<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period
from to
--------------- ----------------
Commission file number 0-18549
GENSIA SICOR INC.
(Formerly Gensia, Inc)
(Exact name of registrant as specified in its charter)
Delaware 33-0176647
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
9360 Towne Centre Drive
San Diego, California 92121
(Address of principal executive offices and zip code)
(619) 546-8300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
Preferred Stock Purchase Rights, Par Value $.01
Contingent Value Rights, Par Value $.01
Warrants to Purchase Common Stock
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 14, 1997, the aggregate market value of the voting stock held by
nonaffiliates totaled approximately $177.0 million, based on the last sale price
as reported on the Nasdaq National Market.
At March 14, 1997, there were 70,106,966 shares of common stock, $.01 par
value, of the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(To the extent indicated herein)
The registrant's definitive proxy statement filed in connection with
solicitation of proxies for its Annual Meeting of Stockholders to be held in
August 1997 is incorporated by reference into Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
On February 28, 1997 Gensia Sicor Inc. (formerly Gensia, Inc.) completed
the acquisition of Rakepoll Holding B.V. ("Rakepoll Holding") from Rakepoll
Finance N.V. Rakepoll Holding is the parent company of three specialty
pharmaceutical businesses: SICOR-Societa Italiana Corticosteroidi S.p.A.
("Sicor") of Milan, Italy, and two companies located in Mexico, Lemery, S.A. de
C.V. ("Lemery") and Sintesis Lerma, S.A. de C.V. ("Sintesis Lerma"). The newly
combined company, Gensia Sicor Inc. ("Gensia", "Gensia Sicor" or the "Company")
is headquartered in San Diego, California.
Sicor and Sintesis Lerma produce specialty bulk drug substances. Lemery
manufactures oral and injectable finished multisource drug products. The
specialty drug substances produced by Sicor and Sintesis Lerma are primarily
used in parenteral or topical administration, including inhalation therapy, and
almost all belong to one of three categories: (1) anticancer agents, (2)
steroids or (3) non-depolarizing muscle relaxants used in anesthesia. The
principal markets for Sicor's and Sintesis Lerma's specialty bulk drug
substances are the U.S., Canada, the EU and Japan. The finished multisource drug
products manufactured by Lemery are sold primarily to the national health
program in Mexico and exported to certain countries in Central and South
America, North Africa, the Middle East and Eastern Europe.
Gensia Laboratories, Ltd ("GLL" or "Gensia Laboratories") is a wholly-owned
subsidiary of Gensia. Prior to the acquisition of Rakepoll Holding, Gensia's
primary commercial operating unit was GLL. GLL's primary emphasis is on the
manufacture and marketing of oncology, anesthesiology and other key multisource
pharmaceuticals for the North American market. In addition, GLL provides
contract manufacturing support and services to a number of pharmaceutical and
biotechnology companies.
Gensia believes that the strategic combination with Rakepoll Holding
creates a specialty pharmaceutical company with a major focus on the worldwide
oncology market. Industry estimates indicate that this market may grow at 10-15%
per year over the next 10 years as the population of the world ages and as new
regimens for the treatment of cancer are introduced. Gensia Sicor has a
vertically-integrated capability which may enable it to compete effectively in
the global market for high quality, cost-effective multisource injectable
pharmaceutical products. As part of its international marketing strategy, Gensia
Sicor plans to introduce injectable pharmaceutical products in countries where
these products are not subject to patent protection prior to the introduction of
these products in the United States or European Union ("EU") countries, where
the length of patent protection can be significantly extended by law.
In addition to having a broad line of multisource anti-cancer products,
Gensia Sicor plans to have a comprehensive strategy for addressing the oncology
market. Due to the difficulty in producing many of these compounds, Gensia Sicor
expects to be first to the market with certain of these anti-cancer products
and, with some products, to be the only competitor in the United States to the
innovator product for an extended period of time; however, there can be no
assurance that Gensia Sicor will be the first to market with any product or that
it will be the only competitor in the United States to any innovator product. In
addition, because of Gensia Sicor's vertically-integrated position with respect
to anti-cancer products, Gensia Sicor expects that gross margins from the sale
of these anti- cancer products to be, on average, higher than for many
multisource injectable pharmaceutical products which are less difficult to
produce. Gensia Sicor also plans to develop enhanced features for oncology
products that increase the safety and convenience of handling of anti-cancer
drugs, which can be very toxic. These enhanced features may include drugs
formulated in solution as opposed to lyophilized formulations (to avoid the need
for mixing) and offering oncology products in break resistant polymer packaging
versus breakable glass vials. In addition, Gensia Sicor will seek to develop
value added drug delivery systems for certain oncology products. Gensia Sicor
will also seek to acquire the rights to novel oncology products, such as UK
101/114, an in-licensed product that Sicor currently is developing and for which
clinical trials in patients utilizing such compound in the treatment of colon
and breast cancer are currently scheduled to begin in 1997.
With the acquisition, Gensia Sicor has an expanded capability to perform
contract manufacturing support and services for pharmaceutical or biotechnology
companies developing new oncology products. GLL is currently building a
dedicated manufacturing facility in Irvine, California to manufacture finished
dosage forms of injectable oncology drugs. This facility is planned for
completion and validation in the second half of 1997. When this manufacturing
capability is combined with the bulk drug substance sourcing and development
capabilities of Sicor and Sintesis Lerma, Gensia Sicor will be able to offer
potential partners a full range of manufacturing services including pilot and
commercial quantities of bulk materials, formulation development and pilot and
commercial scale manufacturing of finished dosage forms. Gensia Sicor believes
that this expanded capability will be attractive to companies developing
oncology products. Further, given Gensia Sicor's marketing and distribution
capabilities for oncology products both domestically and internationally, the
combined company may be an attractive marketing partner for such companies.
2
<PAGE>
In addition to its strength in oncology products, Gensia Sicor will
continue to follow a strategy of being first to market after patent expiry on
key injectable pharmaceuticals. GLL received the first United States multisource
product approvals on dobutamine and etoposide, two of the largest injectable
products to go off patent in the United States in the last few years. Sicor has
also developed a reputation for being the bulk pharmaceutical supplier to the
multisource companies receiving the first U.S. regulatory approvals on products,
such as etoposide (with GLL), bleomycin, pancuronium and vecuronium. Sicor has
filed over 30 Drug Master files with the United States Food and Drug
Administration (the "FDA") and has significant experience working with health
regulatory agencies worldwide.
Gensia Sicor also has a proprietary medical products business which
currently markets the Laryngeal Mask Airway ("LMA") product line, used in airway
management, to anesthesiology departments in the United States. This group also
markets Brevibloc(R), an intravenous cardiovascular drug, and the GenESA(R)
System, a proprietary pharmacologic stress testing system either directly or
through distributors in a number of European countries. The GenESA System is
currently under regulatory review in the United States, and if approved, would
be marketed by the Gensia medical products sales organization. Gensia is also
developing a Feedback Controlled Heparin System which is being designed to
better control dosing of heparin, a widely used anticoagulant. Gensia Sicor is
in the process of transferring its proprietary medical products, including the
exclusive U.S. distribution rights to the Laryngeal Mask Airway, worldwide
distribution rights to the GenESA System, exclusive European distribution rights
to Brevibloc, and worldwide rights to the Feedback Controlled Heparin System
into its wholly-owned subsidiary, Gensia Automedics, Inc. ("Gensia Automedics").
Gensia Sicor is exploring external funding for Gensia Automedics, subject to
certain third party consents.
Gensia Sicor also currently has a basic research group involved in four
primary areas: pain, inflammation, diabetes, and cardiovascular disease. Its
research program in pain is being performed pursuant to a collaboration with
Pfizer Inc. Gensia Sicor is also in discussions with pharmaceutical companies
about a similar collaboration for its diabetes research program. Pursuant to a
Shareholder's Agreement with Rakepoll Finance relating to the acquisition of
Rakepoll Holding, Gensia Sicor has agreed to eliminate its net use of cash for
ongoing research activities (other than ongoing property lease related
expenses), no later than April 22, 1997, either (i) as a result of Gensia Sicor
having obtained cash or contractually committed payments for such research
activities from third parties in the form of research collaborations or
otherwise, or (ii) by the termination of such research activities; provided,
however, that in any event, Gensia Sicor shall be permitted to expend such
amounts on research as are required for Gensia to fulfill its obligations under
the Pfizer Agreement. In the event that such net use of cash has been eliminated
pursuant to subclause (i) above, then subject to certain consents and
availability of funding, Gensia Sicor plans to spin off certain of its San
Diego-based pharmaceutical research and development programs into a newly formed
public company to be called Metabasis Therapeutics, Inc.
UNITED STATES PHARMACEUTICAL OPERATIONS
GENSIA LABORATORIES
Gensia acquired GLL (previously Kendall McGaw Pharmaceuticals, a division
of Kendall McGaw Laboratories, Inc.) in January 1991 in a strategic move to
accelerate Gensia's commercialization efforts and to provide for manufacturing
of Gensia's proprietary products under development at that time. Since the
acquisition, GLL has been building a multisource injectable business and now
markets 24 products and has 31 approved Abbreviated New Drug Applications
("ANDAs") and Abbreviated Antibiotic Drug Applications ("AADAs"). GLL also has
13 ANDAs filed with the FDA as well as approximately 45 products under
development.
In furtherance of Gensia's commercialization efforts, GLL has implemented a
strategic plan which includes the following major goals:
o Be the first multisource company to receive approval and bring to
market major injectable drugs coming off-patent
o Establish a major focus on the oncology market
o Focus new product development efforts on injectable drugs with
barriers to entry, such as raw material availability or
products which are difficult to develop or manufacture, which
will capitalize on the significant capability which Gensia
Laboratories has in product development and manufacturing
o Develop and submit 8 to 10 ANDAs each year
o Develop value-added products and drug delivery systems to enhance the
value to users of GLL's products
o Develop broad therapeutic product lines in selected markets (oncology,
anesthesiology and cardiology)
3
<PAGE>
o Establish long-term contract manufacturing agreements
GLL has broad capabilities in the formulation, development and
manufacturing of injectable pharmaceuticals. Since 1991 Gensia has built a sales
and marketing infrastructure which includes 20 sales representatives and five
additional corporate marketing representatives. GLL's sales representatives
cover the major hospital markets in the United States, focusing their sales
calls on hospital pharmacies and alternate site providers such as oncology
clinics and outpatient surgery centers. As collective purchasing agreements have
become increasingly important to healthcare providers as a means to control
costs, the corporate marketing group has grown and is establishing relationships
with hospital group purchasing organizations, managed care groups and with other
large healthcare purchasing organizations.
In 1995 and 1996, GLL received approvals of five new injectable multisource
drugs: amphotericin B (anti-fungal), fluphenazine (anti-psychotic) and two
oncology products, etoposide in 50 mL glass vials and in polymer vials and
doxorubicin in polymer vials. Gensia believes that the AADA for doxorubicin,
which was approved within nine months from submission, was the first time an
injectable oncolytic agent has ever been approved for marketing in the United
States in a polymer vial. Gensia believes that providing doxorubicin in this
unique, unbreakable packaging offers a number of advantages for healthcare
providers in terms of safety and convenience and the product has, to date, been
well accepted by the medical community. Gensia was also the first company to
receive an ANDA approval on dobutamine and etoposide, two of the most widely
used injectable drugs to go off-patent in recent years.
GLL manufactures the oncolytic agent etoposide (in glass vials) in its
Irvine facility. GLL expects its oncolytic product development focus will create
product demand that will exceed current oncolytic manufacturing capacity. As a
result, GLL has begun an expansion program to build-out an adjacent
manufacturing facility which will be dedicated to the production of oncology
drugs. The proposed timing of this project is to have the facility inspected and
validated during 1997. GLL also has marketing rights in the United States to
three oncology products (doxorubicin, etoposide and cisplatin) manufactured in
polymer vials by Delta West Pty. Limited, a wholly-owned subsidiary of Pharmacia
& Upjohn Inc. Two of these products, doxorubicin and etoposide, have received
FDA approval.
In addition, product development is continuing for multisource injectable
drugs in anesthesiology and cardiology as well as other selected areas. As
previously stated, GLL currently has 13 ANDAs filed with the FDA and has
approximately 45 products under development. Gensia believes that this
investment in product development at GLL may position GLL for significant growth
in the 1997 to 2000 time frame when a number of major injectable drugs will come
off-patent. There can be no assurance that this growth will occur.
GLL is continuing to seek innovative ways to increase sales of its products
and leverage its manufacturing capacity. For example, in February 1996, an
agreement with Ohmeda, Inc. Pharmaceutical Products Division ("Ohmeda") was
announced under which GLL is manufacturing a number of primarily
anesthesia-related multisource injectable drugs for U.S. distribution under the
Ohmeda label. GLL will also continue to market these drugs under its own name.
With this long-term supply agreement, Gensia is allying itself with one of the
leading companies in anesthesia and critical care. This alliance is enabling
Gensia's multi-source anesthesia products to be offered with Ohmeda's
proprietary anesthesia products, resulting in what Gensia believes is a more
attractive product portfolio for group purchasing organizations in the U.S.
market. This alliance is further enhanced through an Ohmeda alliance with Baxter
Healthcare Corporation I.V. Systems Division. This alliance could substantially
increase the production volume at GLL, although there can be no assurance that
any such increase will occur.
As part of its strategy to develop additional value-added products, in May
1995 Gensia announced a worldwide license agreement with Atrix Laboratories,
Inc. ("Atrix") to develop leuprolide acetate using Atrix's ATRIGEL Drug Delivery
System. This product is expected to compete with TAP Pharmaceuticals, Inc.'s
Lupron Depot(R), a major product used in the treatment of prostate cancer and
endometriosis. If a feasibility study is successfully completed, Atrix will
proceed with development of a dosage form or forms to be evaluated in human
clinical trials. Gensia Sicor would be responsible for conducting the clinical
trials, scale-up, manufacture, marketing and distribution of commercial
quantities of the product. If development proceeds, Gensia Sicor would be
responsible for funding the development program at Atrix, would make certain
milestone payments and would pay a royalty to Atrix on future sales, if any, of
the product.
In September 1996, GLL announced an agreement with Microbix Biosystems,
Inc. for the development, manufacture and sale in the United States of
ThromboClear(TM) (urokinase), a drug which is being developed as a generic
equivalent to Abbokinase(R) an acute cardiovascular drug widely used in the
treatment of pulmonary embolism and coronary artery thrombosis. If approved for
sale in the United States, Gensia Sicor believes ThromboClear would be the first
generic alternative to the innovator product, which had 1995 sales of $165
million, according to market research sources.
4
<PAGE>
Another growing source of revenue at GLL is its contract manufacturing
business which manufactures sterile injectable products
for biotechnology and pharmaceutical companies. The contract manufacturing
business experienced significant growth in 1995 and 1996. Gensia Sicor believes
additional growth may be attained by expanding its collaborations with
biotechnology and pharmaceutical companies and as a result of the oncology
facility planned for completion in 1997, as discussed above. There can be no
assurance, however, that this growth can be sustained. GLL also manufactures
arbutamine (the drug used in Gensia Sicor's proprietary product, the GenESA(R)
System) in prefilled syringes for commercial shipment to Europe, for clinical
testing, and, assuming regulatory approval in the United States, for commercial
sales in the United States.
FOREIGN PHARMACEUTICAL OPERATIONS
In February 1997, Gensia acquired three specialty pharmaceutical companies
comprised of a company located in Italy, Sicor, and two companies located in
Mexico, Sintesis Lerma and Lemery. Sicor and Sintesis Lerma manufacture
specialty bulk drug substances. Lemery produces oral and injectable finished
multisource drug products (also called finished dosage forms) utilizing
specialty bulk drug substances produced by Sicor and Sintesis Lerma and/or
purchased from third parties.
The specialty bulk drug substances manufactured by Sicor and Sintesis Lerma
are almost entirely destined for parenteral or topical administration, including
inhalation therapy, and almost all belong to one of three categories: (i)
oncolytic agents, (ii) steroids or (iii) non-depolarizing muscle relaxants. The
oncolytic agents are anti-cancer drugs. The steroids are either progestins used
in contraceptives or corticosteroids used in a variety of anti-inflammatory
preparations, including preparations used in the treatment of asthma, allergies
and certain dermatological conditions. Certain progestins also have oncolytic
applications. The muscle relaxants are used in conjunction with anesthetics
during surgery.
The principal markets for these specialty bulk drug substances are the
United States and Canada, the EU and Japan. The finished multisource drug
products manufactured by Lemery are sold primarily to the national health
program in Mexico and exported to certain countries in Central and South
America, North Africa, the Middle East and Eastern Europe. In addition, export
of such drug products to China is also expected to commence in 1997.
Oncolytic Agents
Due to a worldwide increase in the incidence of cancer, related in part to
the general aging of the world's population, and to the introduction of new
regimens for the treatment of cancer, the demand for oncolytic agents continues
to increase. Sicor offers a wide range of oncolytic specialty bulk drug
substances and finished dosage forms. The oncolytic agents produced by Sicor are
etoposide, the anti-cancer antibiotics bleomycin, mitomycin, daunorubicin,
epirubicin and idarubicin and the progestins medroxyprogesterone acetate and
megestrol acetate. Lemery manufactures various oncolytic agents in finished
dosage form, including principally carboplatin, epirubicin, etoposide,
cisplatin, doxorubicin and vincristine. Sintesis Lerma also began production in
1996 of pilot batches of the oncolytic agents cisplatin and mitoxantrone and
also produces certain progestins which have oncolytic applications.
Etoposide is suitable for oral use or injection. It is used in combination
with other oncolytic agents in the treatment of testicular and small cell lung
cancers. Sicor produces etoposide for sale primarily to customers in the United
States and Australia and to its affiliate, Lemery. Sicor produces etoposide
using a process for which a patent has been granted in fourteen European
countries. A patent application for such process has also been filed in the
United States.
Bleomycin is an injectable oncolytic agent used in combination with three
other compounds, doxorubicin, vinblastine and dacarbazine. This combination,
known by the abbreviation ABVD, is used to treat lymphomas. Bleomycin is also
used in the treatment of testicular carcinoma and squamous cell carcinomas of
the head, neck and mouth. Bleomycin is produced using technology jointly
developed by Sicor and Abbott utilizing an Abbott owned microorganism. In the
United States, Sicor supplies bleomycin exclusively to Abbott which manufactures
a finished dosage form which was recently approved by the FDA. Outside the
United States, Sicor's principal markets for bleomycin are in Mexico and India.
Sicor's European customers are currently awaiting regulatory approval of their
bleomycin-based finished dosage forms from health ministries in the Netherlands
and certain other EU countries. Sicor pays Abbott a royalty for Sicor's use of
Abbott's microorganism based on Sicor's non-United States sales of bleomycin.
Mitomycin is an injectable oncolytic agent used in the treatment of bladder
cancer and adenocarcinomas of the stomach and pancreas. The FDA has recently
approved Sicor's mitomycin for use in finished dosage forms in the United
States. As a consequence, Sicor's customers in the United States are expected to
commence distribution of finished dosage forms in mid-1997. Sicor's principal
market for the bulk drug substance will be the United States.
5
<PAGE>
Lemery also produces a finished dosage form containing mitomycin which is
marketed in several countries.
Daunorubicin is an injectable oncolytic agent. Sicor's principal
customer for such agent is NeXstar Pharmaceuticals, Inc.
which has developed a new liposomal formulation approved by the FDA for the
treatment of Kaposi's sarcoma, a type of cancer associated with AIDS.
Applications for regulatory approval for regular finished dosage formulations
used in the treatment of lymphomas are under preparation in certain additional
countries.
Epirubicin is an injectable oncolytic agent derived from daunorubicin.
