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, 1995, June 30, 1995 and
September 30, 1995
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 0-12081
CAMBRIDGE BIOTECH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2726626
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
365 Plantation Street, Worcester, MA 01605
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 797-5777
_____________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
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 No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each issuer's classes of
common stock, as of the latest practicable date.
26,057,006 shares of Common Stock Outstanding as of March 15, 1996
CAMBRIDGE BIOTECH CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, June 30
and September 30, 1995 and December 31, 1994 3
Consolidated Statement of Operations for:
Three months ended March 31, 1995 and 1994 4
Three and Six Month Periods Ended
June 30, 1995 and 1994 5
Three and Nine Month Periods Ended
September 30, 1995 and 1994 6
Consolidated Statement of Cash Flows for:
Three month periods ended March 31, 1995 and 1994 7
Six month periods ended June 30, 1995 and 1994 8
Nine month periods ended September 30, 1995 and 1994 9
Notes to Consolidated Interim Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- -----------------------------------------------------------------------------
Item 1. Consolidated Financial Statements
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Balance Sheets
(Unaudited)
(In Thousands)
Assets 9/30/95 6/30/95 3/31/95 12/31/94
------- ------- ------- --------
Current Assets:
Cash and cash equivalents $6,152 $6,115 $6,694 $ 8,538
Accounts receivable
-trade (less allowance
for doubtful accounts) 3,419 3,391 3,072 2,876
Other receivables 85 75 77 93
Inventories 4,101 3,881 3,743 3,966
Prepaid expenses & other
current assets 1,387 1,235 1,199 835
----- ----- ----- ------
Total Current Assets 15,144 14,697 14,785 16,308
Investments 110 110 110 111
Property, plant, and equipment,
net 7,586 8,330 9,134 9,884
Patents and purchased
technology, net 1,339 1,634 1,812 2,094
Other assets 106 106 107 106
----- ----- ----- ------
Total Assets $24,285 $24,877 $25,948 $28,503
====== ====== ====== =======
Liabilities & Shareholders'
Equity
Current Liabilities:
Accounts payable 1,126 867 798 524
Accrued royalties 862 832 533 373
Accrued professional fees 1,053 901 839 523
Accrued incentive
compensation 1,485 1,500 1,010 627
Accrued restruc-
turing costs 275 366 372 378
Other accrued expenses 2,132 964 759 907
Deferred revenue 1,339 2,232 3,126 4,090
----- ----- ----- -----
Total Current Liabilities 8,272 7,662 7,437 7,422
Deferred Revenue 2,460 2,521 2,594 2,699
Liabilities subject to
Chapter 11 proceedings 9,917 9,913 9,927 9,714
----- ------ ----- -----
Total Liabilities 20,649 20,096 19,958 19,835
Minority Interest 6 5 3 0
Shareholders'Equity
Preferred Stock, par value
$.01 per share authorized,
5,000,000 shares, none issued 0 0 0 0
Common stock, par value
$.01 per share authorized,
40,000,000 shares, issued
26,057,006 shares 261 261 261 261
Additional paid in
capital 120,211 120,211 120,211 120,211
Unearned compensation (138) (138) (162) (187)
Deficit (116,704) (115,558) (114,323) (111,617)
------- ------- ------- -------
Total Shareholders'Equity 3,630 4,776 5,987 8,668
----- ----- ----- -----
Total Liabilities and
Shareholder's Equity $24,285 $24,877 $25,948 $28,503
====== ====== ====== ========
--------------------------------------------------------------------------
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Statement of Operations
(Unaudited)
(In Thousands, except per share amount)
Three Months Ended March 31
1995 1994
Revenue: ---- ----
Product sales $4,210 $4,085
Research & development 1,208 1,006
Royalties 430 238
----- -----
5,848 5,329
Cost and expenses:
Cost of sales 4,158 3,729
Research & development 1,679 1,416
Sales, general &
administrative 2,617 2,801
----- -----
8,454 7,946
Other:
Interest and other income
net of interest expense 69 44
------ -----
Loss from continuing
operations before
reorganization items
and income tax benefit (2,537) (2,573)
Reorganization items:
Professional fees (273) 0
Interest earned on
accumulated cash
resulting from Chapter
11 proceedings 108 0
----- ----
Total reorganization items (165) 0
Loss from continuing ----- ----
operations before income
tax benefit (2,702) (2,573)
Income tax benefit/(expense) (1) 79
----- -----
Loss before minority interest (2,703) (2,494)
Minority Interest (2) 0
----- -----
Loss from continuing
operations (2,705) (2,494)
Discontinued operations:
Loss from operations 0 (1,009)
----- -----
Net Loss ($2,705) ($ 3,503)
====== =======
Net loss per weighted average
number of common shares:
Continuing operations ($0.10) ($0.10)
Discontinued operations $0.00 ($0.04)
----- -----
Net Loss per share ($0.10) ($0.14)
===== =====
Weighted average number of
common shares outstanding 26,057 25,262
====== ======
- -----------------------------------------------------------------------------
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Statement of Operations
(Unaudited)
(In Thousands except per share amount)
3 Months Ended June 30 6 Months Ended June 30
---------------------- ----------------------
1995 1994 1995 1994
Revenue: ---- ---- ---- ----
Product sales $5,077 $4,123 $ 9,287 $ 8,209
Research & development 1,142 1,057 2,350 2,062
Royalties 478 219 908 457
----- ----- ------ ------
6,697 5,399 12,545 10,728
Cost and expenses:
Cost of sales 3,900 3,332 8,059 7,061
Research & development 1,326 1,406 3,006 2,823
Sales, general &
administrative 2,586 3,319 5,201 6,119
----- ----- ----- -----
7,812 8,057 16,266 16,003
Other:
Interest and other income
net of interest expense 119 38 188 83
------ ----- ------ -------
Loss from continuing
