FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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: 0-11749
Scios Inc.
State or other jurisdiction of (IRS Employer incorporation or
organization Identification No.)
Delaware 95-3701481
Scios Inc.
2450 Bayshore Parkway, Mountain View, California 94040
(415) 940-6656
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 registrant's classes
of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, $.001 par value 35,931,277
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
<PAGE>
SCIOS INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $3,824 $2,847
Available-for-sale securities 10,281 25,986
Accounts receivable 3,313 3,014
Prepaid expenses 765 869
------------- ------------
Total current assets 18,183 32,716
Available-for-sale securities, non-current 52,358 58,236
Investment in affiliates 6,270 2,937
Property and equipment, net 35,300 35,531
Other assets 1,772 2,130
--------------- ------------
TOTAL ASSETS $113,883 $131,550
--------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $3,000 $3,000
Accounts payable 1,193 3,778
Other accrued liabilities 7,190 7,863
Deferred contract revenue 3,916 5,775
Current portion of long-term debt 615 658
--------------- ------------
Total current liabilities 15,914 21,074
Long-term debt 777 1,082
Stockholders' equity:
Preferred stock; $.001 par value; 20,000,000
shares authorized; issued and outstanding:
12,632 and 16,053, respectively -- --
Common stock; $.001 par value; 150,000,000
shares authorized; issued and outstanding:
36,476,277 and 36,009,055, respectively 36 36
Additional paid-in capital 404,262 399,155
Treasury stock (545,000 shares) (2,422) (967)
Notes receivable (20) (20)
Unrealized gains (losses) on securities (243) 578
Accumulated deficit (304,421) (289,388)
--------------- ------------
Total stockholders' equity 97,192 109,394
--------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $113,883 $131,550
--------------- ------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SCIOS INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
--------------- -------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product sales $8,445 $9,672 $17,088 $21,557
Co-promotion commissions 1,243 334 2,286 1,042
Research & development contracts 2,104 1,758 3,902 2,845
--------------- -------------- --------------- --------------
11,792 11,764 23,276 25,444
--------------- -------------- --------------- --------------
Costs and expenses:
Cost of goods sold 5,130 5,571 10,303 13,092
Research and development 9,119 7,761 17,785 14,725
Marketing, general and administration 4,471 4,346 8,890 8,923
Profit distribution to third parties 922 1,278 1,917 2,566
--------------- -------------- --------------- --------------
19,642 18,956 38,895 39,306
--------------- -------------- --------------- --------------
Loss from operations (7,850) (7,192) (15,619) (13,862)
Other income:
Investment income 818 1,341 1,762 2,280
Realized gains (losses) on securities (181) 68 (100) 99
Other income, net 243 17 299 70
--------------- -------------- --------------- --------------
880 1,426 1,961 2,449
Equity in net loss of affiliates (646) (832) (1,375) (1,810)
--------------- -------------- --------------- --------------
Net loss ($7,616) ($6,598) ($15,033) ($13,223)
--------------- -------------- --------------- --------------
Net loss per common share ($0.21) ($0.18) ($0.42) ($0.37)
--------------- -------------------------------- --------------
Weighted average number of
common shares outstanding 35,834,351 35,691,268 35,862,428 35,438,934
--------------- -------------- --------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SCIOS INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(15,033) $(13,223)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 2,301 1,749
Deferred contract revenue (1,859) 3,672
Equity in net loss of affiliates 1,375 1,658
Change in assets and liabilities:
Accounts receivable (299) (153)
Prepaid expenses 104 402
Other assets 358 88
Accounts payable (2,585) (1,787)
Other accrued liabilities (673) (2,307)
------------ -----------
Net cash used by operating activities (16,311) (9,901)
------------ -----------
Cash flows from investing activities:
Payments for property and equipment, net (2,070) (3,964)
Sales/maturities of marketable securities 91,428 87,266
Purchases of marketable securities (76,544) (93,220)
------------ -----------
Net cash provided (used) by investing activities 12,814 (9,918)
------------ -----------
Cash flows from financing activities:
Issuance of common stock and collection
of notes receivable from stockholders, net 399 357
Purchase of treasury stock (1,455) --
Debt repayments (348) (322)
------------ -----------
Net cash provided (used) by financing activities (1,404) 35
------------ -----------
Net increase in cash and cash equivalents 977 (19,784)
Cash and cash equivalents at beginning of period 2,847 29,674
------------ -----------
Cash and cash equivalents at end of period $ 3,824 $ 9,890
------------ -----------
Supplemental cash flow data:
Cash paid during the period for interest ($307) ($106)
Supplemental disclosure of non-cash investing
and financing:
Net unrealized securities gains (losses) (821) 2,918
Investment in affiliate $ 4,708 $ 3,618
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SCIOS INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Accounting Policies
The unaudited consolidated financial statements of Scios Inc.
