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 September 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 (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 95-3701481
Scios Inc.
2450 Bayshore Parkway, Mountain View, California 94040
415-966-1550
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 35,881,277
<PAGE>
Part I. Financial Information
Item 1. Financial Statements.
<PAGE>
SCIOS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,604 $2,847
Available-for-sale securities 13,718 25,986
Accounts receivable 5,230 3,014
Prepaid expenses 662 869
-------------- ------------
Total current assets 22,214 32,716
Available-for-sale securities, non-current 39,054 58,236
Investment in affiliates 8,952 2,937
Property and equipment, net 38,053 35,531
Other assets 2,672 2,130
-------------- ------------
TOTAL ASSETS $110,945 $131,550
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $3,000 $3,000
Accounts payable 1,993 3,778
Other accrued liabilities 8,626 7,863
Deferred contract revenue 3,789 5,775
Current portion of long-term debt 590 658
-------------- ------------
Total current liabilities 17,998 21,074
Long-term debt 706 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 404,263 399,155
Treasury stock (595,000 and 250,000 shares, respectively) (2,569) (967)
Notes receivable (13) (20)
Unrealized gains (losses) on securities (145) 578
Accumulated deficit (309,331) (289,388)
-------------- ------------
Total stockholders' equity 92,241 109,394
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $110,945 $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 Nine months ended
September 30, September 30,
1996 1995 1996 1995
--------------- ------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product sales $11,705 $8,289 $28,793 $29,846
Co-promotion commissions 2,204 563 4,490 1,605
Research & development contracts 2,641 548 6,543 3,393
--------------- ------------- --------------- --------------
16,550 9,400 39,826 34,844
--------------- ------------- --------------- --------------
Costs and expenses:
Cost of goods sold 6,663 5,144 16,966 18,236
Research and development 11,129 7,654 28,914 22,379
Marketing, general and administration 5,106 4,725 13,996 13,648
Profit distribution to third party 1,668 844 3,585 3,410
--------------- ------------- --------------- --------------
24,566 18,367 63,461 57,673
--------------- ------------- --------------- --------------
Loss from operations (8,016) (8,967) (23,635) (22,829)
Other income:
Investment income 728 1,267 2,490 4,030
Realized gains (losses) on securities (35) 211 (135) (173)
Other income (expense), net (269) 112 30 182
--------------- ------------- --------------- --------------
424 1,590 2,385 4,039
Equity in net gain (loss) of affiliates 2,682 (887) 1,307 (2,697)
--------------- ------------- --------------- --------------
Net loss ($4,910) ($8,264) ($19,943) ($21,487)
--------------- ------------- --------------- --------------
Net loss per common share ($0.14) ($0.23) ($0.56) ($0.61)
--------------- -------------------------------- --------------
Weighted average number of
common shares outstanding 35,931,277 36,005,126 35,885,377 35,469,524
--------------- ------------- --------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SCIOS INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(19,943) $(21,487)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 3,445 2,791
Deferred contract revenue (1,986) 3,738
Equity in net (gain) loss of affiliates (1,307) 2,697
Change in assets and liabilities:
Accounts receivable (2,216) 1,694
Prepaid expenses 207 324
Other assets (542) (286)
Accounts payable (1,785) (1,425)
Other accrued liabilities 763 (2,577)
------------ -----------
Net cash used by operating activities (23,364) (14,531)
------------ -----------
Cash flows from investing activities:
Payments for property and equipment, net (5,968) (5,076)
Sales and maturities of marketable securities 143,059 127,676
Purchases of marketable securities (112,331) (136,929)
------------ -----------
Net cash provided (used) by investing activities 24,760 (14,329)
------------ -----------
Cash flows from financing activities:
Issuance of common stock and collection
of notes receivable from stockholders, net 407 515
Purchase of treasury stock (1,602) --
Debt repayments (444) (457)
------------ -----------
Net cash provided (used) by financing activities (1,639) 58
------------ -----------
Net decrease in cash and cash equivalents (243) (28,802)
Cash and cash equivalents at beginning of period 2,847 29,674
------------ -----------
Cash and cash equivalents at end of period $ 2,604 $ 872
------------ -----------
Supplemental cash flow data:
Cash paid during the period for interest ($309) ($154)
Supplemental disclosure of non-cash investing
and financing:
Net unrealized securities gains (losses) (723) 2,687
Investment in affiliate $ 4,708 $ 799
</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
September 30, 1996 and the Company's results of operations for the
three and nine-month periods ended September 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.
2. 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 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 ("AURICULIN(R)").
