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 June 30, 2000
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.
820 W. Maude Ave.
Sunnyvale, CA 94086
(Address of principal executive offices) (Zip code)
(408) 616-8200
(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 38,468,652
<PAGE>
SCIOS INC.
AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
------
Item 1. Financial Statements
<PAGE>
<TABLE>
<CAPTION>
SCIOS INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(In thousands, except share data)
June 30, December 31,
ASSSETS 2000 1999
--------------- -----------------
<S> <C> <C>
Cash and cash equivalents $12,632 $11,582
Marketable securities 21,261 18,776
Accounts receivable 3,087 3,068
Prepaid expenses 429 899
--------------- -----------------
Total current assets 37,409 34,325
Marketable securities, non-current 48,987 70,354
Property and equipment, net 10,268 11,534
Other assets 1,246 2,059
--------------- -----------------
TOTAL ASSETS $97,910 $118,272
--------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,652 $1,572
Other accrued liabilities 9,306 11,157
Deferred contract revenue 17,148 17,890
Current portion of long term debt -- 2,000
--------------- -----------------
Total current liabilities 29,106 32,619
Long-term debt 44,876 42,866
--------------- -----------------
Total liabilities 73,982 75,485
--------------- -----------------
Stockholders' equity:
Series A preferred stock; $.001 par value; 20,000,000
shares authorized; none issued and outstanding -- --
Series B preferred stock; $.001 par value; 5,000,000
shares authorized; none issued and outstanding -- --
Common stock; $.001 par value; 150,000,000
shares authorized; issued and outstanding
38,468,652 and 38,468,652 shares, respectively 38 38
Additional paid-in capital 416,746 416,600
Treasury stock; 631,358 and 735,036
shares, respectively (2,970) (3,458)
Notes receivable from stockholders (167) (108)
Deferred compensation, net (169) (340)
Accumulated other comprehensive loss (831) (1,060)
Accumulated deficit (388,719) (368,885)
--------------- -----------------
Total stockholders' equity 23,928 42,787
--------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $97,910 $118,272
--------------- -----------------
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
<PAGE>
<TABLE>
<CAPTION>
SCIOS INC.
AND SUBSIDIARY
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
---------------- --------------- --------------- ---------------
<S> <C> <C>
(Unaudited) (Unaudited)
Revenues:
Product sales $7,895 $9,472 $13,202 $17,294
Co-promotion commissions 2,049 1,886 4,074 4,614
Research & development contracts 1,482 2,885 3,376 5,062
---------------- --------------- --------------- ---------------
11,426 14,243 20,652 26,970
---------------- --------------- --------------- ---------------
Costs and expenses:
Cost of goods sold 4,603 4,890 7,703 9,198
Research and development 11,294 8,129 20,578 18,672
Marketing, general and administration 5,593 4,249 11,369 9,568
Profit distribution to third parties 920 1,528 1,521 2,645
Restructuring charges (credits) (993) -- (993) 6,670
---------------- --------------- --------------- ---------------
21,417 18,796 40,178 46,753
---------------- --------------- --------------- ---------------
Loss from operations (9,991) (4,553) (19,526) (19,783)
Other income and expense:
Investment income 1,204 1,100 2,588 2,126
Interest expense (1,019) (670) (2,010) (1,340)
Realized gains (losses) on securities (100) 305 (184) 5,091
Other income (expense), net (403) 41 (702) 272
---------------- --------------- --------------- ---------------
(318) 776 (308) 6,149
---------------- --------------- --------------- ---------------
Net loss (10,309) (3,777) (19,834) (13,634)
---------------- --------------- --------------- ---------------
Other comprehensive income (loss):
Change in unrealized gains (losses)
on securities 325 (978) 229 (11,808)
---------------- --------------- --------------- ---------------
Comprehensive loss ($9,984) ($4,755) ($19,605) ($25,442)
---------------- --------------- --------------- ---------------
Loss per common share:
Basic and diluted ($0.27) ($0.10) ($0.52) ($0.36)
---------------- --------------- --------------- ---------------
Weighted average number of Common shares outstanding used in
calculation of:
Basic and diluted 37,780,077 37,724,094 37,780,077 37,735,349
---------------- --------------- --------------- ---------------
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
<PAGE>
<TABLE>
<CAPTION>
SCIOS INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Six months ended
June 30,
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($19,834) ($13,634)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,967 1,551
Accrued long-term interest payable 2,010 1,339
(Gain) loss on sale of securities 184 (5,091)
Minority interest -- (20)
Deferred compensation 170 148
Change in assets and liabilities:
Accounts receivable (19) 2,287
Accounts payable 1,079 (561)
Other accrued liabilities (799) (2,904)
Other 1,224 (45)
