<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/ A
(AMENDMENT NO. 1)
[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 NO. 0-15242
DURAMED PHARMACEUTICALS, INC.
Incorporated Under the IRS Employer I.D.
Laws of the State No. 11-2590026
of Delaware
7155 East Kemper Road
Cincinnati, Ohio 45249
(513) 731-9900
Indicate by checkmark 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, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- ----
Common Stock, $.01 par value per share:
Shares Outstanding as of May 9, 1997 14,781,232
Page 1 of 18 pages
<PAGE> 2
DURAMED PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. Financial Information
- -------------------------------
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets.................................................. 3-4
Consolidated Statements of Operations........................................ 5
Consolidated Statements of Cash Flows........................................ 6
Consolidated Statements of Stockholders'
Equity................................................................ 7
Notes to Consolidated Financial
Statements............................................................ 8-10
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations...................... 11-16
PART II. Other Information
- ---------------------------
ITEM 2. Changes in Securities.................................................... 16
ITEM 6. Exhibits and Reports on Form 8-K......................................... 16
SIGNATURES ........................................................................... 17
</TABLE>
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<PAGE> 3
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ -------------
Unaudited
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,500 $ 1,811,182
Trade accounts receivable,
less allowance of $1,382,000
and $1,339,000, respectively 7,312,812 7,460,452
Inventories 11,138,289 13,188,627
Prepaid expenses and other assets 2,226,673 1,455,251
------------ ------------
Total current assets 20,681,274 23,915,512
Property, plant and equipment:
Land 1,000,000 1,000,000
Buildings and improvements 18,212,730 18,211,740
Equipment, furniture and fixtures 23,644,403 23,589,782
------------ ------------
42,857,133 42,801,522
Less accumulated depreciation
and amortization (13,950,811) (13,499,466)
------------ ------------
Property, plant and equipment - net 28,906,322 29,302,056
Deposits and other assets 501,235 416,288
------------ ------------
Total assets $ 50,088,831 $ 53,633,856
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 4
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ -------------
Unaudited
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,882,904 $ 4,461,434
Accrued liabilities 6,135,503 5,178,068
Current portion of long-term
debt and other liabilities 2,633,217 3,363,798
Current portion of capital lease obligations 1,084,130 1,113,114
------------ ------------
Total current liabilities 14,735,754 14,116,414
------------ ------------
Long-term debt, less current portion 12,008,442 9,989,461
Long-term capital leases, less current portion 1,468,912 1,727,587
Other long-term liabilities -- 161,171
------------ ------------
Total liabilities 28,213,108 25,994,633
------------ ------------
Stockholders' equity:
Convertible Preferred Stock Series B, par value $.001;
outstanding shares in 1997 and 1996 6 6
Common stock - authorized 50,000,000 shares,
par value $.01; 14,707,431 and 14,603,516 shares in
1997 and 1996 respectively 147,074 146,035
Additional paid-in capital 81,067,409 80,073,586
Accumulated deficit (59,338,766) (52,580,404)
------------ ------------
Total stockholders' equity 21,875,723 27,639,223
------------ ------------
Total liabilities and stockholders' equity $ 50,088,831 $ 53,633,856
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 5
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 10,738,791 $ 10,700,198
Cost of goods sold 7,865,592 7,825,200
------------ ------------
Gross profit 2,873,199 2,874,998
------------ ------------
Operating expenses:
Product development 6,372,220 1,099,316
Selling 978,714 1,011,004
General and administrative 1,998,215 2,374,541
------------ ------------
9,349,149 4,484,861
------------ ------------
Operating loss (6,475,950) (1,609,863)
Interest expense 282,412 551,232
------------ ------------
Loss before preferred dividends (6,758,362) (2,161,095)
Preferred dividends -- 274,918
------------ ------------
Net loss to common shareholders $ (6,758,362) $ (2,436,013)
============ ============
Loss per share $ (.46) $ (.28)
============ ============
Weighted average number of shares outstanding 14,674,318 8,565,621
