SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2 TO
ANNUAL REPORT
PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file
December 31, 1994 number 0-8049
CIRCA PHARMACEUTICALS, INC.
Incorporated under the laws 11-1966265
of the State of New York (I.R.S. Employer Identification
Number)
33 Ralph Avenue 516-842-8383
Copiague, New York 11726 (telephone number)
(address of principal
executive offices)
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Class on Which Registered
Common Stock, $.01 par value per share American Stock Exchange
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, and
(2) has been subject to such filing requirement for the past 90
days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein and will not
be contained, to the best of Registrant's knowledge, in the Proxy
Statement incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the Registrant
held by non-affiliates was approximately $356,540,337 as of March
17, 1995 (assuming solely for purposes of this calculation that all
directors and officers of the Registrant are "affiliates").
The number of shares of Common Stock outstanding was 21,745,912 as
of March 17, 1995.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Circa Pharmaceuticals, Inc. Annual Report to
Shareholders are incorporated by reference into Parts I, II, and
IV.
CIRCA PHARMACEUTICALS, INC.
1994 ANNUAL REPORT
CIRCA PHARMACEUTICALS, INC.
SELECTED FINANCIAL DATA
Statements of Operations
Years ended December 31,
1994 1993 1992 1991 1990
Net
sales
$ 7,801,481 $3,291,280 $ 89,015 $1,321,649 $15,567,784
Net income
(loss)
17,259,045 8,395,248 (9,684,860) (56,777,340) (27,423,841)
Net income
(loss)
per share* .79 .38 (.44) (2.62) (1.28)
Cash dividends
per share** .04
Balance Sheets December 31,
1994 1993 1992 1991 1990
Current
assets
$57,656,175 $47,828,864 $41,134,525 $28,528,357 $94,188,048
Current
liabilities
6,218,615 13,011,998 18,140,466 12,167,962 29,034,737
Working
capital
51,437,560 34,816,866 22,994,059 16,360,395 65,153,311
Total
assets
103,857,032 102,409,285 99,301,982 98,332,541 151,944,389
Shareholders'
equity
82,001,343 64,030,612 58,112,834 65,457,906 121,305,483
* Net income (loss) per share is computed based on the weighted
average number of shares outstanding.
** The Company has not declared a dividend since 1990.
CIRCA PHARMACEUTICALS, INC.
LETTER TO SHAREHOLDERS
Dear Shareholders,
Success in the healthcare industry, in the next few years and into
the next century, will require companies to reevaluate goals and
objectives much more frequently than they have done in the past.
In our industry, the changes are dramatic and occurring so quickly
that mission statements and long-range plans can become obsolete
overnight. Management must have the courage to respond rapidly and
take advantage of opportunities that, by nature, surface with
changing environments.
In this era of real-time information, and just-in-time
manufacturing, reaction time will determine the winners. The great
hockey players are above the rest of the field because they skate
to where the hockey puck will be, not where it is now. Being able
to categorize a company as generic, proprietary, or consumer-
oriented may be comfortable, but will not guarantee success, and
may allow opportunities outside the "defined" business to be
overlooked. The ongoing consolidations have resulted in a new
playing field. We will grow and prosper by aggressively and
quickly seeking opportunities without predetermined boundaries and
considering all possible strategic alliances.
In my 1993 letter to shareholders, I promised we would continue to
diversify, and in 1994, we moved forward with that plan. Our first
drug approval since 1989 occurred on November 23, 1994, for
glipizide, based on an Abbreviated New Drug Application (ANDA).
This approval validated our facility as being in compliance with
current Good Manufacturing Practices (cGMP) and was a result of our
staff's dedicated efforts. We shipped the product to our customers
on the same day we received the approval letter, the day before
Thanksgiving, because we knew that in order to be competitive we
could not afford complacency. We view the approval and the sales
it will generate as a "shot in the arm." It did not make us a
generic pharmaceutical company. It is one small part of an entire
program of diversification.
In November of 1994, we also filed a New Drug Application (NDA) for
a well-known and frequently-used cardiovascular agent. This
proprietary product has a new strength and dosage form and should
receive three years of exclusivity when approved. We hope this
agent will fill a need for patients and be well received once
approval is obtained. Although a proprietary product, it alone
does not make us a proprietary company.
In 1994, we filed an application with the FDA for a nicotine gum.
We believe that smoking cessation is an area of important health
concern. We believe an alternative to the currently marketed
product should exist. We will be pursuing the registration of this
product in other countries over the next several years. We have
worked for over four years on gum technology, and are committed to
CIRCA PHARMACEUTICALS, INC.
LETTER TO SHAREHOLDERS
the delivery of a number of pharmaceuticals through this process,
both as over-the-counter and prescription products. We have also
submitted an application to obtain a patent for a process that
describes a dissolvable chewable dosage form. In our research and
development program we have shifted our emphasis to more difficult
and more technology-driven products, specifically sustained-
release. In an effort to enter the race for the sustained-release
opportunity with commitment, we purchased a 7.5% equity position in
Andrx Corporation for $6 million. Additionally, the Company and
Andrx entered into a joint venture (Ancirc) to develop six products
utilizing Andrx's sustained-release technology.
We initially considered contract manufacturing in an effort to
cover overhead while we awaited the lengthy research, development,
and approval process for pharmaceuticals of our own. We quickly
realized that pharmaceutical services, represented by product
development, regulatory affairs, analytical services,
manufacturing, and packaging, appeared to be a viable business
opportunity. Companies are increasingly outsourcing these
functions, and we are positioning ourselves through an all-out
effort in 1995 to service the industry.
Somerset, our 50% owned joint venture with another pharmaceutical
company, had another record year in sales, generating $125 million
in net sales, which resulted in $25 million in earnings and $21
million in cash to Circa. We anticipate another good year in 1995
for the sales of Eldepryl, a treatment for Parkinson's disease, as
progress is made in the clinical development program for the
Eldepryl patch for new indications, as well as the development
program for ipriflavone, indicated for osteoporosis. We believe
the opportunity at Somerset goes well beyond the current Eldepryl
tablet, and we expect Somerset's pipeline to have a significant
impact on Circa for years to come.
Dilacor XR, the once-a-day calcium antagonist marketed by Rhone-
Poulenc Rorer, Inc., had net sales of $120 million in 1994 which
generated a royalty to Circa of $1.2 million. Our royalty on net
sales increased from one percent in 1994 to twenty percent on
January 1, 1995 through 1996, and increases to twenty-two percent
of net sales in 1997 through the year 2000. Although the product
loses exclusivity on May 29, 1995, at this time we are unaware of
any pending generic applications.
CIRCA PHARMACEUTICALS, INC.
LETTER TO SHAREHOLDERS
We ended the year with a strong balance sheet, with cash and
marketable securities of $50 million. We generated net income of
$17 million for 1994, and ranked fifth on the American Stock
Exchange for return to investors, recording a 90% return in stock
price from December 31, 1993 to December 31, 1994. We have emerged
from our past in a full sprint and will seek out opportunities
wherever they may be, in an effort to continue to deliver quality
products and increasing profitability.
Yours truly,
Melvin Sharoky, M.D.
President and Chief Executive Officer
CIRCA PHARMACEUTICALS, INC.
During 1994, Circa Pharmaceuticals, Inc. proceeded with its
plan to diversify into various areas of the healthcare industry.
Management sought opportunities that would build on the Company's
experience as a manufacturer of pharmaceutical products, as well as
take advantage of the dramatic changes occurring in the healthcare
field. It is important to recognize that during the process of the
Company's diversification, classical definitions of the
pharmaceutical industry such as generic, proprietary, or consumer-
oriented business operations will no longer apply. Circa is a
company that delivers quality products and services, and is
oriented towards increasing profitability.