Deferred contract revenue (742) 335
Restructuring charges (1,052) 4,019
------------ -----------
Net cash used in operating activities (15,812) (12,576)
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (701) (1,843)
Proceeds from the sale of assets -- 1,500
Sales/maturities of marketable securities 34,262 68,303
Purchases of marketable securities (15,335) (55,287)
------------ -----------
Net cash provided by investing activities 18,226 12,673
------------ -----------
Cash flows from financing activities:
Issuance of common stock and collection of notes
receivable from stockholders 636 1,189
Purchase of treasury stock -- (1,047)
The payment of notes payable (2,000) --
------------ -----------
Net cash provided by (used in) financing activities (1,364) 142
------------ -----------
Net increase in cash and cash equivalents 1,050 239
Cash and cash equivalents at beginning of period 11,582 6,683
------------ -----------
Cash and cash equivalents at end of period $ 12,632 $ 6,922
============ ===========
Supplemental cash flow data:
Cash paid during the period for interest $2,000 $--
Supplemental disclosure of non-cash investing
and financing:
Change in net unrealized gains on securities $ 229 $ 11,808
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
<PAGE>
SCIOS INC.
AND SUBSIDIARY
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 June 30, 2000 and the Company's consolidated results of
operations for the three-month and six-month periods ended June 30,
2000 and 1999. 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, 1999. 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
and from the Securities and Exchange Commission's Edgar database at
web site www.sec.gov.
The year-end balance sheet data were derived from audited
financial statements, but do not include all disclosures required by
generally accepted accounting principles.
<PAGE>
2. Restructuring Charges and Expenses
On March 1, 1999, the Company announced a restructuring plan that
included reduction of the Company's full-time workforce by
approximately 30% and the consolidation of its headquarters,
development and research staff into currently leased facilities in
Sunnyvale, California. The Company recorded a one-time restructuring
charge of approximately $6.7 million for the disposal of certain
unused assets and severance costs. All restructuring activities were
complete by the end of the second quarter of 2000, leaving a remaining
balance of $1.0 million in the reserve. The unused reserve was due to
changes in the estimates of the cost of workforce reductions and the
gain on the sale of excess capital assets that were unanticipated. The
reserve was credited to restructure expense in the second quarter of
2000.
<TABLE>
<CAPTION>
Asset Lease
Workforce (Disposal) exit Contractual
Restructuring charge (credits) reductions Proceeds costs Commitments Facilities Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Restructuring provisions at March 1, 1999 $2,819 $1,800 $581 $1,110 $360 $6,670
Charges to restucture in 1999 (2,293) (1,795)
(400) (555) (305) (5,348)
1999 change in estimate: 233 (1,400)
1,507 (555) (55) (270)
---------------------------------------------------------------------------
Restructuring liability at December 31, 1999 759 -- 293 -- -- 1,052
---------------------------------------------------------------------------
First quarter 2000 activity (111) (73) -- -- (184)
Second quarter 2000 activity (159) 284 -- -- -- 125
---------------------------------------------------------------------------
Restructure balance on completion 489 284 220 -- -- 993
Credit to restructure reserve on completion
of restructuring plan (489) (284) (220) -- -- (993)
---------------------------------------------------------------------------
Restructuring liability at June 30, 2000 $---- $---- $---- $---- $---- $----
==============================================================================
</TABLE>
<PAGE>
3. Computation of Loss Per Share
The following table sets forth the computation of the Company's
basic and diluted loss per share (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> C> <C> <C> <C>
Numerator
Basic
Net loss $ 10,309 $ 3,777 $ 19,834 $ 13,634
----------- ----------- ----------- -----------
Diluted
Net loss $ 10,309 $ 3,777 $ 19,834 $ 13,634
----------- ----------- ----------- -----------
Denominator
Basic
Weighted average shares 37,781 37,724 37,781 37,735
Basic loss per share $ 0.27 $ 0.10 $ 0.52 $ 0.36
----------- ----------- ----------- -----------
Diluted (loss) per share $ 0.27 $ 0.10 $ 0.52 $ 0.36
----------- ----------- ----------- -----------
</TABLE>
The potentially dilutive effect of outstanding options to
purchase common stock would have been anti-dilutive in both 2000 and
1999, and were therefore excluded from the diluted earnings
calculation for both periods. Although potentially dilutive, the
payoff of the Genentech loan through the issuance of stock would have
been anti-dilutive in both 2000 and 1999 and was therefore excluded
from the calculations.
