FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 March 31, 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 (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 95-3701481
Scios Inc.
2450 Bayshore Parkway, Mountain View, California 94043
415-966-1550
(formerly Scios Nova Inc.)
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 ofv1934 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 March 31, 1996.
Title Outstanding
Common Stock, $.001 par value 36,352,949
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
<PAGE>
SCIOS INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(In thousands, except share data)
March 31, December 31,
1996 1995
--------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,835 $2,847
Available-for-sale securities 25,531 25,986
Accounts receivable 2,353 3,014
Prepaid expenses 697 869
--------------- ----------------
Total current assets 30,416 32,716
Available-for-sale securities, non-current 48,217 58,236
Investment in affiliates 6,916 2,937
Property and equipment, net 34,952 35,531
Other assets 1,588 2,130
--------------- ----------------
TOTAL ASSETS $122,089 $131,550
--------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $3,000 $3,000
Accounts payable 1,156 3,778
Other accrued liabilities 6,647 7,863
Deferred contract revenue 5,191 5,775
Current portion of long-term debt 634 658
--------------- ----------------
Total current liabilities 16,628 21,074
Long-term debt 943 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:
36,352,949 and 36,009,055, respectively 36 36
Additional paid-in capital 403,867 399,155
Treasury stock (2,305) (967)
Notes receivable (20) (20)
Unrealized gains (losses) on securities (255) 578
Accumulated deficit (296,805) (289,388)
--------------- ----------------
Total stockholders' equity 104,518 109,394
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $122,089 $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
March 31,
1996 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
Revenues:
Product sales $8,642 $11,885
Co-promotion commissions 1,043 708
Research & development contracts 1,799 1,087
-------------- -------------
11,484 13,680
-------------- -------------
Costs and expenses:
Cost of goods sold 5,173 7,521
Research and development 8,666 6,964
Marketing, general and administration 4,419 4,577
Profit distribution to third parties 994 1,288
-------------- -------------
19,252 20,350
-------------- -------------
Loss from operations (7,768) (6,670)
Other income:
Investment income 943 1,421
Realized gains (losses) on securities 81 (453)
Other income, net 56 53
-------------- -------------
1,080 1,021
Equity in net loss of affiliates (729) (978)
-------------- -------------
Net loss ($7,417) ($6,627)
-------------- -------------
Net loss per common share ($0.21) ($0.19)
-------------- -------------
Weighted average number of
common shares outstanding 35,890,504 35,349,500
-------------- -------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SCIOS INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(7,417) $(6,627)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 1,121 871
Deferred contract revenue (584) (177)
Equity in net loss of affiliates 729 978
Change in assets and liabilities:
Accounts receivable 661 201
Prepaid expenses 172 55
Other assets 542 80
Accounts payable (2,622) (1,932)
Other accrued liabilities (1,216) (1,969)
------------ -----------
Net cash used by operating activities (8,614) (8,520)
------------ -----------
Cash flows from investing activities:
Warrant exercise -- (166)
Payments for property and equipment, net (542) (3,601)
Sales/maturities of marketable securities 40,910 41,870
Purchases of marketable securities (31,269) (51,391)
------------ -----------
Net cash provided (used) by investing activities 9,099 (13,288)
------------ -----------
Cash flows from financing activities:
Issuance of common stock and collection
of notes receivable from stockholders, net 4 357
Purchase of treasury stock (1,338) --
Debt repayments (163) (161)
------------ -----------
Net cash provided (used) by financing activities (1,497) 196
------------ -----------
Net decrease in cash and cash equivalents (1,012) (21,612)
Cash and cash equivalents at beginning of period 2,847 29,674
------------ -----------
Cash and cash equivalents at end of period $ 1,835 $ 8,062
------------ -----------
Supplemental cash flow data:
Cash paid during the period for interest ($160) ($54)
Supplemental disclosure of non-cash investing
and financing:
Net unrealized securities gains (losses) (833) 1,692
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 March 31, 1996 and the Company's results of
operations for the three-month period ended March 31, 1996. 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 121 did
not have any effect on the Company's Consolidated Financial Statements.
