<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 MARCH 31, 1998
-------------------
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 offices (Registrant's telephone number,
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 14,296,101 shares
---------------------------- ----------------------------
(Class) (Outstanding at May 8, 1998)
<PAGE>
MGI PHARMA, INC.
FORM 10-Q INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 31, 1998
and December 31, 1997
Statements of Operations - Three Months
Ended March 31, 1998 and 1997
Statements of Cash Flows - Three Months
Ended March 31, 1998 and 1997
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
MGI PHARMA, INC.
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1998 1997
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,816,718 $ 7,057,091
Short-term investments 9,948,778 7,998,832
Receivables, less allowances of $91,127
and $84,215 1,799,723 1,073,993
Inventories 731,903 838,058
Prepaid expenses 157,448 184,280
----------- -----------
Total current assets 16,454,570 17,152,254
Equipment and furniture, at cost
less accumulated depreciation of
$868,685 and $808,720 704,232 618,862
Other assets 459,144 419,904
----------- -----------
Total assets $17,617,946 $18,191,020
=========== ===========
(Continued)
<PAGE>
BALANCE SHEETS
(Unaudited)
Page 2
March 31, December 31,
1998 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 640,302 $ 384,428
Accrued expenses 1,896,899 2,331,016
Deferred revenue -- 450,000
Other current liabilities 42,027 6,255
------------ ------------
Total current liabilities 2,579,228 3,171,699
------------ ------------
Stockholders' equity:
Common stock, $.01 par value,
30,000,000 authorized shares,
14,232,396 and 14,195,563
Issued shares 142,324 141,956
Additional paid-in capital 89,338,651 89,222,575
Notes receivable from officers (102,575) (102,575)
Accumulated deficit (74,339,682) (74,242,635)
------------ ------------
Total stockholders' equity 15,038,718 15,019,321
------------ ------------
Total liabilities and
Stockholders' equity $ 17,617,946 $ 18,191,020
============ ============
- -------------------------------------
See accompanying notes to financial statements.
<PAGE>
MGI PHARMA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
------------------------------
1998 1997
------------ ------------
Revenues:
Sales $ 2,628,952 $ 2,190,390
Promotion 375,000 --
Licensing 571,160 454,929
Interest and other 186,645 233,868
------------ ------------
3,761,757 2,879,187
------------ ------------
Costs and Expenses:
Cost of sales 207,141 237,052
Selling, general and administrative 2,414,255 2,116,341
Research and development 1,237,408 1,061,597
------------ ------------
3,858,804 3,414,990
------------ ------------
Net loss $ (97,047) $ (535,803)
============ ============
Net loss per common share (a) $ (0.01) $ (0.04)
Weighted average number of
common shares outstanding 14,207,435 14,089,380
(a) Basic and diluted per share amounts are identical as the effect of potential
common shares is antidilutive.
- -------------------------------------
See accompanying notes to financial statements.
<PAGE>
MGI PHARMA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
---------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES:
Net loss $ (97,047) $ (535,803)
Adjustments for non-cash items:
Depreciation 59,965 28,496
Benefit plan contribution 34,941 35,356
Change in operating assets and liabilities:
Receivables (725,730) (321,998)
Inventories 106,155 134,273
Prepaid expenses 26,832 (141,244)
Accounts payable and accrued expenses (186,367) (1,363,928)
Deferred revenue (450,000) --
Other current liabilities 35,772 43,233
----------- -----------
Net cash used in operating activities (1,195,479) (2,121,615)
----------- -----------
INVESTING ACTIVITIES:
Purchase of investments (5,877,268) (7,755,589)
Maturity of investments 3,927,321 7,777,030
Purchase of equipment and furniture (145,335) (315,835)
Payments on notes receivable -- 2,358
Other (39,240) 2,805
----------- -----------
Net cash used in investing
activities (2,134,522) (289,231)
----------- -----------
FINANCING ACTIVITIES:
Issuance of shares under stock
plans 89,628 24,772
----------- -----------
Net cash provided by financing
activities 89,628 24,772
----------- -----------
Decrease in cash and cash equivalents (3,240,373) (2,386,074)
Cash and cash equivalents at
beginning of period 7,057,091 8,220,569
----------- -----------
Cash and cash equivalents at
end of period $ 3,816,718 $ 5,834,495
=========== ===========
- ----------------------------------
See accompanying notes to financial statements.
