<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 MARCH 31, 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 12,790,786 shares
------------------------------ ----------------------------
(Class) (Outstanding at May 6, 1996)
<PAGE>
FORM 10-Q INDEX
MGI PHARMA, INC.
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 31, 1996
and December 31, 1995
Statements of Operations - Three Months
Ended March 31, 1996 and 1995
Statements of Cash Flows - Three Months
Ended March 31, 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
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
BALANCE SHEETS
MGI PHARMA, INC.
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 5,479,606 $ 9,075,569
Short-term investments 11,029,012 8,903,362
Receivables, less allowances of
$381,596 and $324,349 391,183 566,366
Inventories, net 910,901 1,003,278
Prepaid expenses 148,424 43,417
----------- -----------
Total current assets 17,959,126 19,591,992
Equipment and furniture, at cost 249,560 243,197
less accumulated depreciation of
$706,047 and $681,467
Other assets 419,855 515,991
----------- -----------
Total assets $18,628,541 $20,351,180
=========== ===========
</TABLE>
(Continued)
<PAGE>
BALANCE SHEETS
(Unaudited)
Page 2
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 411,037 $ 1,277,713
Accrued expenses 1,855,614 2,333,868
Other current liabilities 30,479 7,325
------------ ------------
Total current liabilities 2,297,130 3,618,906
------------ ------------
Common stockholders' equity:
Common stock, $.01 par value,
30,000,000 authorized shares,
12,784,411 and 12,781,608
issued shares 127,844 127,816
Additional paid-in capital 82,891,351 82,872,883
Notes receivable from officers (47,934) (432,082)
Accumulated deficit (66,639,850) (65,836,343)
------------ ------------
Total common stockholders' equity 16,331,411 16,732,274
------------ ------------
Total liabilities and
stockholders' equity $ 18,628,541 $ 20,351,180
============ ============
</TABLE>
_____________________________________
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
MGI PHARMA, INC.
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Sales $1,328,788 $ 937,140
Licensing 548,760 1,337,485
Interest and other 239,040 236,003
---------- -----------
2,116,588 2,510,628
---------- -----------
Costs and Expenses:
Research and development 1,165,704 1,547,795
Cost of sales 147,140 112,893
Selling, general & administrative 1,607,251 2,099,193
Amortization of intangible assets -- 17,916
---------- -----------
2,920,095 3,777,797
---------- -----------
Net loss $ (803,507) $(1,267,169)
========== ===========
Net loss per common share $ (0.06) $ (0.11)
Weighted average number of
common shares outstanding 12,784,257 11,950,991
</TABLE>
- ----------------------------
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
MGI PHARMA, INC.
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (803,507) $(1,267,169)
Adjustments for non-cash items:
Depreciation and asset amortization 24,580 47,545
Unearned revenue amortization -- (194,445)
Facility rent abatement -- (25,027)
Other 30,345 26,756
Change in operating assets and liabilities:
Receivables 175,183 (312,911)
Inventories 92,377 (17,884)
Prepaid expenses (105,007) 320,068
Accounts payable and accrued expenses (1,356,779) (755,348)
Other current liabilities 23,154 34,883
----------- -----------
Net cash used in operating activities (1,919,654) (2,143,532)
----------- -----------
INVESTING ACTIVITIES:
Purchase of investments (7,950,581) (6,812,592)
Maturity of investments 5,824,931 6,875,236
Purchase of equipment and furniture (30,943) (770)
Other 480,284 107,576
----------- -----------
Net cash provided by (used in) investing
activities (1,676,309) 169,450
----------- -----------
FINANCING ACTIVITIES:
Issuance of shares under stock
plans -- 25,275
----------- -----------
Net cash provided by financing
activities -- 25,275
----------- -----------
Decrease in cash and cash equivalents (3,595,963) (1,948,807)
Cash and cash equivalents at
beginning of period 9,075,569 6,728,006
----------- -----------
Cash and cash equivalents at
end of period $ 5,479,606 $ 4,779,199
=========== ===========
</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 which
acquires, develops and markets specialty pharmaceuticals. The Company's goal is
to develop innovative products that significantly improve the treatment of a
variety of serious medical conditions. The Company is initially focused on
products that treat cancer or improve the quality of life for cancer patients.
It is currently marketing its oncology products to physicians across 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.
(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.
