<PAGE>
UNITED STATES
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, 1997
------------------
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ----------------------
Commission File Number: 0-10736
-------
MGI PHARMA, INC.
----------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1364647
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
Suite 300E, Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343 (612) 935-7335
- ---------------------------------- ----------------------------------
(Address of principal executive (Registrant's telephone number,
offices and zip code) 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 14,142,501 shares
- ---------------------------------- ----------------------------------
(Class) (Outstanding at October 23, 1997)
<PAGE>
FORM 10-Q INDEX
MGI PHARMA, INC.
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 1997
and December 31, 1996
Statements of Operations - Three Months and
Nine Months Ended September 30, 1997 and 1996
Statements of Cash Flows - Nine Months
Ended September 30, 1997 and 1996
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)
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,660,704 $ 8,220,569
Short-term investments 9,046,467 9,667,254
Receivables, less allowances of $84,497
and $68,254 1,585,524 1,079,970
Inventories, net 732,611 594,164
Prepaid expenses 205,959 53,436
------------- ------------
Total current assets 16,231,265 19,615,393
Equipment and furniture, at cost
less accumulated depreciation of
$903,652 and $775,810 509,784 227,134
Other assets 398,873 320,517
------------- ------------
Total assets $17,139,922 $20,163,044
============= ============
(Continued)
<PAGE>
BALANCE SHEETS
(Unaudited)
Page 2
September 30, December 31,
1997 1996
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 369,208 $ 744,052
Accrued expenses 1,658,489 3,043,993
Other current liabilities 45,446 7,711
------------- ------------
Total current liabilities 2,073,143 3,795,756
------------- ------------
Stockholders' equity:
Common stock, $.01 par value,
30,000,000 authorized shares,
14,135,964 and 14,081,574
issued shares 141,360 140,816
Additional paid-in capital 88,981,509 88,789,495
Notes receivable from officers (102,575) (104,933)
Accumulated deficit (73,953,515) (72,458,090)
------------- ------------
Total stockholders' equity 15,066,779 16,367,288
------------- ------------
Total liabilities and
stockholders' equity $17,139,922 $20,163,044
============= ============
_____________________________________
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
MGI PHARMA, INC.
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
Revenues:
Sales $2,576,662 $ 1,535,916 $ 6,764,453 $ 4,430,680
Licensing 786,382 469,509 1,761,617 1,490,777
Interest and
other 206,240 223,779 674,020 683,179
---------- ----------- ----------- ----------
3,569,284 2,229,204 9,200,090 6,604,636
---------- ----------- ----------- ----------
Costs and Expenses:
Research and
development 1,184,103 2,282,037 3,629,292 4,775,385
Cost of sales 205,439 168,455 596,872 477,275
Selling,
general and
administrative 2,316,584 1,761,364 6,469,351 5,393,000
---------- ----------- ----------- ----------
3,706,126 4,211,856 10,695,515 10,645,660
---------- ----------- ----------- ----------
Net loss $ (136,842) $(1,982,652) $(1,495,425) $(4,041,024)
=========== =========== =========== ===========
Loss per common
share $ (0.01) $ (0.15) $ (0.11) $ (0.31)
Weighted average
number of common
shares outstanding 14,135,191 13,096,384 14,108,178 12,893,031
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
MGI PHARMA, INC.