<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
MGI PHARMA, INC. (MGI or the company) is a pharmaceutical company that acquires,
develops and markets differentiated specialty pharmaceutical and medical
products for therapeutic markets of unmet need. MGI's current product portfolio
is comprised of products that address special needs in the fields of oncology
and rheumatology, however, the company plans to expand its scope as it grows its
business. 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) Tablets account for
the 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 outside the U.S., including the major markets of Europe, Japan and
Canada. Current product development efforts include clinical and preclinical
studies for MGI 114, the lead compound in a family of promising anti-cancer
analogs, and continued clinical support of INFeD(R) and Salagen(R) Tablets.
Exclusive Japanese rights to MGI 114 and the other acylfulvene analogs were
granted to Dainippon Pharmaceutical Co., Ltd. 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 adjustments)
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, 1997.
<PAGE>
(2) Loss Per Common Share
For each period presented, basic and diluted loss per share amounts are
identical, as the effect of potential common shares 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 March 31, 1998, are summarized in the following
table:
Commercial paper $ 6,878,903
European certificates of deposit 2,058,792
Medium-term notes 1,011,083
----------
$ 9,948,778
(4) Inventories
Inventories at March 31, 1998 and December 31, 1997 are summarized as follows:
1998 1997
-------- --------
Raw materials and supplies $ 12,436 $ 12,436
Work in process 635,130 662,337
Finished products 84,337 163,285
------- -------
$731,903 $838,058
======= =======
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, 1998, and December 31, 1997, are summarized in the
following table:
1998 1997
--------- ---------
Product development commitments $ 353,772 $ 368,248
Product return accrual 340,714 305,044
Bonuses 199,503 489,000
Inventory in process 194,843 194,843
Retirement plan contribution 54,461 177,249
Other accrued expenses 753,606 796,632
--------- ---------
$1,896,899 $2,331,016
========= =========
<PAGE>
(6) Promotion Revenue
In March 1998, the company amended its promotion agreement with Schein
Pharmaceutical, Inc. for the promotion of INFeD(R) (iron dextran injection).
Under the terms of this amendment, a minimum promotion fee was set at $125,000
per quarter from July 1, 1997, to December 31, 1998, resulting in the
recognition of $375,000 of promotion revenue in the first quarter of 1998.
(7) 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 March 31, 1998, 3,279,226
shares of common stock remain reserved for issuance, of which 913,345 remain
available for grant. Options to purchase 2,365,881 shares of common stock were
outstanding, of which 1,222,996 were exercisable. Options outstanding had a
weighted average exercise price of $6.04 per share.
Loans to officers were made to facilitate the purchase of company stock. The
loans are full recourse, unsecured obligations. At March 31, 1998, $102,575 of
principal remains outstanding, which is payable upon demand.
(8) Stockholders' Equity
Changes in selected stockholders' equity accounts 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, 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 4,416 44 20,532 --
Note payments -- -- -- 2,358
----------- ----------- ----------- -----------
Balance at March 31, 1997 14,091,665 $ 140,917 $88,834,742 $ (102,575)
=========== =========== =========== ===========
THREE MONTHS ENDED MARCH 31, 1998:
Balance at December 31, 1997 14,195,563 $ 141,956 $89,222,575 $ (102,575)
Exercise of stock options 29,800 298 89,330 --
Employee retirement savings
plan contribution 7,033 70 26,746 --
----------- ----------- ----------- -----------
Balance at March 31, 1998 14,232,396 $ 142,324 $89,338,651 $ (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 differentiated specialty pharmaceutical and medical
products for therapeutic markets of unmet need. MGI's current product portfolio
is comprised of products that address special needs in the fields of oncology
and rheumatology, however, the company plans to expand its scope as it grows its
business. 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) Tablets account for
the 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 outside the U.S., including the major markets of Europe, Japan and
Canada. Current product development efforts include clinical and preclinical
studies for MGI 114, the lead compound in a family of promising anti-cancer
analogs, and continued clinical support of INFeD(R) and Salagen(R) Tablets.
Exclusive Japanese rights to MGI 114 and the other acylfulvene analogs were
granted to Dainippon Pharmaceutical Co., Ltd. under a cooperative development
and commercialization agreement in 1995.
Results of Operations
The company's net loss of $97,047 in the 1998 first quarter compares with a net
loss of $535,803 in the 1997 first quarter. The smaller 1998 net loss was due to
a 31% increase in total revenues compared to a 13% increase in total costs and
expenses.
