<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File No. 0-18549
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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
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(Address of principal executive offices and zip code)
(619) 546-8300
------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock $.01 par value 74,760,274
- --------------------------- ---------------------------------
Class Outstanding at September 30, 1997
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
--------------------
Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996 3
Consolidated Statements of Operations for the three
and nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations - for the three and nine months ended
September 30, 1997 and 1996 9
Liquidity and Capital Resources 11
PART II OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 6: Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE>
GENSIA SICOR INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,292 $ 16,271
Short-term investments 1,997 5,096
Accounts receivable 38,820 5,038
Inventories 46,109 16,999
Other current assets 7,528 2,316
--------- ---------
Total current assets 117,746 45,720
Property and equipment, net 78,070 33,657
Other noncurrent assets 9,627 8,148
Intangibles, net 58,106 2,025
Goodwill, net 68,236 --
--------- ---------
$ 331,785 $ 89,550
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,567 $ 11,138
Accrued payroll and related expenses 3,470 3,057
Other accrued liabilities 18,724 4,924
Current portion of deferred revenue 2,479 1,771
Short-term borrowings 24,633 --
Current maturities of long-term obligations 3,092 76
--------- ---------
Total current liabilities 91,965 20,966
Other long-term liabilities 4,128 --
Deferred revenue, less current portion 726 500
Long-term obligations, less current maturities 36,635 85
Deferred taxes 19,657 --
Contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
1,600,000 issued and outstanding, liquidation preference of
$80,000,000. 16 16
Common stock, $.01 par value, 125,000,000 shares authorized,
74,760,274 and 39,657,982 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 748 396
Additional paid-in capital 499,628 332,778
Accumulated deficit (321,311) (265,136)
Unearned compensation -- (55)
Foreign currency translation adjustment (407) --
--------- ---------
Total stockholders' equity 178,674 67,999
--------- ---------
$ 331,785 $ 89,550
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 39,222 $ 13,699 $ 98,428 $ 39,379
Contract research and license fees 2,232 1,688 6,642 2,479
-------- -------- -------- --------
Total revenues 41,454 15,387 105,070 41,858
Costs and expenses:
Cost of sales 26,097 10,922 70,644 29,247
Research and development 6,471 7,797 19,052 24,756
Selling, general and administrative 12,016 7,944 32,006 23,663
Amortization expense 1,349 -- 2,994 --
Interest and other, net 692 (212) 1,165 (1,152)
Restructuring charge 3,184 -- 3,184 --
Acquisition of in-process research and development -- -- 29,200 --
-------- -------- -------- --------
Total costs and expenses 49,809 26,451 158,245 76,514
-------- -------- -------- --------
Net loss before income taxes (8,355) (11,064) (53,175) (34,656)
Provision for income taxes (207) -- (3,000) --
-------- -------- -------- --------
Net loss (8,562) (11,064) (56,175) (34,656)
Dividends on preferred stock (1,504) (1,504) (4,496) (4,496)
-------- -------- -------- --------
Net loss applicable to common shares $(10,066) $(12,568) $(60,671) $(39,152)
======== ======== ======== ========
Net loss per common share $ (.13) $ (.34) $ (.86) $ (1.08)
======== ======== ======== ========
Shares used in computing per share amounts 74,567 36,915 70,167 36,196
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (56,175) $ (34,656)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization of property and equipment 6,773 2,812
Amortization of intangibles and goodwill 2,993 --
Amortization of licenses and other 657 225
Amortization of unearned compensation 56 880
(Gain) loss on disposal of property and equipment (19) 262
Deferred income tax (1,136) --
Charge for acquired in-process research and
development 29,200 --
Inventory purchase price allocation adjustment 4,244 --
Change in operating assets and liabilities, net of effects
of the acquisition of Rakepoll Holding:
Accounts receivable (7,315) 2,306
Inventories 1,528 (1,787)
Prepaid expenses and other assets 5,069 1,031
Accounts payable 254 (908)
Accrued research and development costs -- (409)
Accrued payroll and related expenses (205) 470
Other accrued liabilities 3,886 (1,293)
Deferred revenue 934 2,375
--------- ---------
Net cash used in operating activities (9,256) (28,692)
Cash flows from investing activities:
Acquisition of Rakepoll Holding, net of $2,232 cash acquired (9,129) --
Proceeds from short-term investments 16,750 171,321
Purchases of short-term investments (13,651) (168,716)
Purchase of property and equipment (17,274) (8,213)
Acquisition of intangible asset (5,602) --
Proceeds from sale of property and equipment 145 --
Notes receivable from officers and employees 173 108
--------- ---------
Net cash used in investing activities (28,588) (5,500)
Cash flows from financing activities:
Payments of preferred stock dividends (4,496) (1,504)
Issuance of common stock and warrants, net 25,082 6,625
Change in short-term borrowings 4,124 --
Issuance of long-term obligations 26,894 206
Principal payments on long-term obligations (2,126) (362)
Discount on long-term obligations (3,571) --
Debt issue costs (931) --
--------- ---------
Net cash provided by financing activities 44,976 4,965
--------- ---------
Effect of exchange rate changes on cash (111) --
--------- ---------
Increase (decrease) in cash and cash equivalents 7,021 (29,227)
Cash and cash equivalents at beginning of period 16,271 47,421
--------- ---------
Cash and cash equivalents at end of period $ 23,292 $ 18,194
========= =========
Supplemental schedule of noncash investing activities:
Common stock issued to acquire net assets of Rakepoll Holding:
Fair value of assets acquired, other than cash $207,578 $ --
Liabilities assumed 81,034 --
</TABLE>
See accompanying notes.
