SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No.1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
or
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-8049
CIRCA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
New York 11-1966265
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
33 RALPH AVENUE, COPIAGUE, NEW YORK 11726
(Address of principle executive offices) (Zip Code)
(516) 842-8383
(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
The number of shares of Common Stock, par value $.01 per share,
outstanding were 21,760,212 as of April 30, 1995.
CIRCA PHARMACEUTICALS, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 1995
and December 31, 1994
Consolidated Statements of Income for the
three months ended March 31, 1995 and 1994
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ITEM 1.
March 31, December 31,
1995 1994
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 23,070,000 $ 19,667,000
Marketable securities 32,738,000 30,534,000
Accounts receivable, net 2,080,000 3,630,000
Inventory 1,409,000 1,697,000
Other current assets 2,123,000 2,128,000
Total current assets 61,420,000 57,656,000
Property, plant and equipment, net 13,253,000 12,488,000
Investments in joint ventures 31,531,000 31,824,000
Other assets 1,879,000 1,889,000
$108,083,000 $103,857,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 5,731,000 $ 6,219,000
Deferred partnership liability 8,833,000 14,033,000
Deferred income 1,375,000 1,604,000
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.01 per
share; authorized 10,000,000 shares
Common stock, par value $.01 per share;
authorized - 70,000,000 shares; issued
and outstanding - 22,113,420 shares
in 1995 and 22,110,120 in 1994 221,000 221,000
Capital in excess of par value 62,854,000 62,825,000
Retained earnings 32,812,000 25,746,000
Unrealized gain (loss) on marketable
securities 1,842,000 (809,000)
Treasury stock, at cost;
367,308 shares (3,168,000) (3,168,000)
Unearned compensation-stock awards (2,417,000) (2,814,000)
Total shareholders' equity 92,144,000 82,001,000
$108,083,000 $103,857,000
See accompanying notes to consolidated financial statements
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1995 1994
Royalty $5,200,000 $ 144,000
Net sales 2,717,000 1,090,000
Total revenues 7,917,000 1,234,000
Operating costs and expenses
Cost of sales 1,591,000 785,000
Research & development 1,896,000 1,498,000
Manufacturing overhead 642,000 949,000
Selling and administrative 2,517,000 1,460,000
Income (loss) from operations 1,271,000 (3,458,000)
Equity in earnings of joint ventures 5,211,000 5,526,000
Investment income 684,000 1,957,000
Other expenses, net (5,000) (151,000)
Income before income taxes 7,161,000 3,874,000
Income taxes 95,000 -
Net income $7,066,000 $ 3,874,000
Net income per share $ 0.32 $ 0.18
Weighted average shares
outstanding 21,744,000 21,711,000
See accompanying notes to consolidated financial statements
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1995 1994
Net cash provided by operating
activities $ 4,106,000 $ 1,466,000
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property, plant and
equipment, net (1,179,000) ( 18,000)
Decrease in marketable securities 447,000 1,349,000
Proceeds from sale of shares of
Marsam common stock 1,108,000
Net cash provided by (used in)
investing activities (732,000) 2,439,000
CASH FLOW FROM FINANCING ACTIVITIES
Exercise of stock options 29,000 14,000
Net cash provided by financing
activities 29,000 14,000
Increase in cash and cash
equivalents 3,403,000 3,919,000
Cash and cash equivalents at
beginning of period 19,667,000 2,411,000
Cash and cash equivalents at
end of period $23,070,000 $ 6,330,000
See accompanying notes to consolidated financial statements
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, 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 March 31, 1995 and the consolidated results of operations
and cash flows for the three months ended March 31, 1995 and
1994. 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,
1994. The results of operations for the three months ended March
31, 1995 and 1994 are not necessarily indicative of the results
to be expected for the full year. Certain 1994 amounts have been
reclassified to conform with the current period presentation.
Dividends received from joint venture of $4,500,000 in the three
months ended March 31, 1995 and 1994 have been reclassified from
cash flow from investing activities to cash flow from operating
activities.
