<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 SEPTEMBER 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 14,027,980 shares
---------------------------- ---------------------------------
(Class) (Outstanding at November 7, 1996)
<PAGE>
FORM 10-Q INDEX
MGI PHARMA, INC.
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 1996
and December 31, 1995
Statements of Operations - Three Months and
Nine Months Ended September 30, 1996 and 1995
Statements of Cash Flows - Nine Months
Ended September 30, 1996 and 1995
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
BALANCE SHEETS
MGI PHARMA, INC.
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,387,781 $ 9,075,569
Short-term investments 14,716,561 8,903,362
Receivables, less allowances of $70,217
and $160,535 648,256 730,180
Inventories, net 755,505 1,003,278
Prepaid expenses 86,398 43,417
----------- -----------
Total current assets 20,594,501 19,755,806
Equipment and furniture, at cost
less accumulated depreciation of
$751,203 and $681,467 221,662 243,197
Other assets 426,633 515,991
----------- -----------
Total assets $21,242,796 $20,514,994
=========== ===========
</TABLE>
(Continued)
<PAGE>
BALANCE SHEETS
(Unaudited)
Page 2
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 458,008 $ 1,277,713
Accrued expenses 2,017,473 2,497,682
Other current liabilities 46,894 7,325
------------ ------------
Total current liabilities 2,522,375 3,782,720
------------ ------------
Common stockholders' equity:
Common stock, $.01 par value,
30,000,000 authorized shares,
14,023,971 and 12,781,608
issued shares 140,240 127,816
Additional paid-in capital 88,562,481 82,872,883
Notes receivable from officers (104,933) (432,082)
Accumulated deficit (69,877,367) (65,836,343)
------------ ------------
Total common stockholders' equity 18,720,421 16,732,274
------------ ------------
Total liabilities and
stockholders' equity $ 21,242,796 $ 20,514,994
============ ============
</TABLE>
_____________________________________
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
MGI PHARMA, INC.
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 1,535,916 $ 1,142,800 $ 4,430,680 $ 3,141,234
Licensing 469,509 328,426 1,490,777 2,304,929
Interest and other 223,779 236,286 683,179 726,108
----------- ----------- ----------- -----------
2,229,204 1,707,512 6,604,636 6,172,271
----------- ----------- ----------- -----------
Costs and Expenses:
Research and
development 2,282,037 1,646,704 4,775,385 4,886,300
Cost of sales 168,455 348,272 477,275 632,558
Selling, general and
administrative 1,761,364 1,485,861 5,393,000 5,211,275
Amortization of
intangible assets -- 17,917 -- 53,750
----------- ----------- ----------- -----------
4,211,856 3,498,754 10,645,660 10,783,883
----------- ----------- ----------- -----------
Net loss $(1,982,652) $(1,791,242) $(4,041,024) $(4,611,612)
=========== =========== =========== ===========
Net per common share $ (0.15) $ (0.14) $ (0.31) $ (0.37)
Weighted average number
of common shares
outstanding 13,096,384 12,730,612 12,893,031 12,430,110
</TABLE>
- --------------------------------------
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
MGI PHARMA, INC.
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (4,041,024) $ (4,611,612)
Adjustments for non-cash items:
Depreciation and asset amortization 72,300 134,732
Unearned revenue amortization -- (583,333)
Facility rent abatement -- (39,264)
Other 72,137 76,236
Change in operating assets and liabilities:
Receivables 81,924 (116,866)
Inventories 247,773 353,847
Prepaid expenses (42,981) 447,351
Accounts payable and accrued expenses (1,193,308) (1,211,450)
Other current liabilities 39,569 28,296
------------ ------------
Net cash used in operating activities (4,763,610) (5,522,063)
------------ ------------
INVESTING ACTIVITIES:
Purchase of investments (21,388,022) (14,620,255)
Maturity of investments 15,574,823 15,585,818
Purchase of equipment and furniture (50,765) (3,600)
Payment on notes receivable 480,924 149,825
Other (115,932) (58,512)
------------ ------------
Net cash provided by (used in) investing
activities (5,498,972) 1,053,276
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of shares 5,497,611 2,837,687
Issuance of shares under stock
plans 77,183 102,019
------------ ------------
Net cash provided by financing
activities 5,574,794 2,939,706
------------ ------------
Decrease in cash and cash equivalents (4,687,788) (1,529,081)
Cash and cash equivalents at
beginning of period 9,075,569 6,728,006
------------ ------------
Cash and cash equivalents at
end of period $ 4,387,781 $ 5,198,925
============ ============
</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
prior year amounts have been reclassified to conform with the current period
presentation.
(2) Net Loss Per Common Share
-------------------------
Net 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.
