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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number 0-15313
BIO-TECHNOLOGY GENERAL CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3033811
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 WOOD AVENUE SOUTH, ISELIN, NEW JERSEY 08830
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(Address of principal executive offices)
(908) 632-8800
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(Registrant's telephone number, including area code)
Former address: Not Applicable
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(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 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, par value $.01 per share,
outstanding as of July 31, 1997 47,013,252
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<PAGE>
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996...................... 3
Consolidated Statements of Operations
for the three and six months ended
June 30, 1997 and 1996................................... 4
Consolidated Statement of Changes in
Stockholders' Equity for the six
months ended June 30, 1997............................... 5
Consolidated Statements of Cash Flows
for the six months ended
June 30, 1997 and 1996................................... 6
Notes to Consolidated Financial
Statements............................................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................ 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
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<PAGE>
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1997 1996
-------- --------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 13,305 $ 7,005
Short-term investments .............................. 17,268 12,760
Accounts receivable ................................. 21,707 18,273
Inventories ......................................... 4,040 5,328
Deferred income taxes .............................. 3,402 6,000
Prepaid expenses and other current assets ........... 488 350
-------- --------
Total current assets ............................... 60,210 49,716
Deferred income taxes ................................ 9,379 9,379
Severance pay funded ................................. 2,325 2,318
Property and equipment, net .......................... 6,916 6,039
Intangibles, net ..................................... 3,020 3,451
Patents, net ......................................... 478 538
Other assets ......................................... 2,569 2,134
-------- --------
Total assets ....................................... $ 84,897 $ 73,575
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank loans ............................... $ 410 $ 266
Current portion of long-term debt ................... 13 291
Accounts payable .................................... 1,595 3,358
Other current liabilities ........................... 5,904 5,175
-------- --------
Total current liabilities .......................... 7,922 9,090
-------- --------
Long-term liabilities ................................ 3,751 3,927
-------- --------
Stockholders' equity:
Preferred stock -- $.01 par value; 4,000,000
shares authorized; no shares issued ................ -- --
Common stock - $.01 par value; 150,000,000 shares
authorized; issued: 46,954,000 (45,682,000 at
December 31, 1996) ................................. 470 457
Capital in excess of par value ...................... 134,405 129,130
Deficit ............................................. (61,304) (68,613)
Less -- treasury stock at cost, 83,000 shares ....... (340) (340)
-- deferred compensation ....................... (7) (76)
-------- --------
Total stockholders' equity ......................... 73,224 60,558
-------- --------
Total liabilities and stockholders' equity ......... $ 84,897 $ 73,575
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
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<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except per share data)
Six Months Ended Three Months Ended
June 30, June 30,
----------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
Revenues:
Product sales ......................... $28,965 $19,313 $14,586 $11,618
Contract fees ......................... 466 2,795 350 70
Other revenues ........................ 330 338 330 238
Interest income ....................... 696 453 426 262
------- ------- ------- -------
30,457 22,899 15,692 12,188
------- ------- ------- -------
Expenses:
Research and development .............. 7,323 5,934 3,383 2,830
Cost of product sales ................. 4,794 3,368 2,525 2,202
General and administrative ............ 3,957 4,250 2,021 2,330
Marketing and sales ................... 3,993 2,904 2,107 1,695
Commissions and royalties ............. 193 1,281 140 313
Interest and finance .................. 165 77 71 42
Write-off in connection with
litigation .......................... -- 1,383 -- --
------- ------- ------- -------
20,425 19,197 10,247 9,412
------- ------- ------- -------
Income before income taxes ............. 10,032 3,702 5,445 2,776
Income taxes ........................... 2,723 -- 1,531 --
------- ------- ------- -------
Net income ............................. $ 7,309 $ 3,702 $ 3,914 $ 2,776
======= ======= ======= =======
Earnings per share ..................... $ 0.14 $ 0.08 $ 0.08 $ 0.06
======= ======= ======= =======
Weighted average number of shares
outstanding .......................... 52,086 47,351 51,999 47,602
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
<CAPTION>
Common Stock
--------------- Capital in Total
Par Excess of Treasury Deferred Stockholders'
Shares Value Par Value Deficit Stock Compensation Equity
------ ----- --------- --------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996......... 45,682 $457 $129,130 $(68,613) $(340) $(76) $60,558
Issuance of common stock. ......... 2 29 29
Exercise of stock options.......... 1,186 12 4,714 4,726
Exercise of warrants............... 50 1 245 246
Issuance of common stock
on conversion
of convertible debt.............. 34 287 287
Amortization of deferred
compensation..................... 69 69
Net income for six months
ended June 30, 1997.............. 7,309 7,309
--------- -------
Balance, June 30, 1997............. 46,954 $470 $134,405 $(61,304) $(340) $ (7) $73,224
====== ==== ======== ========= ====== ====== =======
The accompanying notes are an integral part of this consolidated statement.