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 6
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 6,758,362) ($ 2,161,095)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 465,559 556,082
Recognition of deferred revenues -- (250,000)
Provision for doubtful accounts 42,150 37,871
Common stock issued in connection with
employee compensation plans 54,886 61,905
Changes in assets and liabilities:
Trade accounts receivable 105,490 (439,405)
Inventories 2,050,338 (3,877,352)
Prepaid expenses
and other assets (771,421) (396,737)
Accounts payable 421,470 887,751
Accrued liabilities 1,214,637 (192,462)
Other (77,042) (12,086)
------------ ------------
Net cash (used in) operating activities (3,252,295) (5,785,528)
------------ ------------
Investing activities:
Capital expenditures (79,611) (400,063)
Refunds (deposits) on capital equipment 1,880 (5,808)
------------ ------------
Net cash (used for) investing activities (77,731) (405,871)
------------ ------------
Cash flows from financing activities:
Payments of long-term debt, including current maturities (712,426) (1,994,078)
Net increase (decrease) in revolving credit facility 2,424,918 (4,510,332)
Long-term borrowings 20,772 1,798,832
Issuance of preferred stock - net -- 10,857,367
Issuance of common stock 46,282 162,350
Dividends paid (257,202) (122,740)
------------ ------------
Net cash provided by financing activities 1,522,344 6,191,399
------------ ------------
Net change in cash (1,807,682) --
Cash at beginning of period 1,811,182 2,600
------------ ------------
Cash at end of period $ 3,500 $ 2,600
============ ============
Supplemental cash flow disclosures:
Interest paid $ 317,391 $ 562,154
See accompanying notes.
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Preferred Stock Common Stock Additional
--------------- --------------------------- Paid-In Accumulated
Series B Shares Amount Capital Deficit Total
--------------- --------------------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 $ 6 14,603,516 $ 146,035 $ 80,073,586 ($52,580,404) $ 27,639,223
Issuance of stock in connection
with benefit plans 5,501 55 54,831 54,886
Issuance of stock in connection
with stock options 9,045 90 46,192 46,282
Issuance of stock in settlement
of certain liabilities 89,369 894 892,800 893,694
Net loss for 1997 (6,758,362) (6,758,362)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - MARCH 31, 1997 $ 6 14,707,431 $ 147,074 $ 81,067,409 ($59,338,766) $ 21,875,723
============ ============ ============ ============ ============ ============
See accompanying notes.
</TABLE>
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<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Interim Financial Data
- ----------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and notes thereto included in the Annual Report of Duramed
Pharmaceuticals, Inc. (the "Company" or "Duramed") on Form 10-K for the year
ended December 31, 1996, as amended (the "1996 10-K").
Note 2: Loss Per Share
- ----------------------------
Loss per share is computed using the weighted average of common shares
outstanding only. Recognition of outstanding options, warrants and convertible
preferred stock in computing loss per share is not required as their effect
would be antidilutive.
Note 3: Inventories
- -------------------------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Components of inventories include:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials $ 7,106,876 $ 6,767,105
Work-in-process 475,238 452,905
Finished goods 4,700,401 7,520,247
Reserves (1,144,226) (1,551,630)
------------ ------------
Net inventory $ 11,138,289 $ 13,188,627
============ ============
</TABLE>
The Company had manufactured a commercial launch quantity of its generic
conjugated estrogens product which was developed in accordance with the Food and
Drug Administration's (FDA) guidance established in 1991 and current official
USP compositional standards. On May 5, 1997, the Company was notified by the FDA
that at this time, it would not approve a generic conjugated estrogens product
developed in accordance with the guidance established by the FDA in 1991 and
current official USP compositional standards. The Company is evaluating various
options with respect to its generic conjugated estrogens product and related
inventory. In view of
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<PAGE> 9
the FDA's decision, however, the Company has determined that it is prudent to
write off the generic conjugated estrogens inventory; accordingly, a charge in
the amount of $3,465,000 has been recorded and is reflected in product
development expenses for the quarter ended March 31, 1997.