At June 30, 2000 and 1999 stock options at prices ranging from
$3.8125 to $5.5625 and from $3.688 to $7.125 per share, respectively,
would have increased the number of weighted average common shares
outstanding for both the three-month and six-month periods of 2000 and
1999, but were not included in the computation of diluted loss per
share because they were antidilutive.
<PAGE>
4. Industry and Geographic Segment Information
Management uses one measurement of profitability for its
business. The Company receives revenue from product sales and from
licensing and development of products. The Company markets its
products in the U.S. and Japan and receives licensing revenue from
partners in the U.S., Canada, Europe and Asia Pacific and operates in
one business segment.
All long-lived assets are located in the United States and all
revenues were earned in the United States in the six-month periods
ended June 30, 2000 and 1999.
5. Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, ("SFAS 133"), " Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and
hedging activities. SFAS 133 will be effective for fiscal years
beginning in 2001. The Company does not currently hold derivative
instruments or engage in hedging activities.
In December 1999, the staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 (SAB 101),
"Revenue Recognition in Financial Statements." SAB 101 requires that
license and other upfront fees received from research collaborators be
recognized over the term of the agreement unless the fee is in
exchange for products delivered or services performed that represent
the culmination of a separate earnings process. The Company has not
yet determined the impact of its implementation on the reporting of
the Company's contract revenue. SAB 101 will be effective beginning
the third quater 2000.
In March 2000, the Financial Accounting Standards Board Issued
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation - an interpretation of APB no. 25," ("FIN 44"). The
Interpretation clarifies the definition of employee for purposes of
applying APB No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of
various modifications to the terms of a previously fixed stock option
or award and the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective
July 1, 2000, but certain conclusions in this Interpretation cover
specific events that occur after either December 15, 1998, or January
12, 2000. Management believes that FIN 44 will not have a material
effect on the financial position or results of operations of the
Company.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In accordance with Federal laws, the Company reminds readers that the
following discussion contains forward-looking statements about plans,
objectives, future results and intentions of the Company. 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 the historical results or future plans discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those items discussed below, as well as the considerations discussed
in the Company's Form 10-K for the year ended December 31, 1999.
Operating Results
-----------------
Three Months Ended June 30, 2000 and 1999
Revenues in the second quarter of 2000 were $11.4 million and included $7.9
million in product sales, $2.0 million in co-promotion commissions, and $1.5
million in contract revenues. Revenues in the corresponding quarter of 1999 were
$14.2 million, including $9.5 million in product sales, $1.9 million in
co-promotion commissions and $2.9 million in contract revenues. The decrease in
revenues from the second quarter of 1999 to the same period in 2000 was mainly
due to a $1.6 million decline in sales of psychiatric products under licenses
from SmithKline Beecham Corporation ("SB Products") and to the decline in
contract revenue of $1.4 million. The decline was partially offset by a $0.1
million increase in co-promotion commissions period to period. The decrease in
SB Product sales was partially the result of reduced distributor inventories due
to a temporary shortening of the shelf-life of Eskalith CR, one of five products
developed and manufactured by SmithKline Beecham Corporation that are now sold
by the Company. The Company expects that over time SB Product sales will
continue to erode because of competition from new market entrants and generic
drugs. The decline quarter-to-quarter in contract revenue was due to the
Company's receipt in 1999 of a one-time milestone payments of $1.0 million from
Gen-Vec and $0.4 million in contract revenue from Bayer AG ("Bayer") that were
not repeated in 2000.
The Company incurred total operating expense of $21.4 million in the second
quarter of 2000 versus $18.8 million for the same period in 1999. The $2.6
million increase in expenses was mainly due to the increase of $3.2 million in
research and development expenses and $1.4 million in marketing, general and
administrative expenses that were partially offset by the decrease in cost of
goods, profit distribution to third parties and restructuring credits. The
increase in research and development expenses was mainly due to increases in
Natrecor clinical trial expenses and to increased expenses for development of
p-38 kinase inhibitors. The increase in marketing, general and administrative
was mainly the result of increased Natrecor marketing activities and other
consulting during the period. The decline quarter-to-quarter in cost of goods
and profit distribution was a result of the decline in sales of SB Products. In
the second quarter the Company completed the 1999 restructuring activities and
recorded a $1.0 million credit to the statement of operations relating to the
unused portion of the restructure reserve.
