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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, 1998
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)
(732) 632-8800
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(Registrant's telephone number, including area code)
Former address: Not Applicable
- --------------------------------------------------------------------------------
(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 June 29, 1998 48,250,768
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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, 1998 and December 31, 1997.......................... 3
Consolidated Statements of Operations
for the three and six months ended
June 30, 1998 and 1997....................................... 4
Consolidated Statement of Changes in
Stockholders' Equity for the six
months ended June 30, 1998................................... 5
Consolidated Statements of Cash Flows
for the six months ended
June 30, 1998 and 1997....................................... 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............ 16
Item 5. Other Matters.................................................. 16
Item 6. Exhibits and Reports on Form 8-K............................... 17
2
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, 1998 December 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 13,817 $ 9,329
Short-term investments.................................... 34,565 26,178
Accounts receivable and other............................. 32,437 27,540
Inventories............................................... 5,901 5,401
Deferred income taxes..................................... 4,702 8,000
Prepaid expenses and other current assets................. 411 403
--------- --------
Total current assets..................................... 91,833 76,851
Deferred income taxes...................................... 2,148 2,148
Severance pay funded....................................... 2,353 2,435
Property and equipment, net................................ 7,864 7,545
Intangibles, net........................................... 2,159 2,590
Patents, net............................................... 432 551
Other assets............................................... 3,297 3,293
--------- --------
Total assets............................................. $ 110,086 $ 95,413
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank loans..................................... $ 379 $ 362
Accounts payable.......................................... 1,864 1,645
Other current liabilities................................. 8,103 6,573
--------- --------
Total current liabilities................................ 10,346 8,580
--------- --------
Long-term liabilities...................................... 3,833 3,975
--------- --------
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: 48,499,000 (47,304,000 at
December 31, 1997)....................................... 485 473
Capital in excess of par value............................ 142,253 136,662
Deficit................................................... (46,227) (54,135)
Less - treasury stock at cost, 83,000 shares.............. (340) (340)
Accumulated other comprehensive (loss) income.... (264) 198
--------- --------
Total stockholders' equity............................... 95,907 82,858
--------- --------
Total liabilities and stockholders' equity............... $ 110,086 $ 95,413
========= ========
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
3
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales..................................... $32,659 $28,965 $16,923 $14,586
Contract fees..................................... 1,744 466 740 350
Other revenues.................................... 275 330 125 330
Interest and finance income....................... 1,408 696 858 426
------- ------- ------- -------
36,086 30,457 18,646 15,692
------- ------- ------- -------
Expenses:
Research and development.......................... 8,973 7,323 3,717 3,383
Cost of product sales ............................ 5,006 4,794 2,488 2,525
General and administrative........................ 4,381 3,957 2,329 2,021
Marketing and sales............................... 5,950 3,993 3,303 2,107
Commissions and royalties......................... 343 193 217 140
Interest and finance.............................. 40 165 19 71
------- ------- ------- -------
24,693 20,425 12,073 10,247
------- ------- ------- -------
Income before income taxes.......................... 11,393 10,032 6,573 5,445
Income taxes........................................ 3,485 2,723 2,030 1,531
------- ------- ------- -------
Net income ......................................... $ 7,908 $ 7,309 $ 4,543 $ 3,914
======= ======= ======= =======
Earnings per share:
Basic.............................................. $ 0.17 $ 0.16 $ 0.09 $ 0.08
======= ======= ======= =======
Diluted............................................ $ 0.16 $ 0.14 $ 0.09 $ 0.08
======= ======= ======= =======
Weighted average number of shares outstanding:
Basic.............................................. 47,810 46,515 48,292 46,706
======= ======= ======= =======
Diluted............................................ 50,893 52,086 50,514 51,999
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Accumulated
-------------- Capital in Other Total
Par Excess of Treasury Comprehensive (Loss) Stockholders'
Shares Value Par Value Deficit Stock Income Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997......... 47,304 $473 $136,662 $(54,135) $(340) $ 198 $82,858
Issuance of common stock. ......... 4 29 29
Exercise of stock options.......... 427 4 1,808 1,812
Exercise of warrants............... 764 8 3,754 3,762
Unrealized loss on marketable
securities, net................... (462) (462)
Net income for six months
ended June 30, 1998.............. 7,908 7,908
------ ---- -------- -------- ----- ----- -------
Balance, June 30, 1998............. 48,499 $485 $142,253 $(46,227) $(340) $(264) $95,907
====== ==== ======== ======== ===== ===== =======
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
5
