of shares of Marsam stock 1,370,139 1,383,500
Additions to property, plant and equipment (367,607) (180,416)
(Increase) decrease in investments (825,000) 676,416
Net cash provided by investing activities 16,536,685 16,140,839
CASH FLOW FROM FINANCING ACTIVITIES:
Exercise of stock options 18,712 1,037
Purchase and retirement of stock (825,000)
Net cash provided by (used for) financing 18,712 (823,963)
activities
Increase in cash and cash equivalents 9,378,338 641,891
Cash and cash equivalents at beginning of period 2,410,819 3,680,381
Cash and cash equivalents at end of period $11,789,157 $4,322,272
See accompanying notes to consolidated financial statements
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PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTCIALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting principally of
normal recurring adjustments) necessary to present fairly the financial
position of the Company as of June 30, 1994 and the consolidated results of
operations for the three and six months ended June 30, 1994 and 1993 and the
statements of cash flows for the six months then ended. The accompanying
consolidated financial statements and related notes should be read in
conjunction with the Company's annual report on Form 10-K for the fiscal
year ended December 31, 1993. The results of operations for the three and
six months ended June 30, 1994 and 1993 are not necessarily indicative of the
results to be expected for the full year. Certain 1993 amounts have been
reclassified to conform to the current year presentation.
2. The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities as
of January 1, 1994, and at June 30, 1994, the Company's investment
securities have been classified as "available-for-sale," with an unrealized
holding gain included as a separate component of shareholders' equity in the
amount of $2,156,421. If the Company had adopted SFAS No. 115 at December
31, 1993, the unrealized holding gain in shareholders' equity would have
been approximately $12,200,000 at that date.
The Company sold shares of its investment in Marsam common stock during
the six month period ended June 30, 1994, and recorded a gain of $1,163,323.
At June 30, 1994, the Company owned 544,655 shares of Marsam common stock
with a market value of $5,991,205, included in marketable securities.
3. Components of inventories are summarized as follows:
June 30, December 31,
1994 1993
Raw Material $ 163,502 $ 132,841
Work in process 46,518 67,207
Finished goods 1,177,060 1,620,835
$1,387,080 $1,820,883
4. The Company has recognized income from Somerset Pharmaceuticals, Inc.,
of $10,660,311 and $11,263,685 for the six month periods ended June 30, 1994
and 1993, respectively. In addition, the Company has recognized income from
American Triumvirate Insurance Company of $381,012 and $426,878 for the six
month periods ended June 30, 1994 and 1993, respectively.
-4-<PAGE>
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
The following unaudited information is provided for unconsolidated
investments, accounted for utilizing the equity method, in the
June 30
1994 1993
Net revenues $49,472,000 $60,070,000
Gross profit $42,590,000 $53,033,000
Net income $19,711,000 $20,461,000
Amounts previously reported for the six months ended June 30, 1993, relating
to the partnership with Rhone-Poulenc Rorer (RPR) are excluded from the above
table. These amounts have been reclassified to conform to the current
presentation, reflecting the restructured agreement with RPR that became
effective on September 1, 1993.
5. As of June 30, 1994, the Company had commitments to third parties of
approximately $3,600,000, for research and development projects to be
expended over the next three years.
6. Net income (loss) per share is based on the weighted average number of
common shares and equivalents outstanding for each period. The effect of
stock options was less than 3% of the weighted average shares outstanding
in 1994, was antidilutive in 1993, and accordingly, was not included in
earnings per share.
7. At June 30, 1994, the Company was not required to provide for federal or
state income taxes as pretax income included income which is excluded income
for tax purposes, with the remaining taxable income offset by the Company's
net operating loss carryforward. At June 30, 1994, the Company's net
operating loss carryforward, for federal income tax purposes, was
approximately $78,000,000, which, if not utilized, will begin to expire in
the year 2006.
8. On March 22, 1994, the Company announced a proposed acquisition with
Hi-Tech Pharmacal Co., Inc. (Hi-Tech), a pharmaceutical firm located on
Long Island, in a transaction intended to be accounted for as a
"pooling of interests". The acquisition was subject to the execution of a
definitive agreement, satisfactory completion of due diligence and approval
by each company's shareholders. On May 5, 1994, Circa announced that the
companies were unable to agree on certain terms and conditions and that
discussions regarding the acquisition were terminated. Included in other
expenses, net in the 1994 statements of operations are the costs of the
terminated acquisition.
9. On June 16, 1994, Larry Raisfeld voluntarily resigned as Officer and
Director of the Company.
