<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended JUNE 30, 1996 .
-----------------
[_] 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: 0-10736
--------
MGI PHARMA, INC.
----------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1364647
- --------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
Suite 300E, Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343 (612) 935-7335
- --------------------------------------- --------------------------------
(Address of principal executive (Registrant's telephone
offices and zip code) 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 12,822,971 shares
---------------------------- --------------------------------
(Class) (Outstanding at August 2, 1996)
<PAGE>
FORM 10-Q INDEX
MGI PHARMA, INC.
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1996
and December 31, 1995 1
Statements of Operations - Three Months and
Six Months Ended June 30, 1996 and 1995 3
Statements of Cash Flows - Six Months
Ended June 30, 1996 and 1995 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
BALANCE SHEETS
MGI PHARMA, INC.
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,970,077 $ 9,075,569
Short-term investments 13,647,208 8,903,362
Receivables, less allowances of $44,850
and $160,535 567,503 730,180
Inventories, net 916,075 1,003,278
Prepaid expenses 103,479 43,417
----------- -----------
Total current assets 17,204,342 19,755,806
Equipment and furniture, at cost
less accumulated depreciation of
$728,401 and $681,467 244,464 243,197
Other assets 311,341 515,991
----------- -----------
Total assets $17,760,147 $20,514,994
=========== ===========
</TABLE>
(Continued)
<PAGE>
BALANCE SHEETS
(Unaudited)
Page 2
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 711,629 $ 1,277,713
Accrued expenses 1,866,136 2,497,682
Other current liabilities 10,582 7,325
------------ ------------
Total current liabilities 2,588,347 3,782,720
------------ ------------
Common stockholders' equity:
Common stock, $.01 par value,
30,000,000 authorized shares,
12,818,076 and 12,781,608
issued shares 128,181 127,816
Additional paid-in capital 83,043,267 82,872,883
Notes receivable from officers (104,933) (432,082)
Accumulated deficit (67,894,715) (65,836,343)
------------ ------------
Total common stockholders' equity 15,171,800 16,732,274
------------ ------------
Total liabilities and
stockholders' equity $ 17,760,147 $ 20,514,994
============ ============
</TABLE>
- -------------------------------------
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
MGI PHARMA, INC.
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 1,565,976 $ 1,061,294 $ 2,894,764 $ 1,998,434
Licensing 472,508 639,018 1,021,268 1,976,503
Interest and other 220,360 253,819 459,400 489,822
----------- ----------- ----------- -----------
2,258,844 1,954,131 4,375,432 4,464,759
----------- ----------- ----------- -----------
Costs and Expenses:
Research and development 1,327,644 1,691,801 2,493,348 3,239,596
Cost of sales 161,680 171,393 308,820 284,286
Selling, general and
administrative 2,024,385 1,626,220 3,631,636 3,725,414
Amortization of intangible
assets -- 17,918 -- 35,833
----------- ----------- ----------- -----------
3,513,709 3,507,332 6,433,804 7,285,129
----------- ----------- ----------- -----------
Net loss $(1,254,865) $(1,553,201) $(2,058,372) $(2,820,370)
=========== =========== =========== ===========
Loss per common share $ (0.10) $ (0.12) $ (0.16) $ (0.23)
Weighted average number of
common shares outstanding 12,796,218 12,600,159 12,790,237 12,277,368
</TABLE>
- -------------------
See accompanying notes to consolidated financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
MGI PHARMA, INC.
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,058,372) $ (2,820,370)
Adjustments for non-cash items:
Depreciation and asset amortization 49,498 92,027
Unearned revenue amortization -- (388,889)
Facility rent abatement -- (39,264)
Other 51,733 52,990
Change in operating assets and liabilities:
Receivables 162,677 (7,592)
Inventories 87,203 113,963
Prepaid expenses (60,062) 386,375
Accounts payable and accrued expenses (1,092,008) (1,351,747)
Other current liabilities 3,257 (9,807)
------------ ------------
Net cash used in operating activities (2,856,074) (3,972,314)
------------ ------------
INVESTING ACTIVITIES:
Purchase of investments (14,961,125) (11,665,926)
Maturity of investments 10,217,279 10,709,458
Purchase of equipment and furniture (50,765) (3,600)
Payment on notes receivable 480,924 149,825
Other (640) --
------------ ------------
Net cash used in investing
activities (4,314,327) (810,243)
------------ ------------
FINANCING ACTIVITIES:
Issuance of shares under stock
plans 64,909 70,857
Other issuances -- 2,837,687
------------ ------------
Net cash provided by financing
activities 64,909 2,908,544
------------ ------------
Decrease in cash and cash equivalents (7,105,492) (1,874,013)
Cash and cash equivalents at
beginning of period 9,075,569 6,728,006
------------ ------------
Cash and cash equivalents at
end of period $ 1,970,077 $ 4,853,993
============ ============
- ----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MGI PHARMA, INC.