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1997 1996
------------ ------------
OPERATING ACTIVITIES:
Net loss $ (1,495,425) $ (4,041,024)
Adjustments for non-cash items:
Depreciation and amortization 127,842 72,300
Benefit plan contribution 95,787 72,137
Changes in operating assets and liabilities:
Receivables (505,554) 81,924
Inventories (138,447) 247,773
Prepaid expenses (152,523) (42,981)
Accounts payable and accrued expenses (1,768,696) (1,193,308)
Other current liabilities 37,735 39,569
------------ ------------
Net cash used in operating activities (3,799,281) (4,763,610)
------------ ------------
INVESTING ACTIVITIES:
Purchase of investments (11,771,378) (21,388,022)
Maturity of investments 12,392,165 15,574,823
Purchase of equipment and furniture (410,492) (50,765)
Payments on notes receivable 2,358 480,924
Other (78,356) (115,932)
------------ ------------
Net cash provided by (used in) investing
activities 134,297 (5,498,972)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of shares -- 5,497,611
Issuance of shares under stock
plans 105,119 77,183
------------ ------------
Net cash provided by financing
activities 105,119 5,574,794
------------ ------------
Decrease in cash and cash equivalents (3,559,865) (4,687,788)
Cash and cash equivalents at
beginning of period 8,220,569 9,075,569
------------ ------------
Cash and cash equivalents at
end of period $ 4,660,704 $ 4,387,781
============ ============
- -----------------------------------------
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 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 intends to expand
into the rheumatology market upon approval of Salagen(R) Tablets as a treatment
of symptoms associated with Sjogren's syndrome. The company markets its
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) 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 pharmaceutical companies to
commercialize Salagen( internationally including the major markets of Europe,
Japan and Canada. Exclusive rights to MGI 114 for Japan were granted to
Dainippon Pharmaceutical Co., Ltd. under a cooperative development and
commercialization agreement in 1995. Product development efforts include
development of MGI 114 and continued clinical support of Salagen(R) Tablets.
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, 1996.
<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
----------------------
Because the company has the intent and 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, 1997, are summarized in the following
table:
European certificates of deposit $2,096,358
Commercial paper 5,058,992
Corporate notes 1,891,117
----------
$9,046,467
==========
(4) Inventories
-----------
Inventories at September 30, 1997, and December 31, 1996, are summarized
in the following table:
1997 1996
---------- ----------
Raw materials and supplies $ 472,254 $ 25,856
Work in process 18,624 107,080
Finished goods 594,282 847,710
Valuation allowance (352,549) (386,482)
---------- ----------
Total $ 732,611 $ 594,164
========== ==========
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, 1997, and December 31, 1996, are
summarized in the following table:
1997 1996
---------- ----------
Product development commitments $ 278,094 $1,615,397
Bonuses 421,838 493,519
Product return accrual 165,625 122,453
Retirement plan contribution 127,915 110,374
Medicaid accrual 106,994 105,508
Retirement commitment -- 243,721
Other accrued expenses 558,023 353,021
---------- ----------
$1,658,489 $3,043,993
========== ==========
<PAGE>
(6) Stock Incentive Plans
---------------------
Under stock incentive plans, designated persons (including officers, directors
and employees) are granted rights to acquire company common stock. These
rights include stock options and other equity rights.
At September 30, 1997, 3,464,470 shares of common stock remain reserved for
issuance, of which 1,369,248 remain available for grant. Options to purchase
2,095,222 shares of common stock were outstanding, of which 1,123,359 were
exercisable. Options outstanding had a weighted average exercise price of
$6.39 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, 1997, $102,575 of
principal remains outstanding, and is presented as "Notes receivable from
officers" within stockholders' equity in the accompanying balance sheet.
(7) Stockholders' Equity
--------------------
Changes in selected stockholders' equity accounts were as follows:
<TABLE>
<CAPTION>
Notes
Additional receivable
Common stock 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)
========== ======== =========== =========
NINE MONTHS ENDED SEPTEMBER 30, 1997:
Balance at December 31, 1996 14,081,574 $140,816 $88,789,495 $(104,933)
Exercise of stock options 5,675 57 24,715 --
Employee retirement savings
plan contribution 21,753 217 87,221 --
Employee stock purchase plan 26,962 270 80,078 --
Note payments -- -- -- 2,358
---------- -------- ----------- ---------
Balance at September 30, 1997 14,135,964 $141,360 $88,981,509 $(102,575)
========== ======== =========== =========
</TABLE>
<PAGE>
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 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 intends to expand into the rheumatology market upon approval of Salagen(R)
Tablets for treatment of symptoms associated with Sjogren's syndrome. The
company currently markets its products to physicians throughout the United
States, with sales made to pharmaceutical wholesalers for ultimate delivery to
patients through drug distribution channels. Sales of Salagen(R) comprise the
vast majority of company sales. The company is commercializing its products
outside the United States through various alliances, and has agreements with
several pharmaceutical companies to commercialize Salagen(R) internationally,
including the major markets of Europe, Japan and Canada. Exclusive rights to
MGI 114 for Japan were granted to Dainippon Pharmaceutical Co., Ltd. under a
cooperative development and commercialization agreement in 1995.