5
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
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 Finance").
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
Sicor de Mexico, S.A. de C.V. (formerly Sintesis Lerma, S.A. de C.V.) ("Sicor de
Mexico"). Gensia Sicor is a specialty pharmaceutical company focused on the
development, manufacture and marketing of pharmaceutical products for the
worldwide oncology and injectable pharmaceutical markets. The Company also has a
proprietary medical products group focused on the Laryngeal Mask Airway and the
GenESA System and a basic research group focused on pain, inflammation, diabetes
and cardiovascular disease. The newly combined company is currently
headquartered in San Diego, California but will be relocated to Irvine,
California in December 1997 (See Restructuring Charge).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its nine wholly-owned subsidiaries: Rakepoll Holding B.V., Gensia
Laboratories, Ltd., Gensia Automedics, Inc., Gensia Automedics Limited, Gensia
GmbH, Aramed, Inc., Gensia Development Corporation, Genchem Pharma Ltd. and
Metabasis Therapeutics, Inc. All significant intercompany accounts and
transactions have been eliminated. The accompanying consolidated balance sheet
at September 30, 1997 includes the assets, liabilities and stockholders' equity
of the combined companies. The consolidated statement of operations and
statement of cash flows for the nine months ended September 30, 1997 include the
results for Rakepoll Holding from February 28, 1997 (the date of acquisition),
through September 30, 1997, only.
In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary for the fair statement of the results for the
three and nine-month periods ended September 30, 1997 and 1996 have been made.
The results of operations for the three and nine-month periods ended September
30, 1997 are not necessarily indicative of the results to be expected for the
full fiscal year.
The accompanying consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's 1996 Form 10-K filed with the Securities and Exchange Commission
and the audited financial statements and notes thereto of Rakepoll Holding B.V.
included in the Company's 1997 Form 8-K/A filed with the Securities and Exchange
Commission.
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries outside the United States, except
those subsidiaries located in highly inflationary economies, are generally
measured using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the rates of exchange at the
balance sheet date. The resulting translation adjustments are included in the
cumulative translation adjustment, a separate component of stockholders' equity.
Income and expense items are translated at average monthly rates of exchange.
For subsidiaries operating in highly inflationary economies, gains and losses
from balance sheet translation adjustments are included in net earnings.
6
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
classifications used in 1997.
2. RAKEPOLL HOLDING ACQUISITION
On February 28, 1997, after shareholder approval, 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's Common Stock and
$100,000. The acquisition was accounted for using the purchase method. The total
purchase price was $158.0 million, which was comprised of the fair value of
Common Stock issued of $146.6 million, acquisition costs of $11.3 million, and a
cash payment of $100,000.
Based on the purchase price of $158.0 million, allocation of the total
acquisition cost is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net tangible assets $ 30,367
Developed technology 45,000
Other intangibles 6,870
In-process research and development 29,200
Deferred income tax (22,793)
Goodwill 69,331
--------
Total $157,975
========
</TABLE>
In the third quarter of 1997, the Company finalized its identification of
purchase price allocation including the recognition of deferred income taxes
related to the difference between assigned values of assets acquired and their
basis for income tax purposes. This resulted in recording a deferred income tax
liability of $22.8 million with a corresponding increase to goodwill. Income tax
expense for the third quarter 1997 reflects a benefit of $0.6 million relating
to the third quarter 1997 combined with a benefit of $0.5 million that was
applicable to the second quarter 1997.
The developed technology and other intangibles are being amortized over
their estimated lives. The excess of the purchase price over the fair value of
identified assets and liabilities of $46.5 million and the deferred income tax
liability of $22.8 million were recorded as goodwill which is being amortized
over its estimated life. The value assigned to in-process research and
development was immediately charged to the statement of operations. This charge
is not deductible for income tax purposes. The following unaudited proforma data
reflects the combined results of operations of the Company and Rakepoll Holding
as if the acquisition had occurred on January 1, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
September 30,
1997 1996
-------- --------
<S> <C> <C>
Total revenues $118,310 $ 96,649
Net loss after preferred stock dividends (61,536) (63,793)
Net loss per share $ (.84) $ (.97)
</TABLE>
7
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
3. RESTRUCTURING CHARGE
In September 1997, the Company announced that it had decided to relocate
its corporate staff from San Diego, California to Irvine, California at year-end
to improve operating efficiencies and reduce operating costs. The Company's
wholly-owned subsidiary, Gensia Laboratories Ltd., currently occupies over
200,000 square feet of manufacturing, warehousing, laboratory and office space
in Irvine. In connection with the relocation, the Company has recorded a non-
recurring charge of $3.2 million in the third quarter of 1997.