(Unaudited)
(1) Basis of Presentation
---------------------
MGI PHARMA, INC. ("MGI" or the "Company") is a pharmaceutical company that
acquires, develops and markets innovative and differentiated therapeutic
specialty products for niche markets of unmet medical need. The Company is
primarily focused on products that treat cancer or improve the quality of life
for cancer patients. It is currently marketing its oncology products to
physicians throughout the United States, with sales made to pharmaceutical
wholesalers for distribution to the ultimate consumers of Company products.
Sales of Salagen(R) Tablets account for the vast majority of Company sales. The
Company is commercializing its products outside the United States through
various alliances, and has agreements with several international pharmaceutical
companies to commercialize Salagen(R) Tablets abroad including the major markets
of Europe, Japan and Canada. Product development efforts currently include
continued development of Salagen(R) Tablets, to expand use of this drug beyond
its already approved indication, and development of acylfulvenes, a family of
compounds with potential to become effective cancer therapies. Exclusive rights
to acylfulvenes for Japan were granted to a Japanese pharmaceutical company
under a cooperative development and commercialization agreement in 1995.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal, recurring accruals)
considered necessary for fair presentation have been included. Interim results
may not be indicative of annual results. For further information, refer to the
financial statements and footnotes included in the Company's report on Form 10-K
for the year ended December 31, 1995. Certain year end amounts have been
reclassified to conform with the current period presentation.
<PAGE>
(2) Loss Per Common Share
---------------------
Loss per common share is based upon the weighted average number of shares
outstanding during each period. Common stock equivalents are not included as
their effect is antidilutive.
(3) Short-Term Investments
----------------------
Held-to-maturity investments at June 30, 1996, including estimated fair value
based on quoted market prices or valuation models, are summarized in the
following table:
<TABLE>
<CAPTION>
Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
Corporate notes $ 5,649,178 $ 5,649,178
Commercial paper 4,453,239 4,453,239
European certificate of deposit 2,027,271 2,027,271
Auction market note 1,517,250 1,517,520
----------- -----------
Short-term investments $13,647,208 $13,647,208
=========== ===========
</TABLE>
(4) Inventories
-----------
Inventories at June 30, 1996, and December 31, 1995, are summarized in the
following table:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials and supplies
Work in process $ 129,131 $ 26,631
Finished goods 128,086 68,387
Valuation allowance 982,978 1,089,718
(324,120) (181,458)
Total ----------- -----------
$ 916,075 $ 1,003,278
=========== ===========
</TABLE>
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis.
(5) Accrued Expenses
----------------
Accrued expenses at June 30, 1996, and December 31, 1995, are summarized in the
following table:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Retirement commitment $ 390,795 $ 655,468
Bonuses 316,419 356,826
Product development commitments 220,648 476,049
Product returns 175,358 163,814
Technology licensing commitment 97,797 253,243
Other accrued expenses 665,119 592,282
----------- -----------
$ 1,866,136 $ 2,497,682
=========== ===========
</TABLE>
<PAGE>
(6) Stock Incentive Plans
---------------------
Under stock incentive plans, designated persons (including officers, directors
and employees) have been or may be granted rights to acquire Company common
stock. These rights include, but are not limited to, stock options, limited
stock appreciation rights and restricted stock units.
At June 30, 1996, 2,703,468 shares of common stock remain reserved for issuance
to employees and nonemployees of which 616,643 remain available for grant and
options to purchase 2,086,825 shares of common stock were outstanding, of which
907,687 were exercisable. Options outstanding had a weighted average exercise
price of $6.85 per share.
Loans to officers were made for their purchases of stock, exercises of options
and payment of associated tax obligations. The loans are full recourse,
unsecured obligations and are payable on demand. At June 30, 1996, $104,933 of
principal remains outstanding and is presented as "Notes receivable from
officers" within common shareholders' equity in the accompanying balance sheet.