2. Components of inventory are summarized as follows:
March 31, December 31,
1995 1994
Raw materials $ 295,000 $ 153,000
Work in process 299,000 268,000
Finished goods 815,000 1,277,000
$1,409,000 $1,698,000
3. In July 1989, the Company and Rhone-Poulenc Rorer, Inc.
("RPR") formed a partnership to develop and market a
pharmaceutical product used in the treatment of hypertension.
Dilacor XR was launched by RPR during 1992. The partnership
agreement was amended in April 1993, such that after September 1,
1993 the Company's financial participation would be to earn
royalty income from future sales of the branded product, Dilacor
XR. For the year ended December 31, 1994, the Company earned a
royalty of 1% on the net sales of Dilacor XR which increased to
20% for the years ending December 31, 1995 and 1996, increases to
22% for the years ending December 31, 1997 through 2000 and
decreases to 3% thereafter. Royalty income is initially applied
to repay the Company's partnership liability to RPR. Effective
January 1, 1995, the Company and RPR agreed that royalty income
to the Company would be measured based on the market demand for
Dilacor XR, as evidenced by prescriptions dispensed. At March
31, 1995, the outstanding partnership liability was $8,833,000.
4. The Company has recognized income from its 50% interest in
Somerset Pharmaceuticals, Inc. ("Somerset") of $5,608,000 and
$5,329,000 for the three month periods ended March 31, 1995 and
1994, respectively. Equity in earnings of joint ventures in the
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
first quarter of 1995 also included net losses from the Company's
developmental stage joint ventures, including ANCIRC, a joint
venture with Andrx Corporation, which commenced operations in
July 1994. Equity in earnings of joint ventures in the first
quarter of 1994 included net income from American Triumvirate
Insurance Company ("ATIC"). In December 1994, the Company sold
its 50% interest in ATIC.
The following unaudited information is provided for
unconsolidated joint ventures, accounted for utilizing the equity
method, in the aggregate:
March 31,
1995 1994
Net revenues $25,750,000 $24,157,000
Gross profits $22,196,000 $20,757,000
Net income $ 9,421,000 $10,254,000
5. As of March 31, 1995, the Company had commitments to third
parties of approximately $2,600,000 for research and development
projects to be expended over the next three years.
6. Net income 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 1995 and 1994.
Accordingly, all common share equivalents were excluded from
earnings per share for the three months ended March 31, 1995 and
1994.
7. For the three month period ended March 31, 1995, the
Company has provided $95,000 for federal and state income taxes.
At March 31, 1995, the Company's net operating loss carryforward,
for federal income tax purposes, was approximately $73,000,000,
which, if not utilized, will begin to expire in the year 2006.
8. On March 29, 1995, the Company and Watson Pharmaceuticals,
Inc. ("Watson") (NASDAQ:WATS), a pharmaceutical firm located in
Corona, California, signed a definitive merger agreement ("Merger
Agreement") pursuant to which a wholly-owned subsidiary of Watson
would be merged into the Company in a transaction intended to be
accounted for as a "pooling-of-interests". Under the Merger
Agreement, Watson would exchange 0.86 shares of Watson for each
share of Circa subject to adjustments under certain
circumstances. The merger is subject to approval by each
company's shareholders, and may be terminated under certain
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
circumstances including the trading of Watson common stock below
an average price of $25 per share for the 20 business days ending
prior to the 13th business day before the shareholders' meetings.
In the event of termination under specified conditions, one party
to the Merger Agreement may be entitled to receive a fee of
$15,000,000 from the other and payment of its expenses.
9. Three purported class actions, Robbins v. Circa
Pharmaceuticals, Inc. et al., Zimmerman v. Circa Pharmaceuticals,
Inc. et al. and Ballas v. Melvin Sharoky, M.D. et al., have been
commenced in Supreme Court of the State of New York, in the
Counties of Suffolk, Suffolk and Kings, respectively. Each
action purports to be brought on behalf of stockholders of Circa,
and names as defendants Circa, its directors, and Lawrence
Raisfeld. In addition to the persons described above, the
Robbins and Zimmerman complaints also name Watson as a defendant.