("Scios" or the "Company") reflect, in the opinion of management, all
adjustments, consisting only of normal and recurring adjustments,
necessary to present fairly the Company's financial position at June
30, 1996 and the Company's results of operations for the three- and
six-month periods ended June 30, 1996 and 1995. Interim-period results
are not necessarily indicative of results of operations or cash flows
for a full-year period.
These financial statements and the notes thereto should be
read in conjunction with the Company's annual report on Form 10-K for
the year ended December 31, 1995. Investors are encouraged to review
the Form 10-K for a broader discussion of the Company's business and
the opportunities and risks inherent in the Company's business. Copies
of the 10-K are available from the Company on request.
The year-end balance sheet data were derived from audited
financial statements, but do not include all disclosures required by
generally accepted accounting principles.
Effective as of the beginning of 1996, the Company has adopted
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 121, ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires the Company to review for impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In certain situations, an
impairment loss would be recognized. The adoption of SFAS No. 121 did
not have any effect on the Company's Consolidated Financial Statements.
2. Recent Agreements
During the second quarter, the Company completed a number of
agreements with third parties. To add to the portfolio of products
currently promoted by the Scios sales force, the Company entered into a
four year agreement with Wyeth-Ayerst Laboratories ("Wyeth") to
co-promote Wyeth's antidepressant drug EFFEXOR(R) to selected
psychiatrists. In an agreement with GenVec Inc., the Company licensed
out a segment of the gene for vascular endothelial growth factor in
exchange for a share of potential future product revenues. With Novo
Nordisk A/S of Denmark, the Company signed an option agreement to
license Scios' insulinotropin technology. This agreement followed the
termination of the Company's licensing agreement to insulinotropin
rights and technologies with Pfizer Inc. The Company amended
its agreement with Genentech Inc. for the development and
commercialization of AURICULIN(R) anaritide to adjust the timeline
for milestone payments as a result of the need to conduct a second
Phase III clinical trial. In addition, the Company was notified by
Hoechst Marion Roussel, Inc. that it was terminating the Alzheimer's
collaboration between the companies effective December 1996. The
Company is currently seeking to form an alliance with another
biopharmaceutical company in this area.
3. Litigation
On May 25, 1995, the Company was served with three complaints
filed in the U.S. District Court for the Northern District of
California by three stockholders. The actions were filed against the
Company and Richard Casey, its Chairman and Chief Executive Officer, on
behalf of the individual plaintiffs and on behalf of other purchasers
of the Company's stock during the period from October 6, 1993 to May 2,
1995. The complaints, which were combined in August, 1995 into a
consolidated complaint, allege violations of federal securities laws,
claiming that the defendants issued a series of false and misleading
statements, including filings with the Securities and Exchange
Commission, regarding the Company and clinical trials involving one of
its products, AURICULIN(R) anaritide. The complaints seek unspecified
compensatory and punitive damages, attorneys fees and costs. On
December 1, 1995, the court heard oral argument on defendant's motion
to dismiss the complaint. The parties are awaiting the court's
decision. Discovery has not yet commenced. The Company believes it has
meritorious defenses and intends to defend the lawsuits vigorously. The
ultimate outcome of this action cannot presently be determined.