operations before
reorganization items
and income tax benefit (996) (2,620) (3,533) (5,192)
Reorganization items:
Professional fees (336) 0 (609) 0
Interest earned on
accumulated cash
resulting from Chapter
11 proceedings 100 0 208 0
----- ---- ------ -----
Total reorganization items (236) 0 (401) 0
Loss from continuing ----- ---- ------ -----
operations before income
tax benefit (1,232) (2,620) (3,934) (5,192)
Income tax benefit/(expense) (1) 120 (2) 199
----- ----- ----- -----
Loss before minority interest (1,233) (2,500) (3,936) (4,993)
Minority Interest (2) 0 (4) 0
----- ----- ----- -----
Loss from continuing
operations (1,235) (2,500) (3,940) (4,993)
Discontinued operations:
Loss from operations 0 (895) 0 (1,905)
----- ----- ----- -----
Net Loss ($1,235) ($ 3,395) ($3,940) ($ 6,898)
====== ======== ======= =======
Net loss per weighted average
number of common shares:
Continuing operations ($0.05) ($0.09) ($0.15) ($0.19)
Discontinued operations $0.00 ($0.04) 0.00 ($0.08)
----- ----- ----- -----
Net Loss per share ($0.05) ($0.13) ($0.15) ($0.27)
===== ===== ===== =====
Weighted average number of
common shares outstanding 26,057 26,057 26,057 25,859
====== ====== ====== ======
- -----------------------------------------------------------------------------
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Statement of Operations
(Unaudited)
(In Thousands, except per share amount)
3 Months Ended Sept.30 9 Months Ended Sept.30
---------------------- ----------------------
1995 1994 1995 1994
Revenue: ---- ---- ---- ----
Product sales $5,458 $4,879 $14,745 $13,087
Research & development 1,416 1,116 3,766 3,178
Royalties 435 321 1,343 778
----- ----- ------ ------
7,309 6,316 19,854 17,043
Cost and expenses:
Cost of sales 4,015 3,715 12,074 10,776
Research & development 1,999 1,331 5,004 4,154
Sales, general &
administrative 2,283 2,003 7,485 8,122
Loss on impairment of
assets 0 2,880 0 2,880
----- ----- ----- -----
8,297 9,929 24,563 25,932
Other:
Interest and other income
net of interest expense 104 (486) 292 (402)
------ ----- ------ -------
Loss from continuing
operations before
reorganization items
and income tax benefit (884) (4,099) (4,417) (9,291)
Reorganization items:
Professional fees (343) (339) (952) (339)
Provision for rejected
executory contracts 0 (358) 0 (358)
Interest earned on
accumulated cash
resulting from Chapter
11 proceedings 84 30 291 30
----- ---- ------ -----
Total reorganization items (259) (667) (661) (667)
----- ---- ------ -----
Loss from continuing operations
before income tax benefit (1,143) (4,766) (5,078) (9,958)
Income tax benefit/(expense) (1) 0 (3) 199
----- ----- ----- -----
Loss before minority interest (1,144) (4,766) (5,081) (9,759)
Minority Interest (2) 0 (5) 0
----- ----- ----- -----
Loss from continuing
operations (1,146) (4,766) (5,086) (9,759)
Discontinued operations:
Loss from operations 0 (357) 0 (2,262)
Loss on disposal 0 (7,482) 0 (7,482)
----- ----- ----- -----
Net Loss ($1,146) ($12,605) ($5,086) ($19,503)
===== ======== ===== ======
Net loss per weighted average
number of common shares:
Continuing operations ($0.04) ($0.18) ($0.20) ($0.37)
Discontinued operations $0.00 ($0.30) 0.00 ($0.38)
----- ----- ----- -----
Net Loss per share ($0.04) ($0.48) ($0.20) ($0.75)
===== ===== ===== =====
Weighted average number of
common shares outstanding 26,057 26,057 26,057 25,859
====== ====== ====== ======
- ---------------------------------------------------------------------------
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Statement of Cash Flows
For the three months ended March 31, 1995 and 1994
(Unaudited)
(In Thousands) 1995 1994
---- ----
Cash Flows From Operating
Activities:
Net Loss ($2,705) ($3,503)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization 1,199 871
Compensation expense
recognized 24 68
Loss/(gain) on sale of
property,plant,and
equipment 0 (63)
Loss on disposition and
write down of investments 1 0
Changes in assets and
liabilities, net of
effects of disposed
businesses:
Accounts and other
receivables (181) 1,525
Inventories 223 675
Deferred revenue (1,068) (1,033)
Prepaid and other
current assets (363) 13
Accounts payable and
other accrued expenses 1,198 (1,044)
Accrued restructuring
charges (6) (154)
Other noncurrent assets
and liabilities (1) 68
Minority interest 3 0
Discontinued operations-
non cash and working
capital changes 0 (107)
--------- -----------
Net cash used by operating
activities (1,676) (2,684)
Cash Flows From Investing
Activities:
Proceeds from sale of
marketable securities 0 2,121
Purchases of property,
plant, and equipment (143) (153)
Patents & purchased
technology (24) (100)
-------- ---------
Net cash (used)/provided
by investing activities (167) 1,868
Cash Flows from Financing
Activities:
Issuance of common stock 0 6,832
Payment on long-term
obligations (1) (293)
--------- ----------
Net cash provided/(used)
by financing activities (1) 6,539
--------- ---------
Net increase(decrease) in cash
and cash equivalents (1,844) 5,723
Cash and cash equivalents at
the beginning of the year 8,538 884
--------- ---------
Cash and cash equivalents at
the end of the period $6,694 $6,607
========= =========
Supplemental disclosures:
Income taxes (refunded) $0 ($142)
========= ==========
Interest paid $0 $121
========= ==========
- -----------------------------------------------------------------------------
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Statement of Cash Flows
For the six months ended June 30, 1995 and 1994
(Unaudited)
1995 1994
---- ----
Cash Flows From Operating
Activities:
Net Loss ($3,940) ($6,898)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization 2,478 1,763
Compensation expense
recognized 49 135
Loss/(gain) on sale of
property,plant,and
equipment 0 (126)
Changes in assets and
liabilities, net of
effects of disposed