The product currently meets the required stability criteria and will be retained
until such time as it no longer passes those tests. In the event the Company is
ultimately successful in obtaining approval for the product, some, or all of the
inventory write-off may be recovered.
Note 4: Debt and Other Long-Term Liabilities
- ---------------------------------------------------
Debt
- ----
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------------------------------------
<S> <C> <C>
Revolving credit facility $ 2,424,918 $ ---
Manufacturing facility expansion loan 5,362,500 5,500,000
Equipment liability 4,000,000 4,000,000
Equipment loan 1,920,140 2,118,979
Note payable to State of Ohio 832,329 877,342
Installment notes payable 101,772 124,415
----------------- ----------------
14,641,659 12,620,736
Less amount classified as current 2,633,217 2,631,275
----------------- ----------------
$ 12,008,442 $ 9,989,461
================= ================
</TABLE>
During 1997, the Company funded its operations with net proceeds received
previously from private placements of Convertible Preferred Stock and borrowings
under its revolving credit facility.
The amended terms of the revolving credit facility permit the Company to borrow
up to $6.5 million based upon eligible collateral ($11.2 million as of May 9,
1997) and the Company's current financial condition and operating performance.
Borrowings on the revolving credit facility bear interest at the rate of prime
plus 1%, and are collateralized by substantially all assets of the Company
including inventory, receivables and the manufacturing facility. As of May 9,
1997, the Company had $3,309,000 in borrowings outstanding under its revolving
credit facility.
The manufacturing facility expansion loan is a ten year $5.5 million facility
which provided a portion of the financing for the expansion of the Company's
manufacturing facility and is supported by a loan guaranty from Johnson &
Johnson. Principal payments on this loan commenced on January 1, 1997. Interest
is payable monthly based upon the prime rate.
The equipment liability of $4.0 million at December 31, 1996 represents an
obligation to Ortho-McNeil Pharmaceutical Corporation ("Ortho-McNeil") for
equipment that was provided in connection with the Company's facility expansion
that was completed in 1995. Since the
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<PAGE> 10
Company did not receive regulatory approval to market its generic conjugated
estrogens product, the Company will be required, at Ortho-McNeil's option,
either to return the equipment or to purchase it at fair market value. The
Company and Ortho-McNeil are currently in negotiations, which could revise the
terms of the agreement and the repayment schedule for this equipment. However,
based on the current agreement terms, if Ortho-McNeil requires Duramed to
purchase the equipment, repayments would be established on the basis of equal
quarterly payments over a three year period based upon the fair market value of
the equipment at the time, and the obligation would be subject to interest at
the prime rate in effect.
The Company anticipates that the manufacturing facility expansion and related
equipment will be utilized to commercialize products on file with the FDA
(exclusive of the Company's generic conjugated estrogens product) as well as
other products under development. Accordingly, the facility and its equipment
are an integral part of the Company's business plan.
The equipment loans represent financing by the Company's bank for equipment
purchases, bear interest at the rate of prime plus 1%, and require monthly
installments of principal and interest. One of the loans is payable over a three
year term and requires a monthly principal payment of $42,355 plus interest
through April 1, 1999; the other loan is payable over a five year term and
requires a monthly principal payment of $23,925 plus interest through March 1,
2000. These loans are collateralized by the assets financed.
The note payable to the State of Ohio is secured by the Company's manufacturing
facility. The loan bears interest at 7.5%. In the third quarter of 1996, the
State waived the balloon payment that was due on November 1, 1996 and revised
the terms to require minimum monthly payments of $20,394 through November 1,
2000, and certain other payments as defined by the agreement. This debt is
personally guaranteed by a former officer and by a director.
Other long-term debt also includes facilities of varying amounts and terms which
are generally collateralized by the assets financed.