-5-
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
10. On July 8, 1994, the Company announced a preliminary
settlement of civil antitrust claims brought against it in a class
action pending in the U.S. District Court in Maryland with respect
to the sale of generic Dyazide. Under the settlement agreement,
the Company will pay $1.35 million into a settlement fund for the
benefit of class plaintiffs, and will issue $2.5 million of coupons
permitting the class of former customers to purchase products from
the Company at a predetermined discount from market prices. At
December 31, 1993, the Company provided for the estimated cost of
outstanding litigation which included the cost of this proposed
settlement.
In the case entitled Cliff Westfall, et al. v. Circa Pharmaceuticals,
Inc., et al. pending in the Circuit Court for the County of Oakland,
State of Michigan, the plaintiffs' motion for class certification was
denied.
Based upon the information it presently possesses, the Company
believes that the outcome of all pending litigation will not a material
adverse effect on the Company's consolidated financial position.
11. On July 11, 1994, the Company and Andrx Corporation (Andrx) announced
the signing of an agreement to jointly develop, manufacture and
market at least six controlled release generic pharmaceutical products.
The Company also acquired an equity interest in Andrx by payment of
$6 million. The Company may acquire further equity interest in Andrx
by exercising certain warrants. The joint venture, which will develop
generic pharmaceuticals for world-wide markets utilizing Andrx's
controlled release technology, will address products that have current
sales in excess of $1 billion.
-6-
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CIRCA PHARMACEUTICALS, INC.
ITEM 2.
Results of Operations
Three Month Period Ended June 30, 1994
The Company reported net income of $2,309,000 for the three month period
ended June 30, 1994, compared to a net loss of $1,194,000 for the same
period in 1993. The primary reason for the increase in net income in the
1994 period was the absence of a $2,460,000 loss recognized from the
partnership with Rhone-Poulenc Rorer (RPR) and a $848,000 legal settlement,
both incurred during the second quarter of 1993. Income in 1994 was
primarily attributable to $5,331,000 of income from Somerset Pharmaceuticals,
Inc. (Somerset), a 50% owned joint venture.
Net sales were $961,000 during the second quarter of 1994, compared to
$746,000 for the same period in 1993. Cost of goods sold as a percentage
of net sales decreased from 83% in 1993 to 64% in the 1994. The increase in
sales and gross profit from 1993 to 1994 was primarily due to royalty income,
which began January 1, 1994, for the sale of Dilacor XR, which is being
marketed by RPR.
Research and development expenses were $1,622,000 in 1994, compared
to $1,070,000 in 1993, representing an increase of $552,000 or 52%. The
primary reason for the increase was the Company's expansion its research and
development program following the rehabilitation by the FDA in April 1993.
The Company is committed to expanding its research and development program
through both internal efforts and joint venture arrangements with other
companies. Manufacturing overhead was $973,000 in 1994, compared to $788,000
in 1993, representing an increase of $185,000 or 23%. These costs are
expected to be absorbed by the manufacturing process as new products are
introduced into the system through product approvals obtained from the
Company's internal research and development programs, as well as increased
activity in contract manufacturing and joint venture projects with other
companies. Selling and administrative expenses were $1,492,000 in 1994,
compared to $3,704,000 in 1993, representing a decrease of $2,212,000 or 60%.
The decrease was primarily attributable to a reduction in legal expenses as
a significant portion of pending litigation was resolved in 1993.
Ivestment income was $1,041,000 in 1994 as compared to $1,849,000 in 1993,
representing a decrease of $808,000 or 44%. In the second quarter of 1994,
the Company recognized a gain of $208,000 on the sale of shares of Marsam
common stock as compared to $1,135,000 in the 1993 period.
Other expenses, net were $502,000 in 1994, as compared to $191,000 in
1993, representing an increase of $311,000. The increase is primarily
attributable to the cost of the terminated discussions related to the
proposed acquisition of Hi-Tech Pharmacal Co., Inc.
At June 30, 1994, the Company was not required to provide for federal or
state income taxes as pretax income included income which is excluded for
tax purposes, with the remaining taxable income offset by the Company's net
operating loss carryforward. At June 30, 1994, the Company's net operating
loss carryforward, for federal income tax purposes, was approximately
$78,000,000, which, if not utilized, will begin to expire in the year 2006.
-7-
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CIRCA PHARMACEUTICALS, INC.
(Continued)
ITEM 2.