<PAGE>
(3) Short-Term Investments
----------------------
Because the Company has the positive intent and the ability to hold its
investments to maturity, they are considered held-to-maturity investments. As
such, they are stated at amortized cost, which approximates estimated fair
value. Held-to-maturity investments at September 30, 1996, are summarized in
the following table:
<TABLE>
<S> <C>
Commercial paper $ 4,955,567
Corporate notes 4,198,408
European certificates of deposit 3,060,534
Auction market note 1,517,590
Bankers acceptance 984,462
-----------
$14,716,561
===========
</TABLE>
(4) Inventories
-----------
Inventories at September 30, 1996, and December 31, 1995, are summarized in the
following table:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Finished goods $ 924,576 $1,089,718
Work in process 168,879 68,387
Raw materials and supplies 26,170 26,631
Valuation allowance (364,120) (181,458)
---------- ----------
$ 755,505 $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 September 30, 1996, and December 31, 1995, are summarized in
the following table:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Bonuses $ 462,092 $ 356,826
Product development commitments 380,531 476,049
Retirement commitment 316,882 655,468
Product returns 148,604 163,814
Technology licensing commitment 73,740 253,243
Other accrued expenses 635,624 592,282
---------- ----------
$2,017,473 $2,497,682
========== ==========
</TABLE>
(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.
<PAGE>
At September 30, 1996, 2,482,898 shares of common stock remain reserved for
issuance to employees and nonemployees of which 581,181 remain available for
grant. Options to purchase 1,901,717 shares of common stock were outstanding,
of which 958,177 were exercisable. Options outstanding had a weighted average
exercise price of $6.87 per share.
Loans to officers were made for the purchase of stock, exercise of options and
payment of associated tax obligations. The loans are full recourse, unsecured
obligations and are payable on demand. At September 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>
NINE MONTHS ENDED
SEPTEMBER 30, 1995:
Balance at
December 31, 1994 11,945,544 $119,455 $79,706,292 $(565,586)
Exercise of stock
options 13,500 135 56,303 --
Employee stock purchase
plan 14,289 143 45,439 --
Employee retirement
savings plan
contribution 13,198 132 52,858 --
Issuance of shares 750,000 7,500 2,830,187 --
Note payments -- -- -- 124,468
---------- -------- ----------- ---------
Balance at
September 30, 1995 12,736,531 $127,365 $82,691,079 $(441,118)
========== ======== =========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes
Common stock Additional receivable
--------------------- paid-in from
Shares Par value capital officers
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED
SEPTEMBER 30, 1996:
Balance at
December 31, 1995 12,781,608 $127,816 $82,872,883 $(432,082)
Employee retirement
savings plan
contribution 12,489 125 70,104 --
Exercise of stock
options 6,323 63 30,395 --
Employee stock
purchase plan 11,859 119 46,606 --
Issuance of shares 1,200,000 12,000 5,485,611 --
Other issuances 11,692 117 56,882 (56,999)
Note payments -- -- -- 384,148
---------- -------- ----------- ---------
Balance at
September 30, 1996 14,023,971 $140,240 $88,562,481 $(104,933)
========== ======== =========== =========
</TABLE>
On September 9, 1996, the Company sold 1,200,000 shares of common stock in a
public offering and received proceeds of $5,497,611 (net of issuance expenses).
<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 increased from $1,791,242 in the 1995 third quarter to
$1,982,652 in the 1996 third quarter. For the nine month period ended September
30, 1996, the net loss decreased to $4,041,024 from $4,611,612 in the
corresponding 1995 period. The increased 1996 quarterly loss primarily reflects
increased research and development expense greater than increased sales
revenues. The comparative nine month period decrease reflects increased sales
revenue.
Sales revenues increased 34% from $1,142,800 in the 1995 third quarter to
$1,535,916 in the 1996 third quarter, and increased 41% from $3,141,234 in the
nine month period ended September 30, 1995, to $4,430,680 in the corresponding
1996 period. The increases in 1996 reflect increasing sales of Salagen(R)
Tablets, partially reduced by continuation of the long-term decline in sales of
DIDRONEL(R) I.V. Infusion.
Quarter-to-quarter sales revenues decreased 2% in the 1996 third quarter,
following an 18% increase in the 1996 second quarter. MGI sales revenues will
fluctuate from quarter to quarter, 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.
Cost of sales decreased 52% from $348,272 in the 1995 third quarter to $168,455
in the 1996 third quarter, and decreased 25% from $632,558 in the nine month
period ended September 30, 1995 to $477,275 in the corresponding 1996 period.
Although sales increased in both the quarterly and nine month period
comparisons, the decreases in the 1996 periods as compared to the 1995 periods
is a result of the impact of a non-recurring $209,000 provision for excess
inventory that was established in the 1995 third quarter. Additionally, the
product mix is changing
<PAGE>
with increasing sales of Salagen(R) Tablets and declining sales of DIDRONEL(R)
I.V. Infusion. 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.