</TABLE>
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months
Ended June 30,
------------------
1997 1996
------- -------
Cash flows from operating activities:
Net income .............................................. $ 7,309 $ 3,702
Adjustments to reconcile net income to net
cash provided by operating activities:
Write-off in connection with litigation .............. -- 1,383
Depreciation and amortization ........................ 1,564 1,534
Provision for severance pay .......................... (154) 177
Loss (gain) on sales of short-term investments ....... 9 (17)
Deferred income taxes ................................ 2,598 --
Common stock as payment for services ................. 29 37
Changes in: receivables .............................. (3,434) (3,098)
inventories .............................. 1,288 (581)
prepaid expenses and other current assets. (138) (543)
accounts payable ......................... (1,763) 513
other assets ............................. (435) (8)
other current liabilities ................ 873 1,860
------- -------
Net cash provided by operating activities ............... 7,746 4,959
------- -------
Cash flows from investing activities:
Short-term investments .................................. (7,253) (1,963)
Capital expenditures .................................... (1,845) (1,290)
Severance pay funded .................................... (7) (202)
Intangibles ............................................. -- (56)
Changes in patents ...................................... (36) (95)
Proceeds from sales of fixed assets and
short-term investments ................................ 2,736 3,047
------- -------
Net cash used in investing activities ................... (6,405) (559)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock .................. 4,972 4,537
Interests on Series B Notes ............................. (9) (14)
Repayment of Notes ...................................... (4) --
------- -------
Net cash provided by financing activities ............... 4,959 4,523
------- -------
Net increase in cash and cash equivalents ................ 6,300 8,923
Cash and cash equivalents at beginning of year ........... 7,005 6,886
------- -------
Cash and cash equivalents at end of period ............... $13,305 $15,809
======= =======
Supplementary Information
- -------------------------
Non-cash investing and financing activities:
Conversions of convertible debt ......................... $ 287 $ 38
Other information:
Interest paid ........................................... $ 16 $ 25
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: STATEMENT ON ADJUSTMENTS
In the opinion of management, the condensed consolidated financial
statements include all adjustments, consisting of only normal recurring
accruals, considered necessary for a fair presentation. Due to fluctuations in
quarterly revenues earned, operating results for interim periods are not
necessarily indicative of the results that may be expected for the full year.
The accounting policies continue unchanged from December 31, 1996. For further
information, refer to the Consolidated Financial Statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
NOTE 2: WRITE-OFF IN CONNECTION WITH LITIGATION
On December 1, 1994, Genentech, Inc. filed a lawsuit against BTG in the
United States District Court for the District of Delaware alleging that BTG's
importation of human growth hormone ("hGH") infringed two Genentech process
patents. In January 1995, BTG commenced an action against Genentech in the
United States District Court for the Southern District of New York seeking,
among other things, declaratory judgments as to the non-infringement, invalidity
and unenforceability of such Genentech patents as well as damages resulting from
Genentech's actions in the ITC proceedings. The Delaware action was consolidated
with the New York action, and in August 1995 the United States District Court
for the Southern District of New York granted a preliminary injunction
prohibiting the commercial introduction in the U.S. of BTG's hGH. In April 1996
the CAFC rejected BTG's appeal of the grant of the preliminary injunction. In
May 1996 the CAFC rejected BTG's request for a rehearing and a rehearing en
banc. BTG filed a petition for a writ of certiorari with the U.S. Supreme Court,
which was denied in October 1996. BTG is now precluded from marketing and
distributing its human growth hormone in the United States pending the outcome
of the patent infringement action. During 1995, the Company incurred total legal
fees relating to this litigation of approximately $824,000, which amount was
initially capitalized but subsequently written off in the first quarter of 1996
following the CAFC decision. In addition, the Company wrote-off previously
capitalized expenses incurred in connection with the preparation for launch of
hGH in the United States.