The Company's future success will derive from the foundation
offered by a strong balance sheet, manufacturing facilities in full
compliance with current Good Manufacturing Practices (cGMP),
pharmaceutical services, diversified strategic partnerships for
niche products, novel methods of drug delivery, and a team of
trained and responsive personnel.
Circa's Financial Resources Offer Opportunities for Growth
Circa's financial resources include a strong balance sheet, a
50% interest in Somerset Pharmaceuticals, Inc. (Somerset), and a
royalty stream from the sales of Dilacor XR.
Circa's balance sheet includes cash and marketable securities
of approximately $50 million, working capital of $51 million and
shareholders' equity of $82 million with no long-term debt.
Circa's 50% interest in Somerset, which manufactures and
markets Eldepryl for the treatment of Parkinson's disease,
provided $25 million in earnings in 1994, $24 million in 1993 and
$21 million in 1992. Exclusivity expires for the Eldepryl tablet
in June of 1996; however, Somerset is committed to the development
of other products. Somerset continues with its development
program for the Eldepryl patch. During 1995, phase II clinical
studies are being conducted on the patch for multiple neurological
disorders. Somerset is also developing ipriflavone, a product for
the treatment of osteoporosis. Ipriflavone is currently marketed
in Japan, Italy, Hungary, and Argentina. An Investigational New
Drug Application (IND) was filed in January 1995 for this product.
It is expected that Somerset's research and development pipeline
will have a significant impact on Circa for many years.
Another positive contribution to Circa is the royalty stream
generated from the sales of Dilacor XR, a treatment for
hypertension and angina, which is marketed by Rhone-Poulenc Rorer,
Inc. (RPR). Circa's royalty from the sales of Dilacor XR increased
from 1% in 1994 to 20% on January 1, 1995. The Dilacor XR product
loses exclusivity in May of 1995; however, at this time we are
unaware of any pending generic applications. In February 1995, RPR
CIRCA PHARMACEUTICALS, INC.
announced that the U.S. International Trade Commission (ITC)
rejected a patent claim filed by Marion Merrell Dow, Inc. (MMD) and
Tanabe Seiyaku Company, Ltd. (Tanabe) concerning diltiazem
hydrochloride. The ITC ruling supports RPR's original position
that Dilacor XR does not infringe the MMD/Tanabe patent under any
circumstances.
With these financial resources, in addition to the income
provided by the recent approval of glipizide, Circa can vigorously
pursue strategic partnerships and acquisitions that will enable it
to complement our existing capabilities.
Generic and Proprietary Product Development
Among the most exciting developments of 1994 was the Food and
Drug Administration (FDA) approval of our Abbreviated New Drug
Application (ANDA) for glipizide, a treatment for
non-insulin-dependent diabetes (Type II diabetes). Glipizide is
the generic version of Glucotrol. The market for the brand name
and generic products has been estimated at $200 million annually.
There can be no assurance that the sale of glipizide will
contribute materially to the Company's future operating results.
While this approval does not indicate that we are a generic
pharmaceutical company, it does signify that our diligence and
commitment in rehabilitating Circa over the past several years has
met with success, and that approvals of generic products will be
one aspect of our operations.
The Company has evaluated the generic industry and the
narrowing margins of generic commodity products. Therefore, a
number of products in our development program have been eliminated.
The Company has shifted its efforts to more technology driven
products, such as sustained-release dosage forms and chewing gum
technology.
In November 1994, Circa filed a New Drug Application (NDA) for
a widely-used cardiovascular agent, seeking approval for a new
strength and dosage form of this product. This agent is expected
to receive three years of exclusivity, and will be manufactured at
our Copiague facility if approved. This product is an example of
the Company's strategy for targeting unique products and
technologies that will face less competition.
Circa's Manufacturing and Personnel Resources Offer Myriad Services
to Customers
Circa's manufacturing facilities are currently utilized to
manufacture products for both Circa and others in the
CIRCA PHARMACEUTICALS, INC.
pharmaceutical industry. In an effort to cover Circa's overhead,
contract manufacturing has been evaluated. Since it has become
evident that companies are increasingly outsourcing functions, a
decision was made to enter the business of providing services to
the pharmaceutical industry. Circa's manufacturing resources
include a 160,000 square foot facility in Copiague, New York. In
addition, Circa has a 60% interest in a 26,000 square foot
microencapsulation facility in Dayton, Ohio. Both facilities,
which are in full compliance with the FDA's cGMP requirements,
enable Circa to provide small and large-scale contract
manufacturing services to clients worldwide.
At Copiague, Circa can provide analytical, stability, and
packaging services to our customers. Our skilled staff can assist
with pharmaceutical product development, as well as
regulatory and quality assurance activities. We can manufacture
product lines using solid dosage and gum drug-delivery systems.
The solid dosage products manufactured at Copiague include tablets,
capsules, and sustained-release products. At Dayton, Circa can
provide microencapsulation capabilities via a coacervation
technology; roto-granulations and drying; and solvent and
non-solvent based coatings.
At these facilities, we expect to address the needs of a
variety of customers in the next several years. For example,
prospective customers might be companies affected by
downsizing in the industry, or they might be small-to-medium size
pharmaceutical or biotechnology companies without their own
full-scale manufacturing facilities.
Additionally, Circa expects to assist foreign companies
requiring a manufacturing presence in the United States, as well as
foreign companies needing our regulatory expertise as they prepare
to meet stringent FDA guidelines.
Circa's Exploration into Novel Dosage Forms
Success in our research efforts directed at drug delivery is
demonstrated by our progress with gum-delivery technology during
the past four years. The Company has been working on a number of
products in this area, including over-the-counter (OTC) and
prescription products. In 1994, an application was filed with the
FDA for nicotine chewing gum. The Company is excited about this
product and will pursue its registration in other countries over
the next few years. The gum development group has also created a
number of other OTC products.
In the fourth quarter of 1994, the gum development group filed
a patent application for Quick Dissolve Chewables (QDC). The
group is currently evaluating three OTC products using this
technology, and strategic partners will be sought to help promote
this product line.
CIRCA PHARMACEUTICALS, INC.
Strategic Partnerships and Niche Product Development
Circa's additional strategic partnerships include those with
Andrx Corporation, Hi-Tech Pharmacal, Generics Group BV, and
Packaging Concepts, Inc. These relationships demonstrate Circa's
emphasis on niche products and our commitment to developing
alternative dosage forms and drug-delivery systems.
In a strategic alliance formed in 1994, Circa announced it had
acquired a 7.5% equity interest in Andrx. It also announced plans
to jointly develop, manufacture, and market at least six
controlled-release generic pharmaceutical products with Andrx.
The Andrx joint venture illustrates Circa's response to
current trends in the pharmaceutical industry. Our agreement with
Andrx will enable Circa to develop products facing less
competition, in this case because they utilize a challenging
delivery system. We will continue to pursue similar arrangements
with other companies.
In the agreement with Hi-Tech Pharmacal, ANDAs for five
generic solutions/suspensions are being developed. Currently, one
ANDA application is pending approval and two ANDA submissions are
anticipated shortly. The joint venture agreement entered with
Generics Group BV is for the co-development of several solid-dosage
generic products and an aerosol product. An ANDA application was
submitted to the FDA for one of the solid-dosage forms during the
fourth quarter of 1994.
Circa is also working jointly with Packaging Concepts to
develop OTC products in aerosol, solution, foam and powder form.
This collaboration has yielded a number of OTC products, including
items such as Miconazole Spray Powder, which is an antifungal used
to treat athlete's foot.
With respect to any product currently being developed by the
Company internally or with joint venture partners, or any product
for which a NDA, IND or patent application has been filed, there
can be no assurance that such applications shall be approved, or if
approved, that such product will contribute materially to the
Company's future operating results.
Our diversified strategic partnerships enable us to reach a
wide variety of market segments with a broad product portfolio.