businesses:
Accounts and other
receivables (498) 2,052
Inventories 85 487
Deferred revenue (2,035) (2,072)
Prepaid and other
current assets (399) 144
Accounts payable and
other accrued expenses 2,310 (796)
Accrued restructuring
charges (12) (249)
Other noncurrent assets
and liabilities (1) 38
Minority interest 5 0
Discontinued operations-
non cash and working
capital changes 0 99
--------- -----------
Net cash used by operating
activities (1,958) (5,423)
Cash Flows from Investing
Activities:
Proceeds from sale of
marketable securities 0 2,426
Purchases of property,
plant, and equipment (311) (248)
Patents & purchased
technology (152) (150)
-------- ---------
Net cash (used)/provided
by investing activities (463) 2,028
Cash Flows from Financing
Activities:
Issuance of common stock 0 6,796
Payment on long-term
obligations (2) (626)
-------- ----------
Net cash provided/(used)
by financing activities (2) 6,170
-------- ---------
Net increase(decrease) in cash
and cash equivalents (2,423) 2,775
Cash and cash equivalents at
the beginning of the year 8,538 884
--------- ---------
Cash and cash equivalents at
the end of the period $6,115 $3,659
========= =========
Supplemental disclosures:
Income taxes (refunded) $0 ($142)
========= ==========
Interest paid $0 $218
========= ==========
- ----------------------------------------------------------------------------
Cambridge Biotech Corporation
(Debtor-In-Possession)
Consolidated Statement of Cash Flows
For the nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
---- ----
Cash Flows from Operating
Activities:
Net Loss ($5,086) ($19,503)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization 3,620 2,960
Compensation expense
recognized 49 136
Loss/(gain) on sale of
property,plant,and
equipment 0 55
Loss from impairment of
assets 0 2,880
Loss on disposal of
discontinued operations 0 7,482
Loss on disposition and
write down of investments 0 250
Changes in assets and
liabilities, net of
effects of disposed
businesses:
Accounts and other
receivables (536) (402)
Inventories (135) 1,098
Deferred revenue (2,990) (3,238)
Prepaid and other
current assets (552) (192)
Accounts payable and
other accrued expenses 3,910 (10)
Accrued restructuring
charges (103) (330)
Other noncurrent assets
and liabilities (1) 17
Minority interest 6 0
Discontinued operations-
non cash and working
capital changes 0 2,413
--------- -----------
Net cash used by operating
activities (1,818) (6,384)
Cash Flows from Investing
Activities:
Proceeds from sale of
marketable securities 0 3,907
Purchases of property,
plant, and equipment (394) (2,106)
Proceeds from sale of
property, plant, and
equipment 0 80
Proceeds from collection
of note receivable 0 1,000
Patents & purchased
technology (171) (152)
Financing activities of
discontinued operations 0 31
-------- ---------
Net cash (used)/provided
by investing activities (565) 2,760
Cash Flows from Financing
Activities:
Issuance of common stock 0 6,831
Payment on long-term
obligations (3) (1,376)
--------- ----------
Net cash provided/(used)
by financing activities (3) 5,455
Effect of exchange rate
changes on cash and cash
equivalents 0 31
--------- ---------
Net increase(decrease) in cash
and cash equivalents (2,386) 1,862
Cash and cash equivalents at
the beginning of the year 8,538 884
--------- ---------
Cash and cash equivalents at
the end of the period $6,152 $2,746
========= =========
Supplemental disclosures:
Income taxes (refunded) $0 ($142)
========= ==========
Interest paid/(refunded) ($7) $250
========= ==========
- ----------------------------------------------------------------------------
CAMBRIDGE BIOTECH CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of Presentation:
The accompanying consolidated financial statements are unaudited and have
been prepared on a basis substantially consistent with the audited
financial statements. Certain information and footnote disclosures
normally included in the Company's annual financial statements have been
condensed or omitted. The consolidated interim financial statements, in
the opinion of management, reflect all adjustments (including normal
recurring accruals) necessary for a fair presentation of the results for
the interim periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal
year. These consolidated interim financial statements should be read
in conjunction with the audited financial statements for the year ended
December 31, 1994, which are contained in the Company's Annual Report
on Form 10-K A No 2. for the year ended December 31, 1994, filed with
the Securities and Exchange Commission.
2. Inventories:
Inventories consist of the following: (000'S)
9/30/95 6/30/95 3/31/95 12/31/94
------- ------- ------- --------
Finished goods $ 776 $ 792 $ 698 $ 559
Work in process 2,627 2,444 2,423 2,736
Raw materials & supplies 698 645 622 671
------- ------- -------- -------
$ 4,101 $ 3,881 $ 3,743 $ 3,966
======= ======= ======== =======
- -----------------------------------------------------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
The Company filed for protection under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on July 7, 1994 and is managing its assets
and operating its businesses as a debtor in possession pursuant to a
voluntary petition filed in the United States Bankruptcy Court for the
District of Massachusetts, Western Division. Since the Chapter 11 filing,
management has spent considerable time reviewing the Company's strategic
direction, as well as specific products and programs. It has sold or
disposed of certain assets and operations of the Company which did not fit
within the business plan for reorganizing the Company. The Company is also
considering a possible sale of the Company's diagnostic division or portions
thereof. Any potential sale must be approved by the Bankruptcy Court.