NOTE 3: 7 1/2% CONVERTIBLE SENIOR SUBORDINATED NOTES DUE APRIL 15, 1997
In April 1997, $148,000 aggregate principal amount of the Company's 7 1/2%
Convertible Senior Subordinated Notes due April 15, 1997 (the "7 1/2% Notes")
were converted into an aggregate of approximately 14,100 shares of Common Stock;
the remaining $4,000 principal amount of the 7 1/2% Notes was repaid on April
15, 1997, the maturity date for such notes.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three and six months ended June 30, 1997
compared with three and six months ended June 30, 1996
Statements in this Quarterly Report on Form 10-Q concerning the Company's
business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; introductions and advancements in
development of products, and plans and objectives related thereto; and
statements concerning assumptions made or expectations as to any future events,
conditions, performance or other matters, are "forward-looking statements" as
that term is defined under the Federal Securities Laws. Forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from those stated in such statements.
Such risks, uncertainties and factors include, but are not limited to, changes
and delays in product development plans and schedules, changes and delays in
product approval and introduction, customer acceptance of new products, changes
in pricing or other actions by competitors, patents owned by the Company and its
competitors, changes in healthcare reimbursement, risk of operations in Israel,
risk of product liability, governmental regulation, dependence on third parties
to manufacture products and commercialize products, general economic conditions,
as well as other risks detailed in the Company's filings with the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
RESULTS OF OPERATIONS:
Overview
The following tables set forth for the fiscal periods indicated the
percentage of revenues represented by certain items reflected on the Company's
statement of operations.
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<PAGE>
Six Months Ended Three Months Ended
June 30, June 30,
--------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
Revenues:
Product sales....................... 95.1% 84.3% 93.0% 95.3%
Contract fees....................... 1.5 12.2 2.2 0.6
Other revenues...................... 1.1 1.5 2.1 2.0
Interest income..................... 2.3 2.0 2.7 2.1
----- ----- ----- -----
Total........................ 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Expenses:
Research and development............ 24.1% 25.9% 21.6% 23.2%
Cost of product sales............... 15.7 14.7 16.1 18.1
General and administrative.......... 13.0 18.6 12.9 19.1
Marketing and sales................. 13.1 12.7 13.4 13.9
Commissions and royalties........... 0.6 5.6 0.9 2.6
Interest and finance................ 0.6 0.3 0.4 0.3
Write-off in connection
with litigation................... -- 6.0 -- --
----- ----- ----- -----
Total........................ 67.1 83.8 65.3 77.2
----- ----- ----- -----
Income before income taxes............ 32.9 16.2 34.7 22.8
Income tax expense.................... 8.9 -- 9.8 --
----- ----- ----- -----
Net income ........................... 24.0% 16.2% 24.9% 22.8%
===== ===== ===== =====
The Company has historically derived its revenues from product sales as
well as from collaborative arrangements with third parties, under which the
Company may earn up-front contract fees, may receive funding for additional
research (including funding from the Chief Scientist of the State of Israel), is
reimbursed for producing certain experimental materials, may be entitled to
certain milestone payments, may sell product at specified prices, and may
receive royalties on sales of product. The Company anticipates that product
sales will constitute the majority of its revenues in the future. Revenues have
in the past displayed and will in the immediate future continue to display
significant variations due to changes in demand for its products, new product
introductions by the Company and its competitors, the obtaining of new research
and development contracts and licensing arrangements,
-9-
<PAGE>
the completion or termination of such contracts and arrangements, the timing and
amounts of milestone payments, and the timing of regulatory approvals of
products.
The following table summarizes the Company's sales of its commercialized
products as a percentage of total product sales for the periods indicated:
Six Months Ended Three Months Ended
June 30, June 30,
--------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
Bio-Tropin ...................... 46% 62% 44% 57%
Oxandrin ........................ 40 21 42 30
BioLon .......................... 11 11 8 11
Other ........................... 3 6 6 2
--- --- --- ---
Total .................... 100% 100% 100% 100%
=== === === ===
The Company believes that its product mix will change significantly as it
continues to focus on: (i) increasing market penetration of its existing
products; (ii) expanding into new markets; and (iii) commercializing additional
products.