Circa Prepares to Meet Market Challenges
Success in the healthcare industry in the next few years will
depend on a company's ability to respond to market pressures,
demographic trends, and even governmental legislation quickly and
CIRCA PHARMACEUTICALS, INC.
efficiently. A company will need to have enough working capital to
pursue partnerships and dedicate resources as required.
At Circa, we not only recognize the challenges that lie ahead,
we have the resources required to meet these challenges.
CIRCA PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In November 1994, the Company received its first product
approval from the Food and Drug Administration (FDA) since 1989.
This approval confirmed the acknowledgement by the FDA in April
1993 that the Company had been successfully rehabilitated and
validated that the Copiague facility is in compliance with "current
Good Manufacturing Practices".
During 1994, the Company recognized $1.2 million of royalty income,
generated from the sales of Dilacor XR, which is marketed by
Rhone-Poulenc Rorer, Inc. (RPR). During 1993, the Company
restructured its agreement with RPR which allows Circa to earn
royalties on the sales of Dilacor XR at the rate of 1% in 1994, 20%
in 1995 and 1996, 22% from 1997 to 2000 and 3% thereafter. As
royalties are earned, they first offset the outstanding partnership
liability before providing cash flow to the Company. At December
31, 1994, the outstanding partnership liability was approximately
$14 million.
The Company has resolved virtually all of its lawsuits and
believes that any remaining unsettled litigation will not have a
material impact upon the Company's financial position and future
operations.
RESULTS OF OPERATIONS
Year Ended December 31, 1994
The Company reported net income of $17,259,000 for the year
ended December 31, 1994, compared to net income of $8,395,000 for
the year ended December 31, 1993. Income in 1994 and 1993 was
primarily attributable to $25,100,000 and $23,800,000,
respectively, of income from Somerset Pharmaceuticals, Inc.
(Somerset), a 50% owned joint venture. The primary reasons for the
increase in net income in 1994 were sales of a generic prescription
product, royalty income from the sale of Dilacor XR, the absence of
a loss recognized from the partnership with RPR and a gain from a
settlement with a former officer. These increases were offset by
a decrease in investment income, principally the sale of shares of
Marsam Pharmaceuticals, Inc. ("Marsam") common stock.
Net sales were $7,801,000 in 1994, compared to $3,291,000 in
1993, an increase of $4,510,000 or 137%. The increase resulted
from the sale of glipizide which commenced immediately after the
Company received approval from the FDA on November 23, 1994.
Additionally, during 1994, RPR reported net sales of Dilacor XR of
approximately $120 million which generated $1,200,000 of royalty
income to the Company. Net sales for 1993 were attributable to
sales of nitroglycerin transdermal patches. Glipizide sales and
the royalties from Dilacor XR also had the effect of increasing the
gross profit percentage from 23% in 1993 to 53% in 1994.
Research and development expenses were $7,891,000 in 1994,
CIRCA PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
compared to $4,983,000 in 1993, representing an increase of
$2,908,000 or 58%. 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 $3,955,000 in 1994, compared to
$3,999,000 in 1993. 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 $7,653,000 in
1994, compared to $10,595,000 in 1993, representing a decrease of
$2,942,000 or 28%. The decrease was primarily attributable to a
reduction in legal expenses, as a significant portion of pending
litigation was resolved in 1993.
In November 1994, the Company settled its litigation with a
former President, who resigned in 1990. The former President sold
all of the 528,108 shares of Circa's common stock owned by him.
The proceeds from the sale of a substantial portion of such shares,
after payment of expenses and various taxes, were utilized to
settle the Company's claim that his conduct damaged the Company and
also to reimburse the Company for $1,331,000 in legal expenses paid
on his behalf in past years. The Company recognized a gain from
settlement of approximately $2,299,000.
Investment income was $6,143,000 in 1994, compared to
$18,535,000 in 1993, representing a decrease of $12,392,000. In
1994, the Company recognized gains of $3,180,000 on the sale of
302,000 shares of its investment in Marsam common stock as compared
to gains of $14,491,000 on the sale of 847,000 shares in 1993.
In 1993, the Company recognized a loss from the partnership
with RPR of $7,644,000. In April 1993, the Company restructured
its agreement with RPR which provides that the Company will no
longer share in the profits and losses of the partnership and
allows the Company to earn royalties from the sale of Dilacor XR.
Other expenses, net were $715,000 in 1994, compared to
$2,070,000 in 1993, representing a decrease of $1,355,000. The
decrease is attributable to the recording of reserves on the
realization of certain assets in 1993, with no such reserves
recorded in 1994.
For the year ended December 31, 1994, the Company has
provided $110,000 for federal and state taxes. At December 31,
1994, the Company's net operating loss carryforward, for federal
income tax purposes was approximately $77,500,000, which, if not
utilized, will begin to expire in the year 2006.
CIRCA PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Year Ended December 31, 1993
The Company reported net income of $8,395,000 for the year
ended December 31, 1993, compared to a net loss of $9,685,000 for
the year ended December 31, 1992. The primary reason for the
increase in net income in 1993 was the increase in investment
income which in 1993 included gains of $14,491,000 on the sales of
shares of Marsam common stock as compared to $1,085,000 in 1992.
Included in the Company's statements of operations for 1993 and
1992 were $23,800,000 and $20,600,000, respectively, of income from
Somerset.
Net sales were $3,291,000 during 1993, compared to $89,000 for
1992. The increase resulted from the sale of transdermal patches
for which the Company became a distributor in January 1993.
Research and development expenses were $4,983,000 in 1993,
compared to $2,861,000 in 1992, representing an increase of
$2,122,000 or 74%. 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 $3,999,000 in 1993, compared to
$3,892,000 in 1992. As the Company increases operations, these
costs will be absorbed into cost of sales. Selling and
administrative expenses were $10,595,000 in 1993, compared to
$11,385,000 in 1992, representing a decrease of $790,000 or 7%.
Included in selling and administrative expenses were legal costs of
$4,000,000 in 1993 and $4,100,000 in 1992.
The Company resolved several material lawsuits during 1993,
including its alleged violation of Federal Antitrust statutes,
which was settled with the Justice Department for $1,100,000. In
addition, the Company settled separate actions with KV
Pharmaceuticals and Barr Laboratories for an aggregate amount of
$3,690,000. In September 1993, Circa received a $1,100,000 refund
from a settlement fund established in 1991 for a class action
lawsuit against the Company. In October 1993, the Company settled
its suit against a former officer which resulted in the officer
returning 367,308 shares of the Company's common stock for
repayment of legal expenses incurred on his behalf as well as
general damages and recorded a gain of $2,500,000 on the
transaction. Income from these settlements was offset during the
third and fourth quarters of 1993 by an increase in the allowance
for possible future legal settlements.
Investment income was $18,535,000 in 1993 as compared to
$4,069,000 in 1992, representing an increase of $14,466,000. In
1993, the Company recognized a gain of $14,491,000 on the sale of
847,000 shares of its investment in Marsam as compared to a gain of
CIRCA PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
$1,085,000 on the sale of 105,000 shares in 1992.
In 1993, the Company recognized a loss from the partnership
with RPR of $7,644,000 as compared to $15,598,000 in 1992. In
April 1993, the Company restructured its agreement with RPR
effective September 1, 1993, which allows the Company to earn
royalties from the sale of Dilacor XR.
Other expenses, net were $2,070,000 in 1993, as compared to
$780,000 in 1992, representing an increase of $1,290,000. The
increase is attributable to the recording of reserves on the
realization of certain assets in 1993.
At December 31, 1993, the Company's net operating loss
carryforward, for federal income tax purposes was approximately
$76,000,000, which, if not utilized, will begin to expire in the
year 2006.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $34,800,000 at December 31,
1993 to $51,400,000 at December 31, 1994. The increase of
$16,600,000 was primarily attributable to $18,000,000 and
$2,900,000 of Somerset dividends and management fee, respectively,
$8,000,000 on the sale of the Company's 50% interest in a joint
venture, and $3,900,000 from sales of shares of Marsam common
stock. These increases were offset by investments in joint
ventures of $7,500,000 and working capital used for operating
activities.