(7) Stockholders' Equity
--------------------
Changes in common stock and additional paid-in capital were as follows:
<TABLE>
<CAPTION>
Notes
Common stock Additional receivable
--------------------- paid-in from
Shares Par value capital officers
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Six months ended June 30, 1995:
Balance at December 31, 1994 11,945,544 $119,455 $79,706,292 $(565,586)
Exercise of stock options 5,700 57 25,218 --
Employee stock purchase plan 14,289 143 45,439 --
Employee retirement savings
plan contribution 6,486 65 26,691 --
Issuance of shares 750,000 7,500 2,830,187 --
Note payment -- -- -- 124,468
---------- -------- ----------- ---------
Balance at June 30, 1995 12,722,019 $127,220 $82,633,827 $(441,118)
========== ======= ========== =========
Six months ended June 30, 1996:
Balance at December 31, 1995 12,781,608 $127,816 $82,872,883 $(432,082)
Employee retirement savings
plan contribution 9,178 92 48,749 --
Exercise of stock options 3,739 37 18,147 --
Employee stock purchase plan 11,859 119 46,606 --
Issuance of shares 11,692 117 56,882 (56,999)
Note payments -- -- -- 384,148
---------- --------- ----------- ---------
Balance at June 30, 1996 12,818,076 $128,181 $83,043,267 $(104,933)
========== ======= ========== ========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Overview
- --------
MGI PHARMA, INC. ("MGI" or the "Company") is a pharmaceutical company that
acquires, develops and markets innovative and differentiated therapeutic
specialty products for niche markets of unmet medical need. The Company is
primarily focused on products that treat cancer or improve the quality of life
for cancer patients. It is currently marketing its oncology products to
physicians throughout the United States, with sales made to pharmaceutical
wholesalers for distribution to the ultimate consumers of Company products.
Sales of Salagen(R) Tablets account for the vast majority of Company sales. The
Company is commercializing its products outside the United States through
various alliances, and has agreements with several international pharmaceutical
companies to commercialize Salagen(R) Tablets abroad including the major markets
of Europe, Japan and Canada. Product development efforts currently include
continued development of Salagen(R) Tablets, to expand use of this drug beyond
its already approved indication, and development of acylfulvenes, a family of
compounds with potential to become effective cancer therapies. Exclusive rights
to acylfulvenes for Japan were granted to a Japanese pharmaceutical company
under a cooperative development and commercialization agreement in 1995.
Results of Operations
- ---------------------
The Company's net loss of $1,254,865 in the 1996 second quarter compares with a
net loss of $1,553,201 in the 1995 second quarter. The 1996 first half net loss
of $2,058,372 compares with the 1995 first half net loss of $2,820,370. The
decreased 1996 quarterly loss reflected increased sales revenue. The decreased
1996 first half loss reflected reduced expenses. Despite a sizable increase in
sales revenues from the 1995 first half to the 1996 first half, total revenues
declined due to the non-recurring nature of a $1 million license payment
received in 1995.
Sales revenues increased 48% from $1,061,294 in the 1995 second quarter to
$1,565,976 in the 1996 second quarter, and increased 45% from $1,998,434 in the
1995 first half to $2,894,764 in the 1996 first half. The increases in 1996
reflected increasing sales of Salagen(R) Tablets, partially reduced by
continuation of the long-term decline in sales of DIDRONEL(R) I.V. Infusion.
Inventory quantities of Salagen(R) Tablets in distribution channels have been
approaching equilibrium since the product was launched in April 1994.
Management believes Company shipments increased by mid-1995 to a level which
approximated retail demand for Salagen(R) Tablets.
<PAGE>
Quarter-to-quarter sales revenues increased 18% in the 1996 second quarter,
following a 9% decline to $1,328,788 in the 1996 first quarter. MGI sales
revenues are expected to continue oscillating around the long-term trend line of
retail demand, due to periodic adjustments in wholesaler buying patterns. The
recent trend in retail demand, as estimated using shipment activity from
wholesalers to pharmacies, has continued to grow.
Licensing revenue decreased 26% from $639,018 in the 1995 second quarter to
$472,508 in the 1996 second quarter, and decreased 48% from $1,976,503 in the
1995 first half to $1,021,268 in the 1996 first half. The 1996 quarterly
decrease resulted from 1995 licensing revenue related to amortization of a
premium realized on issuance of common stock to Kissei Pharmaceutical Co., Ltd.,
in conjunction with granting commercial rights for Salagen(R) Tablets in Japan.
The decrease for the 1996 first half was primarily due to a non-recurring $1
million milestone payment received in the 1995 first quarter from Chiron B.V.,
following approval of Salagen(R) Tablets for marketing in the United Kingdom.