The Company's other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
Other Long-Term Liabilities March 31, December 31,
- --------------------------- 1997 1996
---------------------------------------------
<S> <C> <C>
Abandoned facility obligation - net $ --- $ 893,694
Less amount classified as current --- 732,523
------------------ ------------------
$ --- $ 161,171
================== ==================
</TABLE>
The abandoned facility obligation represented the amounts due, net of sublease
income, under terms of a lease which extended through September 30, 1998. Due to
the Company's financial condition at the time, the Company was unable to meet
its commitments under the lease and vacated the facility in 1991. During the
first quarter of 1997, the Company settled the remaining obligation through the
issuance of 89,369 shares of Duramed common stock.
- 10 -
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
CONJUGATED ESTROGENS UPDATE
The Company has had an application on file with the FDA for a generic conjugated
estrogens product since September 1994. The product was developed based upon the
bioequivalency guidance established by the FDA in 1991, which had been
reaffirmed repeatedly over the past six years, and current official USP
compositional standards.
On May 5, 1997, the Company was notified by the FDA that at this time it would
not approve a generic conjugated estrogens product based upon the guidance
established by the FDA in 1991 and current official USP compositional standards.
The Company believes it has various options with respect to its generic
conjugated estrogens product including instituting certain studies encouraged by
the FDA, seeking a new drug approval for the product and seeking approval for
the product in markets outside the United States. In view of the FDA's decision,
however, the Company has determined that it is prudent to write off the generic
conjugated estrogens inventory, accordingly, a charge in the amount of
$3,465,000 has been recorded and is reflected in product development expenses
for the quarter. The product currently meets the required stability criteria and
will be retained until such time as it no longer passes those tests. In the
event the Company is ultimately successful in obtaining approval for the
product, some, or all of the inventory write-off may be recovered. Additionally,
the Company accrued approximately $300,000 in pre-marketing expenses for the
quarter related to the terms of its generic conjugated estrogens product
marketing agreement with Ortho-McNeil, which requires the Company to reimburse
Ortho-McNeil for a portion of its pre-approval marketing expenses if the product
is not approved.
The Company filed a Citizen Petition with the U.S. Food and Drug Administration
on July 30, 1997, asking that Premarin(R) brand of conjugated estrogens tablets
be declared deficient in its labeling in that it fails to identify its active
ingredients. The petition requests that the FDA require the manufacturer of
Premarin(R), Wyeth Ayerst Laboratories, to amend the labeling to comply with the
federal requirements and to withhold approval of any new drug applications for
new dosage strengths, new indications for Premarin(R), and any drug combinations
that include Premarin(R), until the drug is adequately characterized and its
active ingredients definitively identified.
On August 4, 1997, the Company filed an Investigational New Drug ("IND")
application for the initiation of a clinical program to evaluate synthetic
conjugated estrogens in the treatment of postmenopausal symptoms. The
satisfactory completion of this clinical research effort will provide the
efficacy information which will constitute the basis for filing of a New Drug
Application ("NDA") for the Company's product scheduled for the first quarter
of 1998.
As previously disclosed, the Company has agreements related to its generic
conjugated estrogens product with Ortho-McNeil and with Schein Pharmaceutical,
Inc. As a result of approval of the generic conjugated estrogens product not
having been obtained by June 30, 1996, under the Company's agreements with
Ortho-McNeil the Company may be required to purchase certain equipment from
Ortho-McNeil or to return such equipment to Ortho-McNeil and may lose
distribution rights to certain Ortho-McNeil products. These matters are
described under "Operating Expenses -- Other Matters," and under "Liquidity and
Capital Resources." The Company's agreement with Schein remains in place as the
Company continues to seek approval of an Abbreviated New Drug Application for
its generic conjugated estrogens product. On August 7, 1997, the Company filed a
Complaint for Declaratory Judgment with the Court of Common Pleas, Hamilton
County, Ohio, seeking a declaration that the agreement only applies to a product
approved and marketed on the basis of an ANDA.