The complaint sought unspecified compensatory and punitive damages,
attorneys fees and costs. On September 18, 1996, the court dismissed
the complaint with prejudice. Subsequent to the court's decision, the
plaintiffs have filed a motion to review the decision and arguments are
scheduled to be heard in mid-November, 1996. The Company believes it
has meritorious defenses and intends to defend the lawsuit 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.
3. Subsequent Events
In October, 1996, the Company entered into a collaboration agreement
with Wyeth-Ayerst, a division of American Home Products Corporation for
the development and commercialization of Scios' FIBLAST(R) trafermin
("FIBLAST(R)") for the treatment of neurological and cardiovascular
disorders. The two companies will collaborate in the development and
commercialization of FIBLAST(R) in North America, while Wyeth-Ayerst
will have exclusive marketing rights outside of North America and
certain Pacific Rim countries. At signing, Wyeth-Ayerst made a $12
million payment to Scios which will be reported in the fourth quarter.
In addition, Wyeth-Ayerst has provided a $12 million line of credit
that Scios may draw on to fund expansion of its FIBLAST(R)
manufacturing facility. Earlier in 1996, Wyeth-Ayerst and Scios entered
into a co-promotion agreement for Wyeth-Ayerst's anti-depressant
EFFEXOR(R) (venlafaxine HCL) ("EFFEXOR(R)"). On September 30, 1996,
American Home Products owned 1,579,000 shares or 4.4% of Scios common
stock.
<PAGE>
Part I. Other Information
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating Results
The net loss for the quarter ended September 30, 1996 was $4.9 million
compared to a net loss of $8.3 million in the corresponding quarter of 1995. For
the nine-month periods ended September 30, 1996 and 1995, the net losses were
$19.9 million and $21.5 million, respectively. For both the three and nine-month
periods, the decrease in net losses was primarily due to higher revenues from
co-promotion commissions, research and development contracts and an increase in
the equity in affiliates.
Total revenues for the three months ended September 30, 1996 were $16.6
million, versus $9.4 million for the corresponding period in 1995. Product sales
from psychiatric products under license from SmithKline Beecham Corporation (the
"SB Products") increased to $11.7 million from $8.3 million for the three months
ended September 30, 1996 and 1995, respectively. The increase in third quarter
1996 sales was the result of higher sales of ESKALITH CR(R) and PARNATE(R) and
inventory restocking after lower than expected sales in the second quarter of
1996. The increase in co-promotion commissions resulted from sales growth of
HALDOL(R) Decanoate ("HALDOL(R)"), a product co-promoted with Ortho-McNeil
Pharmaceutical, an affiliate of Johnson & Johnson. Contract revenues increased
primarily due to receipt of a payment from Novo Nordisk A/S of Denmark
associated with Scios' licensing of its insulinotropin technology and
recognition of royalty income associated with the product approval of Gliadel(R)
wafer, a product licensed to Guilford Pharmaceuticals ("Guilford").
For the nine months ended September 30, 1996 and 1995, revenues were
$39.8 million and $34.8 million, respectively. The year-to-year increase
resulted from higher revenue from co-promotion commissions and research and
development contracts which was partially offset by a decline in product sales.
The increase in contract revenue from 1995 to 1996 for the nine-month periods
was the result of the third quarter items noted above, combined with a milestone
payment from Kaken Pharmaceutical Co., Ltd. for the Company's FIBLAST(R) product
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 September 30, 1996
were $24.6 million versus $18.4 million for the same period in 1995. Spending
for research and development increased to $11.1 million in 1996 from $7.7
million in 1995 as a result of higher staffing levels, clinical trials costs and
drug supply purchases to support expanded product development activities.
Expenses for marketing, general and administration increased to $5.1 million in
1996 from $4.7 million in 1995. The third quarter increase in profit
distribution to third parties from 1995 to 1996 was the result of higher SB
Product sales.
<PAGE>
Total costs and expenses for the nine months ended September 30, 1996
were $63.5 million versus $57.7 million for the same period in 1995. Spending
for research and development increased to $28.9 million in 1996 from $22.4
million in 1995 for the reasons noted in the paragraph above. Expenses for
marketing, general and administration were $14.0 million and $13.6 million in
1996 and 1995, respectively. Cost of goods sold decreased from 1995 to 1996 for
the nine-month periods because of the lower SB Product sales, while the profit
distribution to third parties increased slightly because of higher profits
associated with the SB Product sales.