At December 31, 1994, the Company had commitments of
approximately $2,600,000 to third parties for research and
development. The Company anticipates capital expenditures relating
to its expansion into alternative delivery systems, including
chewables 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.
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
1994 1993
ASSETS
Current assets:
Cash and cash equivalents $ 19,666,933 $ 2,410,819
Marketable securities 30,533,630 36,182,077
Securities held as collateral 5,000,000
Accounts receivable, net 3,629,728 638,242
Inventory 1,697,710 1,820,883
Other current assets 2,128,174 1,776,843
Total current assets 57,656,175 47,828,864
Property, plant and equipment, net 12,488,120 12,535,586
Investments in joint ventures 31,824,227 29,473,160
Securities held as collateral 9,147,156
Other assets 1,888,510 3,424,519
$103,857,032 $102,409,285
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,218,615 $ 5,102,659
Current portion of legal settlements 7,909,339
Total current liabilities 6,218,615 13,011,998
Deferred partnership liability 14,032,912 15,242,000
Legal settlements 7,603,845
Deferred income 1,604,162 2,520,830
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
22,110,120 in 1994 and 22,083,420
in 1993 221,101 220,834
Capital in excess of par value 62,825,255 62,570,547
Retained earnings 25,745,891 8,486,846
Less:
Unrealized loss on
marketable securities (808,542)
Treasury stock, at
cost; 367,308 shares (3,168,031) (3,168,031)
Unearned compensation-
stock awards (2,814,331) (4,079,584)
Total shareholders' equity 82,001,343 64,030,612
$103,857,032 $102,409,285
See accompanying notes to consolidated financial statements
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
1994 1993 1992
Net sales $ 7,801,481 $3,291,280 $ 89,015
Operating costs and
expenses:
Cost of goods sold 3,629,297 2,530,630 38,497
Research & development 7,890,549 4,982,720 2,861,195
Manufacturing overhead 3,955,245 3,999,075 3,891,644
Selling and
administrative 7,653,303 10,595,150 11,384,847
Loss from operations (15,326,913) (18,816,295) (18,087,168)
Equity in earnings of
joint ventures 24,968,460 24,687,636 20,711,672
Gain from (provision for)
legal settlements 2,298,921 (6,296,969)
Investment income 6,143,469 18,535,100 4,068,783
Partnership loss (7,644,000) (15,598,000)
Other expenses, net (714,892) (2,070,224) (780,147)
Income (loss) before
income taxes 17,369,045 8,395,248 (9,684,860)
Income taxes 110,000
Net income (loss) $17,259,045 $8,395,248 ($9,684,860)
Net income (loss) per share $.79 $.38 ($.44)
Weighted average shares
outstanding 21,725,531 22,047,209 22,152,329
See accompanying notes to consolidated financial statements
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended December 31,
1994 1993 1992
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $17,259,045 $8,395,248 ($9,684,860)
Items not affecting cash:
Depreciation 1,434,796 1,496,023 1,661,753
Amortization of unearned
compensation, net 1,491,191 1,470,724 2,593,581
Amortization of
deferred income (916,668) (916,668) (916,668)
Equity in net earnings of
joint ventures (20,944,863) (20,796,016) (17,193,221)
Dividends received from
joint venture 18,000,000 17,688,078 18,692,124
Decrease in joint
venture liability (1,209,088)
Partnership loss 7,644,000 15,598,000
Gain on sale of shares
of Marsam common stock (3,179,697) (14,490,801) (1,085,595)
Gain on settlements with
former officers (2,298,921) (3,415,531)
Gain on sale of
Puerto Rico facility (950,000)
Allowance for
recalled products 750,000 (2,271,529)
Change in assets and liabilities:
Increase in accounts
receivable, net (2,991,486) (638,242)
(Increase) decrease
in inventory 123,173 (795,507) (322,440)
(Increase) decrease
in other assets (27,774) 1,062,740 (893,478)
Increase in accounts payable
and accrued expenses 114,507 3,243,182 2,493,911
Legal settlements (10,881,062) (5,255,990) (6,864,201)
Decrease in income
taxes refundable 8,885,357
Receipt of deferred income 2,750,000
Cash provided by (used for)
operating activities ($4,026,847) ($4,558,760) $12,492,734
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Continued)
Years Ended December 31,
1994 1993 1992
CASH FLOW FROM INVESTING ACTIVITIES
(Increase) decrease
in marketable securities
and securities held
as collateral 18,297,727 (4,478,991) (20,086,764)
(Additions to) disposals
of property, plant and
equipment, net (1,387,330) (528,639) 322,645
(Increase) decrease in
investments in joint
ventures (7,517,987) 676,416 574,416
Proceeds from sale of
shares of Marsam
common stock 3,869,031 16,428,074 1,325,625
Proceeds from sale
of a joint venture 7,992,483
Payment to partnership (8,000,000)
Proceeds from sale of
Puerto Rico facility 7,000,000
Cash provided by (used for)
investing activities 21,253,924 4,096,860 (10,864,078)
CASH FLOW FROM FINANCING ACTIVITIES
Exercise of stock options 29,037 17,338 107,907
Purchase and retirement
of stock (825,000) (86,700)
Cash provided by (used for)
financing activities 29,037 (807,662) 21,207
Increase (decrease) in
cash and cash equivalents 17,256,114 (1,269,562) 1,649,863
Cash and cash equivalents
at beginning of year 2,410,819 3,680,381 2,030,518
Cash and cash equivalents
at end of year $19,666,933 $ 2,410,819 $ 3,680,381
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Continued)
Cash paid during the year for:
Interest (imputed) $591,448 $483,000 $236,000
Income taxes
See accompanying notes to consolidated financial statements
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Capital Unrealized
Common in excess Loss on
Stock of Par Retained Marketable
Shares Amount Value Earnings Securities
Balance
December
31, 1991 22,096,198 $220,962 $61,890,936 $9,776,458
Shares issued
upon exercise
of stock
options 12,022 120 107,787
Shares issued
to employees 55,000 550 738,825
Cancellation of
shares
issued to
employees (6,800) (68) (86,632)
Amortization
of unearned
compensation
Net loss (9,684,860)
Balance
December
31, 1992 22,156,420 221,564 62,650,916 91,598
Shares issued
upon exercise
of stock
options 4,500 45 17,293
Shares issued to
employees 400,000 4,000 2,858,500
Cancellation of
shares
issued to
employees (477,500) (4,775) (2,956,162)
Amortization of
unearned
compensation
Stock settlement
with former officer
Net income 8,395,248
Balance
December
31, 1993 22,083,420 220,834 62,570,547 8,486,846
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Continued)
Capital Unrealized
Common in excess Loss on
Stock of Par Retained Marketable
Shares Amount Value Earnings Securities
Shares issued upon
exercise of stock
options 4,200 42 28,995
Shares issued to
employees 30,000 300 325,950
Cancellation of shares
issued to
employees (7,500) (75) (100,237)
Amortization of
unearned
compensation
Unrealized loss on
marketable
securities ($808,542)
Net income 17,259,045
Balance
December
31, 1994 22,110,120 $ 221,101 $62,825,255 $25,745,891 ($808,542)
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Continued)
Unearned Total
Treasury Compensation Shareholders'
Stock Stock Awards Equity
Balance
December 31, 1991 ($6,430,450) $65,457,906
Shares issued
upon exercise
of stock options 107,907
Shares issued to
employees (739,375)
Cancellation of
shares issued
to employees (86,700)
Amortization of un-
earned compensation 2,318,581 2,318,581
Net loss (9,684,860)
Balance
December 31, 1992 (4,851,244) 58,112,834
Shares issued
upon exercise
of stock options 17,338
Shares issued to
employees (2,862,500)
Cancellation of shares
issued to employees 2,163,437 (797,500)
Amortization of
unearned
compensation 1,470,723 1,470,723
Stock settlement
with former officer ($3,168,031) (3,168,031)
Net income 8,395,248
Balance
December 31, 1993 (3,168,031) (4,079,584) 64,030,612
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Continued)
Unearned Total
Treasury Compensation Shareholders'
Stock Stock Awards Equity
Shares issued upon
exercise of stock
options 29,037
Shares issued to
employees 326,250
Cancellation of
shares issued
to employees 80,249 (20,063)
Amortization
of unearned
compensation 1,185,004 1,185,004
Unrealized
loss on
marketable
securities (808,542)
Net income 17,259,045
Balance
December 31, 1994 ($3,168,031) ($2,814,331) $82,001,343
See accompanying notes to consolidated financial statements
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts
of Circa Pharmaceuticals, Inc. and its wholly owned subsidiaries
(the "Company" or "Circa"). All significant intercompany
transactions and balances have been eliminated.
