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, 1997
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.
(Exact name of Registrant as specified in its charter)
Delaware 95-3701481
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Scios Inc.
2450 Bayshore Parkway
Mountain View, CA 94043x
(Address of principal executive offices) (Zip code)
(415) 966-1550
(Registrant's telephone number including area code)
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 36,510,923
<PAGE>
SCIOS INC.
AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements
<PAGE>
SCIOS INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $32,292 $1,587
Marketable securities 10,387 6,888
Accounts receivable 3,506 4,808
Prepaid expenses 748 786
------------- -----------
Total current assets 46,933 14,069
Marketable securities, non-current 38,881 53,695
Investment in affiliate 6,328 6,939
Property and equipment, net 36,520 36,839
Other assets 2,265 2,419
------------- -----------
TOTAL ASSETS $130,927 $113,961
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $3,000 $3,000
Accounts payable 892 2,507
Other accrued liabilities 6,522 10,011
Deferred contract revenue 8,666 3,666
Current portion of long-term debt and capital leases 781 723
------------- -----------
Total current liabilities 19,861 19,907
Long-term debt and capital leases 30,146 349
Minority interests -- 77
Stockholders' equity:
Preferred stock; $.001 par value; 20,000,000 shares authorized;
issued and outstanding: 12,632 and 16,053, respectively (liquidation
preference of $12,000 and $15,250, respectively) -- --
Common stock; $.001 par value; 150,000,000 shares authorized;
issued and outstanding: 36,510,923 and 36,506,297, respectively 37 37
Additional paid-in capital 404,485 404,456
Treasury stock (3,340) (2,991)
Notes receivable from stockholders (13) (13)
Unrealized losses on securities (326) (70)
Accumulated deficit (319,923) (307,791)
------------- -----------
Total stockholders' equity 80,920 93,628
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $130,927 $113,961
------------- -----------
</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,
1997 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
Revenues:
Product sales $6,159 $8,642
Co-promotion commissions 1,696 1,043
Research & development contracts 474 1,799
-------------- --------------
8,329 11,484
-------------- --------------
Costs and expenses:
Cost of goods sold 3,854 5,173
Research and development 10,880 8,666
Marketing, general and administration 5,326 4,419
Profit distribution to third parties 567 994
-------------- --------------
20,627 19,252
-------------- --------------
Loss from operations (12,298) (7,768)
Other income:
Investment income 657 943
Realized gains (losses) on securities (105) 81
Other income, net 148 56
-------------- --------------
700 1,080
Equity in net loss of affiliates (611) (729)
Minority interests 77 --
-------------- --------------
Net loss ($12,132) ($7,417)
-------------- --------------
Net loss per common share ($0.34) ($0.21)
-------------- --------------
Weighted average number of
common shares outstanding 35,831,662 35,890,504
-------------- --------------
</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,
1997 1996
------------ -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($12,132) ($7,417)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 1,345 1,121
Deferred contract revenue 5,000 (584)
Other 534 729
Change in assets and liabilities:
Accounts receivable 1,302 661
Accounts payable (1,615) (2,622)
Other accrued liabilities (3,489) (1,216)
Other 192 714
------------ -----------
Net cash used by operating activities (8,863) (8,614)
------------ -----------
Cash flows from investing activities:
Payments for property and equipment, net (1,026) (542)
Sales/maturities of marketable securities 89,091 40,910
Purchases of marketable securities (78,032) (31,269)
------------ -----------
Net cash provided by investing activities 10,033 9,099
------------ -----------
Cash flows from financing activities:
Purchase of treasury stock (349) (1,338)
Issuance of notes payable 30,000 --
Other (116) (159)
------------ -----------
Net cash provided (used) by financing activities 29,535 (1,497)
------------ -----------
Net increase (decrease) in cash and cash equivalents 30,705 (1,012)
Cash and cash equivalents at beginning of period 1,587 2,847
------------ -----------
Cash and cash equivalents at end of period $ 32,292 $ 1,835
------------ -----------
Supplemental cash flow data:
Cash paid during the period for interest ($134) ($160)
Supplemental disclosure of non-cash investing
and financing:
Change in net unrealized losses on securities (256) (833)
Investment in affiliate ($611) $ 4,708
</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 consolidated financial
position at March 31, 1997 and the Company's consolidated results of
operations and cashflows for the three-month periods ended March 31,
1997 and 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 accompanying them
should be read in conjunction with the Company's annual report on Form
10-K for the year ended December 31, 1996. 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.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings Per Share" ("SFAS No. 128") which
specifies the computation, presentation and disclosure requirements
for earnings per share. SFAS No. 128 will become effective for the
Company's 1997 fiscal year. The impact of adopting SFAS No. 128 is
not expected to have a material impact on the Company's financial
condition or results of operations.