4. CONTINGENCIES
During 1995, SICOR received claims from certain of its customers in
connection with shipments of a contaminated product. While no lawsuits have been
filed against SICOR with respect to this matter, SICOR has a reserve of
approximately $2.2 million at September 30, 1997, which represents management's
best estimate of product rework costs, attorneys' costs and other settlement
costs. Actual costs to be incurred in relation to the ultimate settlement may
vary from the amount estimated.
In the second quarter of 1997, Gensia Laboratories was sued for patent
infringement in the United States District Court for the Central District of
California, Research Corporation Technologies, Inc. and Bristol Myers Squibb Co.
--------------------------------------------------------------------
v. Gensia Laboratories, Ltd., Civil Action No. 97-3992 TJH (Rcx), based upon
- ----------------------------------------------------------------
Gensia Laboratories' submission to the FDA seeking approval to market a generic
injectable Cisplatin product. In this action, Gensia Laboratories has been
accused of infringing a patent relating to therapeutic compositions of
Cisplatin. Cisplatin is a drug under development at Gensia Laboratories, and
there have been no commercial sales of Cisplatin by Gensia Laboratories to date.
The filing of this lawsuit has the immediate effect of delaying the effective
date of any FDA approval for Gensia Laboratories' generic Cisplatin product for
injection until at least November 1999.
5. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." The Company
will be required to adopt these new rules effective December 15, 1997.
Management does not anticipate any impact resulting from the adoption of this
new standard upon current or previously reported primary earnings per share.
8
<PAGE>
GENSIA SICOR INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Gensia Sicor has been unprofitable on an annual basis since its inception
in 1986 and expects to incur additional operating losses at least through 1997.
For the period from its inception to September 30, 1997, the Company has
incurred a cumulative net loss of $321.3 million.
When used in this Form 10-Q, 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 approval, and successful marketing of new
products and acceptance of new products, the impact of competitive products,
product costs and pricing, changing market conditions and other risks described
in this Form 10-Q and in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996. Actual results may differ materially from those
projected. These forward-looking statements represent the Company's judgment
only as of the date of the filing of this Form 10-Q. The Company disclaims,
however, any intent or obligation to update these forward-looking statements.
RESULTS OF OPERATIONS
The Company reported a net loss of $10.1 million, or $.13 per common share
(after dividends on preferred stock of $1.5 million) in the third quarter ended
September 30, 1997 compared to a net loss of $12.6 million, or $.34 per common
share (after undeclared and unpaid dividends on preferred stock of $1.5 million)
in the third quarter of 1996. The 1997 third quarter includes a restructuring
charge of $3.2 million, which has the effect of increasing the net loss for the
quarter by $.04 per common share. The Company reported a net loss of $60.7
million, or $.86 per common share (after dividends on preferred stock of $4.5
million), for the nine months ended September 30, 1997 compared to a net loss of
$39.2 million, or $1.08 per common share (after preferred stock dividends of
$1.5 million paid in September 1996 and $3.0 million in undeclared and unpaid
cumulative preferred stock dividends), for the nine months ended September 30,
1996. The results for the first nine months of 1997 include the results of
operations for Rakepoll Holding from February 28, 1997, the date of its
acquisition. Results for the first nine months of 1997 include purchase
accounting adjustments as follows: (i) a $29.2 million write-off of in-process
research and development; (ii) a $4.4 million charge to cost of sales for the
write-up of purchased inventory and property, plant and equipment; (iii) a $3.0
million charge for the amortization of goodwill and intangibles, and (iv) a $1.1
million credit to income tax expense for recognition of deferred income tax
benefits.
Product sales in the third quarter of 1997 increased to $39.2 million from
$13.7 million in the third quarter of 1996. Product sales in the first nine
months of 1997 increased to $98.4 million from $39.4 million in the same period
of 1996. The increase in product sales for the three and nine months ended
September 30, 1997 is attributable to the inclusion of the sales reported by
Rakepoll Holding as well as increased sales at Gensia Laboratories and increased
sales of the Laryngeal Mask Airway ("LMA"), and Brevibloc. Cost of sales
associated with product sales was $26.1 million for the third quarter of 1997
and $10.9 million for the third quarter of 1996. Gross margins from product
sales increased from 20% in the third quarter of 1996 to 34% in the same period
in 1997. The current quarter includes a purchase accounting charge of $0.6
million to increase cost of sales associated with the write-up of inventory and
property, plant and equipment at the Rakepoll Holding companies. Cost of sales
for the first nine months of 1997 were $70.6 million compared to $29.2 million
in the same period of 1996. The gross margin from product sales for the three
and nine months of 1997 increased compared to the same periods of 1996 primarily
due to the inclusion of the results of Rakepoll Holding and new product
introductions at Gensia Laboratories. The gross margins from product sales for
the three and nine months of 1997 were negatively impacted by increases in cost
of sales of $0.6 million and $4.4 million, respectively, for Rakepoll Holding
products resulting from the write-up of inventory and property, plant and
equipment associated with the acquisition. The Company expects product sales to
continue to grow in the last quarter of 1997, primarily as a result of increased
demand for existing products, and sales of new injectable products if approved
by the U.S. Food and Drug Administration ("FDA") and other regulatory agencies.