Accordingly, no provision for any liability or loss that may result
from adjudication or settlement thereof has been made in the
accompanying consolidated financial statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating Results
The net loss for the quarter ended June 30, 1996 was $7.6 million
compared to a net loss of $6.6 million in the corresponding quarter of 1995. For
the six-month periods ended June 30, 1996 and 1995, the net losses were $15.0
million and $13.2 million, respectively. For both the three and six-month
periods, the increase in net losses was primarily due to lower product sales,
higher research and development expenses and a reduction in investment income.
Total revenues for the three months ended June 30, 1996 were $11.8
million, the same as for the corresponding period in 1995. Product sales from
psychiatric products under license from SmithKline Beecham Corporation (the "SB
Products") declined to $8.4 million from $9.7 million for the three months ended
June 30, 1996 and 1995, respectively. The decline in sales was the result of
continuing competition from generic alternatives to the SB Products. The lower
product sales were partially offset by higher co-promotion commissions and
research and development contract revenue. The increase in co-promotion
commissions resulted from sales growth of HALDOL(R) Decanoate, a product
co-promoted with Ortho-McNeil Pharmaceutical. Contract revenues increased due to
recognition of a milestone payment from Kaken Pharmaceutical Co., Ltd. as a
result of its NDA filing in Japan for the use of FIBLAST(R) trafermin for the
treatment of non-healing wounds.
For the six months ended June 30, 1996 and 1995, revenues were $23.3
million and $25.4 million, respectively. The year-to-year decrease resulted from
a decline in product sales which was partially offset by higher revenue from
co-promotion commissions and research and development contracts. The increase in
contract revenue from 1995 to 1996 for the six-month periods was the result of
the milestone payment from Kaken noted above, and a one-time payment received in
the first quarter of 1996 related to the disposition of the Company's lung
surfactant patent rights.
Total costs and expenses for the three months ended June 30, 1996 were
$19.6 million versus $19.0 million for the same period in 1995. Spending for
research and development increased to $9.1 million in 1996 from $7.8 million in
1995 as a result of higher staffing levels and clinical trials costs to support
expanded product development activities. Expenses for marketing, general and
administration increased to $4.5 million in 1996 from $4.3 million in 1995. The
second quarter decline in profit distribution to third parties and cost of goods
from 1995 to 1996 was the result of lower SB Product sales.
Total costs and expenses for the six months ended June 30, 1996 were
$38.9 million versus $39.3 million for the same period in 1995. Spending for
research and development increased to $17.8 million in 1996 from $14.7 million
in 1995 for the reasons noted in the paragraph above. Expenses for marketing,
general and administration remained flat at $8.9 million. Profit distribution to
third parties and cost of goods decreased from 1995 to 1996 because of the lower
SB Product sales.
Other income decreased to $0.9 million in the quarter ended June 30,
1996 from $1.4 million in the comparable quarter of 1995. For the six-month
periods ended June 30, 1996 and 1995, other income decreased to $2.0 million
from $2.4 million. The decrease for both periods was principally due to lower
investment income from the Company's marketable securities and a net loss on
sales of securities in 1996 versus a net gain for the same period in 1995. The
decline in equity in the net loss of affiliates, for both the three and six
month periods, was the result of the Company's decreasing share of losses of
Guilford Pharmaceuticals Inc. ("Guilford"). The Company's percentage ownership
of Guilford and subsequent share of losses has declined to 12% due to Guilford's
public stock sale in March, 1996.
The ability of the Company to achieve profitability depends principally on
the Company's success in developing and commercializing its own products and on
its ability to complete agreements with third parties that result in additional
revenue. The Company's success in commercializing its own products will depend
on: the demonstrated safety and efficacy of products in development; the time
taken to complete clinical trials and regulatory submissions; the timing and
scope of regulatory approvals, particularly with respect to the Company's lead
products, AURICULIN(R) anaritide, NATRECOR(R) BNP and FIBLAST(R) trafermin; the
Company's ability to secure a commercial scale cost-effective drug supply; and
the level of market acceptance of approved products. The Company's ability to
raise additional revenue through third parties will be dependent on: its success
in marketing and selling the SB Products, HALDOL(R) Decanoate, EFFEXOR(R) and
any additional third-party product rights which it may acquire; the disposition
of various patent proceedings related to the protection of the Company's
potential products; the perceived value of the Company's current product
portfolio and research programs to outside parties; and the success of third
parties, such as Kaken Pharmaceuticals in Japan, in developing and
commercializing the Company's products.