Cash Equivalents
The Company considers money market funds and highly liquid
debt instruments purchased with original maturities of three months
or less, to be cash equivalents.
Marketable Securities
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities",which is effective for fiscal years beginning after
December 15, 1993. SFAS No. 115 requires that marketable equity
securities and all debt securities be classified into three
categories; (i) held to maturity securities, (ii) trading
securities and (iii) available for sale securities. The Company's
marketable securities are classified as available for sale and
accordingly, unrealized gains and losses are reported as a separate
component of shareholders' equity. The cost related to marketable
securities sold is determined utilizing the specific identification
method.
Inventory
Inventory is stated at the lower of cost or market. The cost
of raw materials is determined on the specific identification
method. Labor and overhead costs included in inventory are
determined on the average cost basis.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost.
Expenditures for major renewals and improvements to property and
equipment are capitalized, and expenditures for maintenance and
repairs are charged to operations as incurred. When assets are
retired or otherwise disposed of, their cost and related
accumulated depreciation are eliminated from the accounts. Any
resulting gain or loss is included in the consolidated statements
of operations. Depreciation is provided using the straight-line
method. Estimated lives are between five and thirty-three years.
Unearned Compensation
The Company maintains stock award plans which provide for the
issuance of shares of common stock to key employees and officers.
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
If the recipients of such shares leave the Company's employment
prior to certain agreed upon dates, they must return some or all of
the awarded shares to the Company. Unearned compensation is
recorded as a separate component of shareholders' equity for the
fair market value of the shares issued and such amounts are charged
on a straight-line basis to selling and administrative expenses
over the related vesting periods.
Income Taxes
Provision for income taxes is based on income and expenses
reported in the consolidated financial statements. Deferred income
taxes result from differences in recording assets and liabilities
for financial reporting and tax purposes. The Company adopted SFAS
No. 109 "Accounting for Income Taxes" for the year ended December
31, 1993. The effect of adopting SFAS No. 109 in 1993 was not
material to the Company's financial position.
Research and Development
Research and development costs are expensed as incurred.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average
number of common shares and equivalents outstanding for each year.
The effect of stock options was less than 3% of the weighted
average shares outstanding in 1994 and 1993, and was antidilutive
in 1992. Accordingly, all common share equivalents were excluded in
earnings per share for the years ended December 31, 1994, 1993 and
1992.
Concentration of Credit Risk
For the year ended December 31, 1994, sales to three
customers were approximately 23%, 19% and 11% of net sales. For
the years ended December 31, 1993 and 1992 sales to one customer
were approximately 28% and 18%, respectively, of net sales. During
the year ended December 31, 1994, the Company sold pharmaceuticals
and related over-the-counter products primarily to distributors
throughout the United States.
Reclassifications
Certain prior year amounts have been reclassified to conform
with the 1994 presentation. Dividends received from joint
venture have been reclassified from cash flow from investing
activities to cash flow from operating activities.
2. MARKETABLE SECURITIES
Effective January 1, 1994, the Company adopted the provisions
of SFAS No. 115. The Company's marketable securities are
classified as available for sale, and accordingly, the unrealized
loss at December 31, 1994 was recorded as a separate component of
CIRCA PHAMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
shareholders' equity. If the Company had adopted SFAS No. 115 as
of December 31, 1993, shareholders' equity would have increased by
approximately $12 million. SFAS No. 115 would not have resulted in
a material impact on the consolidated statement of operations for
the year ended December 31, 1993.
Prior to January 1, 1994, the Company accounted for
marketable securities under the provisions of SFAS No. 12
"Accounting for Certain Marketable Securities". Investments in
United States government securities, municipal bonds and other
investments were valued at cost. Investments in equity securities
were valued at the lower of aggregate cost or market.
At December 31, 1994 and 1993, the Company owned
approximately 334,000 and 635,000 shares, respectively, of Marsam
Pharmaceuticals, Inc. ("Marsam") common stock, a publicly traded
company formed to develop and manufacture injectable generic
pharmaceutical products. During the years ended December 31, 1994,
1993 and 1992 the Company sold approximately 302,000, 847,000 and
105,000 shares of Marsam common stock and recorded gains of
approximately $3,180,000, $14,491,000 and $1,085,000 included as
investment income within the consolidated statements of operations.
Marketable securities at December 31, 1994 and 1993 are
summarized as follows:
December 31, 1994
UNREALIZED
MARKET HOLDING
COST VALUE GAIN (LOSS)
Fixed income securities $25,931,312 $23,321,036 ($2,610,276)
Equity securities 4,648,296 3,876,794 (771,502)
Marsam 762,564 3,335,800 2,573,236
$31,342,172 $30,533,630 ($ 808,542)
December 31, 1993
CARRYING MARKET
VALUE VALUE
Fixed income securities $17,654,441 $17,790,301
Equity securities 17,075,761 17,075,761
Marsam 1,451,875 13,652,500
$36,182,077 $48,518,562
As of December 31, 1994, gross unrealized gains and losses on
fixed income securities were $21,856 and $2,632,132, respectively.
As of December 31, 1994, excluding Marsam common stock, gross
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
unrealized gains and losses on equity securities were $74,820 and
$846,322, respectively.
At December 31, 1994 maturity dates on fixed income
securities ranged from 1995 to 2024.
As of December 31, 1993, marketable securities with an
aggregate cost of $14,147,156 and aggregate market value of
$14,286,836 were classified as securities held as collateral,
pursuant to the provisions of two prior and then outstanding legal
settlements.
3. INVENTORY
Components of inventory are summarized as follows:
December 31,
1994 1993
Raw materials $ 152,434 $ 132,841
Work in process 268,223 67,207
Finished goods 1,277,053 1,620,835
$1,697,710 $1,820,883
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
December 31,
1994 1993
Land $ 1,049,189 $ 1,049,189
Buildings 12,612,158 12,434,245
Vehicles 92,836 92,836
Machinery and equipment 14,593,506 13,496,285
Furniture and fixtures 1,784,514 1,672,318
30,132,203 28,744,873
Less, accumulated depreciation (17,644,083) (16,209,287)
$ 12,488,120 $ 12,535,586
5. INVESTMENTS IN JOINT VENTURES
Somerset Pharmaceuticals, Inc. ("Somerset")
In June 1989, the Company acquired a 50% interest in the
outstanding common stock of Somerset following their approval from
the Food and Drug Administration ("FDA") to market the product
Eldepryl. Sales of this product, which is used in the treatment
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
of Parkinson's Disease, commenced in August 1989. The Company
utilizes the equity method of accounting for its investment in
Somerset.
The Company has recognized income from Somerset of
approximately $25,089,000, $23,787,000 and $20,563,000 for the
years ended December 31, 1994, 1993 and 1992, respectively. Income
includes 50% of Somerset's earnings, ongoing management fees, and
amortization of deferred income, offset by amortization of
goodwill. At December 31, 1994 and 1993, the remaining excess cost
of this investment over its net assets was $9,411,000 and
$10,400,000, respectively, which is being amortized on a straight-
line basis over fifteen years.