Sales revenue increased 20% from $2,190,390 in the 1997 first quarter to
$2,628,952 in the 1998 first quarter. The 1998 increase reflects increased sales
of Salagen(R) Tablets. Sales revenues were flat from the 1997 third quarter to
the 1998 first quarter. Approval of Salagen(R) Tablets during February 1998 as a
treatment for Sjogren's Syndrome symptoms, and its subsequent launch in April
1998, should increase demand for the product. Future MGI sales revenues may
fluctuate from quarter to quarter, due to periodic adjustments in wholesale
buying patterns.
<PAGE>
Cost of sales as a percent of sales was 8% in the 1998 first quarter, compared
to 11% in the 1997 first quarter due to a shift in the mix of product sales in
1998 toward high margin U.S. sales of Salagen(R) Tablets. This resulted in a 13%
decrease in cost of sales from $237,052 in the 1997 first quarter to $207,141 in
the 1998 first quarter, despite increased product sales from 1997 to 1998.
Management believes that cost of sales as a percent of sales of approximately
10% should continue for its current products.
In March 1998, the company amended its promotion agreement with Schein
Pharmaceutical, Inc. for the promotion of INFeD(R) (iron dextran injection).
Under the terms of this amendment, a minimum promotion fee was set at $125,000
per quarter from July 1, 1997, to December 31, 1998, resulting in the
recognition of $375,000 of promotion revenue in the first quarter of 1998.
Licensing revenue increased 26% from $454,929 in the 1997 first quarter to
$571,160 in the 1998 first quarter. The increase is primarily due to increased
royalties from international Salagen(R) Tablets activities and a scheduled
increase in milestone payments from Dainippon. 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 20% from $233,868 in the 1997 first quarter
to $186,645 in the 1998 first quarter, due to a decrease in the average amount
of funds available for investment and a decrease in the yield on investments.
Until the company achieves positive cash flow, funds available for investments
will continue to decline. Interest income would correspondingly decline,
assuming yields remain constant.
Selling, general and administrative expenses increased 14% from $2,116,341 in
the 1997 first quarter to $2,414,255 in the 1998 first quarter. The 1998
increase was due to increased selling costs in preparation for the April 1, 1998
launch of Salagen( Tablets as a treatment for Sjogren's Syndrome symptoms.
Research and development expense increased 17% from $1,061,597 in the 1997 first
quarter to $1,237,408 in the 1998 first quarter. The 1998 increase reflects
increased spending for the development of MGI 114, the lead acylfulvene analog,
and decreased spending for Salagen( Tablets in conjunction with submission of a
supplemental New Drug Application (sNDA) to the U.S. Food and Drug
Administration during the 1997 first quarter. Research and development spending
is expected to increase in 1998 as MGI 114 enters the next stage of clinical
development.
<PAGE>
Liquidity and Capital Resources
At March 31, 1998, the company had cash and cash equivalents and investments of
$13,765,496 and working capital of $13,875,342 compared to $15,055,923 and
$13,980,555, respectively, at December 31, 1997. During the three month period
ended March 31, 1998, the company used cash of $1,195,479 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
MGI 114, Salagen(R) Tablets and prospective products acquired from the company's
product acquistion 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 or debt issuances, or
it will manage the pace of developing its product candidates.
The company has considered the effect of Year 2000 computer processing issues on
its internal computer systems and applications, and its external relationships.
The Year 2000 issue results from computer programs using two digits rather than
four digits to define the applicable year. Due to recent and ongoing upgrading
of these information systems for other business purposes, Year 2000 issues are
not expected to have a material affect on the company's business, financial
position, or results of operations.
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 a 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:
*10 First Amendment to Promotion Agreement, dated March 24, 1998,
between the company and Schein Pharmaceutical, Inc.
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
March 31, 1998.
*Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, confidential portions of Exhibit 10 have been deleted and
filed separately with the Securities and Exchange Commission pursuant
to a request for confidential treatment.
<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, 1998 By: /s/ William C. Brown
--------------------
William C. Brown, Vice President,
Finance (principal financial and
accounting officer)
<PAGE>
MGI PHARMA, INC.
Quarterly Report on Form 10-Q
for the
Quarter Ended March 31, 1998
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
*10 First Amendment to Promotion Agreement, dated March 24, 1998,
between the company and Schein Pharmaceutical, Inc.
11 Computation of Net Loss per Common Share
27 Financial Data Schedule
99 Cautionary Statements
*Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of Exhibit 10 have been deleted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE>
Exhibit 10
FIRST AMENDMENT TO PROMOTION AGREEMENT
BETWEEN MGI PHARMA, INC.