Epirubicin is not approved in the U.S. but is widely used in many other
countries in the treatment of solid tumors, such as breast cancer. Clinical
studies have shown that epirubicin may cause less myocardial damage than its
predecessor drug, doxorubicin. Epirubicin is still covered by extended patent
protection in certain EU countries. Sicor has developed a process for the
production of epirubicin for which a patent application has been filed in over
25 countries. Sicor believes that its experience in the production of
daunorubicin and its epirubicin synthesis process will constitute an effective
barrier to the production of epirubicin by third parties in the near future;
however, there can be no assurance that this will be the case. As a consequence,
future sales of epirubicin will generally be limited to Lemery and GLL for their
manufacture of finished dosage forms, which should result in higher gross
margins on this product. Commercial scale production of epirubicin began in
November 1996. Sicor expects that Mexico (where regulatory approval of such
antibiotic has already been received), Central and South America, possibly
Australia, and China will be major markets for epirubicin. Lemery currently
expects to launch a finished dosage form based on epirubicin in the Mexican
market and for export in 1997.
Idarubicin is an oncolytic agent suitable for oral use or injection which
is used in combination therapy for the treatment of adult leukemias. Although to
date Sicor has produced only laboratory quantities of such oncolytic agent, it
currently expects to begin production of pilot batches in early 1997. Sicor
believes that the difficulty in producing idarubicin will constitute an
effective barrier to entry by third parties in the near future. As a
consequence, as with epirubicin, future sales of idarubicin will generally be
limited to Lemery and GLL for their manufacture of finished dosage forms, which
should result in higher gross margins on this product. An application for FDA
approval of a finished dosage form based on idarubicin is planned for the United
States market. It is currently expected that commercial sales of such finished
dosage form may commence in 1998 if FDA approval is obtained.
Sintesis Lerma recently began construction of a facility to produce
oncolytic agents. Production of oncolytic agents in this facility is currently
expected to commence in 1997. The first oncolytic agents produced are expected
to be cisplatin (used in the treatment of testicular, ovarian and bladder
cancers), carboplatin (used in the treatment of advanced ovarian cancer), and
mitoxantrone (used in combination therapy for the treatment of adult leukemias).
Sintesis Lerma is also a major producer of two progestins, megestrol
acetate and medroxyprogesterone acetate, which may be used in high dosages to
treat certain hormone dependent malignancies, such as breast cancer, in addition
to the latter's more typical use in contraceptives. The principal market for
these compounds is the Far East and, if FDA approval of Sintesis Lerma's version
of such compounds is received, the United States will also be a principal
market. Sintesis Lerma also produces the progestins cyproterone acetate, which
is generally used in the treatment of prostate cancer although it may also be
used as a component in contraceptives, and chlormadinone acetate, which is
administered orally for the treatment of prostate cancer and benign prostate
hypertrophy. The principal markets for these drug substances are the EU, Canada,
Argentina, the Middle East and Japan.
Steroids
The steroids manufactured by Sicor and Sintesis Lerma are either
progestins, used in contraceptives or in certain oncolytic applications, or
corticosteroids, used in a variety of anti-inflammatory preparations, including
preparations used in the treatment of asthma, allergies and certain
dermatological conditions. Sicor and Sintesis Lerma together produce six such
progestins: medroxyprogesterone acetate, megestrol acetate, cyproterone acetate,
chlormadinone acetate, gestodene and desogestrel. Medroxyprogesterone acetate is
principally used as component of sustained release contraceptives which are
widely used in developing nations. The principal markets for this steroid are in
Indonesia, the Philippines and Thailand. In addition, megestrol acetate,
chlormadinone acetate, cyproterone acetate and also medroxyprogesterone acetate
have certain oncolytic applications.
Gestodene and desogestrel are highly active third generation progestins of
which Sicor has only produced laboratory quantities to date. The compounds are
principally used in contraceptives in more advanced markets such as the United
States and the EU due to their high manufacturing costs. Their activity allows
the production of dosage forms with very low concentrations of such compounds.
Sicor and Sintesis Lerma manufacture corticosteroid products with respect
to which they have either developed a proprietary
6
<PAGE>
production technology, including seven different process patents, or enjoy some
other market advantage. Sicor and Sintesis Lerma manufacture over 50
corticosteroids.
Ongoing research to increase the selective activity and reduce the
long-term toxicity of various corticosteroid compounds has
produced a fairly constant stream of corticosteroid products coming off patent.
This stream together with a growing market for such products in developing
countries has enabled Sicor and Sintesis Lerma to consistently expand their
production of these compounds for several years.
The highest growth rate of corticosteroid use is in the management of
obstructive airway diseases. Corticosteroids have recently been declared one of
the preferred prophylactic treatments for asthma in the U.S.. This together with
the expiration of certain related patents has led to an increase in the demand
for two principal corticosteroids in this field: beclomethasone dipropionate and
budesonide.
Beclomethasone dipropionate is available from Sicor and Sintesis Lerma in
three forms: (i) the normal crystalline form, (iii) beclomethasone dipropionate
Freon 11 solvate, and (iii) beclomethasone dipropionate monohydrate. The first
two are manufactured by Sicor, and the third by Sintesis Lerma. The normal
crystalline form is principally used as an intermediate for the Freon solvate or
the monohydrate forms. Sicor's principal markets for these compounds are the
United Kingdom, Canada, India and Italy.
Budesonide is another corticosteroid which is used for the treatment of
obstructive airway diseases as well as for the treatment of certain other
conditions such as inflammatory bowel disease. Sicor produces the bulk drug
substance by a process which is protected by two different patents, one of which
was developed by Sicor but was transferred to another company in return for
Sicor's receipt of a royalty-free license with respect to such patent in order
to minimize certain potential related legal costs. Sicor's principal markets for
this compound are in Spain, Germany and Finland. In addition, Sicor has
developed a new process which allows the selective production of budesonide's R
isomer component. The R isomer has been shown to be more active and may be less
toxic than budesonide's other isomer and several companies have expressed
interest in the compound. The Spanish company Ifedesa is currently developing a
finished dosage form based on the budesonide R isomer. It is currently expected
that the Spanish Ministry of Health may grant regulatory approval of such dosage
form in 1998. Thereafter, additional regulatory approvals may also be sought in
Italy and Germany.
Other Drugs
In addition to the oncolytic agents and steroid products discussed above,
Sicor also produces as bulk drug substances the muscle relaxants atracurium
besylate, pancuronium bromide and vecuronium bromide, the immunosuppressant drug
cyclosporine and the prodrug dexrazoxane.
Finished dosage forms based on the muscle relaxants are used in conjunction
with anesthetics during surgery. Sicor has filed a DMF with the FDA with respect
to the atracurium besylate it produces and expects that its customers in the
United States will receive FDA approval of their finished dosage forms based on
such compound in 1997.
Pancuronium bromide and vecuronium bromide are produced using a common
steroidal intermediate. The principal market for both drug substances is the
United States.
Cyclosporine is a selective immunosuppressant administered to virtually all
transplant patients. It reduces the risk of severe organ rejection and must be
taken by such patients for most of their lives. The worldwide market for
cyclosporine finished drug products is more than $1 billion annually. Sicor has
requested FDA approval for the bulk cyclosporine it produces. A company in the
United States which contracted with Sicor for bulk supply of cyclosporine has
applied for FDA approval of a finished dosage form based on such drug and
currently expects to begin commercial sales thereof in 1998. Sicor has also
contracted with major European pharmaceutical companies for the supply of
cyclosporine for the European market.
Sicor manufactures the prodrug dexrazoxane. Prodrugs become effective only
after metabolization by the body. Dexrazoxane metabolites trap the iron ions
involved in the process which leads to myocardial damage caused by anthracycline
oncolytic agents such as doxorubicin. Administration of dexrazoxane with such
oncolytic agents protects the heart and allows higher dosages of the oncolytic
agent. Sicor manufactures dexrazoxane according to a proprietary process covered
by a process patent filed in many countries. Sicor is developing dexrazoxane
with Chiron BV which is responsible for product development, including clinical
trials, dosage form manufacturing, marketing and sales.
7
<PAGE>
Future Developments
Sicor has obtained an exclusive license for a new oncolytic product known
as UK 101/114 from Zetesis of Milan. UK 101 is a protein antigen obtained from
goat liver. Antigens trigger an immune response designed to destroy such
antigen. Antibodies attach themselves to the antigen marking it for elimination
by the immune system. The antibodies which attack UK 101 also attach
themselves to the membrane of certain cancer cells. Cancer cells so marked are
then disposed of by the immune system. The mechanics of this process are now the
subject of further study by university researchers in Italy. A plan for studies
using UK 101 in the treatment of patients with breast and colon cancer in Italy
has been sponsored by Sicor and submitted to the Italian Ministry of Health for
approval and receipt of such approval is currently expected in 1997. A second
series of studies for the same two cancers have been approved by the Mexican
Ministry of Health and will be conducted in Mexico by Lemery.
In addition, at its facility outside of Turin, Sicor is developing a
glycoprotein, urofollitropin. Urofollitropin is involved in the stimulation of
ovulation and is used in the treatment of certain types of infertility. Sicor is
developing a process for the isolation of urofollitropin from the urine of
post-menopausal women. Sicor currently expects to file a process patent covering
purification of urofollitropin in 1997 and is in discussions with potential
partners about marketing the product in the U.S. and Europe.
Sicor is also currently working with a number of pharmaceutical companies
to develop new proprietary pharmaceutical products. If these products are
successfully developed, Sicor expects to have long term supply rights for the
bulk active ingredients used in these products.
GENSIA AUTOMEDICS
Gensia Sicor plans to transfer its proprietary medical products, including
the exclusive United States distribution rights to the LMA, worldwide
distribution rights to the GenESA System, European distribution rights to
Brevibloc and worldwide rights to the FCHS into its wholly-owned subsidiary,
Gensia Automedics. Further, Gensia Sicor is also planning to transfer its
proprietary product development, product support, sales and marketing
administration and medical products sales organization to Gensia Automedics.
Gensia Sicor is exploring private and public financing for such subsidiary,
subject to certain third-party consents.
Gensia has developed the GenESA System, a new drug and new device
combination product designed for use in the diagnosis of coronary artery disease
when used in conjunction with electrocardiography ("ECG"), echocardiography
("echo") and radionuclide perfusion imaging. The GenESA System is approved in a
number of European countries and is under review by the FDA in the United
States. Using its experience in developing the GenESA System, Gensia is
developing a second proprietary product called the Feedback Controlled Heparin
System (the "FCHS"). This product is in the early stages of clinical testing.
As a way of accelerating its commercialization efforts, Gensia has licensed
proprietary products from third parties over the last several years. The goal of
these efforts has been to accelerate the commercialization of Gensia and to
begin establishing the commercial infrastructure in the United States and Europe
which would be required for the launch of the GenESA System, as and if this
product is approved by regulatory authorities. In addition, Gensia is currently
seeking to license additional medical products which would be sold through
Gensia's proprietary medical products-based sales force.
GenESA System
The GenESA System, a pharmacologic stress system for use in the diagnosis
of coronary artery disease when used in conjunction with ECG, echo and
radionuclide perfusion imaging, consists of a novel catecholamine compound,
arbutamine, and a computer controlled, closed-loop drug delivery device (the
"GenESA Device"). Based on preclinical testing and clinical trials, arbutamine
increases heart rate, cardiac contractility and systolic blood pressure. Gensia
has conducted Phase 3 clinical trials with the GenESA System in the United
States, Canada and certain European countries. Based on the results of these
trials, Gensia believes that the sensitivity of the GenESA System, when used in
conjunction with each of ECG, echocardiography and radionuclide perfusion
imaging, is similar to exercise stress testing in the diagnosis of coronary
artery disease. In a separate Phase 3 clinical trial designed to evaluate
specificity, Gensia believes the GenESA System also demonstrated high normalcy
(an estimate of specificity) in correctly identifying those patients who did not
have coronary artery disease. Arbutamine, the novel drug which is part of the
GenESA System, was generally well tolerated by patients in these trials and
Gensia believes the safety profile should support the use of the drug in these
indications.
In December 1993, Gensia submitted a New Drug Application ("NDA") for the
GenESA System for use in the diagnosis of coronary artery disease in conjunction
with ECG, echocardiography and radionuclide perfusion imaging to the FDA and
also submitted Marketing Authorization Applications ("MAAs") to the twelve EU
countries under the List "B" High Tech procedure established by
8
<PAGE>
the Committee for Proprietary Medicinal Products ("CPMP") in the EU. Gensia also
submitted MAAs to the five member countries of the European Free Trade
Association.
In December 1994, Gensia announced that the CPMP recommended marketing
approval of the GenESA System to the member countries of the EU for use in the
diagnosis of coronary artery disease in conjunction with ECG, echocardiography
and radionuclide perfusion imaging in patients who cannot exercise adequately.
Following the CPMP recommendation, each EU member country must individually
issue a product license before marketing may commence in such country.
Additionally, certain countries may require approval of pricing and
reimbursement. In January 1995, Gensia received its first product license
approval from the Medicines Control Agency ("MCA") of the United Kingdom, which
served as the rapporteur for the CPMP. In addition, product licenses have now
also been issued in Belgium, Denmark, Germany, Ireland, Luxembourg, the
Netherlands, Norway, Portugal and Sweden. Gensia is currently marketing the
GenESA System in the United Kingdom and Germany and plans to market the product
in certain other countries through partners or distributors.
In April 1995 and 1996, Gensia received action letters from the FDA
indicating that the NDA for the GenESA System was not approvable based on the
data submitted. Gensia believes, however, that it has made significant progress
in addressing issues raised by the FDA in its action letters. The FDA indicated
in its April 1996 letter that it was possible that a further presentation and
analysis of data from one of Gensia's clinical trials contained in an NDA
amendment may be sufficient for approval of the product. Gensia has conducted
the analysis and has filed an additional amendment to its NDA for the GenESA
System. Gensia is unable to predict whether or when any potential United States
approval of the GenESA System may occur, or the potential labeling that may
eventually be received. However, Gensia believes that the GenESA System provides
significant clinical benefit in the diagnosis of coronary artery disease and
plans to continue to work with the FDA to gain approval in the United States.
Failure to obtain United States regulatory approval or to market the GenESA
System successfully in the United States could have a material adverse effect on
Gensia.
Gensia has granted to Gensia Clinical Partners, L.P. ("Gensia Clinical
Partners") an exclusive, royalty-free license to use certain patent rights and
technology related to the GenESA System. Gensia Clinical Partners funded a
substantial portion of the development of the GenESA System under a development
and marketing agreement with Gensia. Gensia must make milestone payments and pay
royalties on sales of the GenESA System to Gensia Clinical Partners. Gensia has
an option to purchase the technology and rights related to the GenESA System
from Gensia Clinical Partners. If Gensia does not exercise this option prior to
its expiration, then Gensia will lose all rights to the GenESA System in the
United States, Europe and Canada. There can be no assurance that Gensia will be
in a position to exercise this option.
Feedback Controlled Heparin System
Using its experience in developing the GenESA System, Gensia is developing
the FCHS, an automated heparin delivery system designed to monitor a patient's
anti-coagulation status, use a proprietary closed-loop algorithm to determine an
appropriate level of heparin dosing and adjust the dose automatically. The
objective is to more tightly control the coagulation status of the patient to
avoid over and underdosing of heparin.
Heparin is a parenteral anti-coagulant widely-used to prevent thrombosis in
hospitalized patients. A typical course of treatment can run from two to seven
days. Heparin has a narrow therapeutic window and over-heparinization can lead
to serious bleeding side- effects, while under-heparinization can result in
serious complications, such as thrombosis and/or lack of clinical efficacy.
A retrospective analysis of several clinical studies indicated that more
than 50% of patients on heparin fail to reach a therapeutic window within the
first 24 hours of therapy. Another study indicated that the mean time to a
therapeutic coagulation status for patients receiving heparin was approximately
two days. Even after reaching a therapeutic level of dosing, as many as 50% of
patients may drift out of the therapeutic range over time.
Physicians differ widely in their dosing regimens and in the intervals at
which samples are drawn to determine coagulation status. Typically, samples will
be drawn upon initiation of therapy and every four to six hours until a patient
is within a therapeutic range, after which samples will typically be drawn every
12 to 24 hours. Testing continues to occur throughout the course of heparin
therapy.
Gensia believes that its FCHS, which is being designed to provide automated
and individualized heparin delivery, will offer certain advantages over the
current practice of manual titration including:
- -- improved dosing regimen
- -- tighter control over variable patient response
9
<PAGE>
- -- frequent and accurate monitoring of patient response
- -- efficient use of nursing and physician time
The components of the FCHS include measurement technology to determine
coagulation status, fluid handling for sampling and drug delivery and
proprietary closed-loop software which will determine appropriate sampling
intervals and regulate drug delivery. Gensia began clinical testing of the
software algorithm in 1996. In January 1997, the FDA approved an Investigational
Device Exemption ("IDE") for the FCHS in the U.S. The Company has completed a
clinical study to evaluate the feasibility of the automated blood sampling
system of the FCHS design and is encouraged by the results. Substantial
additional development work still needs to be conducted with the FCHS. There can
be no assurance that the product can ever be successfully developed or marketed.
Laryngeal Mask Airway
In September 1992, Gensia acquired the rights for exclusive distribution in
the United States for the LMA and introduced the LMA to the United States market
in the fourth quarter of 1992. The LMA is an innovative, reusable airway
management product designed to provide an alternative to a face mask when
administering general anesthesia during surgery. After purchasing LMAs from The
Laryngeal Mask Company Ltd., Gensia packages, labels, and inspects the products
at its Gensia Laboratories facilities.
Gensia believes the LMA, which was designed by an anesthesiologist,
represents a major advance in airway management. Market research indicates that
this product is easy to use, convenient, well tolerated, and relatively
noninvasive. Gensia believes that the LMA has been well accepted by the
international anesthesiology community, with sales by the innovator company in
over 60 countries through a distributor network. Use of the LMA has become a
standard of practice in the United Kingdom, where it was first introduced in
1988.
Sales of this product in the United States increased significantly in 1995
and 1996; however, there can be no assurance that sales will continue to
increase. In February 1995, Gensia announced that it had extended its
distribution agreement for an additional three years and had also obtained
exclusive U.S. distribution rights to a number of new innovative airway
management products currently under development by The Laryngeal Mask Company
Ltd. These new products include the LMA-Flexible(TM), the LMA-Unique(TM), the
LMA-Fastrach(TM), and the LMA-High Seal(TM).
The LMA-Flexible provides a highly flexible tube, which is convenient for
use when the surgical field involves the head, neck or face. Gensia began
distributing the LMA-Flexible in 1996.
The LMA-Unique is a single-use product designed specifically for the U.S.
market where disposable products are common. Other LMA products are reusable
with cleaning and steam sterilization. Gensia believes that the LMA-Unique will
be used primarily in the emergency airway management setting and may be well
suited for military field use. Gensia Automedics expects to begin distributing
the LMA-Unique in 1997.
The LMA-Fastrach is designed to be used in situations where establishing an
airway is difficult. The LMA-Fastrach can serve as a primary airway or as a
guide for placement of an endotracheal tube without the use of a laryngoscope.
The rigid design of the LMA-Fastrach tube allows greater manipulation of the
LMA, providing a channel to guide an endotracheal tube into its correct position
in the trachea. Gensia expects to begin distributing the LMA-Fastrach in 1997.
Although still under development, the LMA-High Seal is being designed to
allow higher airway pressures during controlled ventilation as compared to the
existing LMA product. In addition, it incorporates a second small mask to
isolate the upper esophagus from the glottis offering protection against
aspiration. The LMA-High Seal is a development stage product.
Brevibloc
In October 1993, Gensia announced the signing of an exclusive distribution
agreement with Ohmeda which enabled Gensia to distribute and market Brevibloc,
an acute care cardiovascular drug, in Europe and certain other countries.
Brevibloc is an ultra short acting intravenous beta blocker indicated primarily
for the treatment of perioperative tachycardia and hypertension with a secondary
indication for the treatment of supraventricular tachycardia in emergency
situations.
Under the agreement, Gensia made payments to Ohmeda in return for exclusive
distribution and marketing rights in Europe and certain other countries. Gensia
is also paying a royalty on sales to Ohmeda over a ten year period. Brevibloc is
approved for marketing in a number of European countries. Gensia distributes the
product through its sales force in Germany and has entered
10
<PAGE>
into a number of distribution agreements for sale of Brevibloc in other European
countries.