9
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GENSIA SICOR INC.
There can be no assurance that Gensia Sicor will be able to achieve growth from
new or existing product sales.
The Company also received marketing clearance from the FDA during the third
quarter of 1997 for the GenESA System for use in the diagnosis of coronary
artery disease in conjunction with radionuclide myocardial perfusion imaging
(radionuclide imaging) and echocardiography for patients who cannot exercise
adequately. The Company launched the product through its Gensia Automedics
subsidiary in September 1997. Gensia Laboratories received marketing clearance
from the FDA for several multi-source products, including diltiazem and
acyclovir for injection, which were launched during the quarter. FDA approval
for despmopressin acetate was received in October 1997.
In the third quarter of 1997, contract research and license fees were $2.2
million from research collaborations with Pfizer, Inc. and Sankyo Co., Ltd.
compared to contract and license fees of $1.7 million in the third quarter of
1996, which included contract collaborations with Pfizer, Inc. only and a one-
time non-refundable license payment of $0.5 million from Ohmeda. Contract
research and license fees for the first nine months of 1997 were $6.6 million
compared to $2.5 million in the same period of 1996. The increase is
attributable to the inclusion of the Sankyo contract research and license fee
and an up-front non-refundable commitment received from Sankyo of $1.4 million
under the provisions of a Letter of Intent signed in March 1997. The Company is
pursuing additional collaborations which would fund a portion of Gensia Sicor's
basic research and development efforts; however, there can be no assurance that
any such agreements will be reached.
Research and development expenses in the third quarter of 1997 decreased to
$6.5 million from $7.8 million in the 1996 third quarter. Research and
development expenses for the first nine months of 1997 decreased to $19.1
million from $24.8 million for the same period of 1996. The decreases are due
to the reduction of expenses for the Geomatrix nifedipine program as a result of
restructuring an agreement with Jago Pharma AG and Boehringer Mannheim
Corporation and due to expense reduction programs offset in part by the
inclusion of research and development expenses from the Rakepoll Holding
companies which were not included in the earlier period results.
Selling, general and administrative expenses in the third quarter of 1997
increased to $12.0 million from $7.9 million in the third quarter of 1996.
Selling, general and administrative expenses for the first nine months of 1997
increased to $32.0 million from $23.7 million in the same period of 1996. The
increases in expenses for the three and nine months of 1997 are mainly due to
the inclusion of Rakepoll Holding's selling, general and administrative expenses
and increased legal expenses. Selling, general and administrative expenses are
expected to continue to grow as the Company increases sales and marketing
activities to support the GenESA System product launch as well as multi-source
product launch expenses. The amount of any such growth will depend, in part,
upon the Company's success in gaining U.S. regulatory approval for additional
multi-source injectable drugs. Expenses are also expected to grow as Gensia
Sicor continues to integrate the Rakepoll Holding business.
In the three and nine months of 1997, the Company recorded amortization
expense of $1.3 million and $3.0 million, respectively, related to the
identified intangibles and goodwill resulting from the acquisition of Rakepoll
Holding.
The Company had interest and other expenses of $0.7 million in the third
quarter of 1997 compared to interest and other income of $0.2 million in the
third quarter of 1996. Interest and other expenses for the nine months of 1997
were $1.2 million compared to interest and other income of $1.2 million in the
same period of 1996. The increases in interest and other expenses are mainly due
to the inclusion of Rakepoll Holding and a decrease in interest income due to
lower average cash and investment balances in 1997.
10
<PAGE>
GENISA SICOR INC.
The Company recorded a restructuring charge of $3.2 million in the third
quarter of 1997. The charge included expected costs related to the consolidation
of the Company's corporate headquarters in San Diego, California to Irvine,
California where Gensia Laboratories currently occupies over 200,000 square feet
of manufacturing, warehousing, laboratory and office space.
The Company recorded an income tax expense of $0.2 million in the third
quarter of 1997 compared to $0.0 income tax expense in the third quarter of
1996. Income tax expense for the nine months of 1997 increased to $3.0 million
from $0.0 expense for the same period in 1996. The increase in income tax
expense for the three and nine months of 1997 is attributable to the inclusion
of Rakepoll Holding's profitable operations in Italy and Mexico. Although the
Company has a net loss for the nine months of 1997 on a consolidated basis, the
taxable losses generated by U.S. entities cannot be utilized to offset taxable
income from foreign entities.