<PAGE>
(3) Short-Term Investments
----------------------
Held-to-maturity investments at March 31, 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>
Commercial paper $ 6,390,807 $ 6,390,807
Corporate notes 2,109,595 2,109,595
Auction market note 1,517,439 1,517,439
European certificate of deposit 1,011,171 1,011,171
----------- -----------
Short-term investments $11,029,012 $11,029,012
=========== ===========
</TABLE>
(4) Inventories
-----------
Inventories at March 31, 1996, and December 31, 1995, are summarized in the
following table:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 26,631 $ 26,631
Work in process 63,470 68,387
Finished goods 1,040,538 1,089,718
Valuation allowance (219,738) (181,458)
----------- -----------
Total $ 910,901 $ 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 March 31, 1996, and December 31, 1995, are summarized in the
following table:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Retirement commitment $ 627,183 $ 655,468
Product development commitments 287,436 476,049
Bonuses 164,780 356,826
Technology licensing commitment 222,199 253,243
Other accrued expenses 554,016 592,282
---------- ----------
$1,855,614 $2,333,868
========== ==========
</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 March 31, 1996, 2,980,743 shares of common stock remain reserved for issuance
to employees and nonemployees of which 1,075,665 remain available for grant and
options to purchase 1,905,078 shares of common stock were outstanding, of which
842,904 were exercisable. Options outstanding had a weighted average exercise
price of $7.57 per share.
Loans to officers were made for their exercises of options and payment of
associated tax obligations. The loans are full recourse, unsecured obligations
and are payable on demand. At March 31, 1996, $47,934 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>
Common stock Additional Notes receivable
--------------------- paid-in from
Shares Par value capital officers
---------- --------- ----------- -----------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 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 --
Note payment -- -- -- 85,268
---------- -------- ----------- ---------
Balance at March 31, 1995 11,951,244 $119,512 $79,731,510 $(480,318)
========== ======== =========== =========
THREE MONTHS ENDED MARCH 31, 1996:
Balance at December 31, 1995 12,781,608 $127,816 $82,872,883 $(432,082)
Employee retirement savings
plan contribution 2,803 28 18,468 --
Note payments -- -- -- 384,148
---------- -------- ----------- ---------
Balance at March 31, 1996 12,784,411 $127,844 $82,891,351 $ (47,934)
========== ======== =========== =========
</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 which
acquires, develops and markets specialty pharmaceuticals. The Company's goal is
to develop innovative products that significantly improve the treatment of a
variety of serious medical conditions. The Company is initially focused on
products that treat cancer or improve the quality of life for cancer patients.
It is currently marketing its oncology products to physicians across 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 $803,507 in the 1996 first quarter compares with a net
loss of $1,267,169 in the 1995 first quarter. The decreased loss in 1996
reflected reduced expenses. Despite a sizable increase in sales revenues, total
revenues declined due to the non-recurring nature of a $1 million license
payment received in 1995.
Sales revenues increased 42% from $937,140 in the 1995 first quarter to
$1,328,788 in the 1996 first quarter. The increase 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.
Quarter-to-quarter sales revenues declined 9% in the 1996 first quarter
following a 28% quarterly increase to $1,465,997 in the 1995 fourth quarter.
This pattern is consistent with a common wholesale industry practice of
increasing inventories in advance of January, a month often associated with
price increases by pharmaceutical manufacturers. MGI sales revenues are
expected to
<PAGE>
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 demonstrate modest growth.
Licensing revenue decreased 59% from $1,337,485 in the 1995 first quarter to
$548,760 in the 1996 first quarter. The 1996 decrease 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 decrease was muted by a $360,000
recurring milestone payment received in the 1996 first quarter 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 increased 30% from $112,893 in the 1995 first quarter to $147,140
in the 1996 first quarter. The 1996 increase was primarily due to increased
sales of Salagen(R) Tablets. Management believes that future cost of sales as a
percent of sales should eventually resume its historical relationship of around
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 increased 1% from $236,003 in the 1995 first quarter
to $239,040 in the 1996 first quarter. The 1995 increase was due to an increase
in the average amount of funds available for investment in 1996, almost offset
by 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 25% from $1,547,795 in the 1995 first
quarter to $1,165,704 in the 1996 first quarter. Over the near-term,
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.
Selling, general and administrative expenses decreased 23% from $2,099,193 in
the 1995 first quarter to $1,607,251 in the 1996 first quarter. The 1996
decrease resulted from decreased selling expenses, primarily due to open
territory sales positions
<PAGE>
associated with restructuring of the Company's field sales organization. New
sales and marketing efforts targeting better conversion of initial prescribing
into ongoing refills are being implemented and selling expense will likely
increase during 1996 as these new efforts are implemented.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1996, the Company had cash and cash equivalents and investments of
$16,508,618 and working capital of $15,661,996 compared to $17,978,931 and
$15,973,086, respectively, at December 31, 1995. During the three month period
ended March 31, 1995, the Company used cash of $1,919,654 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.