However, the magnitude of the 1996 first half decrease was muted by two
quarterly $360,000 recurring milestone payments received in the 1996 first half
from Dainippon Pharmaceutical Co., Ltd. Future licensing revenues will likely
fluctuate from one quarter to the next and between years depending on current
partners' achievement of milestones and the amount of their recurring royalty
generating activities, and the timing of initiating additional licensing
relationships. Absent revenue from initiation of additional licensing
relationships, 1996 licensing revenue is expected to decline from 1995 amounts,
given the magnitude of initiation and milestone payments realized in 1995.
Cost of sales decreased 6% from $171,393 in the 1995 second quarter to $161,680
in the 1996 second quarter, but increased 9% from $284,286 in the 1995 first
half to $308,820 in the 1996 first half. Although sales increased in both the
quarterly and first half comparisons, the product mix is changing with
increasing Salagen(R) Tablet sales and declining DIDRONEL(R) I.V. Infusion
sales. Management believes that future cost of sales as a percent of sales
should continue to approach 10%. This relationship will continue to be
influenced by the unit sales volume of Salagen(R) Tablets, since the Company's
fixed production costs are allocated across the base of production activity.
Interest and other income decreased 13% from $253,819 in the 1995 second quarter
to $220,360 in the 1996 second quarter, and decreased 6% from $489,822 in the
1995 first half to $459,400 in the 1996 first half. Although the average amount
of funds available for investment increased in both comparison periods, the
decreases resulted from a decreased investment yield. Until the Company attains
positive cash flow, whether from operations or outside funding, funds available
for investments will continue to decline. Interest income would correspondingly
decline, assuming yields remain constant.
Research and development expense decreased 22% from $1,691,801 in the 1995
second quarter to $1,327,644 in the 1996 second quarter, and decreased 23% from
$3,239,596 in the 1995 first half to $2,493,348 in the 1996 first half. For the
rest of 1996, development of Salagen(R) Tablets as a treatment for dry mouth due
to Sjogren's Syndrome is expected to increase research and development expense
in advance of the anticipated filing of a supplemental New Drug Application with
the FDA during the 1996 second half.
<PAGE>
Selling, general and administrative expenses increased 24% from $1,626,220 in
the 1995 second quarter to $2,024,385 in the 1996 second quarter, but decreased
3% from $3,725,414 in the 1995 first half to $3,631,636 in the 1996 first half.
The 1996 quarterly increase, as well as the 1996 first half decrease, resulted
from restructuring of the Company's field sales organization. Most open
territory sales positions from the first quarter of 1996 are now staffed, and
new sales and marketing efforts targeting better conversion of initial
prescribing into ongoing refills are being implemented. Selling expense will
likely increase during 1996 as these new efforts progress.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1996, the Company had cash and cash equivalents and investments of
$15,617,285 and working capital of $14,615,995 compared to $17,978,931 and
$15,973,086, respectively, at December 31, 1995. During the six month period
ended June 30, 1996, the Company used cash of $2,856,074 to fund its operating
activities.
Cash in excess of current operating needs is invested in marketable debt
securities in accordance with the Company's investment policy. This policy
emphasizes principal preservation, so it requires strong issuer credit ratings
and limits the amount of credit exposure from any one issuer or industry.
Substantial amounts of capital are required for pharmaceutical development and
commercialization efforts. For continued development and commercialization of
MGI 114, Salagen(R) Tablets or prospective product candidates, the Company plans
to utilize cash provided from growth in sales of Salagen(R) Tablets,
collaborative arrangements and existing liquid assets. If these sources of
capital are insufficient, the Company will seek other sources of funding,
including additional equity issuances, or it will manage the pace of developing
its product candidates.
Prospective investors are cautioned that the statements in this periodic report
that are not descriptions of historical facts may be forward looking statements
that are subject to risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors,
including those identified in the cautionary statements filed as an exhibit to
this report. See Item 5 below.
<PAGE>
MGI PHARMA, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company held its Annual Meeting of Shareholders on May 14, 1996 and
sufficient favorable votes were cast to approve all management proposals as
follows:
. Election of management's entire slate of six directors by the
following vote tallies:
<TABLE>
<CAPTION>
For Withhold
------------- --------
<S> <C> <C>
Frederick W. Armstrong 10,818,235 252,293
Charles E. Austin 10,784,077 286,451
Charles N. Blitzer 10,836,891 233,637
Hugh E. Miller 10,771,676 298,852
Robert W. Powell, Jr. 10,809,226 261,302
Lee J. Schroeder 10,749,587 320,941
</TABLE>
. Ratification of independent auditors by a vote of 10,981,319
for, 57,607 against and 31,602 abstaining.