On March 30, 1994, the Company's former independent accountants, who resigned
from their engagement to audit the Company's 1993 financial statements,
withdrew their opinion on the Company's 1992 financial statements, and
raised concerns over certain transactions that had come to their attention.
The Company's board of directors appointed a special committee of two
outside directors which was assisted by special counsel to conduct an
investigation which confirmed the existence of several transactions which did
not appear to be bona fide or which were incorrectly recognizing revenue. On
May 9, 1994, the Company announced that it had replaced its Chief Executive
Officer and that two of its other officers had resigned. In April 1995, the
Company elected Alison Taunton-Rigby, Ph.D. as its new President and Chief
Executive Officer.
The Securities and Exchange Commission ("SEC") on July 22, 1994 issued an
Order Directing Private Investigation pertaining to the Company's financial
statements, its public filings and the offerings of its securities. On
September 21, 1995, the Company received a subpoena issued by the United
States District Court, District of Massachusetts for documents to be
presented to the Grand Jury. The Company believes the United States Attorney
is conducting an investigation similar to that of the SEC. The Company is
cooperating fully with both of the investigations.
Effective June 9, 1994, the Company's stock was de-listed by the National
Association of Securities Dealers (NASD) due to the Company's failure to
comply with NASD's listing requirements as a result of its inability to
provide audited financial statements.
- -----------------------------------------------------------------------------
Results of Operations
- ---------------------
Three Months Ended March 31, 1995 and 1994
Revenues were $5,848,000 in the three months ended March 31, 1995 compared
to $5,329,000 in the same period in 1994, (a 10% increase).
Product sales increased to $4,210,000 in the first quarter of 1995 from
$4,085,000 for the same period in 1994. 1995 sales include the consolidation
of the Company's subsidiary, Cambridge Affiliated Corporation ("CAC"), of
which the Company owns 51%. CAC, which was established in the fourth quarter
of 1994, had product sales of $585,000 in the first three months of 1995.
Other product sales of $3,625,000 in the first quarter of 1995 were less than
the same period in 1994 due to production problems which delayed shipments.
Research and Development ("R&D") revenues increased to $1,208,000 in the
first quarter of 1995 from $1,006,000 for the same period in 1994. The
increase is primarily attributable to increased license payments from a
large pharmaceutical partner.
Royalty revenue increased to $430,000 in the first quarter of 1995 from
$238,000 for the same period in 1994. The royalty increase was primarily
the result of a partner exercising an option to obtain a license for one of
the Company's products.
Cost of products sold as a percentage of product sales was 99% for the
three months ended March 31, 1995 compared to 91% for the same period
in 1994. Production difficulties on certain products in the first quarter
of 1995 resulted in significantly greater costs.
Research and development expenses increased to $1,679,000 in the first
quarter of 1995 from $1,416,000 for the same period in 1994 due to
certain contract obligations recorded.
Selling, general and administrative expenses decreased to $2,617,000
in the first quarter of 1995 from $2,801,000 for the same period in
1994. The decrease is primarily the result of the reduction in personnel.
Chapter 11 related professional fees and interest earned on accumulated
cash for the three months ended March 31, 1995 were $273,000 and $108,000,
respectively.
On July 21, 1994 the Company's wholly-owned subsidiary, Cambridge Biotech
Ltd. (CBL) filed for protection of the Irish High Court. As of that date
the Company recorded CBL results as a discontinued operations and prior
quarters have been restated to reflect that occurrence. The first quarter
of 1994 reflected a $1,009,000 discontinued operations loss.
As a result of the above, the Company lost $2,705,000 or $0.10 per share
in the first quarter of 1995, as compared to a loss of $2,494,000 or $0.10
per share from continuing operations and a net loss of $3,503,000 or $0.14
per share including the loss from discontinued operations for the same
period in 1994.
- -------------------------------------------------------------------------------
Three and six months ended June 30, 1995 and 1994
Revenues were $6,697,000 in the three months ended June 30, 1995 compared to
$5,399,000 in the same period in 1994, (a 24% increase). Revenues for the
six months ended June 30, 1995 were $12,545,000 compared to $10,728,000
in the same period in 1994, (a 17% increase).
Product sales increased to $5,077,000 in the second quarter of 1995 from
$4,123,000 for the same period in 1994. Product sales for the first six
months of 1995 increased to $9,287,000 from $8,209,000 for the same period
in 1994. These increases were due primarily to the previously mentioned
consolidation of the Company's subsidiary, CAC. CAC 1995 sales for the
three and six months ended June 30, 1995 were $617,000 and $1,202,000,
respectively.
Research and Development ("R&D") revenues increased to $1,142,000 in the
second quarter of 1995 from $1,057,000 for the same period in 1994. R&D
revenue for the first six months of 1995 increased to $2,350,000 from
$2,062,000 for the same period in 1994. The R&D revenue increase is due
principally to the previously mentioned increase in license payments from
a large pharmaceutical partner which is recognized evenly over the course of
the year.
Royalty revenue increased to $478,000 in the second quarter of 1995 from
$219,000 for the same period in 1994. Royalty revenue for the first six
months of 1995 increased to $908,000 from $457,000 for the same period in
1994. The six month royalty increase was primarily the result of the
previously mentioned partner exercising an option to obtain a license for
one of the Company's products.
Cost of products sold as a percentage of product sales was 77% for the
three months ended June 30, 1995 compared to 81% for the same period
in 1994. For the six months ended June 30, 1995 and 1994, the cost
of products sold as a percentage of product sales was 87% and 86%,
respectively. Efficiency improvements in the Rockville, Maryland facility
in the second quarter of 1995 compared to 1994 resulted in a reduction in the
cost of products manufactured.