The following table summarizes the Company's U.S. and international product
sales as a percentage of total product sales for the period indicated:
Six Months Ended Three Months Ended
June 30, June 30,
--------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
United States.................... 42% 20% 47% 29%
International.................... 58 80 53 71
--- --- --- ---
Total .................... 100% 100% 100% 100%
=== === === ===
Comparison of Six Months Ended June 30, 1997 and June 30, 1996
Revenues. Total revenues increased 33% in the first half of 1997 to
$30,457,000 from $22,899,000 in the first half of 1996. Product sales increased
$9,652,000, or 50%, in the first half of 1997 from the comparable prior period
primarily driven by increased sales of Oxandrin in the United States, increased
sales of human growth hormone ("hGH") to BTG's distributors in Japan and Europe
and increased sales of BioLon to BTG's distributors. Oxandrin sales increased
$7,646,000, primarily as a result of the Company's increased marketing efforts,
growing awareness of the product and the relatively small sales base in the
first half of 1996 as the product had just been introduced by BTG in December
1995. Contract fees and other revenue are primarily generated from licensing and
distribution arrangements and partial research and development funding by the
Chief Scientist of the State of Israel (the "Chief Scientist"). In the first
half of 1996, BTG received $2,500,000 in contract fees as a result of the
termination of a sublicensing agreement and the licensing of distribution rights
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<PAGE>
in the United States for the Company's Silkis product, which distorted the
Company's revenues from contract fees. Interest income increased $243,000, or
54%, for the comparable period primarily as a result of increased cash balances
(including short-term investments) resulting from option and warrant exercises
and cash flow from operations subsequent to June 30, 1996.
Research and Development Expense. Research and development expense
increased 23% in the first half of 1997 to $7,323,000 from $5,934,000 in the
first half of 1996. The increase was primarily attributable to expenses
associated with the Company's Phase III clinical trials for its superoxide
dismutase product and new dosage formulations for Oxandrin and post-approval
Phase IV clinical studies to provide additional clinical support for the use of
Oxandrin to treat disease-related weight loss conditions other than AIDS-related
weight loss.
Cost of Product Sales. Cost of product sales increased $1,426,000, or 42%,
in the first half of 1997 to $4,794,000 from $3,368,000 in the first half of
1996. The increase is primarily attributable to increased product sales. Cost of
product sales as a percentage of product sales for the first half of 1997
decreased to 16.6% from 17.4% for the comparable prior year period. This
decrease was primarily due to increased sales of Oxandrin as a percentage of
total product sales and a slight decrease in sales of BioLon as a percentage of
product sales. Oxandrin has a relatively low cost of manufacture as a percentage
of product sales, while BioLon has the highest cost to manufacture as a
percentage of product sales. Cost of product sales as a percentage of product
sales varies from year to year and quarter to quarter depending on the quantity
and mix of products sold.
General and Administrative Expense. General and administrative expense
decreased slightly in the first half of 1997 at $3,957,000 versus $4,250,000 in
the comparable prior period. As a percentage of revenues, general and
administrative expense decreased to 13.0% of revenues in the first half of 1997
versus 18.6% of revenues in the comparable prior year period, primarily as a
result of the growth in product sales.
Marketing and Sales Expense. Marketing and sales expense increased 37.5% in
the first half of 1997 to $3,993,000 from $2,904,000 for the prior year period.
As a percentage of revenues, marketing and sales expense increased to 13.1% from
12.7% for the first half of 1996. This increase is primarily due to additional
marketing and sales expenses, primarily resulting from increased personnel and
increased advertising, promotional and market research activities, resulting
from the growth of the Company's product sales.