Item 5. Other Information
- --------------------------
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in forward looking statements of the
Company made by, or on behalf of the Company. See Exhibit 99 to this report.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) LISTING OF EXHIBITS:
11 Computation of Net Loss Per Common Share
27 Financial Data Schedule
99 Cautionary Statements
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three months ended June
30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MGI PHARMA, INC.
Date August 6, 1996 By /s/ James V. Adam
-----------------------------------
James V. Adam, Vice President,
Chief Financial Officer
(authorized signatory and
principal financial officer)
<PAGE>
MGI PHARMA, INC.
Quarterly Report on Form 10-Q
for the
Quarter Ended June 30, 1996
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ------------
11 Computation of Net Loss per Common Share 14
27 Financial Data Schedule 15
99 Cautionary Statements 16
<PAGE>
Exhibit 11
COMPUTATION OF NET LOSS PER COMMON SHARE
MGI PHARMA, INC.
(unaudited)
The following information is required in computations of primary and fully
diluted loss per common share for each period:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Loss:
Net loss $(1,254,865) $(1,553,201) $(2,058,372) $(2,820,370)
Common shares:
Adjusted weighted
shares
outstanding (a) 12,796,218 12,600,159 12,790,237 12,277,368
Loss per common share:
Net loss $ (0.10) $ (0.12) $ (0.16) $ (0.23)
</TABLE>
(a) Net loss per common share shown on the face of the statements of operations
is the equivalent of a simple capital structure presentation since it excludes
common stock equivalents as their effect is antidilutive. There are no pro forma
fully diluted share outstanding adjustments, so primary and fully diluted share
amounts are identical.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
accompanying balance sheet of MGI PHARMA, INC. as of June 30, 1996, and the
related statement of operations for the six month period ended June 30, 1996 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,970,077
<SECURITIES> 13,647,208
<RECEIVABLES> 567,503
<ALLOWANCES> 44,850
<INVENTORY> 916,075
<CURRENT-ASSETS> 17,204,342
<PP&E> 244,464
<DEPRECIATION> 728,401
<TOTAL-ASSETS> 17,760,147
<CURRENT-LIABILITIES> 2,588,347
<BONDS> 0
<COMMON> 15,171,800
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,760,147
<SALES> 2,894,764
<TOTAL-REVENUES> 4,375,432
<CGS> 308,820
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,493,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,058,372)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,058,372)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,058,372)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
<PAGE>
Exhibit 99
MGI PHARMA, INC.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a new
"safe harbor" for forward looking statements to encourage companies to
provide prospective information without fear of litigation so long as those
statements are identified as forward looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in the
statement. The Company desires to take advantage of these new "safe harbor"
provisions and is filing this Exhibit 99 in order to do so. Accordingly, the
Company hereby identifies the following important factors which could cause
the Company's actual results to differ materially from any such results which
may be projected, forecast, estimated or budgeted by the Company in forward
looking statements made by the Company from time to time in reports, proxy
statements, registration statements and other written communications, or in
oral forward looking statements made from time to time by the Company's
officers and agents.
LACK OF PROFITABLE OPERATIONS
The Company's revenues have not been sufficient to offset all the
expenses involved in operating a pharmaceutical company including research,
development and production. The Company had net losses of $2,614,000 for
1995 and $2,058,000 for the six months ended June 30, 1996. At June 30, 1996
the Company had an accumulated deficit of $67,895,000. To the extent the
Company is unable to achieve profitability, its ability to continue its
operations will depend upon its ability to secure additional funds from other
sources. Revenue may display significant variations due to the impact of new
contract and licensing arrangements, the completion or termination of those
contracts and arrangements and the timing and amounts of milestone payments.
The Company's profitability will be dependent on its success in developing,
obtaining regulatory approvals for and effectively marketing its products.
There can be no assurance as to whether the Company will be able to achieve
and sustain profitability.