- 11 -
<PAGE> 12
NET SALES
Net sales for the three month period ended March 31, 1997 were comparable to the
same period in 1996. The Company has agreements with several manufacturers
including Ortho-McNeil, whereby the Company markets and distributes their
generic prescription drug products. The terms of these agreements vary, but
typically provide for a sharing of profits between the Company and the
manufacturer. For the period ended March 31, 1997 and 1996, the percentage of
the Company's sales comprised of products marketed for others were 34.3%.
Recognition of deferred revenues from Ortho-McNeil contributed $250,000 to net
sales in the first quarter of 1996.
GROSS MARGIN
The gross margin, and the corresponding percentage of net sales, was $2.9
million (26.8%) for the first quarter of 1997 compared to $2.9 million (26.9%)
for the first quarter of 1996, resulting from a comparable sales mix. The gross
margin in the first quarter of 1996 was favorably impacted by the recognition of
$250,000 in deferred revenues (all deferred revenues were fully recognized in
1996). The deferred revenue recognized in 1996 relates to the $2.0 million
received by the Company in 1994 from Ortho-McNeil. The revenue was amortized
into income over a period (1995 - $1.5 million; 1996 - $.5 million) to properly
match costs incurred by the Company in pursuit of approval and commercial launch
of its generic conjugated estrogens product. The gross profit generated by
products distributed by the Company pursuant to agreements with manufacturers
including Ortho-McNeil was approximately $559,000, and $652,000 for the period
ended March 31, 1997 and 1996, respectively.
There can be no assurance that, with the Company's current product line, the
present gross margin levels can be maintained if the Company's products,
particularly Methylprednisolone, should experience increased competition.
OPERATING EXPENSES
Product Development
Excluding the $3,465,000 conjugated estrogens inventory charge, product
development expenditures increased by $1,808,000 (164.5%) in the period ended
March 31, 1997 compared to the comparable period in 1996. The increase was due
to spending for bioequivalency studies, milestone payments to product
development partners and the expansion of the Company's product development
capabilities through the acquisition of Hallmark Pharmaceuticals, Inc.
("Hallmark"). The increase in product development expenditures reflects the
Company's commitment to expanding its product line. The Company's product
development program is broad-based with product development activities in
Cincinnati, the Hallmark division in New Jersey, Kiel Labs in Georgia and
Duramed Europe in Oxford, England. The product development emphasis is on
products and therapeutic categories such as hormones, oncology, cardiovascular
and pain. These products are being developed through sophisticated technology
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<PAGE> 13
including patented control release delivery systems and biotechnology. In
addition to nine product applications awaiting approval at the FDA, the Company
has approximately 30 active product development projects which should result in
filed applications by the end of 1998. The Company received approval of its
Prochlorperazine product which is the generic equivalent of Compazine(R) on May
2, 1997. The Company filed the application for this product on July 28, 1996 and
expects to begin shipments in the third quarter of 1997, following completion of
process validation. Product development expenditures in the 1996 period are net
of reimbursements received from Schein Pharmaceutical, Inc. ("Schein") pursuant
to the terms of a contractual agreement in connection with the development of
the generic conjugated estrogens product.
Selling
The Company's sales and marketing expenses in the first quarter of 1997
decreased by $332,000 (32.8%) over the same period in 1996 excluding a charge of
$300,000 in connection with certain contractual commitments associated with its
generic conjugated estrogens product. The reduction in selling expenses is a
reflection of the Company's steps taken during 1996 to reduce operating
expenses.
General and Administrative
The decrease in general and administrative expenses in the first quarter of 1997
compared to the same period in 1996 was due primarily to a reduction of staff
positions and attendant costs. The expense levels in both the first quarter of
1996 and 1997 reflect comparable levels of legal and consulting costs associated
with responding to various issues in connection with its Abbreviated New Drug
Application ("ANDA") for generic conjugated estrogens.