Condensed balance sheets and statements of operations
information of Somerset is as follows:
December 31,
1994 1993
Current assets $ 48,770,000 $35,248,000
Non-current assets 6,380,000 6,165,000
Total assets $ 55,150,000 $41,413,000
Current liabilities $29,211,000 $23,417,000
Non-current liabilities 292,000 458,000
Shareholders' equity 25,647,000 17,538,000
Total liabilities and equity $ 55,150,000 $41,413,000
Years Ended December 31,
1994 1993 1992
Net revenues $124,566,000 $118,998,000 $104,071,000
Costs and expenses $ 59,557,000 $55,825,000 $47,266,000
Income taxes $ 20,900,000 $21,408,000 $20,736,000
Net income $ 44,109,000 $41,765,000 $36,069,000
American Triumvirate Insurance Company ("ATIC")
Prior to December 21, 1994, the Company had a 50% ownership
with another pharmaceutical company in ATIC, a captive insurance
company, which underwrote product liability insurance policies for
each of the companies and Somerset. This investment was being
accounted for utilizing the equity method. The Company recognized
$759,000, $901,000 and $848,000 for the years ended December 31,
1994, 1993 and 1992, respectively, as its equity in ATIC's
earnings.
On December 21, 1994, the Company sold its 50% interest in
ATIC to the other owner for a selling price valued at 50% of ATIC's
shareholders' equity at December 31, 1994 or $8,166,000. The
Company received $7,992,000 in cash and established a receivable
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
for $174,000. For financial reporting purposes, the sale of ATIC
did not result in a gain or loss to the Company.
Andrx Corporation ("Andrx")
In July 1994, the Company acquired a 7.5% interest in Andrx
for $6,000,000. In addition, the Company may acquire a further
interest by exercise of certain warrants. The Company utilizes the
cost method to account for its investment in Andrx. The Company and
Andrx also entered into a joint venture ("Ancirc"), which will
develop generic pharmaceuticals for worldwide markets utilizing
Andrx's controlled-release technology. Within Ancirc, Andrx will be
responsible for continuing development of the products, and
marketing and sales upon approval. Circa will manufacture the
controlled-release products and be responsible for regulatory
services. Andrx and Circa will be responsible for sixty and forty
percent, respectively, of all future costs to develop, manufacture
and market the products with the same percentages applicable to the
sharing of income from the joint venture. Circa made an initial
equity contribution into Ancirc of $200,000 and utilizes the equity
method to account for this joint venture. For the year ended
December 31, 1994, Circa recorded $220,000 as its equity in
Ancirc's loss.
BQ Pharmaceutical Realty Co., Inc. ("BQ")
Circa holds a 60% equity interest in a company that owns a
facility designed to produce sustained-release products. The
Company's net investment of $2,616,000 as of December 31, 1994 and
1993 is being accounted for using the equity method as neither
company controls BQ due to equal representation on its board of
directors.
COMBINED RESULTS FOR UNCONSOLIDATED INVESTMENTS IN JOINT VENTURES
The following aggregate information is provided for
unconsolidated investments in joint ventures accounted for
utilizing the equity method:
December 31,
1994 1993
Current assets $49,473,000 $50,735,000
Non-current assets 6,516,000 6,165,000
Total assets $55,989,000 $56,900,000
Current liabilities $30,201,000 $24,000,000
Non-current liabilities 292,000 458,000
Shareholders' equity 25,496,000 32,442,000
Total liabilities and equity $55,989,000 $56,900,000
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31,
1994 1993 1992
Net revenues $126,726,000 $121,202,000 $106,210,000
Gross profit $109,979,000 $107,158,000 $93,539,000
Net income $ 44,409,000 $ 43,567,000 $37,766,000
6. PARTNERSHIP WITH RHONE-POULENC RORER, INC. ("RPR")
In July 1989, the Company and 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.
Circa's share of the partnership's loss for the years ended
December 31, 1993 and 1992 was $7,644,000 and $15,598,000,
respectively. The partnership agreement was amended in April 1993,
such that after September 1, 1993 the Company's financial
participation would be to earn a royalty from the 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 will increase to 20% for the years ending December
31, 1995 and 1996, 22% for the years ending December 31, 1997
through 2000 and 3% thereafter. Royalties are initially applied to
repay the Company's partnership liability to RPR. On September 1,
1993, the Company made the only required payment to RPR of
$8,000,000. For the year ended December 31, 1994 the Company
earned royalties of $1,209,000 which are included in net sales in
the consolidated statements of operations. Additionally, the
partnership agreement provides for the partnership to develop a
generic version of Dilacor XR to be launched as the partners
consider appropriate. The profits and losses from the sale of the
generic product are to be shared equally by the Company and RPR.
7. INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109.
There was no effect on the Company's financial position as of
December 31, 1993 related to the adoption of SFAS No. 109 as the
Company established a valuation allowance for the amount of the
deferred tax asset at January 1, 1993 of $36,000,000. The
principal deferred tax asset was approximately $71,000,000 of net
operating loss carryforward for federal income taxes which will
expire beginning in 2006.
For the year ended December 31, 1994, the Company provided
$110,000 for federal alternative minimum taxes and state taxes.
The Company's income before taxes of approximately $17,400,000 was
reduced to a federal operating loss of $1,500,000 primarily due to
non-taxable joint venture income of $19,200,000, attributable to
the federal dividend exclusion. The Company's taxable income was
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
additionally reduced by deductible expenses for tax purposes of
$4,000,000 which was offset by not currently deductible allowances
of $1,300,000 and a taxable gain on the sale of ATIC of $3,000,000.
For the year ended December 31, 1993, the Company was not
required to provide for federal or state taxes. The Company's net
income of approximately $8,400,000 was reduced to a federal net
operating loss of $5,000,000 primarily due to non-taxable joint
venture income of $19,300,000, attributable to the federal dividend
exclusion. The Company's taxable income was additionally reduced
by deductible expenses for tax purposes of $3,300,000 which was
offset by not currently deductible allowances of $9,200,000.
For the year ended December 31, 1992, the Company was not
required to provide for federal or state taxes due to its net
operating loss.
Deferred taxes arise due to differences in the basis of assets
and liabilities for financial reporting and income tax purposes.
The significant components of net deferred tax assets and
liabilities as of December 31, 1994 and 1993 are as follows:
Years ended December 31,
1994 1993
Operating loss carryforward $ 30,469,000 $ 29,856,000
Tax credit carryforward 3,048,000 3,048,000
Expenses not
currently deductible 3,139,000 3,495,000
Other 744,000 401,000
Total deferred tax assets 37,400,000 36,800,000
Valuation allowance (37,400,000) (36,800,000)
Net deferred tax asset $ 0 $ 0
At December 31, 1994, the Company has a net operating loss
carryforward of approximately $77,500,000 for federal income tax
purposes which, if not utilized, will begin to expire in 2006. At
December 31, 1994, the Company has $3,048,000 of federal tax
credits available for use in future years which expire beginning in
2001.
8. COMMITMENTS AND CONTINGENCIES
Settlements
On November 30, 1994, the Company settled its litigation with
a former President, who resigned in 1990. Under the terms of the
agreement, the former President, through an escrow agent, sold all
of the 528,108 shares of Circa's common stock owned by him. The
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
proceeds from the sale of a substantial portion of such shares,
after payment of expenses and various taxes, were utilized to
settle the Company's claim that his conduct damaged the Company and
also to reimburse the Company for $1,331,000 of legal expenses paid
on his behalf in past years. The Company recognized a gain on
settlement of $2,298,921.