Pharmaceutical development efforts include development of MGI 114 and
continued clinical support of Salagen(R) Tablets.
Results of Operations
- ---------------------
The company's net loss of $136,842 in the 1997 third quarter compares with a
net loss of $1,982,652 in the 1996 third quarter. For the nine month period
ended September 30, 1997, the net loss decreased to $1,495,425 from $4,041,024
in the corresponding 1996 period. The smaller 1997 net losses were due to
increased sales revenue and decreased research and development expenses,
partially reduced by increased selling expenses.
Sales revenue increased 68% from $1,535,916 in the 1996 third quarter to
$2,576,662 in the 1997 third quarter, and increased 53% from $4,430,680 in the
nine month period ended September 30, 1996, to $6,764,453 in the corresponding
1997 period. The 1997 increases reflect increased sales of Salagen(R) Tablets,
as well as increased sales of DIDRONEL(R) I.V. Infusion. Quarter-to-quarter
sales revenues increased 29% in the 1997 third quarter, following a 9%
decrease in the 1997 second quarter. The recent trend in retail demand, as
estimated using shipment activity from wholesalers to pharmacies, has
continued to grow. MGI sales revenues will fluctuate from quarter to quarter,
due to periodic adjustments in wholesaler buying patterns.
<PAGE>
Cost of sales increased 22% from $168,455 in the 1996 third quarter to
$205,439 in the 1997 third quarter, and increased 25% from $477,275 in the
nine month period ended September 30, 1996 to $596,872 in the corresponding
1997 period. The 1997 increases are due to increases in unit sales. Management
believes that cost of sales as a percent of sales of approximately 10% should
continue for its current products.
Licensing revenue increased 67% from $469,509 in the 1996 third quarter to
$786,382 in the 1997 third quarter, and increased 18% from $1,490,777 in the
nine month period ended September 30, 1997 to $1,761,617 in the corresponding
1997 period. The increases are primarily due to increased royalties related to
non-core agricultural technology, and the scheduled increase in quarterly
milestone payments from Dainippon Pharmaceutical Co., Ltd. Future licensing
revenues will likely fluctuate between years and from one quarter to the next
depending on the achievement of milestones by the company's partners, their
level of recurring royalty generating activities, and the timing of initiating
additional licensing relationships.
Interest and other income decreased 8% from $223,779 in the 1996 third quarter
to $206,240 in the 1997 third quarter, and decreased 1% from $683,179 in the
nine month period ended September 30, 1996, to $674,020 in the corresponding
1997 period. The 1997 decreases are due to a decrease in the average amount of
funds available for investment in 1997, partially reduced by an increased
investment yield in 1997. Until the company achieves positive cash flow, funds
available for investments will continue to decline. Interest income would
correspondingly decline, if yields were to remain constant.
Research and development expense decreased 48% from $2,282,037 in the 1996
third quarter to $1,184,103 in the 1997 third quarter, and decreased 24% from
$4,775,385 in the nine month period ended September 30, 1996, to $3,629,292 in
the corresponding 1997 period. The 1997 decreases reflect declining spending
for Salagen(R), in conjunction with submission of a supplemental New Drug
Application (sNDA) to the U.S. Food and Drug Administration in February 1997.
Research and development spending is expected to increase markedly when Phase
II studies of MGI 114 commence, which are currently planned for 1998.