Commissions and Royalties. Commissions and royalties were $193,000, or 0.6%
of total revenues, in the first half of 1997, as compared to $1,281,000, or 5.6%
of total revenues, in the first half of 1996. These expenses consist primarily
of royalties to entities from which the Company licensed certain of its products
and to the Chief Scientist. Commissions and royalties in 1996 include a royalty
payment in respect of BTG's Silkis product resulting from the termination of its
European licensee's sublicense and royalties to the Chief Scientist in respect
of a product for which the Company's royalty obligations to the Chief Scientist
were completed in 1996.
Other Expenses. Interest and finance expense increased to $165,000 in the
first half of 1997 from $77,000 in the first half of 1996. In the first quarter
of 1996, BTG wrote off $1,383,000 of capitalized expenses related to hGH. This
write-off resulted from the affirmation by the United States Court of Appeals
for the Federal Circuit of a preliminary injunction obtained by Genentech, Inc.
prohibiting the Company from marketing its human growth hormone in the United
States.
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<PAGE>
Income Taxes. Income taxes for the six months ended June 30, 1997 were
$2,723,000, representing 27.1% of income before income taxes. The Company's
consolidated tax rate differs from the statutory rate because of Israeli tax
benefits, research and development tax credits and similar items which reduce
the tax rate. In the six months ended June 30, 1996 the Company did not record
any income taxes as any interim tax provision would be offset by available net
operating loss carryforwards.
Net Income. Net income for the six months ended June 30, 1996 includes a
write-off of previously capitalized expenses of $1,383,000, or $0.03 per share.
The Company had approximately 4.7 million additional weighted average shares
outstanding for the six month period ended June 30, 1997, as compared to the
same period in 1996, primarily as a result of the increase in the price of the
Common Stock (which resulted in more outstanding options being considered common
equivalent shares because their exercise price was below the average fair market
value of the Common Stock), and the issuance of approximately 2.4 million shares
upon the exercise of outstanding options subsequent to June 30, 1996, primarily
in the last quarter of 1996 and the first quarter of 1997.
Comparison of Three Months Ended June 30, 1997 and June 30, 1996
Revenues. Total revenues increased 28.7% in the second quarter of 1997 to
$15,692,000 from $12,188,000 in the second quarter of 1996. Product sales
increased $2,968,000, or 25.5%, in the second quarter of 1997 from the
comparable prior period primarily driven by increased sales of Oxandrin in the
United States, increased sales of hGH to BTG's distributors in Japan and Europe
and increased sales of BioLon to BTG's distributors. Oxandrin sales increased
$2,689,000, primarily as a result of the Company's increased marketing efforts,
growing awareness of the product and the relatively small sales base in the
second quarter of 1996 as the product had just been introduced by BTG in
December 1995. Contract fees and other revenue are primarily generated from
licensing and distribution arrangements and partial research and development
funding by the Chief Scientist of the State of Israel. Interest income increased
$164,000, or 62.6%, for the comparable period primarily as a result of increased
cash balances (including short-term investments) resulting from option exercises
and cash flow from operations subsequent to June 30, 1996.
Research and Development Expense. Research and development expense
increased 19.5% in the second quarter of 1997 to $3,383,000 from $2,830,000 in
the second quarter of 1996. The increase was primarily attributable to expenses
associated with the Company's Phase III clinical trials for its superoxide
dismutase product and new dosage formulations for Oxandrin and post-approval
Phase IV clinical studies to provide additional clinical support for the use of
Oxandrin to treat disease- related weight loss conditions other than
AIDS-related weight loss.
Cost of Product Sales. Cost of product sales increased $323,000, or 14.7%,
in the second quarter of 1997 to $2,525,000 from $2,202,000 in the second
quarter of 1996. The increase is primarily attributable to increased product
sales. Cost of product sales as a percentage of product sales for the second
quarter of 1997 decreased to 17.3% from 19.0% for the comparable prior year
period. This decrease was primarily due to increased sales of Oxandrin as a
percentage of total product sales and a decrease in sales of BioLon as a
percentage of product sales. Oxandrin has a relatively low cost of manufacture
as a percentage of product sales, while BioLon has the highest cost to
manufacture as a percentage of product sales. Cost of product sales as a
percentage of product sales varies from year to year and quarter to quarter
depending on the quantity and mix of products sold.