Licensing revenue increased 43% from $328,426 in the 1995 third quarter to
$469,509 in the 1996 third quarter, but decreased 35% from $2,304,929 in the
nine month period ended September 30, 1995, to $1,490,777 in the corresponding
1996 period. The 1996 quarterly increase reflects receipt of a quarterly
$360,000 recurring milestone payment from Dainippon Pharmaceutical Co., Ltd.
However, the magnitude of the 1996 quarterly increase is lessened due to 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
comparative nine month period 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 nine month period decrease was lessened by three
quarterly $360,000 recurring milestone payments received in 1996 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.
Interest and other income decreased 5% from $236,286 in the 1995 third quarter
to $223,779 in the 1996 third quarter, and decreased 6% from $726,108 in the
nine month period ended September 30, 1995 to $683,179 in the corresponding 1996
period. Although the average amount of funds available for investment increased
in both comparison periods, the decreases are a result of a decreased investment
yield. Net proceeds of $5.5 million from the September 1996 issuance of common
shares in a public offering is expected to result in a further increase in the
average amount of funds available for investment.
Research and development expense increased 39% from $1,646,704 in the 1995 third
quarter to $2,282,037 in the 1996 third quarter, but decreased 2% from
$4,886,300 in the nine month period ended September 30, 1995, to $4,775,385 in
the corresponding 1996 period. Research and development spending is expected to
remain near the 1996 third quarter rate through filing of a Supplemental New
Drug Application with the FDA during the 1996 fourth quarter. However, the
Company's in-licensing strategy, if successful, could result in increased
research and development spending in the coming quarters.
Selling, general and administrative expenses increased 19% from $1,485,861 in
the 1995 third quarter to $1,761,364 in the 1996 third quarter, and increased 3%
from $5,211,275 in the nine month period ended September 30, 1995 to $5,393,000
in the corresponding 1996 period. The increases reflect the restructuring of
the Company's field sales organization. Most open territory sales positions
from the first and second quarters of 1996 are now staffed, and new sales and
marketing
<PAGE>
efforts targeting better conversion of initial prescribing into ongoing refills
are being implemented. Selling expense will likely increase during the
remainder of 1996 as these new efforts progress.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1996, the Company had cash and cash equivalents and investments
of $19,104,342 and working capital of $18,072,126 compared to $17,978,931 and
$15,973,086, respectively, at December 31, 1995. During the nine month period
ended September 30, 1996, the Company used cash of $4,763,610 to fund its
operating activities, and received $5,497,611 in cash from the issuance of
common stock in a public offering.
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 and prospective products acquired from the Company's
in-licensing strategy, the Company plans to utilize cash provided from the
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 5. Other Information
- --------------------------
On September 9, 1996, the Company issued 1,200,000 shares of common stock at $5
per share in a public offering.
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
September 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 11/12/96 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 September 30, 1996
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ------------
11 Computation of Net Loss per Common Share
27 Financial Data Schedule
99 Cautionary Statements
<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 Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loss:
Net loss $(1,982,652) $(1,791,242) $(4,041,024) $(4,611,612)
Common shares:
Adjusted weighted
shares
outstanding (a) 13,096,384 12,730,612 12,893,031 12,430,110
Loss per common share:
Net loss $ (0.15) $ (0.14) $ (0.31) $ (0.37)
</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 sheets of MGI PHARMA, INC. as of September 30, 1996,
and the related statement of operations for the nine month period ended
September 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,387,781
<SECURITIES> 14,716,561
<RECEIVABLES> 648,256
<ALLOWANCES> 70,217
<INVENTORY> 755,505
<CURRENT-ASSETS> 20,594,501
<PP&E> 221,662
<DEPRECIATION> 751,203
<TOTAL-ASSETS> 21,242,796
<CURRENT-LIABILITIES> 2,522,375
<BONDS> 0
<COMMON> 18,720,421
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,242,796
<SALES> 4,430,680
<TOTAL-REVENUES> 6,604,636
<CGS> 477,275
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,775,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,041,024)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,041,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,041,024)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</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 $4,612,000 for 1995
and $4,041,000 for the nine months ended September 30, 1996. At September 30,
1996 the Company had an accumulated deficit of $69,877,000. 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 nine month period ended September 30, 1996,
U.S. sales of Salagen Tablets were $4,034,000, representing 91% of total product
sales for the period. In 1995, annual 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
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provided by Orphan designation expires in March 2001. Moreover, the Company
anticipates that sales of its other product, DIDRONEL(R) I.V. Infusion, which
represented 8% and 20% of product sales for the first nine 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 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 $1,490,777 for the nine months ended
September 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
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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 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.
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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 its
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 known or independently discovered by competitors.
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
<PAGE>
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.
<PAGE>
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.
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
<PAGE>
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.