<PAGE>
Other income and expense were $0.8 million of income for the second quarter
of 1999 compared to $0.3 million of expense in 2000. Investment income increased
$0.1 million from quarter-to-quarter due mainly to higher interest rates.
Interest expense increased from $0.7 million in 1999 to $1.0 million in 2000 due
to increases in interest rates quarter-to-quarter and to increased notes payable
balances period-to-period. Realized gains on sales of securities were $0.3
million in the second quarter of 1999 compared to a loss of $0.1 million in
2000. Other income was $0.4 million in 1999 and was mainly comprised of rental
income, which the Company did not have in 2000 because the rental properties
were sold as part of the restructure in 1999.
The net loss for the second quarter of 2000 was $10.3 million compared to a
net loss of $3.8 million in the second quarter of 1999. The $6.5 million
increase in losses quarter-to-quarter was mainly the result of decreasing SB
product sales and increasing expenses for Natrecor clinical trials and
development costs for p-38 kinase inhibitors.
Six Months Ended June 30, 2000 and 1999
Total revenues for the six months ended June 30, 2000 were $20.7 million
versus $27.0 million for the same period in 1999. The $6.3 million decrease in
revenues was principally due to declines of $4.1 million in sales from
psychiatric products under license from SB, $0.5 million in co-promotion
commissions and $1.7 million in research and development contracts. The decrease
in SB Product sales was partially the result of reduced distributor inventories
due to a temporary shortening of the shelf-life of Eskalith CR and to
competition from new market entrants and generic drugs. Co-promotion commissions
declined as a result of lower incentive payments received from co-promotion of
Risperdal(R) (risperidone) in 2000 versus 1999. The decrease in research and
development revenue from 1999 to 2000 was mainly the result of a $1.2 million
decrease in revenue from Bayer, the Company's former Natrecor(R) partner, and
from a $0.4 million decrease in milestone payments. In the six-month period of
1999, the Company received a $1.0 million milestone payment from Gen-Vec versus
a $0.6 million payment in the same period in 2000 from Biosite for diagnostic
uses of BNP.
Total costs and expenses for the six months ended June 30, 2000 were $40.2
million compared to $46.8 million for the same period in 1999. The spending
decrease was mainly due to a one-time charge of $6.7 million for corporate
restructuring activities that was recorded in the first quarter of 1999. On
completion of the corporate restructuring in the current period, the Company
recorded a $1.0 million credit relating to the unused portion of the
restructuring reserve. Cost of goods decreased $1.5 million from period to
period as a result of the decline in SB product sales. Spending for research and
development increased $1.9 million from $18.7 million to $20.6 million for the
six-month period in 1999 and 2000, respectively. The increase was the result of
a $3.6 million increase in Natrecor clinical trial expenses which was partially
offset by the decreases in headcount expenses that resulted from the restructure
in March 1999. The marketing, general and administrative expense increase of
$1.8 million was mainly attributable to proxy contest expenses and increases in
consulting, marketing and medical education symposia for Natrecor. Profit
distribution to third parties declined $1.1 million from the six-month period in
1999 to the comparable period in 2000 because of decreased sales of SB Products.
<PAGE>
Other income and expense decreased $6.4 million from the six-month period
ended June 30, 1999 to the comparable period in 2000. The decrease in income was
principally due to the $5.3 million decrease in realized gains on sale of
securities. In the first quarter of 1999, the Company sold its remaining 1.3
million shares of Guilford Pharmaceuticals, Inc. stock for a gain of $4.8
million. In the six-month period ended June 30, 2000, investment income
increased by $0.5 million from the same period in 1999. The increase was
principally due to higher interest rates and cash balances for the six-month
period in 2000 compared to the same period in 1999. Interest expense increased
to $2.0 million from $1.3 million for the six months ended June 30, 2000 and
1999, respectively, due to increased notes payable balances and higher interest
rates from period to period.