Other income decreased to $0.4 million in the quarter ended September
30, 1996 from $1.6 million in the comparable quarter of 1995. For the nine-month
periods ended September 30, 1996 and 1995, other income decreased to $2.4
million from $4.0 million. The decrease for both periods was principally due to
lower investment income from the Company's marketable securities and an increase
in royalty expenses resulting from the higher research and development contract
revenue. For the quarter, the decline in other income from 1995 to 1996 was also
due to a net loss on sales of securities in 1996 versus a net gain for the same
period in 1995. The increase in equity in the net gains and losses of
affiliates, for both the three and nine-month periods, is the result of the
Company's share of gains and losses of Guilford. In 1996, Guilford has reported
operating profits versus operating losses in 1995.
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), NATRECOR(R) BNP and FIBLAST(R); the
Company's ability to secure a cost-effective commercial scale 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), 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 $55.4 million at September 30, 1996, a decrease of
$31.7 million from December 31, 1995. The decrease was attributable to $23.4
million used to fund operating activities, $6.0 million for the purchase of
property and equipment, $1.6 million for the acquisition of treasury stock and
$0.7 million of unrealized losses on marketable securities during the nine-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), EFFEXOR(R) and any other
third-party products that may be in-licensed by the Company.
The Company's cash resources of $55.4 million at September 30, 1996,
together with revenues from product sales, collaborative agreements, interest
income, proceeds from the sale of stock held as equity investments, and any
funding from existing or future debt arrangements, will be used to support
continuing research and development programs, to fund current and new clinical
trials for proprietary products under development, to support commercialization
efforts for prospective products 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.
Item 6. Exhibits and Reports on Form 8-K.
1. Exhibits
Exhibit 11.1. Computation of Net Loss Per Share for the three months ended
September 30, 1996 and September 30, 1995
Exhibit 11.2. Computation of Net Loss Per Share for the nine months ended
September 30, 1996 and September 30, 1995
2. Reports on Form 8-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 CEO
Date: November 13, 1996
By:/s/ Kevin McPherson
Kevin McPherson
Director of Finance (Chief Accounting Officer)
Date: November 13, 1996
<PAGE>
INDEX TO EXHIBITS
SCIOS INC.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 1996
<TABLE>
<CAPTION>
Exhibit Description Method of Filing
<S> <C> <C>
11.1 Statement regarding computation of per Filed electronically
share earnings for the three months ended herewith
September 30, 1996 and September 30, 1995
11.2 Statement regarding computation of per Filed electronically
share earnings for the nine months ended herewith
September 30, 1996 and September 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
September 30,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C> <C>
PRIMARY:
Average common shares outstanding 35,931,277 36,005,126
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent
shares outstanding 35,931,277 36,005,126
----------------- -----------------
Net loss ($4,910,000) ($8,264,000)
----------------- -----------------
Net loss per share ($0.14) ($0.23)
----------------- -----------------
FULLY DILUTED:
Average common shares outstanding 35,931,277 36,005,126
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent -
shares outstanding 35,931,277 36,005,126
----------------- -----------------
Net loss ($4,910,000) ($8,264,000)
----------------- -----------------
Net loss per share ($0.14) ($0.23)
----------------- -----------------
</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>
Nine months ended
September 30,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C> <C>
PRIMARY:
Average common shares outstanding 35,885,377 35,469,524
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent
shares outstanding 35,885,377 35,469,524
----------------- -----------------
Net loss $(19,943,000) $(21,487,000)
----------------- -----------------
Net loss per share ($0.56) ($0.61)
----------------- -----------------
FULLY DILUTED:
Average common shares outstanding 35,885,377 35,469,524
Net effect of dilutive stock options -
based on treasury stock method 0 0
----------------- -----------------
Average common and common equivalent -
shares outstanding 35,885,377 35,469,524
----------------- -----------------
Net loss $(19,943,000) $(21,487,000)
----------------- -----------------
Net loss per share ($0.56) ($0.61)
----------------- -----------------
</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, consolidated statement of operations, and consolidated
statement of cash flows included in the Company's Form 10-Q for the period
ending September 30, 1996, and is qualified in its entirety by referen
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,604
<SECURITIES> 52,772
<RECEIVABLES> 5,230
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,214
<PP&E> 65,716
<DEPRECIATION> 27,663
<TOTAL-ASSETS> 110,945
<CURRENT-LIABILITIES> 17,998
<BONDS> 706
0
0
<COMMON> 36
<OTHER-SE> 92,205
<TOTAL-LIABILITY-AND-EQUITY> 110,945
<SALES> 28,793
<TOTAL-REVENUES> 39,826
<CGS> 16,966
<TOTAL-COSTS> 63,461
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (19,943)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,943)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,943)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