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 7,908 $ 7,309
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................................... 1,440 1,564
Provision for severance pay ...................................... (142) (154)
(Gain) loss on sales of short-term investments ................... (220) 9
Deferred income taxes ............................................ 3,248 2,598
Common stock as payment for services ............................. 29 29
Changes in: receivables .......................................... (4,897) (3,434)
inventories .......................................... (500) 1,288
prepaid expenses and other current assets ............ (8) (138)
accounts payable ..................................... 219 (1,763)
other assets ......................................... (4) (435)
other current liabilities ............................ 1,597 873
-------- --------
Net cash provided by operating activities ........................... 8,670 7,746
-------- --------
Cash flows from investing activities:
Short-term investments .............................................. (16,178) (7,253)
Capital expenditures ................................................ (1,224) (1,845)
Severance pay used (funded) ......................................... 82 (7)
Changes in patents .................................................. -- (36)
Proceeds from sales of short-
term investments .................................................. 7,564 2,736
-------- --------
Net cash used in investing activities ............................... (9,756) (6,405)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock .............................. 5,574 4,972
Interests on Series B Notes ......................................... -- (9)
Repayment of Notes .................................................. -- (4)
-------- --------
Net cash provided by financing activities ........................... 5,574 4,959
-------- --------
Net increase in cash and cash equivalents ............................ 4,488 6,300
Cash and cash equivalents at beginning of year ....................... 9,329 7,005
-------- --------
Cash and cash equivalents at end of period ........................... $ 13,817 $ 13,305
======== ========
Supplementary Information
Non-cash investing and financing activities:
Conversions of convertible debt ..................................... $ -- $ 287
Other information:
Interest paid ....................................................... $ -- $ 16
Income tax paid ..................................................... $ 185 $ 120
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
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, 1997. 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,
1997.
Note 2: Comprehensive Income
Effective March 31, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income," which establishes
standards for reporting and display of comprehensive income and its components
(revenue, expenses, gains, and losses) in a full set of general-purpose
financial statements. For the six month period ended June 30, 1998 and 1997
total comprehensive income was approximately $7,446,000 and $7,347,0000,
respectively. Other comprehensive income (loss) consists of unrealized gains
(losses) on marketable securities.
7
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three and six months ended June 30, 1998
compared with three and six months ended June 30, 1997
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, 1997.
OVERVIEW
The Company is engaged in the research, development, manufacture and
marketing of biopharmaceutical products. Through a combination of internal
research and development, acquisitions, collaborative relationships and
licensing arrangements, BTG has developed a portfolio of therapeutic products,
including five products that have received regulatory approval for sale, of
which four are currently being marketed. The Company seeks both broad markets
for its products as well as specialized markets where it can seek Orphan Drug
status and potential marketing exclusivity.
The Company was founded in 1980 to develop, manufacture and market novel
therapeutic products. The Company's overall administration, licensing, human
clinical studies, marketing activities, quality assurance and regulatory affairs
are primarily coordinated at the Company's headquarters in Iselin, New Jersey.
Pre-clinical studies, research and development activities and manufacturing of
the Company's genetically engineered products are primarily carried out through
its wholly owned subsidiary in Rehovot, Israel.
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.
8
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- ------------------------
1998 1997 1998 1997
------ ------ ------- ------
<S> <C> <C> <C> <C>
Revenues:
Product sales.............................. 90.5% 95.1% 90.7% 93.0%
Contract fees.............................. 4.8 1.5 4.0 2.2
Other revenues............................. 0.8 1.1 0.7 2.1
Interest and finance income................ 3.9 2.3 4.6 2.7
----- ----- ----- -----
Total............................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Expenses:
Research and development................... 24.9% 24.1% 19.9% 21.6%
Cost of product sales...................... 13.9 15.7 13.3 16.1
General and administrative................. 12.1 13.0 12.5 12.9
Marketing and sales........................ 16.5 13.1 17.7 13.4
Commissions and royalties.................. 0.9 0.6 1.2 0.9
Interest and finance....................... 0.1 0.6 0.1 0.4
----- ----- ----- -----
Total.............................. .68.4 67.1 64.7 65.3
----- ----- ----- -----
Income before income taxes................... 31.6 32.9 35.3 34.7
Income tax expense........................... 9.7 8.9 10.9 9.8
----- ----- ----- -----
Net income .................................. 21.9% 24.0% 24.4% 24.9%
===== ===== ===== =====
</TABLE>
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, the completion or
termination of such contracts and arrangements, the timing and amounts of
milestone payments, and the timing of regulatory approvals of products.