Each of the complaints alleges, among other things, that actions
of the individual defendants in connection with the Merger
Agreement constituted a breach of their fiduciary duties, and the
Robbins and Zimmerman complaints allege that Watson aided and
abetted the individual defendants in those alleged breaches.
Each of the complaints seeks, among other things, compensatory
damages, an injunction against consummation of the Merger
Agreement, and other equitable relief. Circa believes that these
actions are without merit, and intends to defend them vigorously.
10. The United States Department of Justice has had a long-
standing open inquiry regarding possible violations by the
Company of the False Claims Act in respect to drugs sold by the
Company prior to 1990, and paid for, directly or indirectly, by
the Federal Government. The Government's inquiry relates to
allegations that the Company improperly obtained approval from
the Food and Drug Administration ("FDA") to manufacture and sell
such drugs, and that the Company's subsequent manufacture and
sale of such drugs violated applicable FDA regulations. No
action has been commenced by the Department of Justice in
connection with this matter, although from time to time it has
requested that the Company agree to extend the applicable statute
of limitations, which the Company has done. In an effort to
eliminate any contingent liabilities with respect
to this matter in the context of the Watson transaction, the
Company recently initiated discussions with the Government with
respect to the parties respective positions and as to possible
resolutions. Based on the information currently available
including consultation with outside counsel, the Company does not
believe that the resolution of this matter will be materially
adverse to the Company's financial position.
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CIRCA PHARMACEUTICALS, INC.
ITEM 2.
Results of Operations
Three Months Ended March 31, 1995
The Company reported net income of $7,066,000 for the three
months ended March 31, 1995, as compared to net income of
$3,874,000 for the same period in 1994, representing an increase
of 82%.
In the first quarter of 1995, the Company recognized
$5,200,000 of royalty income from Dilacor XR, as compared to
$144,000 for the first quarter of 1994. Dilacor XR, a treatment
for hypertension and angina, is marketed by Rhone-Poulenc Rorer,
Inc. ("RPR"). The Company's royalty participation in Dilacor XR
increased from 1% in 1994 to 20% in 1995. Effective January 1,
1995, the Company and RPR agreed that royalty income to Circa
would be measured based on the market demand for the product, as
evidenced by prescriptions written.
The Company's net sales increased to $2,717,000 for the
first quarter 1995, as compared to $1,090,000 for the first
quarter 1994. The increase of $1,627,000 or 149% is primarily
the result of the sale of glipizide, for which the Company
received approval to manufacture and distribute from the Food and
Drug Administration in November 1994. Net sales for 1994 were
attributable to sales of nitroglycerin transdermal patches.
Glipizide sales also had the effect of increasing the gross
profit percentage from 28% in 1994 to 41% in 1995.
Research and development expenses were $1,896,000 in 1995,
compared to $1,498,000 in 1994, representing an increase of
$398,000 or 27%. The primary reason for the increase was the
Company's commitment to pursue alternative drug-delivery systems
such as gum products as well as increased activity in proprietary
prescription and over-the-counter ("OTC") products.
Manufacturing overhead was $642,000 in 1995, compared to $949,000
in 1994, representing a decrease of $307,000 or 32%. As the
Company increases its operations, including production of its own
products, contract services and services to joint ventures, these
costs will be absorbed into cost of sales. Selling and
administrative expenses were $2,517,000 in 1995, compared to
$1,460,000 in 1994, representing an increase of $1,057,000 or
72%. The increase was primarily attributable to expansion of the
sales effort related to glipizide, OTC products and
pharmaceutical services.
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CIRCA PHARMACEUTICALS, INC.