Research and development expenses decreased to $1,326,000 in the second
quarter of 1995 from $1,406,000 for the same period in 1994 due to the
timing of expenditures. For the first six months of 1995 compared to the
same period in 1994, research and development expenses were $3,006,000 and
$2,823,000, respectively.
Selling, general and administrative expenses decreased to $2,586,000
in the second quarter of 1995 from $3,319,000 for the same period in
1994. For the first six months of 1995, selling, general and admin-
istrative expenses decreased to $5,201,000 from $6,119,000 for the same
period in 1994. The decrease in the second quarter of 1995 compared to the
same period in 1994 is due primarily to pre-Chapter 11 filing professional
fees incurred in 1994 as well as the reduction in personnel in 1995.
In the second quarter of 1995, other income was $119,000 compared to
other income of $38,000 in the second quarter of 1994. Other income
for the first six months of 1995 was $188,000 compared to other income
of $83,000 in 1994. Other income is net of interest expense. The 1995
increase in other income was primarily due to the suspension of interest
accruals on principally all debt incurred prior to the Chapter 11 filing.
Chapter 11 related professional fees for the quarter and six months ended
June 30, 1995 were $336,000 and $609,000 respectively. Interest earned on
accumulated cash for the quarter and six months ended June 30, 1995 was
$100,000 and $208,000 respectively.
The losses from the previously mentioned discontinued operations of CBL and
CBIC for the three and six months ended June 30, 1994 were $895,000 and
$1,905,000 respectively.
As a result of the above, the Company lost $1,235,000 or $0.05 per share in
the second quarter of 1995, as compared to a loss of $2,500,000 or $0.09 per
share from continuing operations and a net loss of $3,395,000 or $0.13 per
share including the loss from discontinued operations for the same period
in 1994. For the first six months of the year, the Company lost $3,940,000
or $0.15 per share compared to a loss of $4,993,000 or $0.19 per share from
continuing operations and a net loss of $6,898,000 or $0.27 per share
including the loss from discontinued operations for the same period in 1994.
- -----------------------------------------------------------------------------
Three and nine months ended September 30, 1995 and 1994
Revenues were $7,309,000 in the three months ended September 30, 1995
compared to $6,316,000 in the same period in 1994, (a 16% increase). Revenues
for the nine months ended September 30, 1995 were $19,854,000 compared to
$17,043,000 in the same period in 1994, (a 16% increase).
Product sales increased to $5,458,000 in the third quarter of 1995 from
$4,879,000 for the same period in 1994. Product sales for the first nine
months of 1995 increased to $14,745,000 from $13,087,000 for the same period
in 1994. These increases were due primarily to the previously mentioned
consolidation of CAC. CAC 1995 sales for the three and nine months
ended September 30, 1995 were $604,000 and $1,806,000, respectively. Other
product sales in the third quarter of 1995 compared to 1994 were virtually
the same.
Research and Development ("R&D") revenues increased to $1,416,000 in the
third quarter of 1995 from $1,116,000 for the same period in 1994. R&D
revenue for the first nine months of 1995 increased to $3,766,000 from
$3,178,000 for the same period in 1994. The increase is due primarily to
a milestone payment earned in the third quarter of 1995 from a corporate
partner and the increased license payment from a large pharmaceutical company
previously mentioned. The Company recognized $2,625,000 and $2,250,000 of
payments from this partner as revenue for the nine months ended
September 30, 1995 and 1994, respectively.
Royalty revenue increased to $435,000 in the third quarter of 1995 from
$321,000 for the same period in 1994. Royalty revenue for the first nine
months of 1995 increased to $1,343,000 from $778,000 for the same period in
1994. The royalty revenue increase for the nine months of 1995 was primarily
the result of the previously mentioned partner's exercise of an option to
obtain a product license.
Cost of products sold as a percentage of product sales was 74% for the three
months ended September 30, 1995 compared to 76% for the same period in 1994.
For the nine months ended September 30, 1995 and 1994, the cost of products
sold as a percentage of product sales was 82%. The more favorable margin
in the third quarter 1995 compared to the same period in 1994 was primarily
due to product mix changes.
Research and development expenses increased to $1,999,000 in the third
quarter of 1995 from $1,331,000 for the same period in 1994. For the
first nine months of 1995, research and development expenses increased
to $5,004,000 from $4,154,000 for the same period in 1994. The increase is
primarily attributable to a milestone obligation recorded in the third
quarter of 1995 resulting from the issuance of additional patents on
technology licensed by the Company.
Selling, general and administrative expenses, increased to $2,283,000
in the third quarter of 1995 from $2,003,000 for the same period in
1994 due to a timing in expenditures. For the first nine months of 1995,
selling, general and administrative expenses decreased to $7,485,000 from
$8,122,000 for the same period in 1994 primarily because of reduced personnel
costs.
As a result of the Company filing on July 7, 1994 for reorganization under
Chapter 11, the Company re-evaluated its long-lived assets based upon
undiscounted future cash flows and stated them at net realizable value in
accordance with Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the third quarter of 1994, the Company recognized
a loss on impairment of long-lived assets in the amount of $2,880,000
representing $1,735,000 of purchased technology and $1,145,000 on its
property and plant in Rockville, Maryland.
In the third quarter of 1995, net other income was $104,000 compared
to net other expenses of $486,000 in the third quarter of 1994. Net other
income for the first nine months of 1995 was $292,000 compared to net
other expense of $402,000 in 1994. In the third quarter of 1994 the Company
recorded a valuation adjustment of $250,000 to an investment and recorded an
$180,000 loss on a sale/leaseback arrangement.
In the third quarter of 1994, the Company filed for Chapter 11 protection.