2. The Company's ownership in Guilford Pharmaceuticals Inc. ("Guilford")
declined from 16% to 12% as a result of an additional public stock offering by
Guilford in March, 1996. Because two officers of the Company serve on Guilford's
Board of Directors, the Company is continuing to account for its investment in
Guilford under the equity method. As a result of the stock offering, in
accordance with Staff Accounting Bulletin 5:H, the Company increased its
recorded investment in Guilford by $4.7 million in the first quarter of 1996.
<PAGE>
3. 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 Operation.
Operating Results
The net loss for the quarter ended March 31, 1996 was $7.4 million
compared to a net loss of $6.6 million in the corresponding quarter of 1995. The
increase in net loss was primarily due to lower product sales and higher
research and development expenses. The product sales decrease from 1995 to 1996
was partially offset by higher research and development contract revenue and
co-promotion commissions.
Total revenues for the three months ended March 31, 1996 declined to
$11.5 million from $13.7 million in the corresponding period of 1995 due to
lower product sales. Product sales from psychiatric products under license from
SmithKline Beecham Corporation (the "SB Products") declined to $8.6 million from
$11.9 million for the three months ended March 31, 1996 and 1995, respectively.
The decline of sales is the result of continuing competition from generic
alternatives to the SB Product. Gross margins increased to 40% for the quarter
ending March 31, 1996 from 37% in the prior year period as a result of a price
increase and a favorable product mix. The increase in co-promotion commissions
resulted from higher revenue recognition based on sales growth of HALDOL(R)
Decanoate, a product co-promoted with Ortho-McNeil Pharmaceutical. Contract
revenues increased due to receipt of a one-time payment related to the
disposition of the Company's lung surfactant patent rights.
Total costs and expenses for the three months ended March 31, 1996 were
$19.3 million versus $20.4 million for the same period in 1995. Spending for
research and development increased to $8.7 million in 1996 from $7.0 million in
1995 as a result of higher staffing and clinical trials costs to support
expanded product development activities. Expenses for marketing, general and
administration decreased to $4.4 million from $4.6 million for the three-month
periods ended March 31, 1996 and 1995, respectively, because of lower sales
force costs. The decreases in profit distribution to third parties and cost of
goods for the three months ended March 31, 1996 from the comparable 1995 period
were the result of the lower SB Product sales.
<PAGE>
Other income increased to $1.1 million in the quarter ended March 31,
1996 from $1.0 million in the comparable quarter of 1995. The increase was
principally due to a net gain on sales of securities in 1996 versus a net loss
for the same period in 1995. Partially offsetting the gain on securities sales
was a decline in interest income from the Company's marketable securities. The
equity in the net loss of affiliates of $0.7 million in 1996 and $1.0 in 1995 is
the Company's proportional share of Guilford's losses. The Company's
proportional share of Guilford was 12% and 29% on March 31, 1996 and 1995,
respectively.
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.
The Company expects to continue to incur losses for several more years.
The ability of the Company to achieve profitability depends principally upon:
(i) the safety and efficacy of the Company's products, the progress of its
product development efforts, its success in enrolling patients in clinical
trials and the timing and scope of regulatory approvals, particularly with
respect to the Company's lead products AURICULIN(R) anaritide ("AURICULIN") and
NATRECOR(R) BNP; (ii) the Company's success in generating operating profits from
marketing and selling the SB Products, HALDOL(R) Decanoate and additional
third-party product rights which it may acquire, the Company's ability to
establish and maintain profitable arrangements under which to represent the
products of third parties, the impact of competing products and the Company's
ability to forecast future trends affecting the timing of revenue recognition,
such as the level of Medicaid rebates and rate of sales growth over a particular
period and continuing availability of these products from its partners; and
(iii) the development of new third-party funding sources and other revenues to
support continuing research and development programs and the results realized by
third parties on whom the Company may rely to sell its products, particularly
outside of the United States. Profitability will also be affected by the
disposition of various patent proceedings related to protection of the Company's
products and the Company's ability to undertake complex manufacturing processes
in a cost-effective manner to scale-up and then manufacture products the Company
expects to market directly as well as any products the Company may manufacture
for third parties, if any. With limited manufacturing resources of its own, the
Company has entered into contracts with, and is dependent upon, third-party
suppliers for the manufacture of its current lead products. Although the Company
does not currently foresee a supply problem, future product supply and the
Company's profitability could be affected by events at these suppliers over
which the Company has limited control.