<PAGE>
MGI PHARMA, INC.
PART II - OTHER INFORMATION
Item 5. Other Information
- --------------------------
On April 29, 1996, Charles N. Blitzer joined the Company as President and
CEO succeeding Kenneth F. Tempero following Dr. Tempero's retirement. For
further information see the press release attached hereto as Exhibit 99,
which is incorporated by reference herein.
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 Press Release dated April 29, 1996.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three months ended March
31, 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 May 8, 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 March 31, 1996
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ------------
11 Computation of Net Loss per Common Share
27 Financial Data Schedule
99 Press release dated April 29, 1996
<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:
Three Months Ended
March 31,
----------------------------
1996 1995
------------ ------------
Loss:
Net loss $ (803,507) $(1,267,169)
Common shares:
Adjusted weighted shares
outstanding (a) 12,784,257 11,950,991
Loss per common share:
Net loss $ (0.06) $ (0.11)
(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 March 31, 1996, and the
related statement of operations for the three months ended March 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,479,606
<SECURITIES> 11,029,012
<RECEIVABLES> 391,183
<ALLOWANCES> 381,596
<INVENTORY> 910,901
<CURRENT-ASSETS> 17,959,126
<PP&E> 249,560
<DEPRECIATION> 706,047
<TOTAL-ASSETS> 18,628,541
<CURRENT-LIABILITIES> 2,297,130
<BONDS> 0
<COMMON> 16,331,411
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,628,541
<SALES> 1,328,788
<TOTAL-REVENUES> 2,116,588
<CGS> 147,140
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,165,704
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (803,507)
<INCOME-TAX> 0
<INCOME-CONTINUING> (803,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (803,507)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
<PAGE>
[MGI logo here] Exhibit 99
MGI PHARMA, INC.
Suite 300E, Opus Center
9900 Bren Road East
Minnetonka, MN 55343-9667
(Telephone) 612-935-7335
(Facsimile) 612-935-0468
Contact: James V. Adam
612/939-4653
CHARLES N. BLITZER APPOINTED PRESIDENT AND CEO OF
MGI PHARMA, INC.
MINNEAPOLIS, April 29, 1996 -- MGI PHARMA, INC. (Nasdaq: MOGN), a
pharmaceutical company, today announced that it has named Mr. Charles N. Blitzer
as President and Chief Executive Officer to replace Dr. Kenneth F. Tempero, who
is retiring.
"We are very pleased to have Chuck Blitzer join MGI PHARMA," said Mr.
Hugh Miller, board member, chairman of the executive search committee. "He
brings to our team expertise in licensing and developing pharmaceutical products
and technologies and a proven ability to implement strategic and innovative
growth plans. Chuck has the leadership qualities needed to take MGI PHARMA
beyond its clinical achievements and grow into a diversified specialty
pharmaceutical company."
Mr. Blitzer, 55 years old, was formerly president and chief executive
officer of Maryland-based Oncologix, Inc., a pharmaceutical company singularly
focused on cancer related products.
Prior to serving as president and CEO of Oncologix, Mr. Blitzer, over
a twenty year period, held a variety of management positions with Marion Merrell
Dow,
(more)
<PAGE>
MGI PHARMA, INC.
April 29, 1996
PAGE 2
Inc., and Marion Laboratories, Inc. While serving as corporate vice president
for licensing and business development for Marion Merrell Dow, he was
responsible for various licenses, joint ventures, acquisitions, divestitures and
investments in developmental stage healthcare companies. Over his career, he
was a driving force behind the development and implementation of Marion
Laboratories and Marion Merrell Dow's licensing strategy and was responsible for
negotiating numerous collaborative agreements with pharmaceutical and
biotechnology companies.
Mr. Blitzer received a B.S. degree in Pharmacy from the University of
Toledo, Ohio. He also holds an M.B.A. degree from Rockhurst College, Kansas
City, Missouri, and a J.D. degree from American University, Washington College
of Law, Washington D.C.
MGI PHARMA, INC., is a pharmaceutical company, headquartered in
Minnetonka, Minnesota, that acquires, develops and markets innovative products
that significantly improve the treatment of a variety of serious medical
conditions. The Company currently markets Salagen(R) Tablets and Didronel(R)
I.V. Infusion in the United States.
###