Liquidity and Capital Resources
Combined cash, cash equivalents and marketable securities (both current
and non-current) totaled $66.5 million at June 30, 1996, a decrease of $20.6
million from December 31, 1995. The decrease was principally attributable to
$16.3 million used to fund operating activities, $2.1 million for the purchase
of property and equipment, $1.5 million for the acquisition of treasury stock
and $0.8 million of unrealized losses on marketable securities during the
six-month period.
The Company has experienced net operating losses since its inception
and expects to continue to incur losses for at least the next two years. The
Company's ability to achieve and sustain profitability, and therefore the rate
of utilization of the Company's current financial resources, will depend upon a
number of factors, particularly the success and timeliness of its product
development, clinical trials, regulatory approval and product introduction
efforts. Other contributing factors will be the Company's success in developing
new revenue sources to support research and development programs and its success
in marketing and promoting the SB Products, HALDOL(R) Decanoate, EFFEXOR(R) and
any other third-party products that may be in-licensed by the Company.
The Company's cash resources of $66.5 million at June 30, 1996,
together with revenues from product sales, collaborative agreements, interest
income, and any funding from existing or future debt arrangements, will be used
to fund current and new clinical trials for proprietary products under
development, to support continuing research and development programs and for
other general purposes. The Company believes its cash resources will be
sufficient to meet its operating and capital requirements for at least the next
two years. Key factors which will affect future cash use and the timing of the
Company's need to seek additional financing include the results of the Company's
partnering efforts and the timing and amounts realized from licensing and
partnering activities, the rate of spending required to develop the Company's
products, as well as its ability to respond to changing business conditions and
the net contribution obtained from the Company's marketing of products for third
parties.
Over the long term, the Company may need to arrange additional
financing for the future operation of its business, including the
commercialization of products currently under development, and it will consider
collaborative arrangements and additional public or private financings,
including additional equity financings. Factors influencing the availability of
additional funding include, but are not limited to, the Company's progress in
product development, investor perception of the Company's prospects and the
general conditions of the financial markets.
Except for descriptions of historical information contained herein,
the matters discussed in this Management's Discussion and Analysis of Financial
Condition and Results of Operations section are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on current expectations, and the Company
assumes no obligation to update this information. As discussed, numerous factors
could cause actual results to differ from those described in these
forward-looking statements. The Company cautions investors that its business is
subject to significant risks and uncertainties.
<PAGE>
Part II. Other Information
Item 4 Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May
14, 1996.
(a) The following individuals were elected directors of
the Company, each to serve until a successor is elected:
<TABLE>
<CAPTION>
Total Vote For Total Vote Withheld
Name Each Director From Each Director
<S> <C> <C>
Samuel H. Armacost 32,797,000 1,207,023
Richard L. Casey 33,127,862 876,161
Myron Du Bain 33,183,439 820,584
Robert W. Schrier, M.D. 33,293,588 710,437
Solomon H. Snyder, M.D. 32,704,217 1,299,806
Burton E. Sobel, M.D. 33,269,904 734,119
Eugene L. Step 33,281,565 722,458
</TABLE>
(b) The following matters were approved by stockholder
vote, with votes cast as indicated:
Ratification and approval of the Company's name
change from Scios Nova Inc. to Scios Inc.,
including the filing a Certificate of Amendment
to the Company's Certificate of Incorporation
with the Delaware Secretary of State:
<TABLE>
<S> <C>
Votes for: 32,592,927
Votes against 244,651
Abstentions: 121,038
Broker Non-Votes 1,045,407
</TABLE>
Ratification of the selection of Coopers &
Lybrand as the Company's independent auditors for
fiscal year 1996:
<TABLE>
<S> <C>
Votes cast for: 33,772,193
Votes cast against: 121,605
Abstentions: 110,225
Broker Non-Votes: N/A
</TABLE>
Broker non-votes were not relevant to the
foregoing matter.