AND SCHEIN PHARMACEUTICAL, INC.
This Amendment ("Amendment") is made March 24, 1998 by and between MGI
PHARMA, INC., a Minnesota corporation, ("MGI") and SCHEIN PHARMACEUTICAL,
INC. ("Schein").
In consideration of the continuing performance by MGI and Schein of
their respective promises and obligations under the Promotion Agreement dated
March 11, 1997 (the "Agreement") and for other good and valuable consideration,
the receipt and sufficiency of which is acknowledged, MGI and Schein agree as
follows:
1. Section 7.7 of the Agreement is hereby amended in its entirety to
read:
7.7 Costs of Co-Promotion.
(a) Except as otherwise expressly set forth in this Agreement,
the parties shall each bear the costs and expenses of their respective
sales forces (including salaries, commissions and the like) and their
own internal marketing costs.
(b) For the period beginning on the Co-Promotion Date and
continuing until the earlier of December 31, 1998 or the date on which
the Profits paid to MGI for sales of Products during four (4)
consecutive quarters exceed *** except as otherwise expressly set
forth in this Agreement, (i) Schein shall pay all of Schein's out-of-
pocket expenses incurred in co-promoting the Product, excluding the
expenses set forth in Section 7.7(a), and (ii) Schein shall reimburse
MGI fifty percent (50%) of MGI's out-of-pocket expenses incurred in co-
promoting the Product, excluding the expenses set forth in Section
7.7(a).
(c) Beginning on the earlier of January 1, 1999 or the date on
which the Profits paid to MGI for sales of Products during four (4)
consecutive quarters exceed *** except as otherwise expressly set
forth in this Agreement, Schein and MGI shall share equally all out-of-
pocket expenses incurred in co-promoting the Product, excluding the
expenses set forth in Section 7.7(a).
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
1
<PAGE>
(d) Upon request, MGI and Schein shall provide each other with
invoices and other written documentation in order to document their
respective out-of-pocket expenses.
(e) MGI will implement a bonus system for the Product for
MGI's sales force that is proportional to MGI's total bonus system for
its sales force, based on a ratio, the numerator of which is *** and
the denominator of which is MGI's total details for such calendar year.
2. Sections 9.1(a) and (b) of the Agreement are hereby amended in their
entirety to read:
(a) The parties agree that the quarterly baseline for Net
Oncology Sales of the Product in the Field and in the Territory (the
"Baseline") shall be *** The Baseline shall be used during the term of
this Agreement as a factor in the formula used to determine Profits
pursuant to this Section 9.1.
(b) The intent of the parties is to share the Profits from all
sales of Product to the Field, according to the percentages set forth
in Section 9.2. *** Within thirty (30) days after completion of
Schein's market research, or not later than April 30, 1998, the parties
shall review the research and, if such research supports an increase in
the multiplier, the parties shall amend this Agreement in writing as
appropriate to implement the increased multiplier, and any such
increased multiplier shall be retroactive to the Effective Date. In the
event that either party determines that the definition of Net Oncology
Sales or the provisions of Section 9.1 are operating in a materially
unfair manner to such party according to the intent of this Agreement,
the parties agree to attempt to resolve such unfairness according to
the provisions of Section 4.4.
3. Section 9.2 of the Agreement is hereby amended in its entirety to
read:
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
2
<PAGE>
9.2 Promotion Fee. For sales of the Product made during the
first six (6) quarters following the Co-Promotion Date, MGI shall
receive the greater of (i) one hundred twenty five thousand dollars
($125,000) per quarter, for a total of five hundred thousand dollars
($500,000) per year or (ii) *** of the Profits from such sales. For
sales of the Product made during any renewal terms or extensions of
this Agreement, MGI shall receive *** of Profits up to the level of the
Incremental Sales Volume achieved during the four (4) quarters ending
December 31, 1999, plus *** of the Profits above such level of
Incremental Sales Volume. In addition, subject to Section 12.4(b), upon
any termination or expiration of this Agreement, MGI shall be entitled
to receive for sales of Product made during the first twelve (12)
months following such termination or expiration, a payment equal to ***
of Profits that would have been payable to MGI hereunder had the
Agreement not expired or been terminated, provided however that such
payment shall not exceed an amount greater than *** times the total
payments received by MGI from Schein in the twelve (12) month period
immediately preceding the termination or expiration of this Agreement.