Net Interest Expense
Interest expense decreased in the first quarter of 1997 compared to the same
period in 1996, due primarily to a reduction in borrowings under the Company's
revolving credit facility.
Income Taxes
Due to the reported net loss in the first quarters of 1996 and 1997, no
provision for income tax was recorded.
Preferred Dividends
Preferred dividends in the first quarter of 1996 were $274,918, which
represented the dividend provision associated with outstanding Convertible
Preferred Stock. All issued Convertible Preferred Stock converted into common
stock during 1996; accordingly, there is no continuing dividend requirement.
Other Matters
Under the terms of agreements with Ortho-McNeil, Duramed has non-exclusive
distribution rights to the Ortho-McNeil products Acetaminophen with Codeine,
Tolmetin Sodium, Tolmetin Sodium DS, Oxycodone with Acetaminophen and
Estropipate. The distribution agreement for
- 13 -
<PAGE> 14
each of these products specifies a term of ten years subject to reduction to
three years (if not extended) from the date of first sale if Duramed's generic
conjugated estrogens product is not approved. Duramed commenced marketing
Estropipate during the fourth quarter of 1993 and the other Ortho-McNeil
products during the fourth quarter of 1994. The Company is continuing to
distribute the products and is discussing an extension of these rights with
Ortho-McNeil. Loss of these distribution rights would likely have a material
adverse effect upon the Company's financial position and results of operations.
Management believes that it is in the best interest of the Company and its
shareholders to continue its product development program and accordingly plans
to continue its spending on its product development program which will likely
result in operating losses in the range of $3.0 to $5.0 million per quarter
until the Company receives approval on pending product applications and
commences marketing the products. The Company expects to begin to generate a
profit from operations during the second half of 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has funded its operations by raising capital through the issuance of
Convertible Preferred Stock, of which Series C and D have converted into common
stock as of December 31, 1996; and through borrowings under its revolving credit
facility.
On June 4, 1997, the Company reached agreement and closed on the issuance of
$10.0 million of Series E Convertible Preferred Stock. The Series E Preferred
Stock will be convertible at the option of the holder at a discount to the
closing bid price of the Common Stock of the Company subject to a minimum and
maximum, with provisions for cash redemption in certain circumstances.
The amended terms of the Company's revolving credit facility permits the Company
to borrow up to $6.5 million, based upon eligible collateral ($11.2 million as
of May 9, 1997) unless the Company's operating results substantially improve or
the Company obtains additional sources of financing. As of May 9, 1997 the
Company had $3,309,000 in borrowings under the revolving credit facility.
In connection with various agreements related to the Company's generic
conjugated estrogens product along with the distribution rights for certain
products, Ortho-McNeil provided $2 million in cash and the use of $4 million in
equipment for the Company's hormone replacement therapy ("HRT") facility
expansion and Ortho-McNeil's parent, Johnson & Johnson, guaranteed a $5.5
million construction loan for the HRT facility expansion. Under the terms of the
agreement, if FDA approval of the conjugated estrogens product is not obtained,
the Company may be required, at Ortho-McNeil's option, either to return the
equipment or to purchase it at its fair market value at that time. Under the
existing agreement, if the Company is required to purchase the equipment, the
purchase price plus interest at the current prime rate will be payable on a
quarterly basis over three years. In the fourth quarter of 1996, the Company
recorded a $4.0 million liability for the equipment provided by Ortho-McNeil.
Under the terms of its agreements with Ortho-McNeil, the Company is not required
to return the $2.0 million cash payment received from Ortho-McNeil. The Company
is obligated to reimburse Ortho-McNeil for approximately $300,000 of its
pre-approval marketing expenses for the conjugated estrogens product. This
amount is to be paid monthly over a twelve month period. In view of the FDA's
decision the
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<PAGE> 15
Company is discussing all aspects of its current contractual arrangements with
Ortho-McNeil. At this time, the Company cannot predict the outcome of these
discussions.