9
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
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,
-------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Oxandrin................. 61% 40% 62% 42%
Bio-Tropin............... 27 46 27 44
BioLon................... 9 11 9 8
Other.................... 3 3 2 6
--- --- --- ---
Total............. 100% 100% 100% 100%
=== === === ===
The Company believes that its product mix will fluctuate from quarter to quarter
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,
----------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
United States.......... 62% 42% 63% 47%
International.......... 38 58 37 53
--- ---- --- ---
Total........... 100% 100% 100% 100%
=== === === ===
Comparison of Six Months Ended June 30, 1998 and June 30, 1997
Revenues. Total revenues increased 18% in the first half of 1998 to
$36,086,000 from $30,457,000 in the first half of 1997. Product sales increased
$3,694,000, or 13%, in the first half of 1998 from the comparable prior period,
primarily driven by increased sales of Oxandrin in the United States, partially
offset by decreased sales of human growth hormone ("hGH") to BTG's distributors.
Oxandrin sales increased $8,196,000, or 70%, to $19,837,000 in the six months
ended June 30, 1998 from $11,641,000 in the comparable period in 1997, primarily
as a result of the Company's increased marketing efforts and growing awareness
of the product. Product sales of hGH decreased $4,359,000, reflecting quarterly
variations in purchasing based on the operational needs of the Company's
customers. 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").
Contract fees represented approximately 4.8% of total revenues in the first half
of 1998 compared to 1.5% in the six months ended June 30, 1997. Of the contract
fees earned in the first half of 1998, $500,000, or 29% of total contract fees,
were earned in respect of the license of distribution rights for BioLon in the
United States, and $425,000, $400,000 and $353,000, or 24%, 23% and 20% of total
contract fees, respectively, were earned in respect of the Company's oral
contraceptive regimen, hepatitis-B vaccine and insulin,
10
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
respectively. Of the contract fees earned in the first half of 1997, $300,000,
or 64% of total contract fees, were earned in respect of the Company's insulin
product. Interest and finance income increased $712,000, or 102%, for the
comparable period primarily as a result of increased cash balances (including
short-term investments) resulting mainly from cash flow from operations
subsequent to June 30, 1997 and higher yield achieved on the Company's
short-term investments, as well as realized gains on marketable securities.
Research and Development Expense. Research and development expense
increased 23% in the first half of 1998 to $8,973,000 from $7,323,000 in the
first half of 1997. 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 $212,000, or 4%, in
the first half of 1998 to $5,006,000 from $4,794,000 in the first half of 1997.
The increase is primarily attributable to increased product sales. Cost of
product sales as a percentage of product sales for the first half of 1998
decreased to 15.3% from 16.6% for the comparable prior year period. This
decrease was primarily due to increased sales of Oxandrin as a percentage of
total 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
increased in the first half of 1998 to $4,381,000 versus $3,957,000 in the
comparable prior period. As a percentage of revenues, general and administrative
expense decreased to 12.1% of revenues in the first half of 1998 compared to
13.0% 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 49% in
the first half of 1998 to $5,950,000 from $3,993,000 for the prior year period.
As a percentage of revenues, marketing and sales expense increased to 16.5% from
13.1% for the first half of 1997. 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 $343,000 in the
first half of 1998, as compared to $193,000 in the first half of 1997. These
expenses consist primarily of royalties to entities from which the Company
licensed certain of its products and to the Chief Scientist.
Income Taxes. Provision for income taxes for the six months ended June 30,
1998 were $3,485,000, representing 30.6% of income before income taxes, as
compared to $2,723,000, or 27.1% of income before income taxes, in the first
half of 1997. The Company's consolidated tax rate differs from the statutory
rate because of Israeli tax benefits, research and experimental tax credits and
similar items which reduce the effective tax rate.