RESEARCH ACTIVITIES
Gensia's basic research efforts are focused on discovering and developing
small molecule pharmaceuticals that target key regulatory points in metabolic
pathways that will positively impact the course of a targeted disease. Gensia
believes its technology has broad applications and is initially focused on the
discovery and development of drugs for the treatment of pain, inflammation,
diabetes and cardiovascular disease. Gensia has specific expertise in computer
assisted, structure based drug and prodrug design, enzymology, disease biology
and small molecule medicinal chemistry. Gensia has established a significant
proprietary position in the chemistry and biology of purines, molecules that are
involved in the regulation of many cellular metabolic processes.
Gensia's understanding of purine chemistry and biology has led to the
discovery of a new class of compounds called adenosine regulating agents
("ARAs"). These compounds are designed to regulate metabolic pathways
responsible for the production or degradation of the pharmacologically important
molecule, adenosine. Gensia has two ARAs in clinical testing. One is targeted
for the treatment of cardiovascular disease and the other is designed to treat
epilepsy. Gensia is pursuing collaborations with pharmaceutical companies to
further develop these compounds.
In May 1996, Gensia announced an agreement with Pfizer Inc. to collaborate
on a research program using Gensia's ARA technology to discover and develop
broad spectrum analgesic drugs for the treatment of pain. The research
collaboration is focusing on a subgroup of ARAs which may represent a new class
of analgesic drugs. Preclinical studies reported in the scientific literature
have demonstrated the analgesic effects of adenosine in the spinal cord. The
activation of receptors on neurons in the spinal cord appears to reduce the flow
of pain signals reaching the higher centers of the brain, producing analgesia.
The ARAs to be developed during the collaboration with Pfizer Inc. act on a
specific site and apparently result in an increase in the local concentration of
adenosine produced when pain signals are traveling through the spinal cord.
Gensia's expertise with purine regulated enzymes is also being directed to
the development of a new treatment of diabetes. Gensia has developed potent
inhibitors of a specific purine regulated enzyme that acts in the metabolic
pathway that produces glucose in the liver. Gensia believes that these compounds
may represent a novel approach to the treatment of Type II diabetes. Gensia is
in active discussions with two of pharmaceutical companies regarding a potential
collaboration in diabetes research.
Pursuant to a Shareholder's Agreement with Rakepoll Finance relating to the
acquistion of Rakepoll Holding, Gensia Sicor has agreed to eliminate its net use
of cash for ongoing research activities (other than ongoing property lease
related expenses), no later than April 22, 1997, either (i) as a result of
Gensia Sicor having obtained cash or contractually committed payments for such
research activities from third parties in the form of research collaborations or
otherwise, or (ii) by the termination of such research activities; provided,
however, that in any event, Gensia Sicor shall be permitted to expend such
amounts on research as are required for Gensia Sicor to fulfill its obligations
under the Pfizer Agreement. Gensia Sicor will not borrow money in order to
eliminate the net use of cash as described in subclause (i) above. In the event
that such net use of cash has been eliminated pursuant to subclause (i) above,
Gensia Sicor plans to spinoff its research activities into a newly-formed
company to be called Metabasis Therapeutics, Inc., so long as such spinoff is
reasonably feasible.
GEOMATRIX NIFEDIPINE
In February 1997, Gensia signed an agreement with SkyePharma and Boehringer
Mannheim Corporation, Therapeutics Division ("BMCT") of Gaithersburg, Maryland
to restructure the terms of an agreement to develop and market an AB rated
equivalent formulation of Procardia XL using Geomatrix(R) drug delivery
technology. SkyePharma and its U.S. generic subsidiary, Brightstone, has assumed
responsibility for the cost of ongoing and future development work on Geomatrix
nifedipine. SkyePharma will pay Gensia a royalty from its share of operating
income, if any, derived from any Geomatrix nifedipine product marketed by BMCT
and Brightstone. Under previous agreements, Gensia had been collaborating with
Jago Pharma AG and BMCT to develop a Geomatrix nifedipine product which would be
an AB rated equivalent formulation of Procardia XL.
PATENTS, TRADEMARKS AND TRADE SECRETS
Gensia's policy is to protect its technology by, among other things, filing
patent applications for technology which it considers important to the
development of its business. Gensia intends to file additional patent
applications, when appropriate, relating to improvements in its technology and
other specific products that it develops. Gensia also relies on trade secrets
and improvements,
11
<PAGE>
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position.
Historically, pharmaceutical companies have relied heavily upon patents to
protect proprietary positions of synthetic chemicals discovered or developed in
their research. In the past decade, there have been a number of patent issues
that have confronted the owners of patents directed to biotechnology inventions,
including, among others, recombinant DNA and biologically-derived or produced
proteins.
In 1995, the Uruguay Round Agreements Act implemented many changes in U.S.
patent law. In particular, patents issuing on applications filed after June 7,
1995, will have a patent term of 20 years from the priority date. Prior to June
8, 1995, Gensia filed several new and continuing applications directed to new
compositions of matter and their use so that Gensia is positioned to obtain
maximum patent term, if patents issue from these applications.
During 1994, Gensia received U.S. patent 5,286,252 covering closed-loop
administration of exercise simulating agents, as used in the GenESA System.
Gensia has also received U.S. patent No. 5,108,363, which includes claims to
methods of diagnosis and evaluation of coronary artery disease using certain
exercise simulating agent compounds. Gensia has also received U.S. patent
5,234,404, which includes claims to the methods of diagnosis and evaluation of
coronary artery disease using closed-loop delivery of exercise simulating
agents, and U.S. patent 5,088,978, which includes claims relating to closed-loop
drug monitoring technology. In March 1995, U.S. patent 5,395,970 was issued to
Gensia claiming composition of matter for arbutamine, the drug component of the
GenESA System. In addition, claims are made with regard to certain methods of
drug delivery. Further coverage is provided by U.S. patent 5,460,605 which
includes claims to a device for eliciting cardiovascular responses and a system
for the closed-loop administration of a drug arising a physical response.
Additional patent applications have been filed which specifically claim methods
of drug delivery which include the specific design of certain drug delivery
hardware. In addition, Gensia has applied for and been issued patents concerning
its ARA technology.
A substantial number of patents have been issued to other pharmaceutical,
biotechnology and biopharmaceutical companies. In addition, competitors may have
filed applications for, or may have been issued, patents or may obtain
additional patents and proprietary rights relating to, products or processes
competitive with those of Gensia. Accordingly, there can be no assurance that
Gensia's patent applications will result in patents being issued or that, if
issued, the patents will afford protection against competitors with similar
technology; nor can there be any assurance that any patents issued to Gensia
will not be infringed or circumvented by others, or that others will not obtain
patents that Gensia would need to license or circumvent. There can be no
assurance that licenses that might be required for Gensia's processes or
products would be available on reasonable terms. If Gensia does not obtain such
licenses, product introductions could be delayed or foreclosed. In addition,
there can be no assurance that Gensia's patents, if issued, would be held valid
by a court. Litigation to defend against or assert claims of infringement or
otherwise related to proprietary rights could result in substantial costs to and
diversion of resources of Gensia.
Gensia also relies upon unpatented trade secrets, and no assurance can be
given that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to Gensia's
trade secrets or disclose such technology, or that Gensia can meaningfully
protect its rights to its unpatented trade secrets.
COMPETITION
Multisource Pharmaceutical Products
Significant competition exists in the multisource injectable drug business
from other multisource drug companies, health care companies and proprietary
pharmaceutical companies. The major competitors in the multisource injectable
drug industry include Abbott Laboratories ("Abbott"), Astra, Bedford
Laboratories, Elkins-Sinn (a division of American Home Products), Fujisawa, and
Schein Pharmaceutical, Inc. Many of these companies have been in business for a
longer period of time, have a greater number of products on the market and have
substantially greater financial and other resources than Gensia.
During 1995 and 1996, a number of competitors received FDA approval to
market injectable etoposide. Etoposide was one of Gensia Laboratories' largest
products in terms of sales in 1996 and 1995. These approvals have had and are
expected to continue to have a material adverse impact on Gensia's sales of
etoposide.
The various competitive factors affecting the marketing of multisource
injectable pharmaceutical products are price, quality, timing (the ability to
produce generic versions of brand name drugs promptly after the patent
protection for the brand name drug expires), product cost, maintenance of
sufficient inventories for timely deliveries, breadth of product line,
reputation, distribution capabilities and customer service.
12
<PAGE>
Gensia Sicor believes that price and quality are the most significant
competitive factors in the multisource injectable drug industry as the number of
manufacturers of a particular multisource injectable product increases. As
competition from other manufacturers intensifies, selling prices typically
decline. Accordingly, GLL's profitability will depend in part on its ability to
develop and introduce appropriate new products to the market in a timely manner,
to obtain raw materials at competitive prices and to continue to improve the
efficiency of its production capabilities. GLL will also compete with
manufacturers of off-patent injectable brand name products, which may reduce
prices in order to keep their brand name products competitive with equivalent
multisource products.
The GenESA System
There are a number of products which have been approved for marketing or
that are in development which may compete with the GenESA System. In early 1991,
The Du Pont Merck Pharmaceutical Company received FDA marketing approval for
I.V. Persantine(R) (dipyridamole) for use with thallium imaging in patients who
cannot exercise adequately. In October 1996, Elkins-Sinn received the first
generic approval for dipyridamole. Thallium imaging using I.V. Persantine
appears to be well accepted by the medical community. I.V. Persantine is a
vasodilator which increases blood flow to a greater extent in normal coronary
arteries than in vessels with coronary artery disease. The resulting variances
in coronary perfusion are detectable on the thallium image. Gensia believes
that, unlike I.V. Persantine, arbutamine causes the heart to respond much as it
does to exercise, and may therefore prove to be a more effective agent for
enhancing diagnostic capability. Moreover, I.V. Persantine has been approved for
use only with thallium imaging, whereas Gensia Sicor believes the GenESA
System may be used with echocardiography, the use of which is growing rapidly,
as well as radionuclide perfusion imaging.
A second pharmaceutical product called Adenoscan(R)(adenosine) has been
developed by Medco Research, Inc. ("Medco") for use with thallium imaging in the
diagnosis of heart disease. Gensia Sicor believes that Medco may also be
investigating the use of Adenoscan with echocardiography. The mode of action of
Adenoscan is believed to be similar to that of I.V. Persantine. Medco introduced
Adenoscan through its marketing partner, Fujisawa U.S.A. in 1995.
An intravenous drug called Dobutrex(R) (dobutamine) has been approved by
the FDA for the treatment of patients with acute congestive heart failure and is
marketed by Eli Lilly and Company. Although dobutamine is used by some
physicians to stress the heart in order to perform cardiac diagnostic
procedures, it has not been approved by the FDA for this purpose. The patent
protection on dobutamine expired in late 1993 and several companies, including
Gensia Laboratories, have introduced generic versions of this product. The
introduction of these generic products has led to a significant decline in the
price of dobutamine. To the extent physicians use dobutamine to stress the
heart, it may act as a substitute for the GenESA System and thus may affect the
market penetration of the GenESA System or its pricing.
Those products which Gensia Sicor succeeds in developing and for which it
gains regulatory approval must then compete for market acceptance and market
share. For certain of Gensia Sicor's potential products, an important factor in
such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which Gensia Sicor can develop
products, complete the clinical testing and approval processes and supply
commercial quantities of the product to the market are expected to be important
competitive factors. Gensia Sicor expects that competition among products
approved for sale will be based, among other things, on product efficacy,
safety, reliability, availability, price and patent position.
GOVERNMENT REGULATION
Multisource Pharmaceutical Products
Prior to the enactment of the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman/Hatch Act"), the FDA, by regulation,
permitted certain drugs to be approved under an abbreviated procedure which
waived submission of the extensive animal and human studies of safety and
effectiveness normally required to be in an NDA. Instead, the manufacturer only
needed to provide an ANDA containing labeling, information on manufacturing
procedures and data establishing that the original "pioneer" product and the
proposed "generic" product are equivalent when administered to humans. Although
antibiotic drugs are classified separately for purposes of FDA approval, the
approval procedures for such drugs conform substantially to the NDA/ANDA
procedures.
Originally, the FDA's regulations permitted this abbreviated procedure only
for a drug that was identical to a drug which had been approved by the FDA as
safe before 1962 and which was subsequently determined by the FDA to be
effective for its intended use. In 1984, the Waxman/Hatch Act extended
permission to use the abbreviated procedure established by the FDA to any drug
13
<PAGE>
that is identical to a drug which was approved by the FDA as safe and effective
after 1962, subject to certain exclusions (such as drugs that are still
protected by patent).
As compared to an NDA, an ANDA typically involves reduced research and
development costs and a faster review and approval time at the FDA. However,
there can be no assurance that any such applications will be approved.
Furthermore, the suppliers of raw materials also must be approved by the FDA.
Delays in the review process or failure to obtain approval of certain of these
ANDAs or suppliers could have a material adverse effect on the financial
condition of Gensia Sicor.
GLL is marketing certain products without obtaining FDA approval of an NDA
or ANDA on the premise that these products are not "new drugs" under the Federal
Food, Drug and Cosmetic Act, as amended ("FFDCA") and accordingly do not require
such approval. The FFDCA excludes from the definition of "new drug" any drug
which was on the market prior to 1938 and the labeling for which contains the
same representations concerning use as before 1938. These products are sometimes
referred to as "grandfathered drugs." Under the FFDCA, if a manufacturer markets
a product on the premise that it is grandfathered, the FDA may disagree and
initiate regulatory action to declare the product to be a "new drug" and to
remove it from the market until an NDA is approved. Any such action by the FDA,
if successful, could eliminate or reduce revenues from the product in question,
generate additional costs and may result in the imposition of fines, which may
have a material adverse effect on Gensia Sicor.
Proprietary Pharmaceutical Products
The production and marketing of Gensia Sicor's products and its research
and development activities are subject to extensive regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous FDA
regulation. The FFDCA, and the regulations promulgated thereunder, and other
federal and state statutes and regulations, govern, among other things, the
testing, manufacture, safety, effectiveness, labeling, storage, record keeping,
approval, advertising and promotion of Gensia's products.
The steps required before a pharmaceutical agent may be marketed in the
United States include (i) preclinical laboratory tests, in vivo preclinical
studies and formulation studies, (ii) the submission to the FDA of an
investigational new drug application ("IND"), which must become effective before
human clinical trials commence, (iii) adequate and well-controlled human
clinical trials to establish the safety and efficacy of the drug, (iv) the
submission of an NDA to the FDA and (v) FDA approval of the NDA prior to any
commercial sale or shipment of the drug. In addition to obtaining FDA approval
for each product, each domestic drug manufacturing establishment must be
registered with and approved by the FDA. Domestic manufacturing establishments
are subject to inspections by the FDA biennially, or when deemed necessary by
the FDA, and must comply with the Quality System Regulation ("QSR"), which
includes testing, control, documentation and other requirements (formerly known
as Good Manufacturing Practices requirements) for both drugs and devices. To
supply products for use in the United States, foreign manufacturing
establishments must comply with QSR and are subject to periodic inspection by
the FDA or by regulatory authorities in such countries under reciprocal
agreements with the FDA.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Compounds must be formulated according to QSR and
preclinical safety tests must be conducted by laboratories that comply with FDA
regulations regarding Good Laboratory Practices. The results of the preclinical
tests are submitted to the FDA as part of an IND and are reviewed by the FDA
prior to the commencement of human clinical trials. Unless the FDA objects to an
IND, the IND will become effective 30 days following its receipt by the FDA.
There is no certainty that submission of an IND will result in FDA authorization
to commence clinical trials.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers or to patients, under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with certain
standards under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical trial must be conducted under the auspices of an
independent Institutional Review Board ("IRB") at the institution at which the
study will be conducted. The IRB may consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase 1, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and pharmacodynamics (clinical
pharmacology). Phase 2 involves studies in a limited patient population to (i)
determine the efficacy of the drug for specific, targeted indications, (ii)
determine dosage tolerance and optimal dosage and (iii) identify possible
adverse effects and safety risks. When a compound is found to be effective and
to have an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are
undertaken to further evaluate clinical efficacy and to further test for safety
within an
14
<PAGE>
expanded patient population at geographically dispersed clinical trial sites.
There can be no assurance that Phase 1, Phase 2 or Phase 3 testing will be
completed successfully within any specified time period, if at all with respect
to any of Gensia Sicor's products subject to such testing. Furthermore, Gensia
Sicor or the FDA may suspend clinical trials at any time if it is felt that the
subjects or patients are being exposed to an unacceptable health risk.
The results of the pharmaceutical development, preclinical studies and
clinical trials are submitted to the FDA in the form of an NDA for approval of
the marketing and commercial shipment of the drug. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. The
FDA may deny an NDA if applicable regulatory criteria are not satisfied, require
additional testing or information, or require postmarketing testing and
surveillance to monitor the safety of Gensia Sicor's products if they do not
view the NDA as containing adequate evidence of the safety and efficacy of the
drug. Notwithstanding the submission of such data, the FDA may ultimately decide
that the application does not satisfy its regulatory criteria for approval.
Finally, if compliance with regulatory standards is not maintained, it can,
among other things, lead to fines, suspensions of regulatory approvals, product
recalls, operating restrictions and criminal prosecution or if problems occur
during marketing, product approvals can be withdrawn.
Among the conditions for FDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to QSR, which must be followed at all times. In complying with standards set
forth in these regulations, the manufacturer must continue to expend time,
monies and effort in the area of production and quality control to ensure full
technical compliance.
In addition to regulations enforced by the FDA, Gensia Sicor also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations.
For marketing outside the United States, Gensia Sicor is also subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and devices. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country.
Medical Devices
Medical devices are subject to regulation in the United States by the FDA
and, in many instances, by comparable agencies in foreign countries where these
devices are manufactured or distributed. Under the FFDCA and the State Medical
Devices Act of 1990 (the "SMDA") and subsequent amendments, manufacturers of
medical devices must comply with applicable provisions of these acts and certain
associated regulations governing the testing, manufacturing, labeling, marketing
and distribution of medical devices and the reporting of certain information
regarding the safety of medical devices. Both the FFDCA and the SMDA require
certain clearances from the FDA before medical devices may be legally marketed.
FDA permission to distribute a new device can be obtained in one of two
ways. If a new or significantly modified device is "substantially equivalent" to
an existing legally marketed device, the new device can be commercially
introduced after submission of a premarket notification (a "510(k) submission")
to the FDA, and after the subsequent issuance by the FDA of an order permitting
commercial distribution. Changes to existing devices that do not significantly
affect safety or effectiveness can be made by a company without a 510(k)
Submission.
The second more comprehensive approval process applies to a new device that
is not substantially equivalent to an existing product. First, a company must
conduct clinical trials in compliance with testing protocols approved by an
institutional review board for the participating research institution. Second, a
company must submit to the FDA a Premarket Approval ("PMA") application that
contains, among other things, the results of the clinical trials. The PMA
application also contains other information required under the FFDCA such as a
full description of the device and its components, a full description of the
methods, facilities and controls used for manufacturing and proposed labeling.
Finally, the manufacturing site for the product subject to the PMA must pass an
FDA premarketing approval inspection.
Certain other countries require a company to obtain clearances for its
products prior to marketing the products in those countries. In addition,
certain other countries impose product specifications that differ from those
mandated in the United States. These requirements may significantly affect the
efficiency and timeliness of international market introduction of a company's
products.
15
<PAGE>
MANUFACTURING
The manufacturing facility at Gensia Laboratories gives Gensia Sicor the
capability to formulate, fill, label and package final dosage forms of
injectable drug products. The Gensia Laboratories facility has a broad filling
capability, including the ability to terminally sterilize or aseptically fill
syringes and single and multiple dose vials. The facility also has the ability
to lyophilize (freeze dry) products. In addition, Gensia Laboratories has the
capability to manufacture commercial supplies of arbutamine, the drug used in
the GenESA System. Pursuant to a 1992 agreement with Abbott, Gensia purchases
bulk commercial quantities of arbutamine from Abbott. Gensia retains certain
ownership and patent rights for the process developed to produce bulk
arbutamine.