(Continued)
Equity in earnings of joint ventures for the 1995 first
quarter was $5,211,000, as compared to $5,526,000 for the first
quarter of 1994, representing a decrease of 6%. Equity in
earnings of joint ventures in the 1995 first quarter included
$5,608,000 from the Company's 50% interest in Somerset
Pharmaceuticals, Inc., as compared to $5,329,000 for the 1994
first quarter. Equity in earnings of joint ventures in the 1995
first quarter also included net losses from the Company's
developmental stage joint ventures, including ANCIRC, a joint
venture with Andrx Corporation, which commenced operations in
July 1994. Equity in earnings of joint ventures in the first
quarter of 1994 included net income from American Triumvirate
Insurance Company ("ATIC"). In December 1994, the Company sold
its 50% interest in ATIC.
Investment income was $684,000 in 1995, compared to
$1,957,000 in 1994, representing a decrease of $1,273,000 or 65%.
The 1994 first quarter included a gain of $956,000 on the sale of
66,650 shares of Marsam Pharmaceuticals Inc. common stock. The
Company did not sell any shares of Marsam in the first quarter of
1995.
Other expenses, net were $5,000 in 1995, compared to
$151,000 in 1994, representing a decrease of $146,000. The
decrease was primarily attributable to the absence of imputed
interest expense related to the installment obligations on two
legal settlements that were completely paid in December 1994.
For the quarter ended March 31, 1995, the Company provided
$95,000 for federal and state taxes. At March 31, 1995, the
Company's net operating loss carryforward, for federal income
tax purposes, was approximately $73,000,000, which, if not
utilized, will begin to expire in 2006.
Liquidity and Capital Resources
Working capital increased from $51,400,000 at December 31,
1994 to $55,700,000 at March 31, 1995. The increase of
$4,300,000 was primarily attributable to $4,500,000 of dividends
received from Somerset and $2,700,000 of increase in unrealized
holding gain included in shareholders' equity. These increases
were offset by additions to property, plant and equipment of
$1,200,000 and working capital used for operating activities.
At March 31, 1995, the Company had commitments to third
parties of approximately $2,600,000 for research and
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CIRCA PHARMACEUTICALS, INC.
(Continued)
development projects to be expanded over the next three years.
The Company anticipates capital expenditures relating to its
expansion into alternative drug-delivery systems, including gum
and sustained release products. Research and development
commitments and capital expenditures will be funded through
current working capital. Primary sources of working capital for
1995 will continue to be dividends and management fees from
Somerset. Additionally, a source of working capital in 1995 will
be proceeds from the sale of the Company's products and services.
The Company anticipates that its existing capital resources are
sufficient to meet its requirements based on its current business
plans.
PART II - OTHER INFORMATION
CIRCA PHARMACEUTICALS, INC.
Item 1. Legal Proceedings
See Part I, Item 1, Notes 9 and 10, which are hereby
incorporated by reference.
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibit
Exhibit 10.1. Agreement between Rhone-Poulenc Rorer, Inc. and
the Company dated May 3, 1995. Re: Payments
to Circa under Fourth Amendment to General
Partnership Agreement and Preceding Agreements
dated April 27, 1993.
(b) Reports on Form 8-K
A Report on Form 8-K was filed on March 30, 1995
with respect to the Company's execution of the
Merger Agreement as described in Part I, Item 1,
Note 8.
A Report on Form 8-K was filed on April 11, 1995 with respect
to the legal matters as described in Part I, Item 1, Note 9 and
with respect to the amendment to the Company's Stockholders
Protection Rights Agreement.
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: June 12, 1995 /s/Melvin Sharoky, M.D.
Melvin Sharoky, M.D., President and
Chief Executive Officer
DATE: June 12, 1995 /s/Angelo C. Malahias
Angelo C. Malahias, Vice President
and Chief Financial Officer
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<LEGEND>
This schedule contains summary financial information extracted from Circa
Pharmaceuticals, Inc. consolidated financial statements for the quarterly
period ended March 31, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
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