Net Income. The Company had approximately 1.3 million additional basic
weighted average shares outstanding for the six month period ended June 30,
1998, as compared to the same period in 1997. The Company had approximately 1.2
million less diluted weighted average shares outstanding, primarily as a result
of the decrease in the average price of the Common Stock (which resulted in less
outstanding options being considered common equivalent shares because their
exercise price was above the average fair market value of the Common Stock for
the first half of 1998).
11
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
Comparison of Three Months Ended June 30, 1998 and June 30, 1997
Revenues. Total revenues increased 19% in the second quarter of 1998 to
$18,646,000 from $15,692,000 in the second quarter of 1997. Product sales
increased $2,337,000, or 16%, in the second quarter of 1998 from the comparable
prior period, primarily driven by increased sales of Oxandrin in the United
States, partially offset by decreased sales of hGH to BTG's distributors.
Oxandrin sales increased $4,321,000, or 70%, to $10,503,000 in the three months
ended June 30, 1998 from $6,182,000 in the comparable period in 1997, primarily
as a result of the Company's increased marketing efforts and growing awareness
of the product. 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. Of the contract fees
earned in the second quarter of 1998, $425,000 and $282,000, or 57% and 38% of
total contract fees, respectively, were earned in respect of the Company's oral
contraceptive regimen and insulin, respectively. Of the contract fees earned in
the second quarter of 1997, $250,000, or 71% of total contract fees, were earned
in respect of the Company's insulin product. Interest and finance income
increased $432,000, or 101%, 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, 1997, as well as
realized gains on marketable securities.
Research and Development Expense. Research and development expense
increased 10% in the second quarter of 1998 to $3,717,000 from $3,383,000 in the
second quarter of 1997. 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 decreased $37,000, or 1.5%,
in the second quarter of 1998 to $2,488,000 from $2,525,000 in the second
quarter of 1997. Cost of product sales as a percentage of product sales for the
second quarter of 1998 decreased to 14.7% from 17.3% for the comparable prior
year period. This decrease was primarily due to increased sales of Oxandrin as a
percentage of total 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
increased to $2,329,000 versus $2,021,000 in the comparable prior period. As a
percentage of revenues, general and administrative expense decreased to 12.5% of
revenues in the second quarter of 1998 versus 12.9% 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 57% in
the second quarter of 1998 to $3,303,000 from $2,107,000 for the prior year
period. As a percentage of revenues, marketing and sales expense increased to
17.7% from 13.4% for the second quarter of 1996. This increase is primarily due
to the increased personnel and increased advertising, promotion and market
research activities, resulting from the growth of the Company's product sales.
Commissions and Royalties. Commissions and royalties were $217,000 in the
second quarter of 1998, as compared to $140,000 in the second quarter of 1997.
These expenses consist primarily of royalties to entities from which the Company
licensed certain of its products and to the Chief Scientist.
Income Taxes. Provision for income taxes for the three months ended June
30, 1998 were $2,030,000, representing 30.9% of income before income taxes, as
compared to $1,531,000 and 28.1% of income before income taxes in the three
months ended June 30, 1997. The Company's consolidated
12
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
tax rate differs from the statutory rate because of Israeli tax benefits,
research and experimental tax credits and similar items which reduce the
effective tax rate.
Net Income. The Company had approximately 1.6 million additional basic
weighted average shares outstanding for the six month period ended June 30,
1998, as compared to the same period in 1997. The Company had approximately 1.5
million less diluted weighted average shares outstanding, primarily as a result
of the decrease in the average price of the Common Stock (which resulted in less
outstanding options being considered common equivalent shares because their
exercise price was above the average fair market value of the Common Stock for
the first quarter of 1998).
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June 30, 1998 was $81,487,000 as compared
to $68,271,000 at December 31, 1997.
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.
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 and financings, if any, undertaken by the Company. Net cash increased
by $6,300,000 and $4,488,000 in the six months ended June 30, 1997 and 1998,
respectively.