DEPENDENCE ON SALES OF SALAGEN TABLETS
The Company derives substantially all of its product revenues from the
sale of Salagen(R) Tablets. For the six month period ended June 30, 1996,
U.S. sales of Salagen Tablets were $2,581,000, representing 89% of total
product sales for the period. In 1995, U.S. sales of Salagen Tablets were
$3,693,000, representing 80% of 1995 product sales. Accordingly, any factor
adversely affecting Salagen Tablets sales could have a material adverse
effect on the Company's business, financial condition and results of
operations. Although Salagen Tablets was awarded orphan drug status by the
U.S. Food and Drug Administration (the "FDA") as a treatment of xerostomia
induced by radiation therapy, the seven years of market exclusivity provided
by Orphan designation expires in April 2001. Moreover, the Company
anticipates that sales of its other product, DIDRONEL(R) I.V. Infusion, which
represented 10% and 17% of product sales for the first six months of 1996 and
for 1995, respectively, will continue to decline in the future due to the
introduction of competitive products.
DEPENDENCE ON LICENSE AND ACQUISITION STRATEGY
The Company has adopted a license and acquisition strategy to build its
product pipeline and expects to increase its sales over time through a series
of strategic acquisitions of new pharmaceutical product opportunities which
the Company can develop and market. The Company's strategy for growth is
dependent upon its continued ability to identify and acquire new
pharmaceutical products targeted at niche markets which can be promoted
through the Company's existing marketing and distribution channels. Because
the Company does not engage in proprietary research and development of new
products, it must rely upon the willingness of others to sell or license
pharmaceutical product opportunities to the Company. Other companies,
including those with substantially greater financial, marketing and sales
resources, are competing with the Company to acquire such products. There can
be no assurance that the Company will be able to acquire rights to additional
products on acceptable terms, if at all. The failure of the Company to
acquire additional products or to promote or market
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commercially successful products would have a material adverse effect on the
Company's future business, financial condition and results of operations.
Further, the marketing strategy, distribution channels and levels and bases
of competition with respect to newly acquired products may be different than
those of the Company's current products and there can be no assurance that
the Company will be able to compete favorably in those product categories.
UNCERTAINTY OF STRATEGIC ALLIANCES
The Company's strategy for the exploitation of foreign markets for its
products is to enter into strategic alliances with various multinational and
foreign pharmaceutical companies. The Company has entered into alliances
with various companies related to the marketing of Salagen Tablets and the
development of the acylfulvenes. Revenues from strategic alliances consist
of milestone payments and royalty payments. Licensing revenue from strategic
alliances was $7,718,094 for 1995 and $1,021,268 for the six months ended
June 30, 1996, comprising 58% and 23%, respectively, of total revenues.
Future licensing revenues will likely fluctuate from quarter to quarter and
year to year depending on the achievement of milestones by the Company's
partners, the amount of royalty generating activities, and the timing of
initiating additional licensing relationships. Additionally, royalties are
based on sales in local currencies and, therefore, the U.S. Dollar value of
such royalties will fluctuate with currency exchange rates. Absent revenue
from initiation of additional licensing relationships, 1996 licensing revenue
is expected to decline from 1995 amounts, given the high level of initiation
and milestone payments realized in 1995. Although the Company believes that
its partners in these alliances have an economic motivation to perform their
contractual responsibilities, the amount and timing of resources to be
devoted to these activities are not within the control of the Company.
Moreover, the terms of these alliances generally provide that they may be
terminated prior to their expiration under circumstances that may also be
outside the control of the Company. The early termination of one or more of
these strategic alliances could adversely affect the Company's business,
financial condition and results of operations. There can also be no
assurance that the Company will be able to negotiate additional strategic
alliances on acceptable terms or that such alliances will be successful.
UNCERTAINTY OF ACCESS TO CAPITAL
The Company may need to raise additional funds to acquire or license
additional products, to fund operating losses until such time as the Company
achieves sustained profitability, to support the marketing and sales of
additional products and to obtain working capital which may be needed from
time to time. The Company may seek additional funding through public and
private financing, including equity financing. Adequate funds for these
purposes, whether through the financial markets or from other sources, may
not be available when needed or on terms acceptable to the Company.
Insufficient funds may cause the Company to delay, scale back, or abandon
some or all of its product acquisition and licensing programs or marketing.