In July 1994, the Company settled civil antitrust claims
brought against it in a class action in the U.S. District Court in
Maryland with respect to the sale of generic Dyazide. Under the
settlement agreement, the Company paid $1,350,000 into a settlement
fund for the benefit of the class of plaintiffs, and will issue
$2,500,000 of coupons permitting the class of former customers to
purchase products from the Company at a predetermined discount from
market prices. The settlement agreement was accepted by the class
of plaintiffs and implementation was approved by the court. The
cost of such settlement was provided for in 1993.
In December 1994, the Company paid its outstanding
installment obligations related to two prior legal settlements with
total cash disbursements of $7,560,000. The Company did not
recognize a gain or loss on the settlement of the installment
obligations. Marketable securities collateralizing the installment
obligations were released from the trusts.
In October 1993, the Company settled its case with the
Antitrust Division of the Justice Department. The Company entered
a plea of Nolo Contendere and paid a fine of $1,100,000. Also,
during 1993 the Company settled actions against it by KV
Pharmaceuticals and Barr Laboratories. These separate actions were
settled in the total amount of $3,690,000.
In September 1993, Circa received a $1,100,000 refund from a
settlement fund established in 1991 for a class action lawsuit
against the Company. In November 1993, the Company settled its
action against a former officer who returned to the Company 367,308
shares of Circa's common stock which was placed in treasury and was
valued at $3,168,000 on the date of transfer to the Company. A
gain of $2,500,000, net of legal expenses paid by the Company, was
included within the consolidated statements of operations for this
settlement. Income from these events was offset by the Company
during the third and fourth quarters of 1993 by an increase in the
liability for future legal settlements.
Contingencies
Certain product liability claims have been filed against the
Company relating to products sold prior to the cessation of sales
by the Company in February 1990.
As of December 31, 1993, the Company had provided an
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
allowance for the estimated cost of pending litigation. Based upon
information it presently possesses, the Company believes that the
outcome of these cases will not have a material adverse effect on
the Company's consolidated financial position and future
operations.
Commitments
As of December 31, 1994, the Company had commitments of
approximately $2,600,000 for research and development projects to
third parties, which will be expended over the next three years.
9. SHAREHOLDERS' EQUITY
Stock Award Plans
The Company maintains a Restricted Stock Award Plan which
provides for the issuance of shares of common stock to key
employees which was adopted by the Board in 1984. A total of
464,000 shares of common stock were reserved for issuance under the
plan. The plan provides that if recipients leave the Company's
active employment prior to age 62 they must return previously
awarded shares to the Company. As of December 31, 1994, there were
157,000 shares issued under this plan. In 1994, the Board of
Directors elected to discontinue the issuance of awards from this
plan.
The Company maintains a Deferred Compensation Plan for the
benefit of eligible key employees and officers. A total of
1,300,000 shares of common stock were reserved for issuance under
the plan. If the recipients of such shares leave the Company's
employment prior to certain agreed upon vesting dates, they must
return some or all of the awarded shares to the Company. The
Company awarded 30,000, 400,000 and 55,000 shares of common stock
to certain employees during the years ended December 31, 1994,
1993, and 1992, respectively. During the years ended December 31,
1994, and 1993, 7,500 and 477,500 shares, respectively, were
canceled. As of December 31, 1994, 2,015,000 shares were issued,
830,000 shares were canceled and 115,000 shares were available for
future issuance.
Stock Option Plans
At the 1994 Annual Meeting, the shareholders approved the
1994 Long-Term Incentive Plan ("1994 Incentive Plan"). A total of
1,400,000 shares of common stock were reserved for stock option
grants, stock appreciation rights and stock awards to officers and
selected employees. The 1994 Incentive Plan provides that the
exercise price of each option will be 100% of the fair market value
of the common stock on the date of grant. As of December 31, 1994,
537,200 options were issued, 35,000 options were forfeited and
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
897,800 shares were available for future issuance.
The Company maintains a Directors' Stock Option Plan
("Directors' Plan") for the benefit of directors of the Company who
are not eligible to receive options under any other plan adopted by
the Company. This non-qualified plan was adopted by the Board and
approved by the shareholders in 1990. The Directors' Plan provides
that the exercise price of each option will be 100% of the fair
market value of the common stock on the date of grant and is
exercisable in full on the first anniversary of the date of grant.
A total of 500,000 shares of common stock were reserved for
issuance under the plan. During the year ended December 31, 1994,
options for 20,000 shares of the Company's common stock were issued
under the plan. As of December 31, 1994, 107,500 options were
issued under the plan, of which 2,500 options have been exercised
and 392,500 options were available for future issuance.
At the 1988 Annual Meeting, the shareholders approved an
Incentive Compensation Plan ("1988 Plan") which provided for annual
contingent awards of stock options to officers, directors and key
employees to be granted only if earnings per share of the Company's
common stock exceeded pre-established goals set by the Compensation
Committee. The 1988 Plan provides that the exercise price of each
option is no less than 100% of the fair market value
of the Company's common stock at date of grant. A total of 900,000
shares of the Company's common stock are subject to options under
this plan. During the year ended December 31, 1994, 26,937 options
expired. As of December 31, 1994, 214,445 options were issued
under the plan, of which 57,381 options have been exercised and
157,064 options were canceled. In 1994, the Board of Directors
elected to discontinue the issuance of awards from this plan.
The Company has an Employee Stock Purchase Plan ("Employee
Plan") for employees other than officers, directors or key
employees. The Employee Plan is intended to be a "Qualified Plan"
within the meaning of Section 423 of the Internal Revenue Code. A
total of 628,980 shares of the Company's common stock were reserved
for purposes of this Plan. The options have a life of five years
from the date of each grant and are exercisable on or before the
option expiration date. During the year ended December 31, 1994,
7,300 options were issued, 4,200 were exercised and 2,500 expired.
As of December 31, 1994, 151,355 options were issued under the
plan, of which 98,776 options have been exercised and 35,479
options were canceled. In 1994, the Board of Directors elected to
discontinue the issuance of awards from this plan.
Other non-qualified options of 50,000 and 21,250 were issued
during the years ended December 31, 1994 and 1993, respectively,
and are still outstanding.
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A summary of changes in outstanding options is summarized as
follows:
Number of Option
Shares under Price Per
Option Share
Outstanding December 31, 1991 329,482 $ 2.50- 26.25
Options granted 37,200 $ 8.88- 9.50
Options exercised 12,022 $ 4.63- 22.25
Options expired or forfeited 230,145 $ 4.63- 22.25
Outstanding December 31, 1992 124,515 $ 2.50- 26.25
Options granted 56,450 $ 5.75- 6.88
Options exercised 4,500 $ 2.50- 9.50
Options expired or forfeited 26,778 $ 4.63- 26.25
Outstanding December 31, 1993 149,687 $ 2.50- 26.25
Options granted 614,500 $10.88- 17.75
Options exercised 4,200 $ 4.63- 11.50
Options expired or forfeited 64,437 $ 5.75- 26.25
Outstanding December 31, 1994 695,550 $ 2.50- 17.75
10.OTHER INCOME (EXPENSE)
Years Ended December 31,
1994 1993 1992
Imputed interest expense
on legal settlements ($591,448) ($997,025) ($1,515,016)
Gain on sale of property,
plant and equipment 39,964 962,160
(Increase) decrease in
provision for
recalled products (750,000) 391,686
Allowance for inventory
obsolescence (481,984) (351,000)
Other, net (163,408) 158,785 (267,977)
($714,892) ($2,070,224) ($780,147)
CIRCA PHARMACEUTICALS, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Circa
Pharmaceuticals, Inc.,
We have audited the accompanying consolidated balance sheets
of Circa Pharmaceuticals, Inc. and Subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial
statements of Somerset Pharmaceuticals, Inc. (Somerset), an entity
which is 50% owned by the Company. The Company's investment in
Somerset constitutes 22% and 19% of consolidated total assets in
1994 and 1993, respectively. In 1994, 1993 and 1992, the Company
has recorded income from Somerset of $25,089,000, $23,787,000 and
$20,563,000, respectively. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Somerset, is
based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Circa Pharmaceuticals, Inc. and Subsidiaries
as of December 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in notes 1 and 2, the Company changed its method
of accounting for investments in marketable securities effective
January 1, 1994.