In 1995, planning began for the build-out of an oncology manufacturing
facility and for additional laboratories for the development of oncology
products in a building adjacent to GLL's existing manufacturing facility. The
new oncology facility will include the capability to produce oncology products
in lyophilized or liquid forms and in glass or polymer vials. The new facility
is expected to be completed and validated to begin producing oncology products
in the second half of 1997.
The principal raw materials to be used in manufacturing Gensia
Laboratories' products are active drug ingredients (such as those produced by
Sicor) and inactive pharmaceutical chemicals. The FDA approval process requires
manufacturers of pharmaceutical products to identify their suppliers of active
ingredient raw materials. If raw materials from a specified supplier were to
become unavailable, FDA approval of a new supplier would be required, which
could result in manufacturing delays. Development and approval of Gensia
Laboratories products are, therefore, dependent upon Gensia Laboratories'
ability to procure active ingredient raw materials from suppliers who are, and
who remain, FDA approved. Sicor has filed over 30 Drug Master Files with the FDA
and is a qualified source for several of GLL's current products as well as the
planned supplier for many of GLL's products in development. Termination of
qualified supply arrangements could have a material adverse impact on the sale
of Gensia Laboratories' products. Gensia Laboratories currently utilizes single
sources for certain raw materials and packaging components.
Sicor's production is carried out at its two manufacturing sites in Italy.
The principal site is located on the outskirts of Milan and is regularly
inspected and approved by the FDA. It is a major producer of oncolytic agents,
steroids and certain other products in bulk drug substance form. These products
are manufactured either through fermentation or chemical synthesis processes.
This production center supplies specialty bulk drug substances to GLL and Lemery
and to export markets around the world.
Sicor's other production center, acquired when it merged its subsidiary
Zanoni with and into Sicor, is located on the outskirts of Turin. It produces
principally various animal organ extracts for use in both pharmaceuticals,
including UK 101, and cosmetics. This production center supplies such products
to the European market.
Lemery has a site located in Mexico City. It produces drugs in finished
dosage form, of which injectable oncolytic agents are an important product line,
which are sold in Mexico and exported to certain countries in Central and South
America, North America and Eastern Europe.
Sintesis Lerma has a site located near Toluca, on the outskirts of Mexico
City, which produces principally steroid products for export to various
countries. Sintesis Lerma also recently began construction of a facility to
produce oncolytic agents which is currently expected to commence production in
1997. Production from this new facility will be used by Lemery to replace its
existing third party suppliers.
HEALTH CARE REFORM AND THIRD-PARTY REIMBURSEMENT
The adoption of health care reform legislation or other regulatory
proposals or reforms that would implement controls on pricing or profitability
of prescription pharmaceuticals would adversely affect Gensia Sicor's business,
financial condition and profitability. In addition, both in the United States
and elsewhere, sales of prescription pharmaceuticals are dependent in part on
the availability of reimbursement to the consumer from third-party payors, such
as government and private insurance plans. Third-party payors are increasingly
challenging the prices charged for medical products and services. If Gensia
Sicor succeeds in bringing one or more products to the market, there can be no
assurance that any of these products will be considered cost effective or that
reimbursement to the consumer will be available or will be sufficient to allow
Gensia Sicor to sell its products on a competitive basis.
16
<PAGE>
RISK FACTORS THAT MAY AFFECT RESULTS
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
In March 1997, the Company raised approximately $17 million through a
private placement of Gensia Sicor units for $4.1875 per unit. Each unit consists
of one share of common stock and a warrant to purchase one half of one share
of the Company's common stock for $4.1875 per share.
The Company's current operating plan includes funding its research
activities primarily through its collaborations with other pharmaceutical
companies. To the extent the Company is unable to fund its research activities
through these collaborations, the Company plans to reduce its research expenses
to the level necessary to fulfill its obligations under the Pfizer Agreement.
The operating plan also requires the Company to raise additional funds during
1997 through equity, debt and/or lease financings. The required additional funds
may not be available on acceptable terms or at all. If the Company is unable to
raise additional funds, the Company plans to reduce spending levels so that it
would be able to maintain operations through the end of 1997 with existing
assets, lease lines and credit arrangments. The change to current planned
operations would include reductions in capital expenditures, reduction in
spending for the development of new products and reductions in workforce. If
implemented, such changes could have a material adverse effect on the Company.
LOSS HISTORY; UNCERTAINTY OF FUTURE PROFITABILITY
Gensia was founded in 1986, has never made an annual profit, and has never
had positive annual cash flow from operations. As of December 31, 1996, Gensia
had an accumulated deficit of approximately $265.1 million. For the years ended
December 31, 1994, 1995 and 1996, Gensia had net losses applicable to common
shares of $56.1 million, $11.9 million and $51.8 million, respectively. Gensia
Sicor may incur additional losses in the future and expects that its near term
losses will continue. Gensia Sicor may never achieve profitable operations.
COMPETITION
Gensia Sicor is engaged in a rapidly evolving field. Competition from large
pharmaceutical companies, biotechnology companies, medical device companies and
other companies is intense and expected to increase. Many of these companies
have substantially greater financial resources and experience in developing,
manufacturing and marketing pharmaceutical products than Gensia Sicor. There can
be no assurance that competitors will not succeed in developing technologies and
products that are more effective or that would render the technology and
products of Gensia Sicor obsolete or noncompetitive. Gensia Sicor competes in
the highly competitive multisource (generic) injectable drug industry with
numerous other pharmaceutical manufacturers, many of which are established
companies with greater financial and other resources than Gensia Sicor. There
can be no assurance that Gensia Sicor will be able to continue to compete
effectively in this market. Because selling prices of multisource injectable
drug products typically decline as competition intensifies, the profitability of
Gensia Sicor will depend in part on its ability to develop and introduce
selected new products to the market in a timely manner, to obtain raw materials
at competitive prices and to improve the efficiency of their production
capability. The development and commercialization process is time consuming and
costly. Delays in any part of the process or the inability of Gensia Sicor to
obtain regulatory approval for their products could materially and adversely
affect the company. During 1995 and early 1996, a number of competitors received
FDA approval to market injectable etoposide, which was one of GLL's largest
products in 1995 and 1996. These approvals have had and are expected to continue
to have a material adverse impact on Gensia Sicor's sales of, and gross profits
from, etoposide.
DEPENDENCE ON KEY PERSONNEL
The success of Gensia Sicor depends in large part upon its ability to
attract and retain qualified scientific, manufacturing, marketing and management
personnel. Gensia Sicor faces competition for such personnel from other
companies, academic institutions, government entities and other organizations.
In addition, the success of Gensia Sicor will be dependent upon certain key
personnel associated with Gensia Sicor, the loss of which may have a material
adverse effect on the company's business.
17
<PAGE>
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY TECHNOLOGY
The success of Gensia Sicor will depend, in part, on its ability to obtain
patents, maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. There can be no assurance that the patent
applications of Gensia Sicor will be approved, that Gensia Sicor will develop
additional proprietary products that are patentable, that any issued patents
will provide Gensia Sicor with any competitive advantages or will not be
challenged by any third parties, or that the patents of others will not have an
adverse effect on the ability of Gensia Sicor to develop its products. Certain
technologies that may be used to develop products of Gensia Sicor are not
covered by any patent or patent application. To the extent that such products
are not covered by valid patents, there can be no assurance that others will not
independently develop similar products or duplicate any of such products or that
trade secrets can be maintained. The protections afforded by patents will depend
upon their scope and validity, and others may be able to design around any
patented products developed by Gensia Sicor. In addition, Gensia Sicor may be
required to obtain licenses to patents or other proprietary rights of third
parties which may not be available on acceptable terms. If Gensia Sicor does not
obtain such licenses, product introductions could be delayed or foreclosed.
There can be no assurance that Gensia Sicor will have sufficient funds to
obtain, maintain and enforce patents on its products or its technology, to
obtain licenses that may be required in order to develop and commercialize its
products, to contest patents obtained by third parties, or to defend against
suits brought by third parties.
DEPENDENCE UPON SUCCESSFUL INTEGRATION OF GENSIA, SICOR, LEMERY AND
SINTESIS LERMA
Achieving the benefits of the acquisition of Sicor, Lemery and Sintesis
Lerma will depend in part upon whether the integration of the companies'
businesses is accomplished in an efficient and effective manner, and there can
be no assurance that this will occur. The combination of Gensia, Sicor, Lemery
and Sintesis Lerma is requiring, among other matters, integration of each of the
combining companies' respective development, administrative, finance, sales,
product support, distribution and marketing organizations, as well as the
integration of each such companies' product offerings and development
activities. Of particular significance to successful integration of the
combining companies' businesses is reassuring Gensia Sicor's customers that
product support and distribution will continue uninterrupted. There can be no
assurance that such integration will be accomplished smoothly or successfully.
Further, there can be no assurance that the operations, managements or personnel
of the combining companies will be compatible or that Gensia Sicor will not
experience the loss of key personnel. The difficulties of such integration may
be increased by the necessity of coordinating organizations located in different
countries. The integration of certain operations requires the dedication of
management resources which may temporarily distract from the day-to-day business
of the combined company. Additionally, the costs incurred and difficulties
encountered in the transition process may, at least in the short term, have an
adverse impact on the combined company's operations. The inability of management
to integrate the operations of the companies successfully could have a material
adverse effect on the business and results of operations of the combined
company.
POTENTIAL INABILITY TO OBTAIN RAW MATERIALS OR MANUFACTURE PRODUCTS
Gensia Sicor depends on third party manufacturers for bulk raw materials
for its products. These raw materials are generally available from a limited
number of sources, and certain raw materials are available only from foreign
sources. In addition, Gensia Laboratories utilizes sole sources of supply for
certain raw materials used in the manufacture of its products and certain
packaging components. Any disruption in one or more of these supply sources
could have a material adverse effect on Gensia Sicor.
UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED MATTERS
The levels of revenues and profitability of pharmaceutical companies will
be affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of health care through various means. For example,
in certain foreign markets pricing or profitability of prescription
pharmaceuticals is subject to government control. In the United States, there
have been, and Gensia Sicor expects that there will continue to be, a number of
federal and state proposals to implement government controls. While Gensia Sicor
cannot predict whether any such legislative or regulatory proposals or reforms
will be adopted or the effect such proposals or reforms may have on its
businesses, the announcement of such proposals or reforms could have a material
adverse effect on Gensia Sicor's ability to raise capital and the adoption of
such proposals or reforms could have a material adverse effect on Gensia Sicor's
businesses, financial condition and profitability. In addition, in both the
United States and elsewhere, sales of prescription pharmaceuticals are dependent
in part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans. Third party payors are
increasingly challenging the prices charged for medical products and services.
There can be no assurance that any of the products of Gensia Sicor will be
considered cost effective and that reimbursement to the consumer will be
available or will be sufficient to allow Gensia Sicor to sell its products on a
competitive basis.
18
<PAGE>
PRODUCT LIABILITY EXPOSURE; INADEQUACY OR UNAVAILABILITY OF PRODUCT LIABILITY
INSURANCE
Gensia Sicor, as a manufacturer of finished drug products, faces an
inherent exposure to product liability claims in the event that the use of any
of their respective technology or products is alleged to have resulted in
adverse effects. This exposure exists even with respect to those products that
receive regulatory approval for commercial sale, as well as those undergoing
clinical trials. While Gensia Sicor has taken and will continue to take what it
believes are appropriate precautions, there can be no assurance that they will
avoid significant product liability exposure. Adequate insurance coverage might
not be available at acceptable costs, if at all, and product liability claims
could adversely affect the business or financial condition of Gensia Sicor.
In addition, as a manufacturer of bulk drug substances, Gensia Sicor
supplies other pharmaceutical companies with active ingredients which are
contained in finished products. The ability of Gensia Sicor to avoid significant
product liability exposures depends upon its ability to negotiate appropriate
commercial terms and conditions with its customers and its customers'
manufacturing, quality control and quality assurance practices. There is no
assurance that adequate insurance coverage will be available at acceptable
costs, if at all, to insure against such exposures or that Gensia Sicor will be
able to negotiate satisfactory terms and conditions with their customers.
Commencing in 1995, Sicor received claims from certain of its customers in
connection with the shipment of contaminated products. Rakepoll Holding recorded
a provision of approximately $2.7 million which represented management's
estimate of product rework costs, attorney's costs and other settlement costs.
Actual costs to be incurred in relation to the ultimate settlement may vary from
the amount estimated.
UNCERTAINTY REGARDING MEXICAN ECONOMIC FACTORS, GOVERNMENT POLICIES AND
INFLATION
The Mexican Government has exercised and continues to exercise significant
influence over many aspects of the Mexican economy. Accordingly, Mexican
Government actions could have a significant effect on Lemery and Sintesis Lerma,
and on market conditions and prices in Mexico. Further, on a cumulative basis,
the inflation rate has exceeded 100% in Mexico over the three-year period ended
December 31, 1996. There can be no assurance that actions by the Mexican
Government, future developments in the Mexican economy or Mexico's political,
social or economic situation will not adversely affect the operations of Lemery
and Sintesis Lerma.
RISKS RELATED TO INTERNATIONAL OPERATIONS
During 1995 and 1996, a significant percentage of the revenues of each of
Sicor, Lemery and Sintesis Lerma were derived from sales of pharmaceuticals
outside of Western Europe, Japan and the United States. Operations outside of
Western Europe, Japan and the United States are subject in varying degrees to
risks involved in doing business abroad such as war, civil disturbances, adverse
governmental actions (which may disrupt or impede operations and markets,
restrict the movement of funds, impose limitations on foreign exchange
transactions or result in the expropriation of assets) and economic and
governmental instability. There can be no assurance that Gensia Sicor will not
experience material adverse developments with respect to its operations outside
of Western Europe, Japan and the United States and that such developments, if
they were to occur, would not have a material adverse effect on the results of
operations and financial conditions of Gensia Sicor.
ENVIRONMENTAL MATTERS
Gensia Sicor is subject to numerous environmental regulations in the
jurisdictions in which it operates, including regulations relating to the
handling, transport and disposal of hazardous materials and the protection of
the environment. In certain of these jurisdictions, protection of the
environment is becoming an area of increased governmental scrutiny and
surveillance. While Gensia Sicor has implemented practices to comply with
applicable regulations, the cost of doing so in the future may become
prohibitive and may have a significant adverse impact on their operations. There
is no assurance that Gensia Sicor will, in fact, be able to comply with all
applicable laws and regulations or that such laws and regulations will not have
a material adverse impact on the companies' operations.
In addition, Sicor maintains liability insurance for certain environmental
risks which its management believes to be appropriate and in accordance with
industry practice. There can be no assurance, however, that Sicor will not incur
liabilities beyond the limits or outside the coverage of its insurance.
19
<PAGE>
CURRENCY FLUCTUATIONS
Gensia Sicor has significant operations in several countries, including the
United States, Italy, and Mexico. In addition, purchases and sales are made in a
large number of other countries. As a result, the business is subject to the
risk and uncertainties of foreign currency fluctuations. While Gensia Sicor has
policies and strategies to minimize this risk, there can be no assurance that
such policies and strategies will be effective in preventing significant
negative financial adjustments in the future.
CONTROL BY RAKEPOLL FINANCE
Rakepoll Finance owns 29,500,000 shares of Gensia Sicor Common Stock and
pursuant to the Shareholder's Agreement, dated as of November 12, 1996, as
amended December 21, 1996 and February 28, 1997 (the "Shareholder's Agreement")
has designated three of Gensia Sicor's ten directors, who in turn have
designated (jointly with two executive officer directors of Gensia Sicor) five
additional directors. In addition, the consent of the Rakepoll Finance
designated directors is required for Gensia Sicor to take certain actions, such
as a merger or sale of all or substantially all of the business or assets of
Gensia and certain issuances of securities. As a result of its ownership of
Gensia Sicor Common Stock, Rakepoll Finance may be able to control substantially
all matters requiring approval by the stockholders of Gensia Sicor, including
the election of directors and the approval of mergers or other business
combination transactions.
POSSIBLE VOLATILITY OF STOCK PRICE; DIVIDEND POLICY
The market price of the shares of Gensia Sicor Common Stock, like that of
the common stock of many other life sciences companies, has been and is likely
to continue to be highly volatile, and the market for securities of such
companies has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. The market price of Gensia Sicor Common Stock could be subject to
significant fluctuations in response to variations in Gensia Sicor's anticipated
or actual operating results, sales of substantial amounts of Gensia Sicor Common
Stock, other issuances of substantial amounts of Gensia Sicor Common Stock
pursuant to pre-existing obligations, announcements concerning Gensia Sicor or
its competitors, including the results of testing, technological innovations or
new commercial products or services, developments in patent or other proprietary
rights of Gensia Sicor or its competitors, including litigation, conditions in
the life sciences or pharmaceuticals industries, governmental regulation, health
care legislation, public concern as to the safety of Gensia Sicor's products,
changes in estimates of Gensia Sicor's performance by securities analysts,
market conditions for life sciences stocks in general, and other events or
factors.
Gensia Sicor has never paid cash dividends on Gensia Sicor Common Stock.
Gensia Sicor presently intends to retain earnings, if any, for the development
of its businesses and does not anticipate paying any cash dividends on Gensia
Common Stock in the foreseeable future. Unless full cumulative dividends are
paid on Gensia Sicor's outstanding $3.75 Convertible Exchangeable Preferred
Stock, $.01 par value ("Convertible Preferred Stock"), cash dividends may not be
paid or declared and set aside for payment on Gensia Common Stock. Through March
1997, Gensia Sicor has approximately $7.5 million in undeclared cumulative
preferred dividends on such Convertible Preferred Stock. Gensia did pay
quarterly cash dividends in the aggregate amount of $4.5 million on Convertible
Preferred Stock in September and December of 1996 and March 1997. If Gensia
Sicor chooses not to declare dividends for six cumulative quarters, the holders
of Convertible Preferred Stock, voting separately as a class, will be entitled
to elect two additional directors until the dividend in arrears has been paid.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Gensia Sicor's Certificate of Incorporation and Bylaws include provisions
that could discourage potential takeover attempts and make attempts by its
stockholders to change management more difficult. The approval of 66-2/3% of
Gensia Sicor's voting stock is required to approve certain transactions and to
take certain stockholder actions, including the calling of a special meeting of
stockholders and the amendment of any of the anti-takeover provisions contained
in Gensia Sicor's Certificate of Incorporation. Further, pursuant to the terms
of its stockholder rights plan, Gensia Sicor has distributed a dividend of one
right for each outstanding share of Gensia Sicor Common Stock. These rights will
cause a substantial dilution to a person or group that attempts to acquire
Gensia Sicor on terms not approved by the Gensia Sicor Board of Directors and
may have the effect of deterring hostile takeover attempts.
20
<PAGE>
MANAGEMENT
Executive Officers
- ------------------
The executive officers of Gensia Sicor as of February 28, 1997 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David F. Hale 48 President and Chief Executive Officer and
Director
Michael D. Cannon 51 Executive Vice President and Director
Patrick D. Walsh 36 President and Chief Operating Officer, Gensia
Laboratories, Ltd. and Director
Daniel D. Burgess 35 President, Gensia Automedics, Inc.
Wesley N. Fach 45 Secretary
Paul K. Laikind, Ph.D. 41 Vice President, Corporate Development
John W. Sayward 45 Vice President, Finance, Chief Financial
Officer and Treasurer
Donald M. Semanisin 47 Vice President, Human Resources
Thomas M. Speace 47 Vice President, Marketing and Business
Development, Gensia Laboratories, Ltd.
Gene F. Tutwiler, Ph.D. 51 Executive Vice President, Research and
Development
</TABLE>
Mr. Hale has been President and Chief Executive Officer of Gensia since
June 1987 and Chairman of the Board of Directors from May 1991 to February 1997.