Net cash provided by operating activities was $7,746,000 and $8,720,000 in
the six months ended June 30, 1997 and 1998, respectively. Net income was
$7,309,000 and $7,908,000 in the same periods, respectively. In the six months
ended June 30, 1998, net cash provided by operating activities was greater than
net income primarily because of a decrease in deferred income taxes of
$3,298,000, an increase in other current liabilities of $1,597,000 and
depreciation and amortization of $1,440,000 partially offset by an increase in
receivables and inventories of $4,897,000 and $500,000, respectively. In the six
months ended June 30, 1997, net cash provided by operating activities was
greater than net income, primarily because of a decrease in deferred income
taxes and inventories of $2,598,000 and $1,288,000, respectively, an increase in
other current liabilities of $873,000 and depreciation and amortization of
$1,564,000, partially offset by an increase in receivables and other assets of
$3,434,000 and $435,000, respectively, and decrease in accounts payable of
$1,763,000.
Net cash used in investing activities was $6,405,000 and $9,756,000 in the
six months ended June 30, 1997 and 1998, respectively. Net cash used in
investing activities included capital expenditures of $1,845,000 and $1,224,000
in these periods, respectively, primarily for laboratory and manufacturing
equipment. 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 $4,959,000 and $5,524,000 in
the six months ended June 30, 1997 and 1998, respectively, representing net
proceeds from issuances of Common Stock, primarily as a result of exercise of
stock options and warrants. In the six months ended June 30, 1998,
13
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
warrants and options to purchase 764,000 and 427,000 shares were exercised,
resulting in net proceeds of $3,762,000 and $1,812,000, respectively. In the
first half of 1997, warrants and options to purchase 50,000 and 1,186,000 shares
were exercised, resulting in net proceeds of $246,000 and $4,726,000,
respectively.
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 11% in 1996, 7%
in 1997 and 2% in the six month period ended June 30, 1998. In 1996 and 1997 the
Shekel was devalued by approximately 4% and 7% against the U.S. dollar,
respectively, and was devalued by approximately 4% in the six months ended June
30, 1998. 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 1996 and 1997, but a decrease in these costs in U.S. dollars in
the six months ended June 30, 1998. 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
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, 1998, intangibles, net consist of (i) $1,516,000 (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) $643,000 (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,
1998, 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
14
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
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.
15
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
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 17, 1998.
(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 44,952,897 419,308
Sim Fass 44,965,775 406,430
Carl Kaplan 44,964,775 407,430
Allan Rosenfield 44,965,375 406,830
David Tendler 44,965,875 406,330
Virgil Thompson 44,965,375 406,830
Dan Tolkowsky 44,964,675 407,530
Faye Wattleton 44,963,995 408,210
Herbert Weissbach 44,965,375 406,830
(ii) In addition to the election of directors, a proposal to adopt
the Company's 1998 Employee Stock Purchase Plan was approved, with 13,236,799
shares voted in favor, 2,607,010 shares voted against, 273,341 shares abstaining
and 29,255,055 broker non-votes.
Item 5. Other Matters
On June 29, 1998, the Company announced that an interim analysis of data
collected on 297 premature newborns, who participated in a U.S. multicenter
Phase III clinical safety and efficacy trial of superoxide dismutase
(OxSODrol(TM)) administered intratracheally for the prevention of
bronchopulmonary dysplasia ("BPD"), has been completed by the Independent Data
and Safety Monitoring Committee ("IDSMC"). Although the primary efficacy
endpoint, significant overall reduction in the incidence of death or BPD, was
not achieved during the 28-day treatment period, the investigation is being
continued as a Phase II study, without further enrollment, based upon
recommendations of the IDSMC and collaborative discussions with the FDA.
Continuation of the investigation is prompted by the recently reported
observation that asthmatic complications and neurodevelopmental deficits were
substantially reduced in those babies who received multiple doses of
OxSODrol(TM) in BTG's earlier Phase I studies. Careful analysis of the latter
variables at 6 and 12 months of age will be the primary focus in the present
group of 297 babies who will now comprise the modified Phase II study.
Pursuant to newly adopted rules of the Securities and Exchange Commission,
any stockholder who intends to present a proposal at the Company's 1999 Annual
Meeting of Stockholders without requesting the Company to include such proposal
in the Company's proxy statement should be aware that he must notify the Company
not later than March 21, 1999 of his intention to present the proposal.
Otherwise, the Company may exercise discretionary voting with respect to such
stockholder proposal pursuant to authority conferred on the Company by proxies
to be solicited by the Board of Directors of the Company and delivered to the
Company in connection with the meeting.
16
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
17
<PAGE>
BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES
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
Chairman, 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: July 31, 1998
18
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<CURRENT-ASSETS> 91,833
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