The Company is party to a number of agreements with Gensia Clinical
Partners related to the GenESA System technology. Pursuant to these agreements,
the Company accrued a milestone payment of $5.6 million in the third quarter of
1997 after approval of the GenESA System by the FDA, which was subsequently paid
in shares of common stock in October 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash, cash equivalents and short-term
investments of $25.3 million. In early May 1997, the Company completed an
agreement to privately place $20 million in convertible notes due in 2004. The
notes bear a coupon of 2.675%. The notes are convertible into Gensia Sicor
Convertible Preferred Stock or Common Stock at a conversion price of $3.78 per
share and include Warrants to purchase up to 2,645,503 shares of Gensia Sicor
Common Stock at $4.35 per share. Fifty percent of these Warrants are Conditional
Warrants that may not be exercised for three years and will be canceled if the
Gensia Sicor Common Stock price exceeds certain levels during the first three
years after the closing. The terms of the agreement contain, among other
provisions, requirements for maintaining defined levels of net worth and various
financial ratios. In addition, the parties entered into a Registration Rights
Agreement with respect to the resale of the shares of Common Stock into which
the notes are convertible and for which the warrants are exercisable.
Gensia Sicor expects to incur additional costs, including the cost of sales
and marketing activities to support product launches and increased emphasis on
overall commercial activities. Management also plans to invest in plant and
equipment to increase and improve the existing manufacturing capacity including
expansion of facilities in Italy to produce cyclosporine and to complete an
oncology product development and manufacturing facility at Gensia Laboratories.
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, improvements in the sales
and profitability of SICOR, Lemery, and Gensia Laboratories, the approval and
successful marketing of new products at Gensia Laboratories in the U.S., the
Company's ability to obtain approval and market injectable products in the
international market, and the Company's ability to market the GenESA System in
the U.S. As mentioned above, Gensia Laboratories undertook a significant capital
investment program beginning in 1996 which will continue into 1998 related to
the development of an oncology manufacturing facility which should be ready for
operations in the fourth quarter of 1997. The Company has commitments to finance
this expansion largely through lease and debt financing secured against certain
assets of Gensia Laboratories. There can be no assurance such financing will
remain available on acceptable terms, if at all.
11
<PAGE>
GENSIA SICOR INC.
In the third quarter of 1997, the Company received final approval from the
FDA to market the GenESA System for use in conjunction with radionuclide
perfusion imaging and echocardiography for patients unable to exercise
adequately. The Company launched the product in September 1997 through its
Gensia Automedics, Inc. subsidiary. Pursuant to the agreement with Gensia
Clinical Partners, L.P., which owns certain rights to the GenESA System
technology, Gensia Sicor made a milestone payment of approximately $5.6
million in stock to the limited partners of Gensia Clinical Partners, L.P.,
following FDA approval of the GenESA System. In addition, under a development
and supply agreement between the Company and Protocol Systems, Inc., the
Company is obligated to make minimum purchases of the GenESA System which
aggregate to approximately $2.3 million in 1997, $3.8 million in 1998, $6.0
million in 1999 and $5.9 million in 2000. There are no assurances that any
such purchase commitment can be achieved or that the Company can sell the
products it is obligated to purchase.
As part of the Gensia Sicor restructuring, Gensia is planning to transfer
its licensed and proprietary medical products, the GenESA System, Brevibloc, and
the Feedback Controlled Heparin System ("FCHS") into Gensia Automedics, Inc. The
mission of Gensia Automedics will be to become a profitable developer and
marketer of innovative medical products for the acute care market. Gensia
Automedics' technology focus would be on developing products which use closed-
loop drug delivery. Gensia Sicor is seeking to obtain external financing for
this company. There is no assurance that any such financing can be obtained. The
Company's distribution agreement with Laryngeal Mask Company, Ltd. ends on
December 31, 1997. The Company is negotiating to continue to distribute the LMA
through its subsidiary, Gensia Automedics; however there can be no assurance
that the Company will be able to enter into an agreement to distribute the LMA
on favorable terms, if at all.
In June 1997, the Company's wholly owned subsidiary, SICOR, entered into a
Mid-Term Financing Contract with Interbanca SpA in the amount of Lit.
15,000,000,000 (fifteen billion Italian lira) or approximately $8.3 million.
Under the terms of the agreement, the funds are to be used for the construction
and improvement of SICOR facilities and the purchase of equipment. SICOR will
make payments of interest only through March 15, 1999. Commencing on September
15, 1999, SICOR will make principal and interest payments through March 15,
2005. Interest is computed and is adjusted on a quarterly basis to
equal a rate based upon the London Interbank Offered Rate ("LIBOR"). The loan
is secured by certain real estate and other assets of SICOR and guaranteed by
Rakepoll Holding. At September 30, 1997, there was approximately $3.5 million
in borrowings outstanding under the contract.
Gensia Sicor is conducting basic research programs at its facilities in San
Diego. The Company's current operating plan includes funding its basic research
activities primarily through collaborations with other pharmaceutical companies.