-12-
<PAGE>
General and Administrative Expense. General and administrative expense
decreased slightly in the second quarter of 1997 to $2,021,000 versus $2,330,000
in the comparable prior period. As a percentage of revenues, general and
administrative expense decreased to 12.9% of revenues in the second quarter of
1997 versus 19.1% of revenues in the comparable prior year period, as a result
of the growth in revenues and the decrease in general and administrative
expenses.
Marketing and Sales Expense. Marketing and sales expense increased 24.3% in
the second quarter of 1997 to $2,107,000 from $1,695,000 for the prior year
period. As a percentage of revenues, marketing and sales expense decreased to
13.4% from 13.9% for the second quarter of 1996. This decrease is primarily due
to the growth of the Company's product sales.
Commissions and Royalties. Commissions and royalties were $140,000, or 0.9%
of total revenues, in the second quarter of 1997, as compared to $313,000, or
2.6% of total revenues, in the second quarter of 1996. These expenses consist
primarily of royalties to entities from which the Company licensed certain of
its products and to the Chief Scientist. Commissions and royalties in 1996
include royalties to the Chief Scientist in respect of a product for which the
Company's royalty obligations to the Chief Scientist were completed in 1996.
Income Taxes. Income taxes for the three months ended June 30, 1997 were
$1,531,000, representing 28.1% of income before income taxes. The Company's
consolidated tax rate differs from the statutory rate because of Israeli tax
benefits, research and development tax credits and similar items which reduce
the tax rate. In the three months ended June 30, 1996 the Company did not record
any income taxes as any interim tax provision would be offset by available net
operating loss carryforwards.
Net Income. The Company had approximately 4.4 million additional weighted
average shares outstanding for the three month period ended June 30, 1997, as
compared to the same period in 1996, primarily as a result of the increase in
the price of the Common Stock (which resulted in more outstanding options being
considered common equivalent shares because their exercise price was below the
average fair market value of the Common Stock), and the issuance of
approximately 2.4 million shares upon the exercise of outstanding options
subsequent to June 30, 1996, primarily in the last quarter of 1996 and the first
quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June, 1997 was $52,288,000 as compared to
$40,626,000 at December 31, 1996.
The major portion of the Company's revenues is derived from product sales.
In addition, the Company derives revenue from collaborative arrangements, under
which the Company may earn up-front contract fees, may receive funding for
additional research, is reimbursed for producing certain experimental materials,
may be entitled to certain milestone payments, may sell product at specified
prices and may receive royalties on sales of product. Revenues have in the past
displayed and will in the immediate future continue to display variations due to
changes in demand for its products, introductions of new products by
competitors, the obtaining of new research and development contracts and
licensing arrangements, the completion or termination of such contracts and
arrangements, the timing and amounts of milestone payments and the timing of
regulatory approvals of products.
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<PAGE>
The cash flows of the Company have fluctuated significantly due to the
impact of net income and losses, capital spending, working capital requirements,
the issuance of Common Stock and other financing activities. The Company expects
that cash flow in the near future will be primarily determined by the levels of
net income (loss), and financings, if any, undertaken by the Company. Net cash
increased by $8,923,000 and $6,300,000 in the six months ended June 30, 1996 and
1997, respectively.
Net cash provided by operating activities was $4,959,000 and $7,746,000 in
the six months ended June 30, 1996 and 1997, respectively. Net income was
$3,702,000 and $7,309,000 in the same periods, respectively. In the six months
ended June 30, 1996, net cash provided by operating activities exceeded net
income primarily because of a write-off of capitalized expenses of $1,383,000,
an increase in current liabilities of $2,373,000 and depreciation and
amortization of $1,534,000, partially offset by a $3,098,000 increase in
receivables. In the six months ended June 30, 1997, net cash provided by
operating activities was approximately $437,000 higher than net income, as
deferred income taxes of $2,598,000, a decrease in inventories of $1,288,000 and
depreciation and amortization of $1,564,000 were almost completely offset by a
$3,434,000 increase in receivables and an $890,000 net decrease in current
liabilities.
Net cash used in investing activities was $559,000 and $6,405,000 in the
six months ended June 30, 1996 and 1997, respectively. Net cash used in
investing activities included capital expenditures of $1,290,000 and $1,845,000
in these periods, respectively, primarily for laboratory and manufacturing
equipment and, in 1997, leasehold improvements and furniture and fixtures
associated with the expansion of the Company's New Jersey headquarters. The
remainder of the net cash used in investing activities was primarily for
purchases and sales of short-term investments.