Prior to joining Gensia, Mr. Hale was President and Chief Executive Officer of
Hybritech Incorporated, a biotechnology company which was acquired by Eli Lilly
and Company in 1986. Mr. Hale joined Hybritech in 1982 as Senior Vice President
of Marketing and Business Development, became Executive Vice President and Chief
Operating Officer later that year, President in 1983 and Chief Executive Officer
in 1986. Before joining Hybritech, Mr. Hale was Vice President and General
Manager of BBL Microbiology Systems, a division of Becton, Dickinson and
Company. Earlier in his career, he held several positions at Ortho
Pharmaceutical Corporation, a division of Johnson & Johnson, including Director
of the Ortho Dermatological Division and Director of Product Management. Mr.
Hale serves on the board of Dura Pharmaceuticals, Inc.
Mr. Cannon joined Gensia Sicor Inc. as Executive Vice President in February
1997. Prior to joining Gensia Sicor, Mr. Cannon was a member of the Board of
Directors of Sicor SpA in Milan, Italy (where he worked from the company's
beginning in 1983) and Director of Business Development of Alco Chemicals Ltd.
in Lugano, Switzerland since 1986. From 1970 to 1982, Mr. Cannon worked at SIRS
SpA, a manufacturer of bulk corticosteroids in Milan, Italy in a variety of
technical positions.
Mr. Walsh has been President and Chief Operating Officer of Gensia
Laboratories since November 1995. He was appointed a Director of Gensia Sicor in
February 1997. From July 1994 to November 1995, he was Executive Vice President
and Chief Operating Officer of Gensia Laboratories. He was Vice President of
Sales and Marketing for Fujisawa U.S.A. from 1991 to 1994. From 1984 to 1991 he
held various sales and marketing positions at Fujisawa
U.S.A.
Mr. Burgess was appointed President of Gensia Automedics, Inc. in February
1997. Prior to February 1997, he was Chief Financial Officer and Treasurer of
Gensia, a position he has held since August 1991. He joined Gensia in 1988 and
worked in a number of financial management positions until his promotion to
Chief Financial Officer in 1991. He previously worked for Castle & Cooke, Inc.
as a senior analyst in planning and business development and as a financial
analyst for Smith Barney, Harris Upham & Co. in New York. He received his
masters of business administration from the Harvard Graduate School of Business
Administration.
Mr. Fach joined Gensia as Assistant General Counsel in January 1992 and was
named Secretary in January 1993. Prior to joining Gensia Mr. Fach was legal
counsel to Marrow-Tech Incorporated (now named Advanced Tissue Sciences, Inc.)
from 1990 to 1992. From 1984 to 1990 he was General Counsel of IMED Corporation
and from 1986 to 1990 he was Assistant General Counsel of its parent company,
Fisher Scientific Group Inc. Mr. Fach received his juris doctor degree from
Columbia University.
21
<PAGE>
Dr. Laikind, a co-founder of Gensia, was a Vice President and Director
since Gensia's incorporation from November 1986 until February 1997. He
currently serves as Vice President, Corporate Development. From 1985 to 1987,
Dr. Laikind was an Assistant Research Biochemist at UCSD. From 1984 to 1985, Dr.
Laikind was a Postdoctoral Fellow in the Department of Medicine at UCSD. He
received his doctoral degree in chemistry from University of California San
Diego.
Mr. Sayward joined Gensia in 1992 and was named Vice President, Finance,
Chief Financial Officer and Treasurer in February 1997. Prior to that he was
Division Vice President, Finance, Corporate Controller of Gensia and Chief
Financial Officer of Gensia Laboratories. From 1975 to 1992, Mr. Sayward was
employed in a wide variety of financial and accounting positions at Baxter
Healthcare Corporation, serving as Vice President of Finance and Business
Development, I.V. Systems Division from 1988 to 1992. From 1986 to 1988 he was
Vice President and Controller, Dade Diagnostics Division of Baxter. Mr. Sayward
served in a number of financial management positions at Baxter and American
Hospital Supply from 1975 to 1986. He received his master of management from the
Northwestern Kellogg School of Management.
Mr. Semanisin joined Gensia as Vice President, Human Resources in March
1996. From 1986 to 1996 he was President of DSM, Inc., a human resources
consulting firm. From 1979 to 1986 he was Vice President, Human Resources of
Technicare Corporation, a subsidiary of Johnson & Johnson. Mr. Semanisin worked
as a personnel manager at Ohio Carbon Company from 1976 to 1979. He received his
master of science in industrial relations from West Virginia University.
Mr. Speace has been Vice President, Marketing & Business Development,
Gensia Laboratories and an officer of Gensia since May 1996. He joined Gensia in
1991 as Senior Director of Business Development of Gensia Laboratories, becoming
Executive Director in 1994 and Division Vice President in 1995. Mr. Speace
worked at Kendall McGaw Pharmaceuticals, form 1987 to 1991, when the company was
acquired by Gensia and renamed Gensia Laboratories. Mr Speace previously worked
at Elkins-Sinn, a division of A.H. Robins and had responsibility for materials
and project management, strategic planning and business development. He received
his masters of business administration from St. Josephs University in
Pennsylvania.
Dr. Gene F. Tutwiler joined Gensia as Executive Vice President of Research
& Development in June 1996. From 1995 to 1996 he was Vice President, Research &
Development, New Business Development at Alpha Therapeutic Corporation, a
subsidiary of The Green Cross Corporation. From 1991 to 1995 he served as Vice
President, Research and Development, Clinical, Regulatory and Quality Assurance
at Iolab, a subsidiary of Johnson & Johnson. From 1986 to 1991 he served in a
number of senior positions in business development and research management
positions at McNeil Pharmaceuticals, a subsidiary of Johnson & Johnson. Prior to
1986, Dr. Tutwiler worked at Ayerst Laboratories and McNeil Pharmaceuticals in
basic research and research management. He received a doctoral degree in
biological chemistry from the University of Michigan.
HUMAN RESOURCES
As of December 31, 1996, Gensia employed a total of 474 individuals on a
full-time basis. Excluding Gensia Laboratories, the Company employed 192
individuals, of whom 36 hold Ph.D. or M.D. degrees and 92 hold other advanced
degrees. A total of 87 Gensia employees are engaged in research and development
activities and 77 are employed in sales and marketing, finance, facilities and
general administration activities. A total of 282 individuals were employed at
Gensia Laboratories on December 31, 1996.
Sicor, Lemery and Sintesis Lerma have more than 500 employees, of whom
approximately 30% work in Italy and 70% in Mexico. Approximately 25% of these
employees have professional degrees. As is customary in Italy and Mexico, most
of these employees are represented by unions. Sicor, Lemery and Sintesis Lerma
have not experienced any significant labor disputes in recent years.
Gensia Sicor considers its employee relations to be good.
ITEM 2. PROPERTIES
Gensia's principal administrative offices and research laboratories are
located in San Diego, California. In March 1993, Gensia purchased two buildings
and the underlying and adjacent land for $10.8 million to be used as its
corporate headquarters and research and development facilities. The two
buildings and underlying land (but not the adjacent land) were sold in December
1993 as part of a sale/leaseback transaction. The transaction included sale of
the real property at cost plus commitments to fund tenant improvements to the
buildings, for a combined total of $22 million. The term of the lease is 15
years starting from August 1, 1994, with four ten-year renewal options. The
lease is partially secured by a $4.75 million letter of credit, which will be
released upon Gensia's achieving certain financial milestones.
22
<PAGE>
Gensia leases a total of approximately 150,000 square feet of space in San
Diego. Of this amount, 52,000 square feet is subleased to third-party tenants.
Gensia's laboratories are equipped for research activities in biochemistry,
analytical chemistry, synthetic chemistry, tissue culture and enzymology. Gensia
also uses these facilities for preclinical research. The Company acquires most
equipment under operating and capital lease agreements.
Gensia Laboratories leases approximately 65,000 square feet of office,
laboratory and manufacturing space as well as an additional 27,000 square feet
of manufacturing space in an adjacent building in Irvine, California. The leases
on this space expire in late 1997 and 1998, respectively. Both leases have
options to renew for an additional 10 years. The leases are subject to deeds of
trust in favor of lenders to Gensia Laboratories to secure repayment obligations
of Gensia Laboratories. Gensia Laboratories additionally leases 2,700 and 2,300
square feet of office space and 49,000 and 24,000 square feet of
warehouse/office space in Irvine, California. The leases on the office space
both expire in mid 1997 and the leases on the warehouse/office space expire in
late 1997 and 2006, respectively. The leases on warehouse/office space have two
options to renew for five years each.
Gensia Europe leases approximately 5,600 square feet of office space in
Bracknell, Berkshire, England. Gensia GmbH leases approximately 78 square meters
of office space near Kamen, Germany.
Sicor's production is carried out at its two manufacturing sites in Italy.
The principal site is located on the outskirts of Milan and is regularly
inspected and approved by the FDA This production center covers approximately
1,200 square meters of a 14,438 square meter site. Sicor's other production
center, acquired in its merger with Zanoni, is located on the outskirts of
Turin. This production center, covers approximately 1,700 square meters of an
18,469 square meter site.
Lemery has a 10,403 square meter manufacturing/office site located in
Mexico City. Sintesis Lerma has a site located near Toluca, on the outskirts of
Mexico City. Sintesis Lerma also recently began construction of a facility to
produce oncolytic agents which is currently expected to commence production in
1997.
23
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq National Market under the symbol "GNSA". The following table sets forth,
for the periods indicated, the range of high and low reported sale prices for
the Company's Common Stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
January 1 - March 31, 1995 ............... $ 5.00 $ 2.56
April 1 - June 30, 1995 .................. 4.63 2.00
July 1 - September 30, 1995 .............. 6.63 3.25
October 1 - December 31, 1995 ............ 5.75 3.75
High Low
---- ---
January 1 - March 31, 1996 ............... $ 6.38 $ 4.38
April 1 - June 30, 1996 .................. 6.00 3.88
July 1 - September 30, 1996 .............. 5.75 4.56
October 1 - December 31, 1996 ............ 5.56 3.88
</TABLE>
As of March 14, 1997 there were approximately 728 holders of record of the
Company's Common Stock.
The Company has not paid a cash dividend to date on its Common Stock. The
Company declared and paid a quarterly cash dividend on the $3.75 Convertible
Exchangeable Preferred Stock in March 1995. However, based on its financial
condition, the Company elected to discontinue payment of quarterly cash
dividends on its Preferred Stock in June, September and December 1995 and March
and June 1996. The Company resumed payment of the preferred stock dividend in
September 1996. Gensia does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. Unless full cumulative dividends are paid on
the Company's outstanding preferred stock, cash dividends may not be paid or
declared and set aside for payment on the Company's Common Stock.
At March 28, 1997, the Company had undeclared cumulative dividends of
approximately $7.5 million. The Company intends to retain its earnings, if any,
for the development of its business.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
The data set forth below should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
document.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales .................... $ 54,636 $ 53,464 $ 51,830 $ 17,106 $ 11,039
Contract research and license fees 3,666 11,062 17,956 11,910 19,740
Interest income .................. 2,122 2,086 2,022 4,350 4,326
License restructuring fee ........ -- 50,000 -- -- --
Sale of investment ............... -- 5,359 -- -- --
--------- --------- --------- --------- ---------
Total revenues .............. 60,424 121,971 71,808 33,366 35,105
Cost and expenses:
Cost of sales .................... 40,654 33,183 30,937 20,759 16,045
Research and development ......... 31,081 38,762 61,201 54,341 40,353
Selling, general and
administrative ................. 32,839 31,137 29,006 20,602 15,519
Interest and other ............... 1,649 872 782 968 1,125
Provision for restructuring ...... -- 1,092 -- -- --
Litigation settlement ............ -- 4,000 -- -- --
Write-off of in-process technology -- 18,269 -- -- --
--------- --------- --------- --------- ---------
Total costs and expenses .... 106,223 127,315 121,926 96,670 73,042
--------- --------- --------- --------- ---------
Net loss before income taxes .......... (45,799) (5,344) (50,118) (63,304) (37,937)
Provision for income taxes ............ -- (550) -- -- --
--------- --------- --------- --------- ---------
Net loss .............................. (45,799) (5,894) (50,118) (63,304) (37,937)
Dividends on preferred stock, including
undeclared cumulative dividends of
$7,500 as of December 31, 1996 ... 6,000 6,000 6,000 4,544 --
--------- --------- --------- --------- ---------
Net loss applicable to common shares .. $ (51,799) $ (11,894) $ (56,118) $ (67,848) $ (37,937)
========= ========= ========= ========= =========
Net loss per common share (1) ......... $ (1.41) $ (.36) $ (1.89) $ (2.40) $ (1.36)
========= ========= ========= ========= =========
Shares used in computing per
share amounts (1) ................... 36,624 33,231 29,670 28,294 27,954
========= ========= ========= ========= =========
</TABLE>
(1)Computed on the basis described for net loss per share in Note 1 of Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ........... $ 24,754 $ 67,687 $ 47,439 $ 78,609 $ 68,207
Total assets .............. 89,550 118,560 109,866 136,431 104,162
Long-term obligations, less
current maturities ..... 585 46 71 3,119 3,479
Accumulated deficit ....... (265,136) (219,337) (213,443) (163,325) (100,021)
Stockholders' equity ...... 67,999 102,303 83,778 112,859 89,149
</TABLE>
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Gensia has been unprofitable since its inception in 1986 and expects to
incur additional operating losses at least through 1997. For the period from its
inception to December 31, 1996, Gensia has incurred a cumulative net loss of
$265.1 million.
When used in this Annual Report on Form 10-K, the words "expects",
"anticipates", "estimates" and similar expressions are intended to identify
forward-looking statements. Such statements involve risks and uncertainties,
including the timely development, regulatory approvals, and successful marketing
of new products and acceptance of new products, the impact of competitive
products, product costs and pricing, changing market conditions and the other
risks detailed throughout this Form 10-K, including those listed under "RISK
FACTORS THAT MAY AFFECT RESULTS". Actual results may differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which represent the Company's judgment as of the
date of the filing of this Form 10-K. The Company disclaims, however, any intent
or obligation to update these forward-looking statements.
RESULTS OF OPERATIONS
Years ended December 31, 1996, 1995, and 1994
- ----------------------------------------------
In 1996, the Company reported a net loss applicable to common shares of
$51.8 million (after preferred stock dividends of $3.0 million paid in September
and December 1996 and $3.0 million in undeclared and unpaid cumulative preferred
stock dividends) as compared to a net loss applicable to common shares of $11.9
million (after preferred stock dividends of $1.5 million paid in March 1995 and
$4.5 million in undeclared and unpaid cumulative preferred stock dividends) in
1995 and a net loss of $56.1 million (after preferred dividends of $6.0 million)
in 1994. Total revenues for 1996 were $60.4 million as compared to $122.0
million in 1995 and $71.8 million in 1994. The 1995 results include revenues
from a one-time $50 million payment from The Upjohn Company as part of the
restructuring of an agreement to develop, manufacture and market multisource
oncolytic drugs in the U.S. and a one-time sale of $5.4 million of Gensia's
stock holdings in Viagene, Inc., which was acquired by Chiron Corporation in the
fourth quarter of 1995. In November 1995, Gensia acquired Aramed. The total
purchase price, including acquisition costs of $1.4 million, was $42.6 million.
Based on the purchase price of $42.6 million, net of the fair market value of
the assets acquired ($24.3 million), Gensia allocated $18.3 million to acquired
in-process research and development which was charged to expense in 1995. This
charge was not deductible for income tax purposes.
Product sales increased to $54.6 million in 1996 from $53.5 million in 1995
and $51.8 million in 1994. Cost of sales in 1996 of $40.7 million yielded a
gross margin of 25% compared to cost of sales of $33.2 million in 1995 yielding
a gross margin of 38%. Cost of sales in 1994 of $30.9 million yielded a gross
margin of 40%. The decrease in gross margin in 1996 is due to the increased
competition for certain of Gensia Laboratories' multisource injectable products,
and etoposide, in particular. The higher gross profit margins in 1995 and 1994
reflect the increased sales of higher margin products at Gensia Laboratories,
including etoposide, doxorubicin and dobutamine, as well as higher sales of the
LMA and Brevibloc, proprietary products licensed from third parties. During 1995
and 1994, etoposide was Gensia Laboratories' largest product and during 1995 and
early 1996, a number of competitors received FDA approval to market injectable
etoposide. These approvals have had and are expected to continue to have a
material adverse impact on the Company's sales of etoposide. The Company expects
product sales to grow significantly in 1997 primarily as a result of the
acquisition of Rakepoll Holding on February 28, 1997 and as new products are
approved for sale by the regulatory agencies. There can be no assurance that
Gensia Sicor will be able to achieve this growth. If Gensia Sicor does not
experience this planned growth it would have a significant adverse effect on the
results of operations and financial condition of the Company.
Contract research and license fees of $3.7 million in 1996 decreased from
$11.1 million in 1995 and $18.0 million in 1994. The decrease in 1996 and 1995
from 1994 was primarily due to the acquisition of Aramed by Gensia, which
reduced revenue recognized from Aramed and because of up-front licensing and
research and development payments received in 1994 following the formation of a
collaboration with Boehringer Mannheim Pharmaceuticals Corporation. The Company
is currently receiving contract research revenues through its research
collaboration with Pfizer, Inc. Gensia is engaged in discussions with other
pharmaceutical companies concerning collaborations under which these companies
would fund a portion of Gensia's research and development efforts, however, none
of these arrangements has yet to be completed. There can be no assurance that
any such agreements will be reached.
Interest income was $2.1 million in 1996 compared to $2.1 million and $2.0
million in 1995 and 1994, respectively.
Research and development expenses decreased to $31.1 million from $38.8
million in 1995 and $61.2 million in 1994. This decrease in expenses in 1996
from 1995 is due to reduced spending on research and development programs. The
reduction in 1995 expenses is primarily attributable to the completion of a
major multicenter clinical trial with Protara in patients undergoing coronary
artery bypass surgery in the third quarter of 1994, a restructuring of the
Company in February 1995 to reduce development expenses,
26
<PAGE>
and to ongoing expense reduction programs. As discussed in the Research
Activities section, the Company expects to reduce its research spending if
additional contractual committed payments for such research activities from
third parties are not realized. See "Research Activities".
Selling, general and administrative expenses increased to $32.8 million in
1996 from $31.1 million in 1995 and from $29.0 million in 1994. The increases
resulted primarily from increased sales and marketing expenses supporting Gensia
Laboratories' multisource injectable products, the LMA product in the United
States, the Brevibloc product in Europe and for initial marketing efforts for
the GenESA System in the U.K. and Germany. Selling, general and administrative
expenses are expected to continue to grow as Gensia builds its sales and
marketing organization to support the GenESA System product launch, Gensia
Laboratories, the Laryngeal Mask Airway and Brevibloc. The extent of this
increase will depend primarily on the status and timing of the receipt of U.S.
regulatory approval for the GenESA System, if any. It will also depend upon the
rate of U.S. regulatory approval for multisource injectable drugs. Expenses are
also expected to grow as Gensia Sicor integrates the Rakepoll Holding business.
Gensia had interest and other expenses of $1.6 million in 1996 compared to
$0.9 million in 1995 and $0.8 million in 1994. The increase in expenses is due
to a charge of $0.9 million to write down certain assets. The remaining expenses
resulted primarily from an $8.0 million loan agreement entered into by Gensia
Laboratories in June 1991. All of this loan has now been repaid. The Company
expects interest expense to increase in 1997 from additional indebtedness and as
a result of the debt acquired as a result of the acquisition of Rakepoll
Holding.
In the first quarter of 1995, Gensia recorded a restructuring charge of
$1.1 million. The charge included expected costs of severance payments,
outplacement costs and other personnel costs associated with the restructuring.
As part of the restructuring, Gensia eliminated 35 positions, most of which were
part of its San Diego-based clinical research and data management groups.