The Company is receiving contract research revenues through its collaboration
with Pfizer, Inc. for the research and development of drugs for the treatment of
acute and chronic pain. In April 1997, the Company entered into an agreement
with Sankyo pursuant to which Sankyo is providing basic research funding to
discover and develop drugs for the treatment of non-insulin dependent (Type II)
diabetes and may provide payments upon the attainment of certain preclinical and
clinical milestones and royalty payments from commercial sales of any
successfully developed product.
Subject to certain consents and the availability of funding, Gensia Sicor
plans to transfer these basic research and development programs, as well as
certain other basic research activities, into its newly created Metabasis
Therapeutics, Inc. subsidiary and spin off such subsidiary to its shareholders.
To the extent the Company is unable to spin off Metabasis Therapeutics, Inc. and
is unable to fund its research activities through its collaborations with Sankyo
and Pfizer, the Company plans to reduce its research expense to the level
necessary to fulfill its obligations under the Pfizer and Sankyo agreements.
There can be no assurance that the Company's product development efforts with
Pfizer and Sankyo will be successful or that Pfizer and or Sankyo will not
terminate their respective collaborations before any such milestones are
achieved or that Gensia Sicor will be able to obtain the consents and financing
necessary to spin off Metabasis Therapeutics, Inc. to shareholders.
12
<PAGE>
GENSIA SICOR INC.
The Company anticipates that its current capital resources, commitments
from third parties, and efforts to reduce overall costs and expenses and working
capital requirements will enable it to maintain its current and planned
operations through 1997. In connection with its plans for expanding its
business, to accomplish its core strategy of being a leading provider of fully-
integrated injectable pharmaceutical products and services, the Company's
management and Board of Directors are evaluating plans to raise required
additional capital. The Company will pursue equity, debt, and lease financing,
or a combination of these, for its capital needs. In addition, as the Company
has indicated, it may seek equity funds to finance its subsidiaries Gensia
Automedics, Inc. and Metabasis Therapeutics, Inc. There can be no assurance that
any such financings will be available on acceptable terms, if at all.
Significant changes in operating assets and liabilities during the first
nine months of 1997, excluding the net assets acquired from the Rakepoll Holding
acquisition, included a $7.3 million increase in accounts receivable, a $5.1
million decrease in prepaid expenses and other assets, a $3.9 million increase
in other accrued liabilities and a $1.5 million decrease in inventories. Other
significant cash flows in the first nine months of 1997 included $11.3 million
for the transaction costs associated with the acquisition of Rakepoll Holding as
of February 28, 1997, net of cash acquired of $2.2 million, $19.0 million in net
proceeds received from the issuance of $20 million in convertible notes and
warrants, $25.1 million in net proceeds received from the issuance of common
stock and warrants, primarily as a result of a private placement of 4.2 million
shares of Gensia Sicor Common Stock in March 1997, and $17.3 million expended on
property and equipment.
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 quarterly payment of the
Preferred Stock dividend in September 1996. At September 30, 1997, the Company
had 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.
13
<PAGE>
GENSIA SICOR INC.
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 9, 1997, the Company held its Annual Meeting of Stockholders.
The following actions were taken at the annual meeting:
1. The following three class II directors were elected:
a. 61,816,745 shares were voted in favor of Carlos A. Ferrer, 144,018
shares withheld their vote and 12,490,755 shares were not voted;
b. 60,467,885 shares were voted in favor of L. John Wilkerson, Ph.D.,
1,492,878 shares withheld their vote and 12,490,755 shares were not voted;
c. 61,814,780 shares were voted in favor of Carlo Salvi, 145,983 shares
withheld their vote and 12,490,755 shares were not voted.
The following directors continue in office for their existing terms: James
C. Blair, Ph.D.; Herbert J. Conrad; David F. Hale; Donald E. Panoz; Michael D.
Cannon; Patrick D. Walsh.
2. A proposal to amend and restate the Gensia Sicor Inc. Employee Stock
Purchase Plan (the "ESPP") was approved. The proposal increased by 100,000 the
aggregate number of shares of common stock reserved for issuance under the ESPP.
61,530,588 shares were voted in favor of the proposal, 318,171 shares were
voted against the proposal, 112,004 shares abstained and 12,490,755 shares were
not voted or were broker non-votes.
3. A proposal to amend the Gensia Sicor Inc. Amended and Restated 1997 Stock
Plan (the "1997 Plan") was approved. The proposal increased by 1,000,000 the
aggregate number of shares of common stock reserved for issuance under the 1997
Plan.
53,404,471 shares were voted in favor of the proposal, 8,472,322 were voted
against the proposal, 83,970 abstained and 12,490,755 shares were not voted or
were broker non-votes.
4. A proposal to approve the grant to the Chairman of the Board of options to
purchase up to 500,000 shares of Common Stock which were granted in connection
with his joining the Board.
57,857,583 shares voted in favor of the proposal, 4,004,098 shares were
voted against the proposal, 99,082 shares abstained and 12,490,755 shares were
not voted or were broker non-votes.
5. The selection of Ernst and Young LLP as the Company's independent auditors
was ratified. 61,853,902 voted in favor of the proposal, 66,858 shares were
voted against the proposal, 40,003 shares abstained and 12,490,755 shares were
not voted.