Coopers & Lybrand L.L.P.
Melville, New York
February 7, 1995
CIRCA PHARMACEUTICALS, INC.
REPORT OF MANAGEMENT
To the Shareholders of Circa Pharmaceuticals, Inc.,
Management of Circa is responsible for preparing the
accompanying consolidated financial statements and for assuring
their integrity and objectivity. The financial statements were
prepared in accordance with generally accepted accounting
principles and fairly represent the transactions and financial
position of the Company. The financial statements include amounts
that are based on management's best estimates and judgements.
The Company's financial statements have been audited by
Coopers & Lybrand L.L.P., independent auditors, selected by the
Audit Committee and approved by shareholders. Management has made
available to Coopers & Lybrand L.L.P. all of the Company's
financial records and related data, as well as the minutes of
shareholders' and directors' meetings.
Management of the Company has established and maintains a
system of internal accounting controls that is designed to provide
reasonable assurance that assets are safeguarded, transactions are
properly recorded and executed in accordance with management's
authorization, and the books and records accurately reflect the
disposition of assets. The system of internal controls includes
appropriate division of responsibility.
The Audit Committee is composed of Directors who are not
officers or employees of the Company. It meets regularly with
members of management and the independent accountants to discuss
the adequacy of the Company's internal controls, financial
statements and the nature, extent and results of the audit effort.
The independent accountants have free and direct access to the
Audit Committee without the presence of management.
Melvin Sharoky, M.D. Angelo C. Malahias
President and Vice President and
Chief Executive Officer Chief Financial Officer
CIRCA PHARMACEUTICALS, INC.
STOCK MARKET INFORMATION
1994 High Low
First Quarter 15 1/8 8 5/8
Second Quarter 12 1/8 8 3/4
Third Quarter 15 3/8 9 1/8
Fourth Quarter 18 1/8 14 1/8
1993 High Low
First Quarter 9 5 3/4
Second Quarter 7 7/8 4 1/8
Third Quarter 8 7/8 5 7/8
Fourth Quarter 13 5/8 8 1/4
The common stock of Circa Pharmaceuticals, Inc. is traded on
the American Stock Exchange, trading symbol: RXC.
As of February 28, 1995, the Company had 2,269 shareholders
of record. There are a significant number of beneficial
owners of Circa stock whose shares are held in "street
name." No cash dividends have been declared by the Company
for the fiscal years 1994 and 1993, and the Company does
not intend to declare cash dividends in the foreseeable
future.
CIRCA PHARMACEUTICALS, INC.
QUARTERLY DATA (UNAUDITED)
1994 1993
March 31st
Net sales $1,234,209 $357,716
Gross profit 449,358 51,310
Net income (loss) 3,874,480 (4,411,739)
Income (loss) per share $.18 ($.20)
June 30th
Net sales $ 961,289 $837,148
Gross profit 341,328 216,711
Net income (loss) 2,308,590 (1,194,425)
Income (loss) per share $.11 ($.06)
September 30th
Net sales $1,320,178 $1,002,833
Gross profit 676,227 231,102
Net income 3,598,904 6,656,877
Income per share $.17 $.30
December 31st
Net sales $4,285,805 $1,093,583
Gross profit 2,705,271 261,526
Net income 7,477,071 7,344,535
Income per share $.34 $.34
CIRCA PHARMACEUTICALS, INC.
OFFICERS OF THE COMPANY
Melvin Sharoky, M.D.
President and
Chief Executive Officer
Director
Dr. Sharoky, 44, joined the Company in 1988 as Medical Director and
subsequently served as Executive Vice President, Director of
Research and Development before being appointed by the Board of
Directors to President and Chief Executive Officer in 1993. Prior
to joining Circa, Dr. Sharoky was Senior Vice President of Contract
Development for a drug research and testing organization. He
currently serves on the Board of Directors of Circa and Somerset
Pharmaceuticals, Inc.
Thomas P. Rice
Executive Vice President and
Chief Operating Officer
Director
Mr. Rice, 44, joined Circa in July 1993. Prior to joining Circa,
Mr. Rice served as Vice President and Chief Financial Officer for
a pharmaceutical research organization, and as a senior manager
with Deloitte & Touche LLP. He currently serves on the Board of
Directors of Circa and Somerset Pharmaceuticals, Inc.
John Botek
Vice President
Operations and Administration
Mr. Botek, 38, joined Circa in April 1994. Prior to joining Circa,
Mr. Botek held senior management positions with a management and
systems consulting company and a pharmaceutical research
organization.
Gwen Gerrick
Corporate Secretary
Director of Investor Relations
Ms. Gerrick, 29, joined the Company in 1988 and currently serves as
Corporate Secretary and Director of Investor Relations. She
previously served as Assistant to the President.
CIRCA PHARMACEUTICALS, INC.
OFFICERS OF THE COMPANY
(Continued)
Ed Haley
Vice President
Sales and Marketing
Mr. Haley, 51, joined Circa in May 1994. Prior to joining Circa,
Mr. Haley was Vice President of Sales with Bausch & Lomb Oral Care
and held various key management positions with Colgate-Palmolive
Company.
Nicholas A. LaBella, Jr.
Vice President
Director of Research and Development
Mr. LaBella, 39, joined Circa in 1989 as the Director of Regulatory
Affairs, and in 1993 he became Vice President, Director of Research
and Development. Prior to joining Circa, Mr. LaBella held various
positions in Regulatory Affairs and Project Coordination for
research based pharmaceutical organizations. He also serves on the
Board of Directors of Somerset Pharmaceuticals, Inc.
Angelo C. Malahias
Vice President
and Chief Financial Officer
Mr. Malahias, 33, joined Circa in July 1994 as Controller and in
January 1995 became Vice President and Chief Financial Officer.
Prior to joining Circa, Mr. Malahias served as a senior manager
with KPMG Peat Marwick LLP.
Steve Martinez
Vice President
and General Manager
Mr. Martinez, 45, joined Circa in December 1994 as General Manager
and Vice President. Prior to joining Circa, he worked for eighteen
years for several major drug and device manufacturers, rising to
director level positions.
CIRCA PHARMACEUTICALS, INC.
BOARD OF DIRECTORS
Melvin Sharoky, M.D.
President and
Chief Executive Officer
Thomas P. Rice
Executive Vice President and
Chief Operating Officer
Michael Fedida
Registered Pharmacist
Consultant and Owner of Retail Pharmacies
Stanley Grey
Certified Public Accountant
Trustee and Treasurer, Long Island Jewish Medical Center
Bruce Hausman
Attorney
Director, Plastigone Technologies, Inc.
Honorary Trustee, Beth Israel Medical Center
Director, Daltex Medical Sciences, Inc.
Kenneth Siegel
Managing Director
Wertheim Schroder & Co., Incorporated
CIRCA PHARMACEUTICALS, INC.
FORM 10-K
A copy of the Company's annual report on form 10-K filed with the
Securities and Exchange Commission is available to shareholders
upon request. For a copy of Form 10-K, please write to Investor
Relations.
SHAREHOLDER INFORMATION
Investor Relations
Circa Pharmaceuticals, Inc.
33 Ralph Ave.
P.O. Box 30
Copiague, NY 11726-0030
(516) 842-8383
STOCK TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
New York, New York
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P.
Melville, New York
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: June 12, 1995
by:/s/ Melvin Sharoky, M.D.
MELVIN SHAROKY, M.D., President
Chief Executive Officer
by:/s/ Angelo C. Malahias
ANGELO C. MALAHIAS, Vice President
and Chief Financial Officer
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This schedule contains summary financial information extracted from Circa
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