(c) The following matter submitted by a stockholder was
defeated by stockholder vote, with votes cast as
indicated:
Stockholder proposal to appoint a special
committee to seek a buyer for the Company:
<TABLE>
<S> <C>
Votes cast for: 4,572,083
Votes cast against: 14,928,939
Abstentions: 1,012,826
Broker Non-Votes: 13,490,175
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Net Loss Per Share for the
three months ended June 30, 1996 and June 30,
1995.
11.2 Computation of Net Loss Per Share for the
six months ended June 30, 1996 and June 30,
1995.
(b) Reports on Form 8-K
None
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.
SCIOS INC.
By: /s/ Richard L. Casey
Richard L. Casey
Chairman of the Board, President and Chief Executive Officer
Date: August 14, 1996
By: /s/ Kevin McPherson
Kevin McPherson
Director of Finance (Acting Chief Accounting Officer)
Date: August 14, 1996
<PAGE>
INDEX TO EXHIBITS
SCIOS INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1996
<TABLE>
<CAPTION>
Exhibit Description Method of Filing
<S> <C> <C>
11.1 Statement regarding computation of Filed
per share earnings for the three electronically
months ended June 30, 1996 and herewith
June 30, 1995.
11.2 Statement regarding computation of Filed
per share earnings for the six electronically
months ended June 30, 1996 and herewith
June 30, 1995.
</TABLE>
SCIOS INC.
AND SUBSIDIARIES
Computation of Net Loss Per Share
(Calculated in accordance with the guidelines of Item 601
of Regulation S-K.
The effect of stock options on
loss per share is anti-dilutive)
<TABLE>
<CAPTION>
Three months ended
June 30,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C> <C>
PRIMARY:
Average common shares outstanding 35,834,351 35,691,268
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent
shares outstanding 35,834,351 35,691,268
----------------- -----------------
Net loss ($7,616,000) ($6,598,000)
----------------- -----------------
Net loss per share ($0.21) ($0.18)
----------------- -----------------
FULLY DILUTED:
Average common shares outstanding 35,834,351 35,691,268
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent -
shares outstanding 35,834,351 35,691,268
----------------- -----------------
Net loss ($7,616,000) ($6,598,000)
----------------- -----------------
Net loss per share ($0.21) ($0.18)
----------------- -----------------
</TABLE>
See notes to consolidated financial statements.
Exhibit 11.1
SCIOS INC.
AND SUBSIDIARIES
Computation of Net Loss Per Share
(Calculated in accordance with the
guidelines of item 601 of
Regulation S-K. The effect of
stock options on loss per
share is anti-dilutive
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C>
PRIMARY:
Average common shares outstanding 35,862,428 35,438,934
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent
shares outstanding 35,862,428 35,438,934
----------------- -----------------
Net loss $(15,033,000) $(13,223,000)
----------------- -----------------
Net loss per share ($0.42) ($0.37)
----------------- -----------------
FULLY DILUTED:
Average common shares outstanding 35,862,428 35,438,934
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent -
shares outstanding 35,862,428 35,438,934
----------------- -----------------
Net loss $(15,033,000) $(13,223,000)
----------------- -----------------
Net loss per share ($0.42) ($0.37)
----------------- -----------------
</TABLE>
See notes to consolidated financial statements
Exhibit 11.2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet, consolidated statement of operations, and
consolidated statement of cash flows included in the Company's Form 10-Q for the
period ending June 30, 1996, 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-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,824
<SECURITIES> 62,639
<RECEIVABLES> 3,313
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,183
<PP&E> 61,817
<DEPRECIATION> 26,517
<TOTAL-ASSETS> 113,883
<CURRENT-LIABILITIES> 15,914
<BONDS> 777
0
0
<COMMON> 36
<OTHER-SE> 97,192
<TOTAL-LIABILITY-AND-EQUITY> 113,883
<SALES> 17,088
<TOTAL-REVENUES> 23,276
<CGS> 10,303
<TOTAL-COSTS> 38,895
<OTHER-EXPENSES> (586)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,033)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,033)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