The Company recorded a charge of $4 million in the first quarter of 1995
related to the settlement of class action litigation. Following notice to the
plaintiff classes and court hearing, on July 5, 1995, the Court approved a
Stipulation of Settlement entered into between Gensia, Aramed and the other
defendants with the plaintiffs in all the actions and dismissed the action. The
Stipulation of Settlement resolved all claims and dismissed Gensia, Aramed and
their officers and directors from the litigation without any admission or
presumption of wrongdoing by the defendants. The settlement provided for Gensia
to contribute shares of its common stock having an aggregate value of $4
million, and for Gensia's insurance carriers to contribute $13 million in cash.
The settlement is now effective and the dismissal of the litigation is final and
no longer subject to appeal. The Gensia stock in payment of plaintiffs'
attorney's fees (30% of the $4 million) was issued and transferred to the
plaintiffs' counsel in 1995 and the remainder was issued to the class members in
the first quarter of 1996.
Dividends on preferred stock of $6.0 million in 1996 consisted of $3.0
million in paid dividends and $3.0 million in undeclared and unpaid cumulative
dividends. Dividends on preferred stock of $6.0 million in 1995, consisting of
$1.5 million in paid dividends and undeclared and unpaid cumulative dividends of
$4.5 million, compared to paid dividends of $6.0 million in 1994. These
dividends relate to the Company's convertible exchangeable preferred stock
issued in February 1993. In order to reduce its cash usage, Gensia's Board of
Directors determined not to declare the preferred stock quarterly dividend
payments for June, September and December 1995 and March and June 1996. The
Company recommenced payments of preferred stock dividends in September 1996.
Through March 1997, Gensia has approximately $7.5 million in undeclared
cumulative preferred dividends. If Gensia chooses not to declare dividends for
six cumulative quarters, the holders of Convertible Preferred Stock, voting
separately as a class, will be entitled to elect two additional directors until
the dividend in arrears has been paid.
As of December 31, 1996, the Company had federal tax loss carryforwards of
approximately $230.6 million. Pursuant to Internal Revenue Code Sections 382 and
383, annual use of the Company's net operating loss and credit carryforwards may
be limited because of cumulative changes in ownership of more than 50% which
occurred within the three year period ending in 1990 and 1993. The acquisition
of Rakepoll Holding by Gensia caused a cumulative change in ownership of more
than 50% within the three year period ending on February 28, 1997. This
ownership change will have a material impact on the utilization of these
carryforwards.
Gensia does not believe that inflation has had a material impact on its
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, Gensia had cash, cash equivalents and short-term
investments of $21.4 million. Rakepoll Holding had approximately $2.6 million in
cash at December 31, 1996, giving the combined businesses approximately $24.0
million in liquid assets at the end of 1996. In addition, in March 1997 the
Company raised approximately $17 million through a private placement of
Gensia Sicor units, which consisted of common stock and warrants, raising the
amount of cash, cash equivalents and short-term investments available to support
operations in 1997 to approximately $41 million.
27
<PAGE>
The Company's current operating plan includes funding its research
activities primarily through its collaborations with other pharmaceutical
companies. To the extent the Company is unable to fund its research activities
through these collaborations, the Company plans to reduce its research expenses
to the level necessary to fulfill its obligations under the Pfizer Agreement.
The operating plan also requires the Company to raise additional funds during
1997 through equity, debt and/or lease financings. The required additional funds
may not be available on acceptable terms or at all. If the Company is unable to
raise additional funds, the Company plans to reduce spending levels so that it
would be able to maintain operations through the end of 1997 with existing
assets, lease lines and credit arrangments. The change to current planned
operations would include reductions in capital expenditures, reduction in
spending for the development of new products and reductions in workforce. If
implemented, such changes could have a material adverse effect on the Company.
Significant changes in operating assets and liabilities during 1996
included a $5.4 million increase in inventories primarily due to increased
inventories at Gensia Laboratories and increased inventories related to the
GenESA System, a $4.6 million decrease in accounts receivable and a $3.2 million
increase in accounts payable. Other significant cash flows in 1996 included
$13.4 million in issuance of common stock and warrants, primarily as a result of
a private placement of 1,500,000 shares of Gensia Common Stock in December 1996,
and $12.7 million in purchases of property and equipment primarily as a result
of the oncology facility planned for completion in 1997 at GLL.
During 1996, Gensia received funding for research and development under a
contract with Pfizer. Under this agreement, Pfizer provides basic research
funding for a period of at least two years, payments for attainment of certain
preclinical and clinical milestones and royalty payments from commercial sales
of any successfully developed product. There can be no assurance that Gensia's
product development efforts with Pfizer will be successful or that Pfizer will
not terminate this collaboration before any such milestones are achieved.
Gensia Sicor expects to incur substantial additional costs, including the
cost of expanding its sales and marketing organization to support product
launches and increased emphasis on commercial activities. Management also plans
to invest in plant and equipment to increase and improve the existing
manufacturing capacity in the acquired Rakepoll Holding businesses. Increased
spending will also be required to integrate the Gensia and Rakepoll Holding
businesses. Any difficulties experienced in integrating the operations of the
companies successfully could have a material adverse effect on the business and
results of operations of the combined company. The amount of such additional
costs, as well as the increased spending necessary for working capital and
capital requirements, will depend on numerous factors including the successful
integration of the Gensia Sicor companies, the timing and outcome of any
regulatory actions related to the GenESA System, the Company's ability to market
this product in the U.S. and Europe if appropriate regulatory approvals are
obtained, and Gensia's success at maintaining or improving Gensia Laboratories'
current sales and profitability. Also, Gensia Laboratories is undertaking a
significant capital expenditure program during 1997. The Company expects to
finance this expansion largely through new lease or debt financing secured
against certain assets of Gensia Laboratories. There can be no assurance that
any such financing will be available on attractive terms, if at all.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Ernst & Young LLP, Independent Auditors F-1
Consolidated Balance Sheets at December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1996 F-3
Consolidated Statement of Stockholders' Equity for
the three years ended December 31, 1996 F-4
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1996 F-5
Notes to Consolidated Financial Statements F-6
29
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Gensia Sicor Inc.
We have audited the accompanying consolidated balance sheets of Gensia Sicor
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gensia Sicor Inc.
at December 31, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
February 21, 1997, except for Note 11
as to which the date is March 27, 1997
F-1
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except par value data)
<TABLE>
<CAPTION>
ASSETS
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $16,271 $ 47,421
Short-term investments 5,096 11,440
Accounts receivable 5,038 9,615
Inventories 16,999 11,562
Other current assets 2,316 3,860
------- ---------
Total current assets 45,720 83,898
Property and equipment, net 33,657 25,749
Other noncurrent assets 10,173 8,913
------- ---------
$89,550 $ 118,560
======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $11,138 $ 7,980
Accrued research and development costs -- 533
Accrued payroll and related expenses 3,057 2,356
Other accrued liabilities 4,924 4,995
Current portion of deferred revenue 1,771 --
Current maturities of long-term obligations 76 347
------- ---------
Total current liabilities 20,966 16,211
Deferred rent, less current portion -- 33
Deferred revenue, less current portion 500 --
Long-term obligations, less current maturities 85 13
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par value, 5,000,000 shares authorized,
1,600,000 shares issued and outstanding, liquidation preference of
$80,000,000 16 16
Common stock, $.01 par value, 75,000,000 shares authorized, 39,657,982
and 34,640,976 shares issued and outstanding at December 31, 1996
and 1995, respectively 396 346
Contingent value rights -- 2,875
Additional paid-in capital 332,778 319,503
Accumulated deficit (265,136) (219,337)
Unearned compensation (55) (1,100)
------- ---------
Total stockholders' equity 67,999 102,303
------- ---------
$89,550 $ 118,560
======= =========
See accompanying notes.
</TABLE>
F-2
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product sales $ 54,636 $ 53,464 $ 51,830
Contract research and license fees (including $6,550
and $7,167 from affiliates in 1995 and 1994,
respectively) 3,666 11,062 17,956
Interest income 2,122 2,086 2,022
License restructuring fee -- 50,000 --
Sale of investment -- 5,359 --
--------- --------- ---------
Total revenues 60,424 121,971 71,808
Costs and expenses:
Cost of sales 40,654 33,183 30,937
Research and development 31,081 38,762 61,201
Selling, general and administrative 32,839 31,137 29,006
Interest and other 1,649 872 782
Provision for restructuring -- 1,092 --
Litigation settlement -- 4,000 --
Acquisition of in-process research and development -- 18,269 --
--------- ---------- ---------
Total costs and expenses 106,223 127,315 121,926
--------- ---------- ---------
Net loss before income taxes (45,799) (5,344) (50,118)
Provision for income taxes -- (550) --
-------- --------- ---------
Net loss (45,799) (5,894) (50,118)
Dividends on preferred stock 6,000 6,000 6,000
--------- --------- ---------
Net loss applicable to common shares $(51,799) $ (11,894) $ (56,118)
========= ========= =========
Net loss per common share $ (1.41) $ (.36) $ (1.89)
========= ========= =========
Shares used in computing net loss per common share
amounts 36,624 33,231 29,670
========= ========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three years ended December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Convertible Contingent
Preferred Stock Common Stock Value Rights
--------------- ------------ ------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 1,600 $ 16 28,718 $ 287 -- $ --
Issuance of common stock 3,565 36
Cash dividends on preferred stock
Net proceeds from issuance of warrants in
connection with Aramed - 1995 portion
Unrealized loss on available-for-sale securities
Unearned compensation related to
issuance of common stock, net
Amortization of unearned compensation
Net loss
------ ------ ------ ------ ------ ------
Balance at December 31, 1994 1,600 16 32,283 323 -- --
Issuance of common stock 260 2
Cash dividends on preferred stock
Net proceeds from issuance of warrants in
connection with Aramed - 1996 portion
Unrealized loss on available-for-sale securities
Unearned compensation related to
issuance of common stock, net
Amortization of unearned compensation
Litigation settlement 268 3
Issuance of common stock and CVRs in
Aramed acquisition 1,830 18 2,875 2,875
Warrant amortization related to Aramed
acquisition
Net loss
------ ------ ------ ------ ------ ------
Balance at December 31, 1995 1,600 16 34,641 346 2,875 2,875
Issuance of common stock 2,914 29
Cash dividends on preferred stock
Unearned compensation related to
issuance of common stock, net (74) (1)
Amortization of unearned compensation
Issuance of litigation shares 532 5
Issuance of payment on CVRs in Aramed
acquisition 1,645 17 (2,875) (2,875)
Net loss ------ ------ ------ ------ ------ ------
Balance at December 31, 1996 1,600 $ 16 39,658 $ 396 -- $ --
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Accumulated Unearned Stockholders'
Capital Deficit Compensation Equity
------- ------- ------------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 275,881 $(163,325) $ -- $ 112,859
Issuance of common stock 27,697 27,733
Cash dividends on preferred stock (6,000) (6,000)
Net proceeds from issuance of warrants in
connection with Aramed - 1995 portion 2,637 2,637
Unrealized loss on available-for-sale securities (3,618) (3,618)
Unearned compensation related to
issuance of common stock, net 2,421 (2,421) --
Amortization of unearned compensation 285 285
Net loss (50,118) (50,118)
--------- --------- --------- -----------
Balance at December 31, 1994 299,018 (213,443) (2,136) 83,778
Issuance of common stock 459 461
Cash dividends on preferred stock (1,488) (1,488)
Net proceeds from issuance of warrants in
connection with Aramed - 1996 portion 2,409 2,409
Unrealized loss on available-for-sale securities (712) (712)
Unearned compensation related to
issuance of common stock, net 492 (492) --
Amortization of unearned compensation 1,528 1,528
Litigation settlement 3,997 4,000
Issuance of common stock and CVRs in
Aramed acquisition 8,631 11,524
Warrant amortization related to Aramed
acquisition 6,697 6,697
Net loss (5,894) (5,894)
--------- --------- --------- -----------
Balance at December 31, 1995 319,503 (219,337) (1,100) 102,303
Issuance of common stock 13,384 13,413
Cash dividends on preferred stock (3,008) (3,008)
Unearned compensation related to
issuance of common stock, net 46 10 55
Amortization of unearned compensation 1,035 1,035
Issuance of litigation shares (5) --
Issuance of payment on CVRs in Aramed
acquisition 2,858 --
Net loss (45,799) (45,799)
--------- --------- --------- -----------
Balance at December 31, 1996 $ 332,778 $(265,136) $ (55) $ 67,999
========= ========= ========= ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (45,799) $ (5,894) $ (50,118)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization of property and equipment 3,780 3,704 3,725
Deferred rent (33) (51) (183)
Amortization of licenses 300 300 300
Amortization of unearned compensation 1,035 1,528 285
Amortization of warrants -- 2,409 2,637
Loss on disposal of property and equipment 878 -- --
Litigation settlement -- 4,000 --
Charge for acquired in-process research and
development -- 18,269 --
Changes in operating assets and liabilities, net of effects
from acquisition of Aramed, Inc.:
Accounts receivable 4,577 (3,653) (1,175)
Inventories (5,437) (3,910) 1,589
Other current assets and advance to Aramed 1,259 2,960 (1,199)
Accounts payable 3,158 (1,094) 3,068
Accrued research and development costs (533) (3,277) (1,607)
Accrued payroll and related expenses 701 (94) 399
Other accrued liabilities (71) (1,754) 3,137
Deferred revenue 2,271 (2,408) 326
------- ------ --------
Net cash provided by (used in) operating activities (33,914) 11,035 (38,816)
Cash flows from investing activities:
Payment for purchase of Aramed, net of $22,640
cash acquired -- (1,764) --
Proceeds from short-term investments 192,658 186,623 249,370
Purchases of short-term investments (186,315) 166,178) (218,921)
Purchases of property and equipment (12,701) (3,838) (4,107)
Proceeds from sale of property 136 -- --
Other noncurrent assets (1,916) 1,582 (679)
Notes receivable from officers and employees 641 (40) 416
-------- ------- ------
Net cash provided by (used in) investing activities (7,497) 16,385 26,079
Cash flows from financing activities:
Payments of cash dividends on preferred stock (3,008) (1,488) (6,000)
Issuance of common stock and warrants, net 13,468 461 27,733
Issuance of long-term obligations 206 268 151
Principal payments on long-term obligations (302) (2,544) (2,649)
Principal payments on capital lease obligations (103) (67) (126)
------- ------- -------
Net cash provided by (used in) financing activities 10,261 (3,370) 19,109
------- ------- -------
Increase (decrease) in cash and cash equivalents (31,150) 24,050 6,372
Cash and cash equivalents at beginning of year 47,421 23,371 16,999
--------- --------- ---------
Cash and cash equivalents at end of year $ 16,271 $ 47,421 $ 23,371
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 82 $ 783 $ 404
Supplemental schedule of non-cash investing and financing activities:
Common stock and CVRs issued to acquire net assets of Aramed:
Fair value of assets acquired, other than cash -- 2,907 --
Liabilities assumed -- (1,215) --
</TABLE>
See accompanying notes.
F-5
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
ORGANIZATION
Gensia Sicor Inc., formerly known as Gensia, Inc. ("Gensia Sicor" or
the "Company"), a Delaware corporation, was incorporated November 17, 1986. On
February 28, 1997, Gensia Sicor completed the acquisition of Rakepoll Holding
B.V. ("Rakepoll Holding") from Rakepoll Finance N.V. Rakepoll Holding is the
parent company of three specialty pharmaceutical businesses: SICOR-Societa
Italiana Corticosteroidi S.p.A. ("Sicor") of Milan, Italy, and two companies
located in Mexico: Lemery, S.A. de C.V. ("Lemery") and Sintesis Lerma, S.A. de
C.V. ("Sintesis Lerma"). Gensia Sicor is a specialty pharmaceutical company
focused on the development, manufacture and marketing of products for worldwide
oncology and injectable pharmaceutical markets. The newly combined company is
headquartered in San Diego, California.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its six wholly-owned subsidiaries, Gensia Europe Limited, Gensia
Laboratories, Ltd., Gensia GmbH, Aramed, Inc., Gensia Automedics, Inc. and
Gensia Development Corporation. All significant intercompany accounts and
transactions have been eliminated. The accompanying financial statements do not
include the operations of Rakepoll Holding as such results will be included from
the date of acquisition which was on February 28, 1997 (see Note 11).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents and short-term investments consist of highly
liquid debt instruments. The Company considers instruments purchased with an
original maturity of three months or less to be cash equivalents. Management has
classified the Company's cash equivalents and short-term investments as
available-for-sale securities in the accompanying financial statements.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in investment income. Realized gains and losses and declines in value judged to
be other-than-temporary on available-for-sale securities are included in
investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income.
CONCENTRATION OF CREDIT RISKS
The Company invests its excess cash in U.S. Government securities and
debt instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification of
its cash investments and their maturities that should maintain safety and
liquidity. These guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates.
F-6
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The Company maintains reserves for potential credit losses; to date, such losses
have not been significant and are within management's expectations.
INVENTORIES
Inventories are stated at the lower of cost or market, determined by
the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the
estimated useful lives of the assets (3 to 15 years) using the straight-line
method. Leasehold improvements are stated at cost and amortized on a
straight-line basis over the shorter of the estimated useful life or the lease
term. Machinery and equipment and office furniture under capital leases are
recorded at the present value of future lease payments as of the inception of
the lease and depreciated using the straight-line method over the shorter of the
lease terms or the useful life.
INTANGIBLE ASSETS
Intangible assets are stated at cost and amortized over the life of the
assets. License agreements are stated at cost and amortized on a straight-line
basis over the life of the license agreement.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
statement of Financial Accounting Standards No. 121, "Accounting for the
Impaiment of Long-Lived Asstes and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addressed the accounting for
long-lived assets that are expected to be disposed of. The Company adopted SFAS
121 in the first quarter of 1996 and such adoption has had no effect on the
Company's financial position or results of operations.
ACCRUED OPERATING LEASE COSTS
The Company received rental concessions under certain operating leases.
Rent expense is recorded on a straight-line basis over the term of the lease.
Accordingly, deferred rent in the accompanying balance sheet represents the
difference between rent expense accrued and amounts paid under the terms of the
lease.
FOREIGN OPERATIONS
For the years ended December 31, 1996, 1995, and 1994, Gensia Europe
Limited, located near London, England, has had losses which have been
immaterial. For the year ended December 31, 1996 and 1995, Gensia GmbH, located
near Kamen, Germany has had losses which have been immaterial. Gensia GmbH was
formed in 1995. The identifiable assets were not significant in either
subsidiary.
F-7
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
RESEARCH AND DEVELOPMENT EXPENSES
All costs of research and development, including those incurred in
relation to the Company's collaborative agreements, are expensed in the period
incurred.
RESTRUCTURING CHARGE
The Company recorded a restructuring charge of $1.1 million in the
first quarter of 1995, all of which was utilized in 1995. The charge included
expected costs of severance payments, outplacement costs and other personnel
costs associated with the restructuring. As part of the restructuring, the
Company eliminated 35 positions, most of which were part of its San Diego-based
clinical research and data management groups.
REVENUE RECOGNITION
For contracts under which the Company is reimbursed for research and
development efforts, revenue is recognized as the related expenses are incurred.
Nonrefundable license fees in connection with research and development
agreements are recognized over the term of the contract. Product sales revenues
are recorded as products are shipped.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding during the period.
STOCK COMPENSATION
In November 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), effective for fiscal years beginning after December
15, 1995. SFAS 123 establishes the use of the fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of stock-based compensation determined
as of the grant date, and is recognized over the periods in which the related
services are rendered. The statement also permits companies to elect to continue
using the current implicit value accounting method specified in Accounting
Principles Board (APB) Opinion No. 25 to account for stock-based compensation.
The Company has decided to retain the current implicit value based method, and
has disclosed the pro forma effect of using the fair value based method to
account for its stock based compensation (see Note 5).
F-8
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements
have been reclassified to conform to the current year presentation.
3. BALANCE SHEET INFORMATION
Accounts receivable are stated net of valuation allowances of
$1,073,000 and $895,000 at December 31, 1996 and 1995, respectively.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 6,207 $ 3,279
Work-in-process 1,362 415
Finished goods 9,430 7,868
-------- --------
$ 16,999 $ 11,562
======== ========
</TABLE>
Inventories are stated net of reserves of $1,541,000 and $1,496,000 at
December 31, 1996 and 1995, respectively.