14
<PAGE>
GENSIA SICOR INC.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
10.1 Factoring agreement, dated September 25, 1997, by and between the Company and Silicon Valley Financial
Services (a division of Silicon Valley Bank).
27.1 Financial Data Schedule
______________
(b) Reports on Form 8-K during the third quarter
None
</TABLE>
15
<PAGE>
GENSIA SICOR INC.
SIGNATURES
Pursuant to the requirements of the Securities and 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: November 14, 1997 By: /s/ David F. Hale
---------------------------------------
David F. Hale
President and Chief Executive Officer
Date: November 14, 1997 By: /s/ John W. Sayward
---------------------------------------
John W. Sayward
Vice President, Finance, Chief Financial
Officer and Treasurer
16
<PAGE>
EXHIBIT 10.1
[GRAPHIC OMITTED]
SILICON VALLEY FINANCIAL SERVICES
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, Ca. 95054
(408) 654-1000 - Fax (408) 980-6410
FACTORING AGREEMENT
This Factoring Agreement (the "Agreement") is made on this TWENTY FIFTH
day of SEPTEMBER, 1997, by and between Silicon Valley Financial Services (a
division of Silicon Valley Bank) ("Buyer") having a place of business at the
address specified above and GENSIA LABORATORIES, LTD. ("Seller") having its
principal place of business and chief executive office at:
Street Address: 19 Hughes Drive
City: Irvine
County: Orange
State: California
Zip Code: 92618
Fax: 619/453-0095
1. DEFINITIONS. When used herein, the following terms shall have the
following meanings.
1.1. "Account Balance" shall mean, on any given day, the gross amount of
all Purchased Receivables unpaid on that day.
1.2. "Account Debtor" shall have the meaning set forth in the California
Uniform Commercial Code and shall include any person liable on any Purchased
Receivable, including without limitation, any guarantor of the Purchased
Receivable and any issuer of a letter of credit or banker's acceptance.
1.3. "Adjustments" shall mean all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account
Debtor with respect to any Purchased Receivable.
1.4. "Administrative Fee" shall have the meaning as set forth in Section
3.3 hereof.
1.5. "Advance" shall have the meaning set forth in Section 2.2 hereof.
1.6. "Collateral" shall have the meaning set forth in Section 8 hereof.
1.7. "Collections" shall mean all good funds received by Buyer from or
on behalf of an Account Debtor with respect to Purchased Receivables.
1.8 "Compliance Certificate" shall mean a certificate, in a form provided
by Buyer to Seller, which contains the certification of the chief financial
officer of Seller that, among other things, the representations and warranties
set forth in this Agreement are true and correct as of the date such certificate
is delivered.
1.9. "Event of Default" shall have the meaning set forth in Section 9
hereof.
1.10. "Finance Charges" shall have the meaning set forth in Section 3.2
hereof.
1.11. "Invoice Transmittal" shall mean a writing signed by an authorized
representative of Seller which accurately identifies the receivables which
Buyer, at its election, may purchase, and includes for each such receivable the
correct amount owed by the Account Debtor, the name and address of the Account
Debtor, the invoice number, the invoice date and the account code.
1.12. "Obligations" shall mean all advances, financial accommodations,
liabilities, obligations, covenants and duties owing, arising, due or payable by
Seller to Buyer of any kind or nature, present or future, arising under or in
connection with this Agreement or under any other document, instrument or
agreement, whether or not evidenced by any note, guarantee or other instrument,
whether arising on account or by overdraft, whether direct or indirect
(including those acquired by assignment) absolute or contingent, primary or
secondary, due or to become due, now owing or hereafter arising, and however
acquired; including, without limitation, all Advances, Finance Charges,
Administrative Fees, interest, Repurchase Amounts, fees, expenses, professional
fees and attorneys' fees and any other sums chargeable to Seller hereunder or
otherwise.
1.13. "Purchased Receivables" shall mean all those accounts, receivables,
chattel paper, instruments, contract rights, documents, general intangibles,
letters of credit, drafts, bankers acceptances, and rights to payment, and all
proceeds thereof (all of the foregoing being referred to as "receivables"),
arising out of the invoices and other agreements identified on or delivered with
any Invoice Transmittal delivered by Seller to Buyer which Buyer elects to
purchase and for which Buyer makes an Advance.
1.14. "Refund" shall have the meaning set forth in Section 3.5 hereof.
1.15. "Reserve" shall have the meaning set forth in Section 2.4 hereof.
1.16. "Repurchase Amount" shall have the meaning set forth in Section 4.2
hereof.
1.17. "Reconciliation Date" shall mean the last calendar day of each
Reconciliation Period.
1.18. "Reconciliation Period" shall mean each calendar month of every
year.