2. Litigation
In September 1996, the United States District Court for the
Northern District of California dismissed with prejudice a lawsuit that
had been filed by certain stockholders in May 1995 against the Company
and Richard L. Casey, its chairman and chief executive officer, on
behalf of the individual plaintiffs and other purchasers of the
Company's stock during the period from October 6, 1993 to May 2, 1995.
The action alleged 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 AURICULIN(R)
anaritide ("AURICULIN"). The plaintiffs have filed notice that they
will appeal the District Court's ruling in favor of the Company. 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
On April 2, 1997, the Company announced that it had suspended
development of AURICULIN based upon the results of an interim analysis
of data from an ongoing 250 patient Phase III study in oliguric acute
renal failure. The study was suspended due to the low probability that
a positive outcome could be obtained with respect to its primary
clinical endpoint, dialysis-free survival. AURICULIN was under
development in collaboration with Genentech, Inc. ("Genentech").
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion contains forward-looking statements about
plans, objectives, future results and intentions of Scios. These forward-looking
statements are based on the current expectations of the Company, and the Company
assumes no obligation to update this information. Realization of these plans and
results involves risks and uncertainties, and the Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below, as well as those discussed in the Company's Form 10-K for the year ended
December 31, 1996.
Operating Results
The net loss for the quarter ended March 31, 1997 was $12.1 million
compared to a net loss of $7.4 million in the corresponding quarter of 1996. The
increase in net loss was primarily due to lower revenue from product sales and
research and development contracts combined with higher research and development
expenses.
Total revenues for the three months ended March 31, 1997 declined to
$8.3 million from $11.5 million in the corresponding period of 1996. Product
sales from psychiatric products under license from SmithKline Beecham
Corporation (the "SB Products") declined to $6.2 million from $8.6 million for
the three months ended March 31, 1997 and 1996, respectively. The sales decline
was the result of competition from new market entrants and generic drugs to the
SB Products. Gross margins decreased to 37% for the quarter ending March 31,
1997 from 40% in the prior year period as a result of an increase in product
returns. The increase in co-promotion commissions from 1996 to 1997 resulted
from higher revenue recognition based on sales growth of HALDOL(R) Decanoate
("HALDOL"), a product co-promoted with Ortho-McNeil Pharmaceutical, an affiliate
of Johnson and Johnson, and on sales of EFFEXOR(R) (venlafaxine HCl)
("EFFEXOR"), a product co-promoted with Wyeth-Ayerst Laboratories, a division of
American Home Products Corporation. Contract revenues for the three months ended
March 31, 1997 decreased $1.3 million from the corresponding period in 1996 due
to receipt of a one-time licensing payment in 1996 and the cessation of funding
for Alzheimer's research under a contract that ended in December 1996.
Total costs and expenses for the three months ended March 31, 1997 were
$20.6 million versus $19.3 million for the same period in 1996. Spending for
research and development increased to $10.9 million in 1997 from $8.7 million in
1996 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 $5.3 million from $4.4 million for the three-month
periods ended March 31, 1997 and 1996, respectively, because of higher staffing
levels. The first quarter decrease from 1996 to 1997 in cost of goods and profit
distribution to third parties was the result of the lower SB Product sales.
Other income decreased to $0.7 million in the quarter ended March 31, 1997
from $1.1 million in the comparable quarter of 1996. The decrease was
principally due to a net loss on sales of securities in 1997 versus a net gain
for the same period in 1996 and on a decline in interest income from the
Company's marketable securities. The equity in the net loss of affiliates of
$0.6 million in 1997 and $0.7 million in 1996 is the Company's proportional
share of losses of Guilford Pharmaceuticals Inc. ("Guilford"), an affiliate of
the Company which completed an initial public offering in 1994. The Company's
proportional share of Guilford was 10% and 12% on March 31, 1997 and 1996,
respectively. The Company's proportional share of Guilford declined further as a
result of Guilford's issuance of additional common stock in April 1997.