Other current assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Prepaid expenses $ 982 $ 2,079
Interest receivable and other 1,072 1,234
Notes receivable from officers and employees 262 547
------- -------
$ 2,316 $ 3,860
======= =======
</TABLE>
Notes receivable from officers and employees generally consist of
housing loans to assist in the relocation of officers and employees and are
generally secured by the individual's residence.
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Machinery and equipment $ 33,169 $ 20,278
Leasehold improvements 11,351 9,304
Office furniture and equipment 3,814 9,061
-------- --------
48,334 38,643
Less accumulated depreciation and amortization (16,477) (14,694)
-------- --------
31,857 23,949
Land 1,800 1,800
-------- --------
$ 33,657 $ 25,749
======== ========
</TABLE>
F-9
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
At December 31, 1996 and 1995, equipment acquired under capital lease
obligations totaled $234,000 and $28,000, respectively. Such leased equipment is
included in property and equipment, net of accumulated amortization of $51,000
and $10,000 at December 31, 1996 and 1995, respectively.
Depreciation expense including amortization of capital leases was
$3,277,000, $3,704,000 and $3,725,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
<TABLE>
<CAPTION>
Other noncurrent assets consist of the following (in thousands):
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Restricted short-term investments $ 5,500 $ 5,540
Licenses, net of amortization 2,025 2,325
Deposits and other 2,648 1,048
------- -------
$10,173 $ 8,913
======= =======
</TABLE>
Accumulated amortization on the licenses totaled $975,000 and $675,000
at December 31, 1996 and 1995, respectively.
4. INVESTMENTS
The following is a summary of available-for-sale securities (in
thousands):
<TABLE>
<CAPTION>
Available-for-Sale Securities
--------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---- ------ -----
<S> <C> <C> <C> <C>
December 31, 1996:
------------------
U.S. government securities $ 6,696 $ 1 $ -- $ 6,697
U.S. corporate securities 7,143 -- -- 7,143
-------- ----- ----- --------
$ 13,839 $ 1 $ -- $ 13,840
======== ===== ===== ========
December 31, 1995:
------------------
U.S. government securities $ 45,055 $ 18 $ 17 $ 45,056
U.S. corporate securities 10,824 -- -- 10,824
-------- ----- ----- --------
$ 55,879 $ 18 $ 17 $ 55,880
======== ===== ===== ========
</TABLE>
At December 31, 1996 and 1995, the available-for-sale securities
included in cash and cash equivalents totaled $8,744,000 and $44,440,000,
respectively.
The gross realized gains on sales of available-for-sale securities
totaled $1,000 in 1996 and 1995. The gross realized losses totaled $5,000 and
$174,000 in 1996 and 1995, respectively. The net unrealized gains of $1,000 in
1996 and 1995 are included in additional paid-in capital. The unrealized gains
or losses had no cash effect and are therefore not reflected in the consolidated
statement of cash flows.
At December 31, 1996, the contractual maturities of all of the
Company's available-for-sale investments are less than one year from the balance
sheet date.
F-10
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company's 1.6 million shares of $3.75 Convertible Exchangeable
Preferred Stock (the "Preferred Stock") was issued in a private offering to
institutional investors. The Preferred Stock has a liquidation preference of
$50.00 per share. Cash dividends on the Preferred Stock are payable quarterly at
an annual dividend rate of $3.75 for each share. Dividends on the Preferred
Stock are cumulative. The Preferred Stock is convertible, at any time prior to
redemption, into approximately 2.9 million shares of the Company's Common Stock
at a conversion price of $27.60 per share, subject to certain anti-dilution
adjustments. The Preferred Stock is redeemable at the option of the Company,
initially at a price of $52.50 per share and thereafter at prices declining to
$50.00 per share in March 2002 plus all accrued and unpaid dividends. The
Preferred Stock will not be redeemable prior to March 6, 1998 unless the closing
price of the Common Stock equals or exceeds 150% of the then effective
conversion price per share for any 20 trading days during a specified period.
The Preferred Stock will be exchangeable at the option of the Company in whole,
but not in part, on any dividend payment date for its 7 1/2% Convertible
Subordinated Debentures due 2003 at the rate of $50.00 principal amount of
Debentures for each share of Preferred Stock.
The Company made quarterly cash dividend payments of approximately $1.5
million per quarter on its outstanding Preferred Stock from June 1, 1993 through
March 1, 1995. Subsequent to March 1995, as a measure to reduce cash outflows,
the Company's Board of Directors suspended quarterly cash dividend payments on
its outstanding Preferred Stock. The Company resumed payment of the Preferred
Stock dividend in September 1996. At December 31, 1996, the Company has
approximately $7.5 million in undeclared cumulative preferred dividends. If the
Company chooses to not declare dividends for six cumulative quarters, the
holders of this Preferred Stock, voting separately as a class, will be entitled
to elect two additional directors until the dividend in arrears has been paid.
WARRANTS
At December 31, 1996 and 1995, warrants to purchase 2,145 shares of
Common Stock were outstanding related to a previous convertible Preferred Stock
financing. These warrants have an exercise price of $6.00 per share and expire
on July 24, 1997.
In July 1996, warrants to purchase 70,000 shares of Common Stock were
issued in connection with a lease financing commitment for GLL. These warrants
have an exercise price of $5.25 per share and expire in July 2006.
Additional warrants were issued in connection with the offerings of Gensia
Clinical Partners, L.P. and Aramed, Inc. (See Notes 8 and 9).
STOCK OPTIONS
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock plans because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
F-11
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The Company's 1990 Stock Plan (the "Plan") provides for both the direct
award or sale of Common Shares and the granting of qualified and nonqualified
options to its employees, directors and certain other individuals. Generally,
options outstanding vest over a four year period and are exercisable for up to
ten years from the grant date. In February 1996, the Board of Directors
approved, and in June 1996, the Company's stockholders consented to, the
amendment of the 1990 Stock Plan to increase the aggregate number of shares
authorized for issuance thereunder by 400,000 shares to a total of 6,383,334.
A summary of the Company's stock option activity and related
information is as follows (in thousands except exercise price):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------- -------- -------- -------- ------- ---------
Outstanding - beginning of year 4,416 $4.96 4,550 $5.50 4,045 $17.28
Granted 949 5.02 1,207 4.00 7,101 7.20
Exercised (523) 4.50 (54) 3.35 (88) 6.28
Cancelled (688) 4.93 (1,287) 6.02 (6,508) 14.73
----- ------- ------- ------- ------- -----
Outstanding - end of year 4,154 $5.03 4,416 $4.96 4,550 $5.50
===== ===== ======== ===== ======= =====
Exercisable - end of year 2,691 $5.21 2,557 $5.30 2,429 $5.71
===== ===== ======== ===== ======= =====
</TABLE>
On June 30, 1994, the Stock Option Committee authorized a plan for
certain option holders, excluding officers and directors of the Company, whereby
each holder could have exchanged all of his or her current vested and unvested
options on a one-for-one basis for new options priced at the market value as of
June 30, 1994. An aggregate of 2,021,044 options at an average exercise price of
$21.65 were exchanged for options with an exercise price of $9.25. These
replacement options vest based on the original grant date.
On October 29, 1994, the Stock Option Committee authorized a plan for
certain option holders, excluding outside directors of the Company, whereby each
holder could have exchanged all of his or her current vested and unvested
options on a one-for-one basis for new options priced at the market value as of
October 28, 1994. An aggregate of 3,476,769 options at an average exercise price
of $12.03 were exchanged for options with an exercise price of $4.88. Most of
these replacement options vest based on the original grant date.
All replacement options are included in grants and cancellations in the
above summary of stock option activity.
Exercise prices for options outstanding as of December 31, 1996 ranged
from $.57 to $28.48. The weighted-average remaining contractual life of those
options is approximately six years.
Shares of Common Stock reserved at December 31, 1996 for the exercise
of available and outstanding stock options and warrants totaled 6,503,778.
F-12
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Substantially all stock options subject to vesting under the Stock Plan
became fully vested upon the acquisition of Rakepoll Holding.
RESTRICTED STOCK
From October 1994 through May 1995, 525,000 restricted shares of the
Company's Common Stock were issued to certain employees. In conjunction with the
issuance of these restricted shares, options to purchase 360,250 shares were
cancelled. The market value of the restricted shares of $2,557,000 at the time
of issuance was recorded as unearned compensation in a separate component of
stockholders' equity and amortized to expense.
In December 1995, 196,500 restricted shares of the Company's Common
Stock were issued to certain employees. In conjunction with the issuance of
these restricted shares, options to purchase 64,500 shares were cancelled. The
recipients of restricted shares may not dispose or otherwise transfer the
restricted shares during the period of restriction, which ended on January 31,
1997, or under certain circumstances at an earlier date. The restricted shares
were forfeited if a recipient left the Company's employment under certain
circumstances prior to January 31, 1997. The market value of the restricted
shares of $786,000 at the time of issuance has been recorded as unearned
compensation in a separate component of stockholders' equity.
Forfeitures of restricted shares reduce unearned compensation and
amounted to $99,000 in 1996. Unearned compensation is being amortized to expense
over the restriction period and amounted to $1,035,000 in 1996.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "ESPP") provides
employees of the Company the opportunity to purchase Common Stock through
payroll deductions. In February 1996, the Board of Directors approved and in
June 1996, the Company's stockholders consented to the amendment of the 1992
ESPP to increase the aggregate number of shares reserved for issuance thereunder
by 100,000 shares to a total of 400,000 shares of Common Stock. Any full-time
employee of the Company is eligible to participate in the ESPP after he or she
has been continuously employed by the Company for three consecutive months.
Eligible employees may elect to contribute up to 12% of their total compensation
during each six-month offering period, subject to certain statutory limits. At
the end of each six-month offering period, the Company will apply the amount
contributed by the participant during the offering period to purchase whole
shares of Common Stock, but not more than 1,000 shares. The shares of Common
Stock vest immediately and are purchased for 85% of the lower of (i) the market
price of the Common Stock immediately before the beginning of the purchase
period or (ii) the market price of the Common Stock on the last business day of
the purchase period. All expenses incurred in connection with the implementation
and administration of the ESPP are paid by the Company. At December 31, 1996,
324,749 shares had been issued under the ESPP.
PRO FORMA INFORMATION
Pro Forma information regarding net income and net income per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock plans under the fair value method of that statement. The
fair value was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for 1996 and 1995,
respectively: risk-free interest rates of 6.0% to 6.2% and 6.1% to 6.3%;
dividend yields of 0% for 1996 and 1995; volatility factors of the expected
market price of the Company's Common Stock of 46.9% for 1996 and 1995; and a
weighted-average life of three to five years for 1996 and 1995.
F-13
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value is
amortized to expense over the vesting period of such stock or options. The
effects of applying Statement 123 for pro forma disclosure purposes are not
likely to be representative of the effects on pro forma information in future
years because they do not take into consideration pro forma compensation expense
related to grants made prior to 1995. The Company's pro forma information is as
follows (in thousands except per share and fair value data):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pro forma net loss $(52,762) $(12,276)
Pro forma net loss per share $ (1.44) $ (.37)
</TABLE>
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Fair Value Exercise Price
----------------- ----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Exercise Price on Date of Grant:
- --------------------------------
Equal to market price of stock $ 5.09 $ 4.01 $ 5.09 $ 4.01
Less than market price of stock:
Options $ 5.09 $ 3.86 $ 4.40 $ 3.54
Restricted stock $ 5.09 $ 4.00 $ .01 $ .01
Employee stock purchase plan $ 4.85 $ 4.63 $ 4.12 $ 3.19
</TABLE>
STOCKHOLDER RIGHTS PLAN
The Company has adopted a Stockholder Rights Plan (the "Plan"). The
Plan provides for the distribution of a Preferred Stock purchase right (a
"Right") as a dividend for each share of the Company's Common Stock. Under
certain conditions involving an acquisition by any person or group of 15% or
more of the Common Stock, the Rights permit the holders (other than the 15%
holder) to purchase the Company's Common Stock at a 50% discount upon payment of
an exercise price of $200 per Right. In addition, in the event of certain
business combinations, the Rights permit the purchase of the Common Stock of an
acquiror at a 50% discount. Under certain conditions, the Rights may be redeemed
by the Board of Directors in whole, but not in part, at a price of $.01 per
Right. The Rights have no voting privileges and are attached to and
automatically trade with the Company's Common Stock. The Rights expire on March
16, 2002. The Plan was amended in November 1996 to exempt the acquisition of
Rakepoll Holding from the provisions of the Plan.
F-14
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
6. COMMITMENTS
The Company leases its office, manufacturing and research facilities
and certain equipment under operating lease agreements. The minimum annual rents
are subject to increases based on changes in the Consumer Price Index, taxes,
insurance and operating costs.
Included in deposits and other assets at December 31, 1996 and 1995 was
$439,000 and $368,000, respectively, deposited under these agreements. Rent
expense for 1996, 1995, and 1994 was $4,738,000, $4,943,000, and $4,265,000,
respectively. Rent expense for 1996, 1995 and 1994 were net of $412,000,
$732,000 and $616,000 of sublease income, respectively.
The lease related to the buildings where the Company's corporate
headquarters and centralized research and development facilities are located is
secured by a $4.8 million letter of credit, which is collateralized by a $4.9
million certificate of deposit, and will be released provided the Company
achieves certain financial milestones.
In July 1994, the Company agreed to secure equipment used in the
development of Geomatrix products by Jago Pharma AG in Switzerland. The
agreement is secured by a letter of credit, which in turn is secured by a
$575,000 certificate of deposit and will expire on September 1, 1997. In
connection with the restructuring of the Company's agreements with respect to
the development of Geomatrix products (see Note 10), SkyePharma and Brightstone
have agreed to indemnify the Company from and against the full amount of any
draw made against such letter of credit, together with all reasonable
out-of-pocket expenses incurred by the Company as the result of such draw.
Minimum future obligations for operating leases are as follows (in
thousand):
Year Ended December 31,
-----------------------
1997 $ 5,903
1998 4,980
1999 4,625
2000 4,167
2001 4,145
Thereafter 25,107
--------
Total minimum lease payments $ 48,927
========
F-15
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
7. INCOME TAXES
The provision for income taxes on earnings subject to income taxes
differs from the statutory federal rate due to the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(In Thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income taxes (benefit ) at 35% $(16,016) $(1,870) $(17,541)
Tax effect of non-deductible expenses, including
write-off of acquired in-process research and development 582 7,423 1,160
Benefit of net operating loss carryforwards -- (5,553) --
Alternative minimum taxes -- 550 --
Increase in valuation allowance and other 15,434 -- 16,381
-------- ------- --------
Total $ -- $ 550 $ --
======== ======= ========
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1996 and 1995 are shown below. A valuation
allowance of $112,085,000, of which $20,008,000 is related to 1996, has been
recognized as an offset to the deferred tax assets as of December 31, 1996 as
realization of such assets is uncertain.
<TABLE>
<CAPTION>
December 31,
------------
(In Thousands)
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 2,901 $ 2,644
---------- ---------
Total deferred tax liabilities 2,901 2,644
---------- ---------
Deferred tax assets:
Net operating loss carryforwards 84,653 70,398
Research and development credits 12,710 10,246
Capitalized research and development 8,410 7,484
Other, net 9,213 6,593
---------- ---------
Total deferred tax assets 114,986 94,721
Valuation allowances for deferred tax assets (112,085) (92,077)
---------- ---------
Net deferred tax assets 2,901 2,644
---------- ---------
Net deferred taxes $ -- $ --
========== =========
</TABLE>
At December 31, 1996, the Company had federal and California tax net
operating loss carryforwards of approximately $230.6 million and $34.5 million,
respectively. The difference between the net operating loss carryforwards for
federal and California income tax purposes is primarily attributable to the
capitalization of research and development costs for California purposes and the
fifty percent limitation on California loss carryforwards. The federal and
California tax loss carryforwards will begin expiring in 2005 and 1997,
respectively, unless previously utilized. The Company also has federal and
California research and development tax credit
F-16
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
carryforwards totaling $10.3 million and $3.7 million, respectively, which will
expire beginning in 2001 unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the
Company's net operating loss and credit carryforwards may be limited because of
cumulative changes in ownership of more than 50% which have occurred within the
three year period ending in 1993. However, the Company does not believe such
changes will have a material impact upon the utilization of these carryforwards.
The acquisition of Rakepoll Holding described in Note 11 caused a
cumulative change in ownership of more than 50% within the three year period
ending on February 28, 1997. This ownership change will have a material impact
on the utilization of these carryforwards.
8. GENSIA CLINICAL PARTNERS, L.P.
In July 1991, the Company organized Gensia Clinical Partners, L.P.
("Gensia Clinical Partners") to provide funding for further research and
clinical development of Gensia's GenESA System technology. Gensia Clinical
Partners has received net proceeds of approximately $23.2 million from its
limited partners and has paid the Company approximately $22.5 million for
conducting such research and development since its inception in July 1991. The
Company does not expect any additional funding from Gensia Clinical Partners.
The Company has granted Gensia Clinical Partners an exclusive
royalty-free license to use certain patent rights and technology that are
related to the GenESA System in the United States, Canada and certain countries
in Europe. Under its development and marketing agreement with Gensia Clinical
Partners, the Company has conducted research and development relating to the
GenESA System, and Gensia Clinical Partners has reimbursed the Company for these
services. The Company is obligated under the agreements to market the GenESA
System in the United States and certain countries in Europe, if approved by
regulatory authorities in these countries, and to pay royalties based on those
sales. In addition, the Company is required to make a milestone payment of
approximately $5.0 million payable in cash or Gensia Sicor Common Stock upon
approval of the GenESA System by the United States Food and Drug Administration.
During the two to four-year period following the initial
commercialization of the GenESA System, the Company has the option to purchase
the limited partners' interests in Gensia Clinical Partners. If the Company
exercises this option, it will pay the limited partners approximately $22.0
million, payable in cash or Gensia Sicor Common Stock (the "Advance Payment"),
and a royalty on product sales of the GenESA System for an eleven-year period
following the purchase of the interests. In lieu of the right to receive the
Advance Payment and royalty, a limited partner may elect to receive a fixed
number of shares of Gensia Sicor Common Stock. If all limited partners elected
this option, the Company would issue 1,976,250 shares of Common Stock (and would
not be required to make the Advance Payment or pay any royalty).
In connection with the sales of interests in Gensia Clinical Partners,
warrants to purchase 2,249,175 shares (the "Partnership Warrants") were issued
which became exercisable on August 1, 1993. These warrants were exercisable, in
whole or in part, through July 31, 1996 at a price of $17.47 per share and
thereafter until July 31, 1998 at a price of $19.47 per share. At December 31,
1996, warrants to purchase an aggregate of 1,962,477 shares of Gensia Sicor
Common Stock were outstanding.
F-17
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
9. ARAMED ACQUISITION
In late 1991, the Company formed Aramed, Inc. ("Aramed"), which became a
publicly owned company, to accelerate the discovery, research and development of
certain compounds (the "Aramed Products") utilizing the Company's ARA
technology. The Company licensed to Aramed certain technology to develop and
commercialize the Aramed Products in the United States, Canada and Europe.
Aramed has engaged the Company to perform research and development with respect
to three program areas: second generation ARAs for the intravenous treatment of
acute cardiovascular disorders, ARAs for the oral and intravenous treatment of
certain seizure disorders and ARAs and adenosine agonists for the intravenous
treatment of acute cerebrovascular disorders.
In November 1995, the Company acquired and Aramed became a wholly-owned
subsidiary of the Company. The consideration paid for each Aramed share was (a)
$8.00 in cash, (b) approximately 0.64 of a share of the Company Common Stock,
and (c) one contingent value right (CVR) that represented the right to receive
additional shares of the Company or cash (at the Company's option) based upon
specified formulas. In April and December 1996, the Company issued 1,645,679
shares in aggregate to satisfy the CVR. Prior to the merger, Aramed had
rights to three compounds under development by the Company for cardiovascular
and neurological diseases. The Company now owns rights to these compounds as
part of the merger.