Related professional fees incurred in the third quarter of 1995 were
$343,000 compared to $339,000 for the same period in 1994. For the first
nine months of 1995, these professional fees were $952,000 compared to
$339,000 for the same period in 1994. In the third quarter of 1994,
a provision for rejected executory contracts in the amount of $358,000
was established. Interest earned on accumulated cash increased to $84,000
in the third quarter of 1995 from $30,000 for the same period in 1994. For
the first nine months of 1995 interest earned increased to $291,000 from
$30,000 for the same period in 1994.
On July 21, 1994 the Company's wholly-owned subsidiary, Cambridge Biotech
Ltd. (CBL) filed for protection of the Irish High Court. Subsequently the
Company sold its interest in CBL for a nominal amount and received
$2,083,000 in cash for the transfer of certain technology pertaining to
products manufactured at the Irish facility. The Company recorded a loss
of $6,963,000 on the sale of the discontinued operations. Effective with
the disposal of CBL, the Company also wrote off registration rights and
distribution contracts which were recorded by the Company's subsidiary,
Cambridge Biotech International Corporation (CBIC). The loss on disposal
of these assets was $519,000. Additionally the Company recorded a
discontinued operations loss for CBIC of $133,000. The combined losses
from the two discontinued operations was $357,000 and $2,262,000 for the
three and nine months ended September 30, 1994 respectively. The combined
loss on disposal was $7,482,000.
As a result of the above, the Company lost $1,146,000 or $0.04 per share in
the third quarter of 1995, as compared to a loss of $4,766,000 or $0.18 per
share from continuing operations and a net loss of $12,605,000 or $0.48
per share including the loss from discontinued operations for the same
period in 1994. For the first nine months of the year, the Company lost
$5,086,000 or $0.20 per share compared to a loss of $9,759,000 or $0.37
per share from continuing operations and a net loss of $19,503,000 or $0.75
cents per share including the loss from discontinued operations for the same
period in 1994.
- ------------------------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The Company's ability to fund its long term operations beyond 1995 is
dependent on several factors including the sale of the Company's diagnostics
business and/or the formulation and confirmation of a viable plan of
reorganization and the Company's ability to attract funding through additional
public or private financing or collaborative arrangements. There can be no
assurances that adequate operating funds will be generated through the sale
of the diagnostics business or that additional funding can be obtained on
acceptable terms.
Cash and cash equivalents were $6,694,000, $6,115,000 and $6,152,000 at
March 31, June 30, and September 30, 1995, respectively, compared to
$8,538,000 at December 31, 1994.
The net cash used in operating activities was $1,676,000, $1,958,000 and
$1,818,000 for the three, six and nine months ended March 31, June 30,
and September 30, 1995, respectively as compared to $2,684,000, $5,423,000,
and $6,384,000 for the same periods in 1994. The primary non-cash items
were depreciation and amortization of $3,620,000 and $2,960,000 for the
nine months ended September 30, 1995 and 1994, respectively, and losses from
asset impairment and on discontinued operations of $2,880,000 and $7,482,000,
respectively, for the nine months ended September 30, 1994. License
payments from a large pharmaceutical company were received in the fourth
quarter of 1994 and in 1993 for the subsequent year, which was the primary
reason for the reduction in deferred revenue in each period. Accounts
payable and accrued expenses increased in 1995 due to patent related
milestone obligations previously mentioned, employee retention bonus and
timing of expenditures.
The Company's investing activities used cash of $167,000, $463,000 and
$565,000 for the three, six and nine months ended March 31, June 30, and
September 30, 1995, respectively, compared to providing cash of $1,868,000,
$2,028,000 and $2,760,000 for the same periods in 1994. For the nine months
ended September 30, 1994, the Company sold marketable securities totaling
$3,907,000, of which $1,026,000 was pledged as collateral under a
sale/leaseback arrangement and the Company invested $2,106,000 in property,
plant, and equipment, $1,026,000 of which was used to repurchase the
equipment under the above mentioned sale/leaseback.
The Company's 1994 financing activities provided cash of $6,539,000,
$6,170,000 and $5,455,000 for the three, six, and nine months ended
March 31, June 30, and September 30, 1994, respectively, primarily as a
result of raising $6,635,000 in the sale of its stock in the first quarter
of 1994 and repaying $1,377,000 on long-term obligations primarily in the
third quarter of 1994. In the future, the Company will seek additional
funding through additional public or private financing, and collaborative
arrangements and dispositions of portions of the business. The Company
presently is seeking to sell the diagnostics division or portions thereof
as a source of funds.
The Company had total working capital of $7,348,000, $7,035,000 and
$6,872,000 and current ratios of 1.99, 1.92 and 1.83 to 1 at March 31,
June 30, and September 30, 1995, respectively, compared to $8,886,000 and
2.20 to 1 at December 31, 1994. However, the Company has approximately
$9,900,000 in liabilities subject to Chapter 11 proceedings and if all of
these liabilities were considered current liabilities, the current ratios
would have been 0.85, 0.84, and 0.83 to 1 at March 31, June 30 and
September 30, 1995, respectively, compared to 0.95 to 1 at December 31, 1994.
In a Chapter 11 case, substantially all liabilities as of the date of filing
of the petition for reorganization are subject to settlement under a plan
of reorganization to be voted upon by the creditors and equity security
holders and approved by the Bankruptcy Court. The Company continues to
manage its affairs and operate its business as a debtor in possession,
subject to the supervision of the Bankruptcy Court while the case is pending.