<PAGE>
Liquidity and Capital Resources
Combined cash, cash equivalents and marketable securities (both current
and non-current) totaled $75.6 million at March 31, 1996, a decrease of $11.5
million from December 31, 1995. The decrease was principally attributable to
$8.6 million used to fund operating activities, $1.3 million for the acquisition
of treasury stock and $0.8 million of unrealized losses on marketable securities
resulting from a change in market interest rates during the three-month period.
The $4.0 million increase in investment in affiliates reflects the
write-up of the Company's equity investment in Guilford as a result of
Guilford's March 1996 public stock offering, reduced by the Company's
proportional share of Guilford's losses.
The $0.6 million decrease in net property and equipment balances from
December 31, 1995 to March 31, 1996 was principally due to depreciation expense
exceeding capital purchases during the three-month period.
The decrease in accounts payable of $2.6 million during the three-month
period ending March 31, 1996 was the result of payments of year-end 1995
accruals.
The decrease in other accrued liabilities of $1.2 million from December
31, 1995 to March 31, 1996 was the result of payments to third parties
associated with sales and royalty revenues received in the fourth quarter of
1995.
The increase in additional paid-in capital of $4.7 million was
principally the result of the write-up of the Company's equity investment in
Guilford.
The $1.3 million increase in Treasury stock was the result of the
Company's purchase during the quarter of 295,000 shares of stock under the
previously announced stock repurchase program.
The unrealized losses on securities of $0.2 million at March 31, 1996
represent the difference between the cost and market value of the Company's
marketable securities at quarter end. The $0.8 million change in unrealized
gains (losses) on securities from December 31, 1995 to March 31, 1996 was the
result of an increase in market interest rates which took place during the first
three months of the year.
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 trial, 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 and any other
third-party products that may be in-licensed by the Company.
<PAGE>
The Company's cash resources of $75.6 million at March 31, 1996,
together with revenues from product sales, collaborative agreements and 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
three 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 from the Company's marketing of current and future products
for third parties.
Over the long term, the Company will 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
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Computation of Net Loss Per Share.
(b) Reports on Form-K
None
<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.
SCIOS INC.
By: /s/ Richard L. Casey
Richard L. Casey
Chairman of the Board, President and Chief Executive Officer
Date: May 14, 1996
By: /s/ Kevin McPherson
Kevin McPherson
Director of Finance (Acting Chief Accounting Officer)
Date: May 14, 1996
<PAGE>
INDEX TO EXHIBITS
SCIOS INC.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 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 March 31, 1996 herewith
and March 31, 1995.
</TABLE>
<PAGE>
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
March 31,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C> <C>
PRIMARY:
Average common shares outstanding 35,890,504 35,349,500
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent
shares outstanding 35,890,504 35,349,500
----------------- -----------------
Net loss ($7,417,000) ($6,627,000)
----------------- -----------------
Net loss per share ($0.21) ($0.19)
----------------- -----------------
FULLY DILUTED:
Average common shares outstanding 35,890,504 35,349,500
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent -
shares outstanding 35,890,504 35,349,500
----------------- -----------------
Net loss ($7,417,000) ($6,627,000)
----------------- -----------------
Net loss per share ($0.21) ($0.19)
----------------- -----------------
</TABLE>
See notes to consolidated financial statements.
Exhibit 11.1
<TABLE> <S> <C>
<PAGE>
<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 March 31, 1996, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,835
<SECURITIES> 73,748
<RECEIVABLES> 2,353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,416
<PP&E> 34,952
<DEPRECIATION> 1,121
<TOTAL-ASSETS> 122,089
<CURRENT-LIABILITIES> 16,628
<BONDS> 943
0
0
<COMMON> 36
<OTHER-SE> 104,482
<TOTAL-LIABILITY-AND-EQUITY> 122,089
<SALES> 8,642
<TOTAL-REVENUES> 11,484
<CGS> 5,173
<TOTAL-COSTS> 19,252
<OTHER-EXPENSES> 729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,417)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,417)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