Results of Operations
Six Month Period Ended June 30, 1994
The Company reported net income of $6,183,000 for the six month period
ended June 30, 1994, compared to a net loss of $5,606,000 for the same
period in 1993. The primary reason for the increase in net income in the
1994 period was the absence of a $6,702,000 loss recognized from the
partnership with RPR and $3,848,000 in legal settlements, which were
incurred during the 1993 period. Income in 1994 was primarily attributable
to joint venture income from Somerset of $10,660,000.
Net sales were $2,195,000 during the 1994 period, compared to $1,103,000
for the same period in 1993. The sales increase from 1993 to 1994 was
primarily due to the marketing of a transdermal patch for the 1994 period
versus only four months in the 1993 period, when such sales commenced.
Cost of goods sold as a percentage of net sales decreased for 84% in 1993 to
64% in 1994. The increase in gross profit from 1993 to 1994 was primarily due
to royalty income, which began January 1, 1994, for the sale of Dilacor XR.
Research and development expenses were $3,120,000 in 1994, compared
to $2,110,000 in 1993, representing an increase of $1,010,000 or 48%.
The primary reason for the increase was the Company's expansion of its
research and development program following the rehabilitation by the FDA in
April 1993. Manufacturing overhead was $1,922,000 in 1994, compared to
$1,804,000 in 1993, representing an increase of $118,000 or 7%. Selling and
administrative expenses were $2,953,000 in 1994, compared to $5,467,000 in
1993, representing a decrease of $2,514,000 or 46%. The decrease was
primarily attributable to a reduction in legal expenses as a significant
portion of pending litigation was resolved in 1993.
Investment income was $2,998,000 in 1994 as compared to $2,800,000 in
1993, representing an increase of $198,000 or 7%. In the 1994 and 1993
periods, the Company recognized a gain of $1,163,000 and $ 1,135,000,
respectively, on the sale of shares of Marsam common stock.
Other expenses, net were $652,000 in 1994, as compared to $343,000
in 1993, representing an increase of $309,000. The increase is primarily
attributable to the cost of the terminated discussions related to the
proposed acquisition of Hi-Tech Pharmacal Co., Inc.
-8-<PAGE>
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
CIRCA PHARMACEUTICALS, INC.
(Continued)
Liquidity and Capital Resources
Working capital increased from $34,800,000 at December 31, 1993 to
$42,500,000 at June 30, 1994. The increase of $7,700,000 was primarily
attributable to $9,000,000 of dividends received from Somerset and
$2,100,000 of unrealized holding gain included in shareholders' equity,
resulting from the Company's adoption of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities. In addition, the Company received $1,200,000 from the
sales of Marsam common stock and $400,000 from other marketable securities.
These increases were offset by working capital used for operating
activities.
At June 30, 1994, the Company had commitments of approximately
$3,600,000 to third parties for research and development, which will be
expended over the next three years and be funded through current working
capital. The Company does not anticipate significant capital
expenditures relating to its facilities. Primary sources of working
capital for 1994 will continue to be dividends received from Somerset,
proceeds from sales of marketable securities and income earned on other
marketable securities. The Company anticipates that its existing capital
resources are sufficient to meet its requirements based on its current
business plans.
-9-<PAGE>
PART II - OTHER INFORMATION
CIRCA PHARMACEUTICALS, INC.
Item 1. Legal Proceedings
See Part 1, Item 1, Note 10
Item 4. Submission of Matter to a Vote of Security Holders'
(a) The Annual Meeting of the Company's Shareholders was held
on July 15, 1994.
(b) Michael Fedida, Stanley Grey, Thomas P. Rice and Kenneth
Siegel were elected as Class I directors to serve until
the date of the 1996 Annual Meeting. Melvin Sharoky,
M.D. and Bruce Hausman will continue to serve
until the date of the 1995 Annual Meeting.
(c) To ratify the selection of Coopers & Lybrand as independent
accountants for 1994 (For - 19,561,387, Against - 97,609).
(d) To approve the adoption of the 1994 Long-Term Incentive
Plan (For - 11,611,924, Against - 1,632,229).
Item 6. Exhibit and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1994.
-10-<PAGE>
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 thereunto duly authorized.
CIRCA PHARMACEUTICALS, INC.
DATE: July 29, 1994 /s/Melvin Sharoky, M.D.
Melvin Sharoky, M.D., President
and Chief Executive Officer
DATE: July 29, 1994 /s/Thomas P. Rice
Thomas P. Rice, Executive Vice
President, Chief Operating and
Financial Officer
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