Selling, general and administrative expenses increased 32% from $1,761,364 in
the 1996 third quarter to $2,316,584 in the 1997 third quarter, and increased
20% from $5,393,000 in the nine month period ended September 30, 1996, to
$6,469,351 in the corresponding 1997 period. The 1997 increases are due to
full staffing of the company's sales force in 1997, compared to 1996 when
restructuring of the sales force was underway, and promotion costs associated
with the launch of INFeD(R), in the third quarter of 1997. MGI began promoting
INFeD(R) for use in cancer therapy in July 1997, under a promotion agreement
with Schein Pharmaceutical, Inc. Schein continues to own the product and
promote it for other uses. Selling expenses are expected to increase in 1998,
especially in conjunction with the anticipated launch of Salagen(R) for
Sjogren's syndrome patients.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At September 30, 1997, the company had cash and cash equivalents and
investments of $13,707,171 and working capital of $14,158,122 compared to
$17,887,823 and $15,819,637, respectively, at December_31, 1996. During the
nine month period ended September 30, 1997, the company used cash of
$3,799,281 to fund its operating activities.
Cash in excess of current operating needs is invested in marketable 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
its products, the company plans to utilize cash provided from growth in sales
of Salagen(R), 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.
Pending Adoption of Recently Issued Accounting Standard
- -------------------------------------------------------
The company will adopt Statement of Financial Accounting Standards No. 128,
Earnings per Share, for the year ended December 31, 1997 and subsequent
periods. SFAS No. 128 prescribes computation, presentation and disclosure
requirements of earnings per share data for public companies. Until the
company becomes profitable, adoption of SFAS No. 128 is not expected to impact
its computation of earnings per share.
Cautionary Statement
- --------------------
This Form 10-Q contains forward-looking statements within the meaning of
federal securities laws. These statements include statements regarding intent,
belief, or current expectations of the company and its management. These
forward-looking statements are not guarantees of future performance and
involve a number of risks and uncertainties that may cause the company's
actual results to differ materially from the results discussed in these
statements. Factors that might cause such differences include, but are not
limited to, dependence on sales of Salagen(R) Tablets, dependence on license
acquisition strategy, uncertainty of strategic alliances, and other risks and
uncertainties detailed from time to time in the company's filings with the
Securities and Exchange Commission, including Exhibit 99 to this Form_10-Q.
<PAGE>
MGI PHARMA, INC.
PART II - OTHER INFORMATION
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:
Exhibit
Number Description
- ------- -------------------------------------------------------------
3.1 Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to the company's Registration
Statement on Form S-2, File No. 33-40763).
3.2 Restated Bylaws of the company, as amended to date
(Incorporated by reference to Exhibit 3.2 to the company's
Annual Report on Form 10-K for the year ended December 31,
1994).
4.1 Specimen certificate for shares of Common Stock of the
company (Incorporated by reference to Exhibit 4.1 to the
company's Annual Report on Form 10-K for the year ended
December 31, 1994).
4.2 Rights Agreement, dated as of January 19, 1988, between
the company and Norwest Bank Minneapolis, National
Association (including the form of Right Certificate
attached as Exhibit A thereto) (Incorporated by reference
to Exhibit 4.2 to the company's Annual Report on Form 10-K
for the year ended December 31, 1994).
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, 1997.
<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: October 30, 1997 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, 1997
EXHIBIT INDEX
-------------
Exhibit
Number Description
- --------- -----------------------------------------------------------
3.1 Restated Articles of Incorporation (Incorporated by reference to
Exhibit 3.1 to the company's Registration Statement on Form S-2,
File No. 33-40763).
3.2 Restated Bylaws of the company, as amended to date (Incorporated by
reference to Exhibit 3.2 to the company's Annual Report on Form 10-
K for the year ended December 31, 1994).
4.1 Specimen certificate for shares of Common Stock of the company
(Incorporated by reference to Exhibit 4.1 to the company's Annual
Report on Form 10-K for the year ended December 31, 1994).