In the event a plan of reorganization is approved by the Bankruptcy Court,
continuation of the business after reorganization is dependent upon the
success of future operations and the Company's ability to meet obligations
as they become due. The accompanying financial statements have been prepared
on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course
of business. As a result of the reorganization proceedings, the Company may
have to sell or otherwise dispose of assets and liquidate or settle
liabilities for amounts other than those reflected in the financial
statements. The financial statements do not give effect to adjustments to
the carrying value of assets, or amounts and reclassification of liabilities
that might be necessary as a consequence of these bankruptcy proceedings.
The appropriateness of using the going concern basis is dependent upon, among
other things, confirmation of a plan of reorganization, success of future
operations, and the ability of the Company to generate sufficient cash
from operations and financing sources to meet its obligations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On January 3, 1990, the Company instituted suit in the United
States District Court, District of Connecticut, against
MicroGeneSys, Inc., and three individual defendants alleging that
defendants were infringing United States Patent No. 4,725,669, to
which the Company holds an exclusive license. The Company sought
an injunction requiring that MicroGeneSys cease infringing the
patent by making diagnostic and research products, and requiring
MicroGeneSys to take a license to make vaccines and drugs. The
defendants counterclaimed asserting inter alia that the '669
patent was not infringed, being either invalid and/or not
enforceable and that the Company was interfering with business
advantage and committing unfair trade practices. The Company and
the defendants have entered into a settlement agreement in which
the defendants acknowledge that the manufacture, use, or sale of
certain of MicroGeneSys' current products infringe the '669
patent. Simultaneously with the execution of the settlement
agreement, the Company and MicroGeneSys entered into a license
agreement giving MicroGeneSys a non-exclusive, worldwide license
under the '669 patent in certain fields, for which the Company
will receive a license fee and royalties on the sale of licensed
products. The settlement agreement is subject to approval by the
District Court and the Bankruptcy Court.
In November 1993, five civil actions were commenced in the
U.S. District Court, District of Massachusetts, against CBC,
certain of its officers ("Individual Defendants"), and in three
cases, against the Company's former auditor. The claim against
the auditors was dismissed without prejudice. The actions were
instituted by persons alleging to be shareholders of CBC and to be
representative of a class of shareholders claiming damages
resulting from alleged violations of securities laws by the
Company and Individual Defendants in connection with the 1992
results of CBC and the restatement thereof. The five actions,
along with a sixth action filed in the U.S. District Court,
Southern District of New York in June 1994, were consolidated
under the caption In Re: Cambridge Biotech Corporation Securities
Litigation, Civil Action No. 93-12486-REK. The class comprises
purchasers of the Company's common stock during the period
February 28, 1992, through and including May 9, 1994. The Company
has successfully negotiated (i) a settlement agreement among the
class; National Union, the issuer of the Company's directors and
officers indemnity policy; the Individual Defendants, and the
directors and officers of the Company, and (ii) a second
settlement agreement among the class, the Individual Defendants
substantially all of the Company's directors and officers, and the
Company. Generally, pursuant to these settlements, the class will
receive approximately 25% of the shares to be issued in the
reorganized Company upon its emergence from Chapter 11, 90% of any
net recoveries by the class against the Company's former auditors
(with the Company to receive the other 10% thereof), and
$1,050,000 previously paid into escrow by National Union. These
agreements preliminarily have been approved by the United States
District Court and will be incorporated into the Company's plan of
reorganization. The settlement is subject to the confirmation of
a plan of reorganization by the U.S. Bankruptcy Court.
On July 7, 1994, the Company filed for protection under
Chapter 11 of the United States Bankruptcy Code and is a debtor in
possession pursuant to a voluntary petition filed in the United
States Bankruptcy Court for the District of Massachusetts, Western
Division, Case Number 94-43054-JFQ.
In July of 1994, the Securities and Exchange Commission
issued an Order Directing Private Investigation (In the matter of
Cambridge Biotech Corporation, United States of America Before the
Securities and Exchange Commission, File No. B-1238),
investigating matters pertaining to CBC's financial statements,
its public filings, and its offerings of its securities. CBC is
cooperating fully with the investigation, which is ongoing. The
Department of Justice is conducting its own independent
investigation, which the Company believes is focusing on matters
similar to the investigation of the SEC. CBC is cooperating in
the investigation and has been informed informally by the U.S.
Attorney's Office that no present officer or director is a target
of the investigation.
In March 1995, Institut Pasteur and Genetic Systems
Corporation brought a patent infringement action against the
Company with respect to two HIV-2 related patents licensed to the
Company, and a third patent related to HIV-1. CBC filed an answer
and counterclaim denying the plaintiff's allegations and seeking a
declaration of CBC's license rights to the two HIV-2 patents. On
September 1, 1995, the Bankruptcy Court issued summary judgment
upholding CBC's license under two license agreements with Pasteur
to the HIV-2 patents. The Court also ruled that CBC's HIV-1
Western Blot confirmatory test for HIV-1 infringed the patent and
enjoined CBC from the manufacture and sale of the HIV-1 Western
Blot test. On January 5, 1996, the Bankruptcy Court ruled that
CBC is only obligated to pay damages for infringements on the
HIV-1 patent in an amount equal to 1% of the net sales of HIV-1
Western Blot tests for the period July 7, 1994 through December
31, 1995. The Bankruptcy Court also ruled that, beginning on
January 1, 1996, CBC has a license for the HIV-1 patent at a
royalty rate of 1% of net sales, based on CBC's rights pursuant to
a 1987 Settlement Agreement between the United States Government
and Institut Pasteur, and lifted its injunction with respect to
the Company's production and sale of the HIV-1 Western Blot test.
Institut Pasteur has appealed the Bankruptcy Court's adverse
rulings, and the Company has appealed the Court's initial
determination that it infringed the HIV-1 patent.