In 1999, the Company determined with the Food and Drug Administration
("FDA") the nature of the additional clinical trial (referred to by the Company
as the "VMAC Trial") that the agency requires before it will consider approval
of Natrecor for marketing. The Company has continued regular interactions with
the FDA about the filing of an amended NDA containing the results of the VMAC
Trial. The Company initiated enrollment in the VMAC Trial in October 1999 and on
July 31, 2000 announced the completion of the 480 patient study.
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. Among the factors that will determine the Company's success in
commercializing its products are: the demonstrated safety and efficacy of
products in development; the cost of and 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 product Natrecor; the Company's
ability to maintain a cost-effective drug supply; the Company's success in
developing and implementing cost effective sales and marketing strategies either
on its own behalf or in partnership with other companies; and the level of
market acceptance if products are approved, both at product launch and over
time. The Company's ability to raise additional revenue through third parties
will be dependent on the factors described above, as well as other factors such
as: its success in marketing and selling the third-party products which it may
acquire the right to co-promote; 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. and Chiron Corporation on Fiblast and Novo Nordisk A/S on GLP-1, 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 $82.9 million at June 30, 2000, a decrease of $17.8 million
from December 31, 1999. The decrease was primarily attributable to cash used to
fund operations and to the repayment of $2.0 million in debt.
<PAGE>
The Company is striving to achieve profitability over the next several
years, however the Company expects it may incur losses over the next two years.
The timing of the Company's success in reaching its objectives to achieve and
sustain profitability, in the short term, depends principally on the success of
the Company in achieving regulatory approvals and generating sales from
Natrecor. Profitability will also depend on a number of other factors including
the Company's success and timeliness of its product development, clinical trial,
regulatory approval and product introduction efforts. Other contributing factors
will be the Company's ability to develop new revenue sources to support research
and development programs and its success in marketing and promoting the products
of third parties that may be licensed by the Company.
The Company's resources of $82.9 million in cash, cash equivalents and
marketable securities (both current and non-current) at June 30, 2000, together
with a $3.4 million operating lease line that expires December 31, 2001 and
revenues from product sales, collaborative agreements, interest income and any
funding from existing or future debt or equity arrangements, will be used to
support current and new clinical trials for proprietary products under
development, to support development and 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 several years. Key factors that will affect future cash
use and the timing of the Company's need to seek additional financing include
the Company's decisions concerning the degree to which it will incur expenses to
launch its products in the United States market following the necessary
regulatory approvals, the results of the Company's partnering efforts, the
timing and amounts realized from licensing and partnering activities, the rate
of spending required to develop the Company's products and respond to changing
business conditions, and the net contribution produced by the Company's ability
to co-promote and market 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.
The information above contains forward-looking statements including,
without limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions, and the adequacy of its resources that are
made pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned that actual results may be
different than those expected and that forward-looking statements should be read
in conjunction with the Company's disclosures in its most recent Annual Report
on Form 10-K as filed with the Securities and Exchange Commission.
<PAGE>
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, ("SFAS 133"), " Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 will be effective for
fiscal years beginning in 2001. The Company does not currently hold derivative
instruments or engage in hedging activities.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements." SAB 101 requires that license and other upfront fees
received from research collaborators be recognized over the term of the
agreement unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings process. The
Company has not yet determined the impact of its implementation on the reporting
of the Company's contract revenue. SAB 101 will be effective beginning in the
third quarter 2000.
In March 2000, the Financial Accounting Standards Board Issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB no. 25," ("FIN 44"). The Interpretation
clarifies the definition of employee for purposes of applying APB No. 25, the
criteria for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award and the accounting for an exchange of stock
compensation awards in a business combination. This Interpretation is effective
July 1, 2000, but certain conclusions in this Interpretation cover specific
events that occur after either December 15, 1998, or January 12, 2000.
Management believes that FIN 44 will not have a material effect on the financial
position or results of operations of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
No significant change in market risk has occurred since the filing by the
Company on form 10-K for the year ended December 31, 1999. Reference is made to
Part II, item 7A, Quantitative and Qualitative Disclosures About Market Risk, in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999
<PAGE>
Part II. Other Information
Item 2. Changes in Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(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.
/s/ Richard B. Brewer
August 14, 2000 By:________________________________________
Richard B. Brewer, President and CEO
/s/ David W. Gryska
August 14, 2000 By:_________________________________________
David W. Gryska, Vice President and CFO