The acquisition of Aramed was accounted for using the purchase method
and, accordingly, the consolidated financial statements include the operations
of Aramed from its date of acquisition. The total purchase price, including
acquisition costs of $1.4 million, was $42.6 million which was comprised
primarily of a cash payment of $23 million to Aramed stockholders, the fair
value of Common Stock issued ($8.6 million), the fair value of the contingent
value rights issued ($2.9 million) and approximately $6.7 million related to the
write-off of the unamortized receivable related to the original issue of the
Company warrants in the Aramed Unit Offering. Based on the purchase price of
$42.6 million, net of the fair market value of the assets acquired ($24.3
million, including cash of $22.6 million), the Company allocated $18.3 million
to acquired in-process research and development which was charged to expense in
1996. This charge is not deductible for income tax purposes. The following
unaudited pro forma data reflects the combined results of operations of the
Company and Aramed as if the acquisition had occurred on January 1, 1994 (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Net revenue $ 117,093 $ 66,654
Net income (loss) after preferred stock dividends 786 (80,145)
Net income (loss) per share $ .02 $ (2.54)
</TABLE>
10. COLLABORATION AGREEMENTS
GEOMATRIX NIFEDIPINE
In October 1996, the Company signed a letter of intent with SkyePharma
and Boehringer Mannheim Corporation, Therapeutics Division ("BMCT") of
Gaithersburg, Maryland to restructure the terms of an agreement to develop and
market an AB rated equivalent formulation of Procardia XL using Geomatrix(R)
drug delivery technology. SkyePharma and its U.S. generic subsidiary,
Brightstone, has assumed responsibility for the cost of ongoing and future
development work on Geomatrix nifedipine. SkyePharma will pay Gensia a royalty
from its share of operating
F-18
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
income derived from any Geomatrix nifedipine product marketed by BMCT and
Brightstone. Under previous agreements, the Company had been collaborating with
Jago Pharma AG and BMCT to develop a Geomatrix nifedipine product which would be
an AB rated equivalent formulation of Procardia XL. The agreement was
subsequently finalized and signed in February 1997.
ADENOSINE REGULATING AGENTS
In May 1996, the Company announced an agreement with Pfizer Inc. to
collaborate on a research program using the Company's adenosine regulating
agents ("ARA") technology to discover and develop broad spectrum analgesic drugs
for the treatment of pain. The research collaboration is focusing on a subgroup
of ARAs which may represent a new class of analgesic drugs. In connection with
the agreement, Pfizer made an up-front licensing payment of $3.0 million and
provided up-front research funding of $.8 million. Additional funding will be
paid quarterly for a period of at least two years. In conjunction with this
research collaboration, Pfizer also purchased 792,293 shares of the Company's
Common Stock through a $5.0 million equity investment. The Company may also
receive certain payments upon the achievement of specified milestones and
royalties on any product sales that result from the collaboration.
11. SUBSEQUENT EVENTS
On February 28, 1997, Gensia Sicor acquired all of the outstanding shares
of capital stock of Rakepoll Holding from Rakepoll Finance in exchange for
29,500,000 shares of the Company Common Stock and $100,000. The transaction will
be accounted for using the purchase method. Rakepoll Holding is a parent company
of three specialty pharmaceutical businesses: SICOR-Societa Italiana
Corticosteroidi S.p.A. of Milan, Italy, and two companies located in Mexico:
Lemery, S.A. de C.V. and Sintesis Lerma, S.A. de C.V. In connection with the
acquisition, Rakepoll Finance became entitled to appoint three of Gensia Sicor's
10 directors who in turn designate (jointly with two executive officer directors
of Gensia Sicor) five additional directors. The consent of the Rakepoll Finance
appointed directors is required for Gensia Sicor to take certain actions.
In March 1997, the Company raised approximately $17 million through a
private placement of Gensia Sicor units for $4.1875 per unit. Each unit consists
of one share Common Stock and a warrant to purchase one half of one share of the
Company's Common Stock for $4.1875 per share.
F-19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item (with respect to Directors) is
incorporated by reference from the information under the caption "Election of
Directors" contained in the registrant's definitive proxy statement to be filed
in connection with solicitation of proxies for its Annual Meeting of
Stockholders to be held in August 1997 (the "Proxy Statement"). The required
information concerning Executive Officers of the Company is contained in Part I
of this Form 10-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than 10% of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established
and the Company is required to identify in this document (or documents
incorporated by reference to this document) those persons who failed to timely
file these reports.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the caption "Compensation of Executive Officers and Directors"
in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information under the caption "Stock Ownership of Management and Certain
Beneficial Owners" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporation by reference from
the information contained under the caption "Certain Transactions" in the Proxy
Statement.
49
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report
(1) Financial Statements
Reference is made to the Index to Consolidated Financial
Statements under Item 8 in Part II hereof, where these documents
are listed.
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable, not
required, or the information is shown either in the consolidated
financial statements or in the notes thereto.
(3) Exhibits
See (c) below.
(b) Reports on Form 8-K during the fourth quarter:
None.
(c) Exhibits
The following documents are exhibits to this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
2.1(17) Stock Exchange Ageement, dated as of November 12, 1996, as amended on December 16, 1996 between Gensia and Rakepoll
Finance N.V.
3(i)(17) Restated Certificate of Incorporation of the Company.
3(ii)(17) By-Laws of Gensia .
4.1(5) Warrant Agreement dated November 26, 1991 between the Company and First Interstate Bank, Ltd. (Warrant Agent).
4.2(12) Form of Certificate for Gensia Common Stock with Rights Legend (4.1).
4.4(16) Warrant Agreement dated April 10, 1996 between the Company and Domain Partners III, L.P. (4.1)
4.5(16) Warrant Agreement dated July 22, 1996 between the Company and MMC/GATX Partnership No. 1 (4.2)
4.6(18) Shareholder's Agreement dated November 12, 1996, as amended on December 21, 1996 and on February 28, 1997, between
Gensia and Rakepoll Finance N.V.
10.1(1)# Form of Indemnification Agreement entered into between Gensia and its directors. (10.1)*
10.2(9)# Amended and Restated 1990 Stock Plan of Gensia (the "Plan").
10.3(1)# Form of Incentive Stock Option Agreement under the Plan. (10.3)
10.4(1)# Form of Nonstatutory Stock Option Agreement under the Plan. (10.4)
10.13(1) Development and Supply Agreement dated January 26, 1990 between Gensia and Protocol Systems, Inc. (with certain
confidential information deleted). (10.46)
10.15(2)# Form of Indemnification Agreement entered into between Gensia and its officers and certain key employees.
(10.50)
10.16(3) Cross License Agreement dated June 13, 1991 between Gensia and Gensia Clinical Partners, L.P. (the "Partnership").
(10.1)
10.17(3) Development and Marketing Agreement dated June 13, 1991 between Gensia and the Partnership. (10.2)
10.18(3) Partnership Purchase Option Agreement dated June 13, 1991 between Gensia and each of the limited partners of the
Partnership. (10.3)
10.19(3) Partnership Purchase Agreement dated June 13, 1991 between Gensia and each of the limited partners of the
Partnership. (10.4)
10.20(3) Voting Agreement dated June 13, 1991 between Gensia and PaineWebber R&D Partners III, L.P. (10.5)
10.21(3) Agreement of Limited Partnership of the Partnership. (10.7).
10.22(4) Form of Limited Partner Warrant. (10.53)
10.23(4) Form of Investment Executive Warrant. (10.54)
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
10.25(4) Form of Warrant issued to MMC/GATX Partnership No. 1. (10.56).
10.35(5) Development Agreement dated January 16, 1992 between the Company and Abbott Laboratories (with certain
confidential information deleted). (10.64)
10.36(6) Stockholder Rights Plan dated March 9, 1992.
10.48(13) Lease agreement between Gena Property Company and the Company dated as of December 21, 1993.
10.50(10) Stock Purchase Agreement dated as of October 10, 1994 between Gensia, Inc. and Corange International Limited
(10.2).
10.51(10) Registration Rights Agreement dated October 10, 1994 between Gensia, Inc. and Corange International Limited
(10.3).
10.52(14) Severance Agreement dated October , 1995 between Gensia, Inc. and David F. Hale.
10.53(14) Form of Severance Agreement for officers and certain other employees.
10.54(15) Collaborative Research Agreement dated as of May 1, 1996 between the Company and Pfizer Inc. (With certain
confidential information deleted.)
10.55(15) License and Royalty Agreement dated as of May 1, 1996 between the Company and Pfizer Inc. (With certain
confidential information deleted.)
10.56(15) Stock Purchase Agreement dated as of May 1, 1996 between the Company and Pfizer Inc. (With certain confidential
information deleted.)
10.57 Amendment No. 1 to Stockholder Rights Agreement dated November 12, 1996.
21.1 Subsidiaries of Gensia Sicor.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Powers of attorney (see page 52).
</TABLE>
51
<PAGE>
- ----------
<TABLE>
<S> <C>
(1) Incorporated by reference to Gensia's Registration Statement on Form S-1 (No. 33-34565).
(2) Incorporated by reference to Gensia's Registration Statement on Form S-1 (No. 33-38877).
(3) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991 (No. 0-18549).
(4) Incorporated by reference to Gensia's Registration Statement on Form S-1 (No. 33-43221).
(5) Incorporated by reference to Gensia's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (No. 0-18549).
(6) Incorporated by reference to Gensia's Current Report on Form 8-K dated March 16, 1992. (No. 0-18549).
(7) Incorporated by reference to Gensia's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (No. 0-18549).
(8) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 (No. 0-18549).
(9) Incorporated by reference to Gensia's Registration Statement on Form S-8. (No. 33-95152).
(10) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (No. 0-18549).
(11) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 (No. 0-18549).
(12) Incorporated by reference to Gensia's Registration Statement on Form S-4 (No. 33-94778).
(13) Incorporated by reference to Gensia's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (0-18549).
(14) Incorporated by reference to Gensia's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (0-18549).
(15) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 (0-18549).
(16) Incorporated by reference to Gensia's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (0-18549).
(17) Incorporated by reference to Annex A to Gensia's Proxy Statement dated January 15, 1997 (0-18549).
(18) Incorporated by reference to Gensia Sicor's Report on Form 8-K dated February 28, 1997 (0-18549).
* Parenthetical references relate to the exhibit number under which such exhibit was initially filed.
# Indicates management contract or compensatory plan or arrangement.
</TABLE>
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GENSIA SICOR INC.
Date: March 31, 1997 By: /s/ David F. Hale
-----------------
David F. Hale
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes
and appoints David F. Hale his attorney-in-fact, with full power of
substitution, for him in any and all capacities, to sign any amendments to the
Report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Donald E. Panoz Chairman of the Board March 31, 1997
- ---------------------
(Donald E. Panoz)
/s/ David F. Hale President and Chief Executive Officer March 31, 1997
- --------------------- (Principal Executive Officer) and Director
(David F. Hale)
/s/John W. Sayward Vice President, Finance, Chief Financial Officer March 31, 1997
- --------------------- and Treasurer (Principal Financial Officer and
(John W. Sayward) Principal Accounting Officer)
/s/ James C. Blair Director March 31, 1997
- ---------------------
(James C. Blair)
/s/ Jerry C. Benjamin Director March 31, 1997
- ---------------------
(Jerry C. Benjamin)
/s/Michael D. Cannon Director March 31, 1997
- ---------------------
(Michael D. Cannon)
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Herbert J. Conrad Director March 31, 1997
- ---------------------
(Herbert J. Conrad)
/s/Carlo Salvi Director March 31, 1997
- ---------------------
(Carlo Salvi)
/s/Patrick D. Walsh President and Chief Operating Officer,
- --------------------- Gensia Laboratories and Director
(Patrick D. Walsh) March 31, 1997
- --------------------- Director March __, 1997
(L. John Wilkerson)
</TABLE>
54
<PAGE>
EXHIBIT INDEX
Sequentially
Numbered
Page
----
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
10.57 Amendment No. 1 to Stockholders Rights Agreement dated
November 12, 1996.
21.1 Subsidiaries of Gensia Sicor.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule
55
<PAGE>
EXHIBIT 10.57
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
-----------------------------------
THIS AMENDMENT NO. 1 (this "Amendment"), dated as of November 12, 1996, to
the Rights Agreement, dated as of March 16, 1992 (the "Rights Agreement"),
between Gensia, Inc. (f.k.a. Gensia Pharmaceuticals, Inc.), a Delaware
corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C., as
successor in interest to First Interstate Bank Ltd., as Rights Agent (the
"Rights Agent"), is made with reference to the following facts:
A. The Company and the Rights Agent have heretofore entered into the
Rights Agreement. Pursuant to Section 27 of the Rights Agreement, the Company
and the Rights Agent may, from time to time, supplement or amend the Rights
Agreement in accordance with the provisions of such Section.
B. The Board of Directors of the Company has determined that it is in the
best interests of the Company to enter into that certain Stock Exchange
Agreement dated as of November 12, 1996 (the "Stock Exchange Agreement"),
between Rakepoll Finance N.V., a corporation organized under the laws of the
Netherlands Antilles ("Rakepoll Finance"), and the Company.
C. As a condition to entering into the Stock Exchange Agreement, the
Company is obligated to amend the Rights Agreement such that, with respect to
the execution of and the consummation of the transactions contemplated by the
Stock Exchange Agreement and that certain Shareholder's Agreement, dated
November 12, 1996, between Rakepoll Finance and the Company (the "Shareholder's
Agreement"), neither Rakepoll Finance nor any of its affiliates is or will
become an "Acquiring Person" and that no "Stock Acquisition Date" or
"Distribution Date" (as such terms are defined in the Rights Agreement) will
occur.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties hereto agree as follows:
1. The definition of "Acquiring Person" set forth in Section 1(a) of the
Rights Agreement is hereby amended in its entirety to read as follows:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such
term is hereinafter defined) and Associates (as such term is hereinafter
defined) of such Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of securities representing 15% or more of the shares
of Common Stock then outstanding or who was such a
<PAGE>
Beneficial Owner at any time after the date hereof, whether or not such
Person continues to be the Beneficial Owner of securities representing 15%
or more of the outstanding shares of Common Stock. Notwithstanding the
foregoing,
(i) in no event shall a Person who or which, together with all
Affiliates and Associates of such Person, is the Beneficial Owner of
less than 15% of the Company's outstanding shares of Common Stock
become an Acquiring Person solely as a result of a reduction of the
number of shares of outstanding Common Stock, including repurchases of
outstanding shares of Common Stock by the Company, which reduction
increases the percentage of outstanding shares of Common Stock
beneficially owned by such Person (provided that any subsequent
increase in the amount of Common Stock beneficially owned by such
Person, together with all Affiliates and Associates of such Person,
without the prior approval of the Company shall cause such Person to
be an Acquiring Person);
(ii) the term Acquiring Person shall not mean (A) the Company,
(B) any subsidiary of the Company (as such term is hereinafter
defined), (C) any employee benefit plan of the Company or any of its
subsidiaries, (D) any entity holding securities of the Company
organized, appointed or established by the Company or any of its
subsidiaries for or pursuant to the terms of any such plan or (E)
Rakepoll Finance N.V., a corporation organized under the laws of the
Netherlands Antilles, or any Affiliate or Associate thereof as a
result of the execution of the Stock Exchange Agreement, dated as of
November 12, 1996, between Rakepoll Finance N.V. and the Company (the
"Stock Exchange Agreement") or the Shareholder's Agreement, dated
November 12, 1996, between Rakepoll Finance N.V. and the Company (the
"Shareholder's Agreement") or as a result of the consummation of any
of the transactions contemplated by the Stock Exchange Agreement or
Shareholder's Agreement; and
(iii) no Person shall be deemed to be an Acquiring Person if (A)
within five business days after such Person would otherwise have
become an Acquiring Person (but for the operation of this clause
(iii)), such Person notifies the Board of Directors that such Person
did so inadvertently and within two business days after such
notification, such Person is the Beneficial Owner of less than 15% of
the outstanding shares of Common Stock or (B) by reason of such
Person's Beneficial Ownership of 15% or more of the outstanding shares
of Common Stock on the date hereof if prior to the Record Date, such
Person
<PAGE>
notifies the Board of Directors that such Person is no longer the
Beneficial Owner of 15% or more of the then outstanding shares of
Common Stock.
2. The first sentence of Section 3(a) of the Rights Agreement is hereby
amended by adding the following to the end of such sentence:
; provided, however, that in no event shall a Distribution Date be
-------- -------
deemed to occur as a result of the execution of the Stock Exchange
Agreement or Shareholder's Agreement or as a result of the
consummation of any of the transactions contemplated by the Stock
Exchange Agreement or Shareholder's Agreement.
3. No "Stock Acquisition Date" shall be deemed to occur under the Rights
Agreement as a result of the execution of the Stock Exchange Agreement or
Shareholder's Agreement or as a result of the consummation of any of the
transactions contemplated by the Stock Exchange Agreement or Shareholder's
Agreement.
4. All amendments made to the Rights Agreement in this Amendment shall be
deemed to apply retroactively as well as prospectively.
5. This Amendment shall be governed by and construed in accordance with
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with all laws of such State applicable to contracts to
be made and performed entirely within such State.
6. This Amendment may be executed in counterparts, each of which shall be
an original, but such counterparts shall together constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the date and year first above written.
Attest: GENSIA, INC.
By:/s/ John L. Donahue By:/s/ Daniel D. Burgess
------------------- --------------------
Title: Attorney-in-fact Title: Vice President, Finance,
Chief Financial Officer and
Treasurer
Attest: CHASEMELLON SHAREHOLDER SERVICES
L.L.C.
By:/s/ Raymond Torres By:/s/ Joseph Cannata
Title: Assistant Vice President Title: Assistant Vice President
<PAGE>
Exhibit 21.1
------------
SUBSIDIARIES OF GENSIA SICOR INC.
Subsidiary Corporation Percentage Owned State of Incorporation
- ---------------------- ---------------- ----------------------
Gensia Development Corporation 100% Delaware
Gensia Europe Limited 100% United Kingdom
Gensia GmbH 100% Germany
Gensia Laboratories, Ltd. 100% Delaware
Gensia Automedics, Inc. 100% Delaware
Aramed, Inc. 100% Delaware
Rakepoll Holding B.V. 100% The Netherlands
SICOR-Societa Italiana 100% Italy
Corticosteroidi S.p.A.
Sintesis Lerma, S.A. de C.V. 100% Mexico
Lemery, S.A. de C.V. 100% Mexico
Inmobiliaria Lemery, S.A. de C.V. 100% Mexico
Lemery Desarrollo y Control,
S.A. de C.V. 100% Mexico
<PAGE>
Exhibit 23.1
------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 33-64662, 33-97950 and 333-10235, and Forms S-8 No. 33-36488, 33-
39972, 33-45597, 33-47202, 33-47203, 33-64698, 33- 80882, 33-95152, 33-95114 and
333-10651 and 333-10653) of our report dated February 21, 1997, except for Note
11 as to which the date is March 27, 1997, with respect to the consolidated
financial statements of Gensia, Inc. (now known as Gensia Sicor Inc.) included
in the Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
San Diego, California
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,271
<SECURITIES> 5,096
<RECEIVABLES> 6,111
<ALLOWANCES> 1,073
<INVENTORY> 16,999
<CURRENT-ASSETS> 2,316
<PP&E> 48,334
<DEPRECIATION> 16,477
<TOTAL-ASSETS> 89,550
<CURRENT-LIABILITIES> 20,966
<BONDS> 0
0
16
<COMMON> 396
<OTHER-SE> 67,587
<TOTAL-LIABILITY-AND-EQUITY> 89,550
<SALES> 54,636
<TOTAL-REVENUES> 60,424
<CGS> 40,654
<TOTAL-COSTS> 40,654
<OTHER-EXPENSES> 65,569
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (51,799)<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> (51,799)<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,799)<F1>
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> (1.41)
<FN>
<F1>INCLUDES UNDECLARED AND UNPAID DIVIDENDS ON PREFERRED STOCK OF 2,992
</FN>
</TABLE>