The Company anticipates that the HRT manufacturing facility expansion and
related equipment will be utilized to commercialize products on file with the
FDA (exclusive of the Company's conjugated estrogens product) as well as other
products under development. Accordingly, the facility and its equipment are an
integral part of the Company's business plan.
Management is encouraged by the results to date from the Company's product
development program and has concluded that it is in the best interests of the
Company and its stockholders for the Company to continue substantial spending
for research and development and for hiring incremental personnel and procuring
necessary equipment to prepare for the production and launch of certain products
on file. Management recognizes that such actions will result in continued
reported losses for the Company until the Company begins to receive anticipated
revenues from products now on file, or to be filed, with the FDA. The Company
does not anticipate substantial revenues from such products before late 1997
and, accordingly, does not anticipate a return to profitable operations until
the second half of 1998. In the meantime, the Company's product development
program will not be supported from the Company's operations and therefore
will require additional capital which may result in dilution to current
shareholders depending on the amount of capital required and the terms under
which it is raised. The extent of the Company's need for additional capital
is dependent on whether the Company receives FDA approval for products on file
with the agency in the timeframes included in its business plan and the success
of other aspects of its business plan. If necessary capital is not available,
implementation of the Company's plans will be restricted or delayed with a
negative effect upon the Company's prospects.
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
including those concerning management's expectations with respect to future
financial performance and future events, particularly relating to sales of
current products as well as the introduction of new manufactured and distributed
products. Such statements involve known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of the Company, which could
cause actual results and outcomes to differ materially from those expressed
herein. Factors that might affect such forward-looking statements set forth in
this Form 10-Q include, among others, (i) increased competition from new and
existing competitors and pricing practices from such competitors, (ii) the
amount of funds continuing to be available for internal research and development
and for research and development joint ventures, (iii) research and development
project failures or delays, or delays in, or the lack of obtaining regulatory
approvals and (iv) the ability of the Company to retain and attract personnel in
key operational areas.
- 15 -
<PAGE> 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities
---------------------
On February 27, 1997, the Company issued 89,369 shares of common
stock to Charles J. Kubicki in exchange for the release from the
abandoned facility obligation (see Note 4. Debt and Other Long-Term
Liabilities). The issuance was exempt pursuant to Section 4(2) of
the Securities Act of 1933.
Item 6. Exhibit and Reports on Form 8-K
-------------------------------
(a) Exhibit:
(11) Statement re: Computation of Earnings Per Share
(27) Financial Data Schedule*
(b) Reports on Form 8-K for the quarter ended March 31,
1997: None
- ------------------
*Previously filed.
- 16 -
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
DURAMED PHARMACEUTICALS, INC.
Dated: August 19, 1997 by: /s/ Timothy J. Holt
----------------------- -----------------------------------
Timothy J. Holt
Senior Vice President - Finance,
Treasurer, Chief Financial Officer
- 17 -
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11
DURAMED PHARMACEUTICALS, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three months ended March 31,
1997 1996
---------------------------------------------
<S> <C> <C>
Primary:
Weighted average common shares
outstanding 14,674,318 8,565,621
Assumed conversion of preferred shares
to common shares * *
Net effect of dilutive stock options and
warrants - based on the treasury stock
method using the average market price * *
------------- -----------
Totals 14,674,318 8,565,621
============= ===========
Net loss $( 6,758,362) $(2,436,013)
============= ===========
Per share amount $ (.46) $ (.28)
============= ===========
Fully diluted:
Weighted average common shares
outstanding 14,674,318 8,565,621
Assumed conversion of preferred shares
to common shares * *
Net effect of dilutive stock options - based
on the treasury stock method using the
year-end market price, if higher than
average market price * *
------------- -----------
Totals 14,674,318 8,565,621
============= ===========
Net loss $ (6,758,362) $(2,436,013)
============= ===========
Per share amount $ (.46) $ (.28)
============= ===========
</TABLE>
*Conversion of stock options and preferred shares not assumed in the
computations because their effect is antidilutive.
-18-