Net cash provided by financing activities was $4,523,000 and $4,959,000 in
the six months ended June 30, 1996 and 1997, respectively. Cash flows from
financing activities were primarily affected by net proceeds from issuances of
Common Stock of $4,537,000 and $4,972,000 in these periods, respectively. Net
proceeds from the sale of Common Stock include $3,400,000 from exercises of
warrants to purchase 567,607 shares of Common Stock which expired in May 1996;
the remainder of such net proceeds in both periods result from option exercises.
BTG does not currently have any material commitments for capital
expenditures.
The Company maintains its funds in money market funds, commercial paper and
other liquid debt instruments.
The Company manages its Israeli operations with the object of protecting
against any material net financial loss in U.S. dollars from the impact of
Israeli inflation and currency devaluation on its non-U.S. dollar assets and
liabilities. The Bank of Israel's monetary policy is to manage the exchange rate
while allowing the Consumer Price Index to rise by approximately 8% in 1995, 11%
in 1996 and 5% in the six month period ended June 30, 1997. In each of 1995 and
1996 the Shekel was devalued by approximately 4% against the U.S. dollar, and
was devalued by approximately 10% in the six months ended June 30, 1997. As a
result, for those expenses linked to the Israeli Shekel, such as salaries and
rent, this resulted in corresponding increases in these costs in U.S. dollars in
1995 and 1996, and a decrease in these costs in U.S. dollars in the first half
of 1997. To the extent that expenses in Shekels exceed the Company's income in
Shekels (which to date have consisted primarily of research and development
funding from the Chief Scientist and product sales in Israel), the devaluations
of Israeli currency have been and will continue to be a benefit to the Company's
financial condition. However, should the Company's income in Shekels exceed its
expenses in Shekels in any material respect, the
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<PAGE>
devaluation of the Shekel will adversely affect the Company's financial
condition. Further, to the extent the devaluation of the Shekel with respect to
the U.S. dollar does not substantially offset the increase in the cost of local
goods and services in Israel, the Company's financial results will be adversely
affected as local expenses expressed in U.S. dollar terms will increase. There
can be no assurance that the government of Israel will continue to devalue the
Shekel from time to time to offset the effects of inflation in Israel.
At June 30, 1997, intangibles, net consist of (i) $1,949,000 (net of
amortization) relating to the repurchase of all rights to hGH previously
licensed to The DuPont Merck Pharmaceutical Company, together with all rights to
all data generated in pharmacological, toxicological and clinical studies and
encompassed in the Investigational New Drug Application and New Drug Application
files then pending with the U.S. Food and Drug Administration for the treatment
of human growth hormone-deficient children and (ii) $1,071,000 (net of
amortization) relating to the reacquisition of all rights to human growth
hormone licensed to Smithkline Beecham.
The Company is party to several proceedings relating to patents owned by it
or others. The Company cannot predict the costs of such proceedings, and there
can be no assurance that such costs will not be significant. Should the Company
be unsuccessful in any of these proceedings, it may be unable to commercialize
the products which are the subject of such proceedings in certain countries, and
may be unable to produce the products in Israel, which could have a material
adverse effect on the Company's revenues and results of operations.
The Company believes that its remaining cash resources as of June 30, 1997,
together with anticipated product sales, scheduled payments to be made to BTG
under its current agreements with pharmaceutical partners, the proceeds from
sales of equity and continued funding from the Chief Scientist at current
levels, will be sufficient to fund the Company's current operations for the
foreseeable future. There can, however, be no assurance that product sales will
occur as anticipated, that scheduled payments will be made by third parties,
that current agreements will not be canceled, that the Chief Scientist will
continue to provide funding at current levels, or that unanticipated events
requiring the expenditure of funds will not occur. The satisfaction of the
Company's future cash requirements will depend in large part on the status of
commercialization of the Company's products, the Company's ability to enter into
additional research and development and licensing arrangements, and the
Company's ability to obtain additional equity investments, if necessary. There
can be no assurance that the Company will be able to obtain additional funds or,
if such funds are available, that such funding will be on favorable terms. In
addition, the indentures under which the Company's debt securities were issued
limit the ability of the Company to satisfy its cash requirements through
borrowings or the issuance of debt securities. The Company continues to seek
additional collaborative research and development and licensing arrangements, in
order to provide revenue from sales of certain products and funding for a
portion of the research and development expenses relating to the products
covered, although there can be no assurance that the Company will be able to
obtain such agreements.