DEPENDENCE ON SOLE SUPPLIER
The Company relies on E. Merck Fine Chemicals Division as its sole
supplier of pilocarpine hydrochloride, the active ingredient necessary for
the manufacture of Salagen Tablets. The Company believes that E. Merck Fine
Chemicals Division accounts for a substantial majority of the worldwide
supply of Good Manufacturing Practices ("GMP") grade pilocarpine
hydrochloride, and that there is no other producer of pilocarpine
hydrochloride which accounts for a significant portion of the worldwide
supply. The processing facility and raw material requirements for the
production of pilocarpine hydrochloride present significant barriers to entry
of new producers in this market. Although the Company believes that it would
be able to procure adequate supplies of pilocarpine hydrochloride on a timely
basis from an alternate source, the Company has not identified any such
alternate source and
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disruptions in supplies would have a material adverse effect on the Company's
business, financial condition and results of operations.
RELIANCE ON THIRD PARTY MANUFACTURERS
The Company does not have any manufacturing facilities and is currently
relying on two third party manufacturers for the production of Salagen
Tablets. The Company intends to continue to rely on others to manufacture
its products, including any products that it may acquire, and has no plans to
establish any manufacturing operations. The manufacture of the Company's
products are subject to GMP regulations prescribed by the FDA or other
standards prescribed by the appropriate regulatory agency in the country of
use. There can be no assurance that the Company's current manufacturers will
comply with all applicable regulatory standards, or that the Company would be
able to identify an alternative third party manufacturer on terms acceptable
to the Company or on any terms.
INTENSE COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE
The manufacture and sale of pharmaceuticals is highly competitive.
Many of the Company's competitors are large well-known pharmaceutical
companies which have considerably greater financial, sales, marketing and
technical resources than those of the Company. Additionally, many of the
Company's present and potential competitors have research and development
capabilities that may allow such competitors to develop new or improved
products that may compete with the Company's products. The pharmaceutical
industry is characterized by rapid product development and technological
change. The Company's pharmaceuticals could be rendered obsolete or
uneconomical by the development of new pharmaceuticals to treat the
conditions addressed by the Company's products, or as the result of
technological advances affecting the cost of production. There can be no
assurance that the Company will be able to compete effectively, that
additional competitors will not enter the market, or that competition will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company's ability to compete effectively with other companies will
depend, in part, on its ability to maintain the proprietary nature of it
products. The Company was awarded orphan drug status for Salagen Tablets as
a treatment for xerostomia induced by radiation therapy. Orphan designation
provides seven years market exclusivity after product registration. The
Company holds an exclusive license on two broad-based patents covering MGI
114 and other analogs in the Company's family of acylfulvenes, a new class of
potential anti-cancer compounds.
There can be no assurance that the Company will be able to obtain
patents for any future products or that any current or future issued or
licensed patents or know-how will afford protection against competitors with
similar technologies or processes, or that any such patents will not be
infringed upon or designed around by others. In addition, there can be no
assurance that others will not independently develop proprietary technologies
and processes which are the same as or substantially equivalent to those of
the Company. The Company could also incur substantial costs in defending
itself in suits brought against it based on such patents or in bringing suits
to protect such patents or patents licensed by the Company against
infringement. Additionally, the Company protects its proprietary technology
and processes in part by confidentiality agreements with its collaborative
partners, employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
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FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may vary from period to period due
to a variety of factors including continuing demand for the Company's
products, the introduction of new products, the continued stream of licensing
and royalty revenues, expenditures incurred to acquire or license and promote
additional pharmaceuticals, interruptions in or availability of supply by
third-party manufacturers, the introduction of new products by the Company or
its competitors, changes in sales and marketing expenditures and general
economic and industry conditions which affect customer demand. Because the
Company's operating expenses are based on anticipated sales levels variations
in the timing of recognition of revenue could cause significant fluctuations
from period to period and may result in unanticipated earnings shortfalls or
losses. There can be no assurance that the Company will be successful in
maintaining or improving its profitability or avoiding losses in any future
period.
GOVERNMENT REGULATION
Government regulation in the United States and abroad is a significant
factor in the development, production, and marketing of the Company's
products. Prior to marketing, each of the Company's products must undergo an
extensive testing and regulatory approval process conducted by the FDA and by
comparable agencies in other countries. The testing and approval process can
take several years and require the expenditure of substantial resources, and
there can be no assurance that any product that the Company may develop will
be approved by the FDA or any foreign regulatory authority in a timely
manner, if at all. Generally, only a very small percentage of newly
discovered pharmaceutical compounds that enter preclinical development are
approved for sale.
The Company depends on external laboratories and medical institutions to
conduct its preclinical and clinical testing in compliance with clinical and
laboratory practices required by the FDA. The data obtained from preclinical
and clinical testing are subject to varying interpretations that could delay,
limit or prevent regulatory approval. In addition, delays or rejection may
be encountered based upon changes in FDA personnel or policy for drug
approval during the period of development and by changes in the requirements
for regulatory review of each submitted New Drug Application ("NDA").