In May 1995, a former employee of the Company filed a
complaint against the Company with the City of Rockville, Maryland
Human Rights Commission, claiming wrongful termination (Human
Rights Commission on the Complaint of Paul R. Shackleford against
Cambridge Biotech Corporation, Complaint No. 95-15-ER). The
Company disputes the allegations an will defend the complaint,
which has been stayed as a result of the bankruptcy proceeding.
On September 18, 1995, the Company filed a declaratory action
against Institut Pasteur (In re Cambridge Biotech Corporation v.
Institut Pasteur in the United States Bankruptcy Court for the
District of Massachusetts, Western Division, Adversary Proceeding
Number 95-04278), asking the Court to determine its right to
obtain a license to Institut Pasteur's patent covering HIV-1. The
action was dismissed as moot upon the Court's determination in the
patent infringement litigation filed by Institute Pasteur and
Genetic Systems that beginning on January 1, 1996, CBC ha a
license for the HIV-1 patent based on CBC's rights pursuant to a
1987 Settlement Agreement between the United States Government and
Institut Pasteur.
On January 2, 1996, CBC received from the United States
Environmental Protection Agency ("EPA") a Notice of Potential
Responsibility and Request for Information under the Comprehensive
Environmental Response, Compensation and Liability act ("CERCLA")
relating to the EPA's investigation of the RAMP Industries, Inc.
site ("RAMP Site") in Denver, Colorado. The letter serves as
notice to CBC of its potential liability under Section 107(a) of
CERCLA, with respect to the RAMP Site. CBC responded by letter to
the EPA dated February 1, 1996 stating that it did not believe it
was a potentially responsible party and that it believed that all
Company waste shipped to the Site had been removed from the Site
prior to EPA incurring any CERCLA costs. While the Company
intends to fully cooperate with the investigation which is
ongoing, it also intends to defend any claim that may be asserted
by EPA.
On March 19, 1996, the Company filed an action against
Deloitte & Touche, its former auditors (Cambridge Biotech Corp. v.
Deloitte & Touche, Superior Court, Suffolk County, Commonwealth of
Massachusetts, C.A. No. 96-1480-A 1996). The complaint arises out
of the defendant's audits of the Company's financial statements
for 1991 and 1992, and alleges that the defendant acted
negligently and in breach of contract in performing those audits.
As a result of defendant's failure to adequately conduct the audit
in accordance with GAAS and using GAAP, the complaint alleges that
the financial statements for 1991 and 1992 contained material
misstatements including overstatements of revenue, income, and
earnings per share. The Company is seeking compensation for the
full amount of its damages, pre-judgment interest, cost, and other
relief deemed appropriate by the Court. Under its settlement
agreement in the shareholder class action litigation, the
shareholder class will receive 90% and the Company will receive
10% of any net recoveries from the defendant.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to security holders during the
quarter ended December 31, 1995.
Item 6. Exhibits and Reports of Form 8-K.
(a) Reports on Form 8-K filed in 1995:
1. Current report on Form 8K dated 1/23/95
2. Current report on Form 8K dated 2/2/95
3. Current report on Form 8K dated 2/21/95
4. Current report on Form 8K dated 3/20/95
5. Current report on Form 8K dated 4/24/95
6. Current report on Form 8K dated 5/22/95
7. Current report on Form 8K dated 6/22/95
8. Current report on Form 8K dated 7/28/95
9. Current report on Form 8K dated 8/24/95
10. Current report on Form 8K dated 10/11/95
11. Current report on Form 8K dated 11/10/95
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CAMBRIDGE BIOTECH CORPORATION
Date: March 28, 1996
/s/ Alison Taunton-Rigby
Alison Taunton-Rigby
President and Chief
Executive Officer
/s/ Stephen J. DiPalma
Stephen J. DiPalma
Vice President Finance,
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000704292
<NAME> CAMBRIDGE BIOTECH CORP
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995
<PERIOD-END> SEP-30-1995 JUN-30-1995 MAR-31-1995
<CASH> 6,152,000 6,115,000 6,694,000
<SECURITIES> 0 0 0
<RECEIVABLES> 3,692,000 3,632,000 3,298,000
<ALLOWANCES> (188,000) (166,000) (149,000)
<INVENTORY> 4,101,000 3,881,000 3,743,000
<CURRENT-ASSETS> 15,144,000 14,697,000 14,785,000
<PP&E> 25,111,000 24,999,000 24,943,000
<DEPRECIATION> (17,525,000) (16,699,000) (15,809,000)
<TOTAL-ASSETS> 24,285,000 24,877,000 25,948,000
<CURRENT-LIABILITIES> 8,272,000 7,662,000 7,437,000
<BONDS> 4,022,000 4,023,000 4,024,000
0 0 0
0 0 0
<COMMON> 261,000 261,000 261,000
<OTHER-SE> 3,369,000 4,515,000 5,726,000
<TOTAL-LIABILITY-AND-EQUITY> 24,285,000 24,877,000 25,948,000
<SALES> 14,745,000 9,287,000 4,210,000
<TOTAL-REVENUES> 19,854,000 12,545,000 5,848,000
<CGS> 12,074,000 8,059,000 4,159,000
<TOTAL-COSTS> 12,074,000 8,059,000 4,159,000
<OTHER-EXPENSES> 12,489,000 8,207,000 4,259,000
<LOSS-PROVISION> 14,000 8,000 2,000
<INTEREST-EXPENSE> 11,000 9,000 5,000
<INCOME-PRETAX> (5,078,000) (3,934,000) (2,702,000)
<INCOME-TAX> 3,000 2,000 1,000
<INCOME-CONTINUING> (5,086,000) (3,940,000) (2,705,000)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (5,086,000) (3,940,000) (2,705,000)
<EPS-PRIMARY> (0.20) (0.15) (0.10)
<EPS-DILUTED> (0.20) (0.15) (0.10)
</TABLE>