4.2 Rights Agreement, dated as of January 19, 1988, between the company
and Norwest Bank Minneapolis, National Association (including the
form of Right Certificate attached as Exhibit A thereto)
(Incorporated by reference to Exhibit 4.2 to the company's Annual
Report on Form 10-K for the year ended December 31, 1994).
11 Computation of Net Loss per Common Share
27 Financial Data Schedule
99 Cautionary Statements
<PAGE>
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 Nine Months Ended
September 30, September 30,
----------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Loss:
Net loss $ (136,842) $ (1,982,652) $ (1,495,425) $ (4,041,024)
Common shares:
Adjusted
weighted
shares
outstanding (a) 14,135,191 13,096,384 14,108,178 12,893,031
Loss per common
share:
Net loss $ (0.01) $ (0.15) $ (0.11) $ (0.31)
(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 September 30, 1997, and the
related statement of operations for the nine month period ended September 30,
1997 and is qualified in its entirety by reference to such financial
statements:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,660,704
<SECURITIES> 9,046,467
<RECEIVABLES> 1,585,524
<ALLOWANCES> 84,497
<INVENTORY> 732,611
<CURRENT-ASSETS> 16,231,265
<PP&E> 509,784
<DEPRECIATION> 903,652
<TOTAL-ASSETS> 17,139,922
<CURRENT-LIABILITIES> 2,073,143
<BONDS> 0
0
0
<COMMON> 15,066,779
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,139,922
<SALES> 6,764,453
<TOTAL-REVENUES> 9,200,090
<CGS> 596,872
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,629,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,495,425)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,495,425)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,495,425)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
<PAGE>
Exhibit 99
MGI PHARMA, INC.
QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1997
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 $1,495,425 for the nine months
ended September 30, 1997, and $6,621,747 for the year ended 1996. At September
30, 1997 the company had an accumulated deficit of $73,953,515. If 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(R) TABLETS
The company derives substantially all of its product revenues from the sale of
Salagen(R) Tablets. For the nine months ended September 30, 1997, U.S. sales
of Salagen(R) Tablets were $6,043,181, representing 89% of total product sales
for the period. In 1996, annual U.S. sales of Salagen(R) Tablets were
$5,926,681, representing 92% of 1996 product sales. Accordingly, any factor
adversely affecting sales of Salagen(R) Tablets could have a material adverse
effect on the company's business, financial condition and results of
operations. Although orphan drug status was awarded to Salagen(R) Tablets 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 March 2001. Moreover, the company anticipates
that
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sales of its other product, DIDRONEL(R) I.V. Infusion, which represented 6%
and 7% of product sales for the nine months ended September 30, 1997 and for
the year ended December 31, 1996, respectively, will continue to represent a
minor portion of total product sales.
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(R) Tablets and the development of
the acylfulvenes such as MGI 114. Revenues from strategic alliances typically
include milestone payments and royalty payments. Licensing was $1,761,617 for
the nine months ended September 30, 1997 and $2,170,460 for 1996, comprising 19%
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. 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.
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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 necessary working capital. 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 pharmaceutical ingredient necessary for
the manufacture of Salagen(R) Tablets. The company believes that E. Merck Fine
Chemicals Division produces the substantial majority of the worldwide supply of
Good Manufacturing Practices (GMP) grade pilocarpine hydrochloride, and that
there is no other producer of pilocarpine hydrochloride with 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 an 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 manufacturing facilities and is currently relying on
two third-party manufacturers for production of Salagen(R) 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 manufacturing
facilities. Manufacture of the company's products is 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, multinational 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
<PAGE>
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 a proprietary nature for its products. The
company was awarded orphan drug status for Salagen(R) 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
future products or that 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 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
<PAGE>
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. This research must comply 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 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.
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 third-party reimbursement is not currently an issue for
the company, 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,
<PAGE>
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 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 recalled, 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 dependent upon a number of 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 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 company common stock. Fluctuations in financial performance
from period to period also may have a significant impact on the market price of
company common stock.