The ability of the Company to achieve profitability will depend
principally upon whether or not the Company is successful in developing and
commercializing its own products and on its ability to complete agreements with
third parties that result in additional revenue. In the case of AURICULIN, the
Company was unsuccessful in its development efforts. The Company recently
announced termination of its clinical development of AURICULIN based on the
results of an interim analysis of data from an ongoing 250-patient Phase III
study in oliguric acute renal failure and the low probability that a positive
outcome could be obtained with respect to its primary clinical endpoint,
dialysis-free survival. The Company's success in commercializing its other
products, including its lead products, NATRECOR(R) BNP ("NATRECOR") and
FIBLAST(R) trafermin ("FIBLAST"), will depend on numerous factors, including:
whether or not the Company can demonstrate safety and efficacy of the products
in development; the time taken to complete clinical trials and regulatory
submissions; the timing and scope of regulatory approvals; the Company's ability
to secure a cost-effective commercial scale drug supply; and the level of market
acceptance of approved products. In the case of NATRECOR, the Company expects to
announce important clinical data in the second half of 1997. Such data will be
an important consideration in determining whether to proceed with development
for the current indication. 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, EFFEXOR 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 Pharmaceutical Co., Ltd.
("Kaken") in Japan, in developing and commercializing the Company's products.
There can be no assurance that the Company will be successful in achieving its
development and commercialization goals.
Liquidity and Capital Resources
Combined cash, cash equivalents and marketable securities (both current
and non-current) totaled $81.6 million at March 31, 1997, an increase of $19.4
million from December 31, 1996. The increase was attributable to $30.0 million
received from the drawdown of a loan from Genentech. The loan is repayable in
cash, stock or a combination thereof, at the Company's option, no later than
December 30, 2002. Proceeds from the loan were partially offset by $8.9 million
used to fund operating activities, $1.0 million in property and equipment
spending, $0.3 million for the acquisition of treasury stock and $0.3 million of
unrealized losses on marketable securities resulting from a change in market
interest rates during the three-month period.
Deferred contract revenues for the three months ended March 31, 1997
increased to $8.7 million from $3.7 million in the corresponding period of 1996
due to receipt of a payment from Kaken associated with the future supply of
FIBLAST to support commercialization in Japan.
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, EFFEXOR and any other
third-party product rights that may be licensed by the Company.
The Company's cash resources of $81.6 million at March 31, 1997,
together with revenues from product sales, collaborative agreements and 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
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 and launch the Company's products, the net
contribution from the Company's marketing of current and future products for
itself and third parties and changes in the Company's business environment.
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 markets.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11.1: Computation of Net Loss Per Share
(b) 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.
May 6, 1997 By:/s/ Richard L. Casey
Date Chairman and CEO
May 6, 1997 By:/s/ Kevin McPherson
Date Director of Finance
(Chief Accounting Officer)
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,
1997 1996
----------------- -----------------
(Unaudited)
<S> <C> <C>
PRIMARY AND FULLY DILUTED:
Average common and common equivalent
shares outstanding 35,831,662 35,890,504
----------------- -----------------
Net gain (loss) ($12,132,000) ($7,417,000)
----------------- -----------------
Net loss per share ($0.34) ($0.21)
----------------- -----------------
</TABLE>
<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 March 31, 1997, 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-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 32,292
<SECURITIES> 49,268
<RECEIVABLES> 3,506
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,933
<PP&E> 67,263
<DEPRECIATION> 30,743
<TOTAL-ASSETS> 130,927
<CURRENT-LIABILITIES> 19,861
<BONDS> 30,146
0
0
<COMMON> 37
<OTHER-SE> 80,883
<TOTAL-LIABILITY-AND-EQUITY> 130,927
<SALES> 6,159
<TOTAL-REVENUES> 8,329
<CGS> 3,854
<TOTAL-COSTS> 20,627
<OTHER-EXPENSES> (166)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,132)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,132)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