RECENTLY ISSUED ACCOUNTING STANDARDS
Subsequent to December 31, 1996, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
Per Share. This statement establishes standards for computing and presenting
earnings per share ("EPS"), replacing the presentation of currently required
primary EPS with a presentation of Basic EPS. For entities with complex capital
structures, the statement requires the dual presentation of both Basic EPS and
Diluted EPS on the face of the statement of operations. Under this new standard,
Basic EPS is computed based on the
-15-
<PAGE>
weighted average number of shares actually outstanding during the year. Diluted
EPS includes the effect of potential dilution from the exercise of outstanding
dilutive stock options and warrants into common stock using the treasury stock
method. SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, and earlier application is not permitted. When adopted,
the Company will be required to restate its EPS data for all prior periods
presented. Had the Company applied the principles of SFAS 128, earnings per
share data for the three and six months ended June 30, 1997 and 1996 would be as
follows:
Six Months Ended Three Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
Basic EPS
Net Income .................. $ 0.16 $ 0.08 $ 0.08 $ 0.06
======= ======= ======= =======
Diluted EPS
Net income .................. $ 0.14 $ 0.08 $ 0.08 $ 0.06
======= ======= ======= =======
Shares used in calculation
('000s)
Basic EPS ................... 46,515 43,807 46,706 44,055
======= ======= ======= =======
Diluted EPS ................. 52,086 47,351 51,999 47,602
======= ======= ======= =======
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<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders of Bio-Technology General Corp.
was held on June 18, 1997.
(c)(i) The following persons, comprising the entire Board of
Directors, were elected at the Annual Meeting pursuant to the
following vote tabulation:
Name Votes For Votes Withheld
---- --------- --------------
Herbert J. Conrad ................ 40,023,696 426,925
Sim Fass ......................... 40,030,420 420,201
Moses Marx ....................... 40,030,588 420,033
Allan Rosenfield ................. 40,026,980 423,641
David Tendler .................... 40,030,393 420,228
Virgil Thompson .................. 40,031,148 419,473
Dan Tolkowsky .................... 40,020,775 429,846
Faye Wattleton ................... 39,999,738 450,883
Herbert Weissbach ................ 40,024,093 426,528
(ii) In addition to the election of directors, (a) a proposal to adopt the
Company's 1997 Stock Option Plan for Non-Employee Directors was
approved, with 18,057,036 shares voted in favor, 2,456,185 shares
voted against, 345,492 shares abstaining and 19,591,908 broker
non-votes, and (b) a proposal to amend the Company's 1992 Stock Option
Plan was approved, with 11,694,703 shares voted in favor, 7,397,208
shares voted against, 297,437 shares abstaining and 21,061,273 broker
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
-17-
<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.
BIO-TECHNOLOGY GENERAL CORP.
(Registrant)
By: /s/ SIM FASS
---------------------------------
Sim Fass
President and
Chief Executive Officer,
Principal Executive Officer
/s/ YEHUDA STERNLICHT
---------------------------------
Yehuda Sternlicht
Vice President-Finance and
Chief Financial Officer,
Principal Financial and
Accounting Officer
Dated: August 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,305
<SECURITIES> 17,268
<RECEIVABLES> 21,707
<ALLOWANCES> 0
<INVENTORY> 4,040
<CURRENT-ASSETS> 60,210
<PP&E> 6,916
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,897
<CURRENT-LIABILITIES> 7,922
<BONDS> 260
0
0
<COMMON> 470
<OTHER-SE> 72,754
<TOTAL-LIABILITY-AND-EQUITY> 84,897
<SALES> 28,965
<TOTAL-REVENUES> 30,457
<CGS> 4,794
<TOTAL-COSTS> 20,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> 10,032
<INCOME-TAX> 2,723
<INCOME-CONTINUING> 10,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,309
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