4. Section 12.1 of the Agreement is hereby amended in its entirety to
read:
12.1 Term. Unless earlier terminated in accordance with
Section 12.2 or 12.3, this Agreement shall be in effect from the
Effective Date through December 31, 1999. This Agreement shall
thereafter renew automatically for additional one (1) year periods
unless either party provides the other party with one (1) year's
advance written notice of its non-renewal of this Agreement.
5. Schein shall pay to MGI any retroactive amounts required by this
Amendment within thirty (30) days of the date first written above.
6. The parties hereby agree that the Co-Promotion Date, as defined in
the Agreement, shall be July 1, 1997.
7. Neither this Amendment nor the Agreement may be amended except in
writing signed by the parties. Except as specifically amended in this Amendment,
all of the terms, covenants and conditions of the Agreement remain in full force
and effect. In the event of any conflict between the terms of this Amendment and
of the Agreement, the terms of this Amendment shall prevail.
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
3
<PAGE>
8. Capitalized terms not defined herein have the meanings assigned to
them in the Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
MGI PHARMA, INC.
BY /s/ James V. Adam
-----------------
NAME James V. Adam
-------------
TITLE Chief Operating Officer
-----------------------
SCHEIN PHARMACEUTICAL, INC.
BY /s/ Martin Sperber
------------------
NAME Martin Sperber
-----------------
TITLE Chairman and CEO
-----------------
4
<PAGE>
Exhibit 11
MGI PHARMA, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
(Unaudited)
The following information is required in computations of basic and diluted loss
per common share for each period:
Three Months Ended
March 31,
------------------------------
1998 1997
------------ ------------
Loss:
Net loss $ (97,047) $ (535,803)
Common shares:
Adjusted weighted shares
outstanding (a) 14,207,435 14,089,380
Loss per common share:
Net loss $ (0.01) $ (0.04)
(a) Basic and diluted loss per share amounts are identical as the effect of
potential common shares is antidilutive.
<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, 1998, AND THE
RELATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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<PAGE>
Exhibit 99
MGI PHARMA, INC.
QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1998
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 $97,047 for the quarter ended
March 31, 1998, and $1,784,545 for the year ended 1997. At March 31, 1998 the
company had an accumulated deficit of $74,339,682. 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. As such, 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 quarter ended March 31, 1998, U.S. sales of
Salagen(R) Tablets were $2,516,162, representing 96% of total product sales for
the period. In 1997, annual U.S. sales Salagen(R) Tablets were $8,557,526
representing 92% of 1997 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. One such
factor could be the expiration of orphan drug protection for Salagen(R) Tablets
as a treatment for radiation induced xerostomia in head and neck cancer patients
in March 2001. The company anticipates that sales of its other product,
DIDRONEL(R) I.V. Infusion, will continue to represent a minor portion of total
product sales.
<PAGE>
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 and medical product opportunities
that the company can immediately market, or develop and market. The company's
strategy for growth is dependent upon its continued ability to identify and
acquire new products targeted at niche markets that can be promoted through the
company's marketing and distribution channels. Because the company does not
engage in proprietary research of new products, it must rely upon the
willingness of others to sell or license 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.
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 international 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 acylfulvene family of compounds, including MGI 114. Revenues
from strategic alliances typically include milestone payments and royalty
payments. Licensing revenue was $571,160 for the quarter ended March 31, 1998,
and $3,090,375 for 1997, comprising 15% and 23%, respectively, of total revenues
in each period. 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.
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
<PAGE>
additional products, and to obtain necessary working capital. The company may
seek additional funding through public and private financing, including equity
and debt 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 Merck KgaA Special and 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
Merck KgaA Special and Fine Chemicals Division produces the substantial majority
of the worldwide supply of pharmaceutical 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 qualified 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 and medical products is highly
competitive. Many of the company's competitors are large, multinational
pharmaceutical companies that 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 continual product development and technological change. The
company's products could be rendered obsolete or uneconomical by the development
of new products 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.
<PAGE>
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 in head and neck cancer patients. 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 that 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
products, 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 that 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
<PAGE>
discovered pharmaceutical compounds that enter preclinical development are ever
approved for sale.
The company depends on external laboratories and medical institutions to conduct
its preclinical and clinical testing. This research must comply with good
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 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, if enacted, could have a material adverse effect on
the company's business, financial condition and results of operations.
<PAGE>
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
companies, has fluctuated significantly in recent years and is likely to
fluctuate in the future, irregardless of the company's operating performance. 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.