Moreover, even if the FDA approves the marketing application of a product,
such approval may entail commercially unacceptable limitations on the uses,
or "indications," for which a product may be marketed, and further studies
may be required to provide additional data on product safety or
effectiveness. The FDA also requires post-marketing adverse event
surveillance programs to monitor the product's side effects.
An FDA approved product and its manufacturer are subject to continual
regulatory review and the later discovery of previously unknown problems with
a product or manufacturer may result in restrictions or sanctions on such
product or manufacturer, including the withdrawal of such product from the
market. Most changes in the manufacturing procedures used by the Company for
any of the Company's approved products and any change in manufacturer will
require the approval of the FDA prior to their implementation which could
have an adverse effect upon the Company's ability to continue the
commercialization or sale of a product.
In certain countries, the sales price of a product must also be approved
after marketing approval is granted. No assurance can be given that
satisfactory prices can be obtained in foreign markets even if marketing
approval is granted by foreign regulatory authorities.
<PAGE>
UNCERTAINTIES RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
The profitability of the Company will depend in part on the availability
of adequate reimbursement for the Company's products from third-party payors,
such as government entities, private health insurers and managed care
organizations. Third-party payors are increasingly challenging the pricing
of medical services and products. Although the Company currently has no
problem with third-party reimbursement, there can be no assurance that
reimbursement will be available in the future for the Company's new or
existing products, or that such third-party reimbursement will be adequate.
If adequate reimbursement levels are not provided by government entities and
other third-party payors for the Company's products, the Company's business,
financial condition and results of operations would be materially adversely
affected. Further, a number of legislative and regulatory proposals aimed at
changing the nation's health care system have been proposed in recent years.
While the Company cannot predict whether any such proposals will be adopted,
or the effect that any such proposal may have on its business, such
proposals, if enacted, could have a material adverse effect on the Company's
business, financial condition and results of operations.
POTENTIAL PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The Company faces an inherent risk of exposure to product liability
claims in the event that the use of its product is alleged to have resulted
in adverse effects. Such risk exists even with respect to those products that
are manufactured in regulated and licensed facilities or otherwise possess
regulatory approval for commercial sale. While the Company has taken, and
continues to take, what it believes are appropriate precautions, there can be
no assurance that it will avoid significant product liability exposure. The
Company currently has product liability insurance in the amount of $10
million per occurrence and in the aggregate for the year. Although to date
the Company has not been the subject of any product liability claims, there
can be no assurance that such insurance will be sufficient to cover potential
claims. Further, there can be no assurance that adequate insurance coverage
will be available in the future on commercially reasonable terms, if at all,
or that a product liability claim would not materially adversely affect the
Company's business, financial condition and results of operations.
RISK OF PRODUCT RECALL
Product recalls may be issued at the discretion of the Company, the
FDA, the U. S. Federal Trade Commission or other government agencies having
regulatory authority for product sales, and may occur due to disputed
labeling claims, manufacturing issues, quality defects or other reasons.
Although none of the Company's products have been the subject of a recall,
no assurance can be given that product recalls will not occur in the future.
Any product recall could materially adversely affect the Company's business,
financial condition and results of operations.
DEPENDENCE UPON CERTAIN KEY MANAGEMENT
The future success of the Company is largely dependent upon the
leadership of Charles N. Blitzer, the Company's President and Chief Executive
Officer. Should Mr. Blitzer cease to be affiliated with the Company, the
Company's strategic direction and performance could be materially adversely
affected. The Company is also dependent upon a number of other key management
personnel. The loss of the services of one or more key employees, or the
inability of the Company to attract and retain skilled management and
marketing and sales personnel in the future, could have a material adverse
effect on the Company's business, financial condition and results of
operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock, like that of the
securities of other small pharmaceutical companies, has fluctuated
significantly in recent years and is likely to fluctuate in the future. From
time to time the market for securities has also experienced significant price
and volume fluctuations that are unrelated to the operating performance of
such companies. In addition, announcements by the Company or others
regarding commercial products, patents or proprietary rights, the progress of
clinical trials or government regulation, public concern as to the safety of
drugs, the issuance of securities analysts' reports and general market
conditions may each have a significant effect on the market price of the
Common Stock. Fluctuations in financial performance from period to period
also may have a significant impact on the market price of the Common Stock.