2. PURCHASE AND SALE OF RECEIVABLES.
2.1. OFFER TO SELL RECEIVABLES. During the term hereof, and provided that
there does not then exist any Event of Default or any event that with notice,
lapse of time or otherwise would constitute an Event of Default, Seller may
request that Buyer purchase receivables and Buyer may, in its sole discretion,
elect to purchase receivables. Seller shall deliver to Buyer an Invoice
Transmittal with respect to any receivable for which a request for purchase is
made. An authorized representative of Seller shall sign each Invoice Transmittal
delivered to Buyer. Buyer shall be entitled to rely on all the information
provided by Seller to Buyer on or with the Invoice Transmittal and to rely on
the signature on any Invoice Transmittal as an authorized signature of Seller.
2.2. ACCEPTANCE OF RECEIVABLES. Buyer shall have no obligation to purchase
any receivable listed on an Invoice Transmittal. Buyer may exercise its sole
discretion in approving the credit of each Account Debtor before buying any
receivable. Upon acceptance by Buyer of all or any of the receivables described
on any Invoice Transmittal, Buyer shall pay to Seller 80 (%) percent of the face
amount of each receivable Buyer desires to purchase, net of chargebacks and a
10% allowance of returns. Such payment shall be the "Advance" with respect to
such receivable. Buyer may, from time to time, in its sole discretion, change
the percentage of the Advance. Upon Buyer's acceptance of the receivable and
payment to Seller of the Advance, the receivable shall become a "Purchased
Receivable." It shall be a condition to each Advance that (i) all of the
representations and warranties set forth in Section 6 of this Agreement be true
and correct on and as of the date of the related Invoice Transmittal and on and
as of the date of such Advance as though made at and as of each such date, and
(ii) no Event of Default or any event or condition that with notice, lapse of
time or otherwise would constitute an Event of Default shall have occurred and
be continuing, or would result from such Advance. Notwithstanding the foregoing,
in no event shall
Page 1 of 6
<PAGE>
the aggregate amount of all Purchased Receivables outstanding at any time exceed
SEVEN MILLION AND NO/100 **** Dollars ($7,000,000.00).
2.3. EFFECTIVENESS OF SALE TO BUYER. Effective upon Buyer's payment of an
Advance, and for and in consideration therefor and in consideration of the
covenants of this Agreement, Seller hereby absolutely sells, transfers and
assigns to Buyer, all of Seller's right, title and interest in and to each
Purchased Receivable and all monies due or which may become due on or with
respect to such Purchased Receivable. Buyer shall be the absolute owner of each
Purchased Receivable. Buyer shall have, with respect to any goods related to the
Purchased Receivable, all the rights and remedies of an unpaid seller under the
California Uniform Commercial Code and other applicable law, including the
rights of replevin, claim and delivery, reclamation and stoppage in transit.
2.4. ESTABLISHMENT OF A RESERVE. Upon the purchase by Buyer of each
Purchased Receivable, Buyer shall establish a reserve. The reserve shall be the
amount by which the face amount of the Purchased Receivable exceeds the Advance
on that Purchased Receivable (the "Reserve"); provided, the Reserve with respect
to all Purchased Receivables outstanding at any one time shall be an amount not
less than 20 (%) percent of the Account Balance at that time and may be set at a
higher percentage at Buyer's sole discretion. The reserve shall be a book
balance maintained on the records of Buyer and shall not be a segregated fund.
3. COLLECTIONS, CHARGES AND REMITTANCES.
3.1. COLLECTIONS. Upon receipt by Buyer of Collections, Buyer shall
promptly credit such Collections to Seller's Account Balance on a daily basis;
provided, that if Seller is in default under this Agreement, Buyer shall apply
all Collections to Seller's Obligations hereunder in such order and manner as
Buyer may determine. If an item of collection is not honored or Buyer does not
receive good funds for any reason, the amount shall be included in the Account
Balance as if the Collections had not been received and Finance Charges under
Section 3.2 shall accrue thereon.
3.2. FINANCE CHARGES. For the first thirty (30) days after the initial
funding, Seller shall pay to Buyer a finance charge in an amount equal to .75
(%) percent per month of the average daily Account Balance outstanding during
the applicable Reconciliation Period . Immediately after thirty days, the
finance charge shall be increased to 1.50 (%) percent per month (the "Finance
Charges"). Buyer shall deduct the accrued Finance Charges from the Reserve as
set forth in Section 3.5 below.
3.3. ADMINISTRATIVE FEE. On each Reconciliation Date Seller shall pay to
Buyer an Administrative Fee equal to .50 (%) percent of the face amount of each
Purchased Receivable first purchased during that Reconciliation Period (the
"Administrative Fee"). Buyer shall deduct the Administrative Fee from the
Reserve as set forth in Section 3.5 below.
3.4. ACCOUNTING. Buyer shall prepare and send to Seller after the close of
business for each Reconciliation Period, an accounting of the transactions for
that Reconciliation Period, including the amount of all Purchased Receivables,
all Collections, Adjustments, Finance Charges, and the Administrative Fee. The
accounting shall be deemed correct and conclusive unless Seller makes written
objection to Buyer within thirty (30) days after the Buyer mails the accounting
to Seller.
3.5. REFUND TO SELLER. Provided that there does not then exist an Event of
Default or any event or condition that with notice, lapse of time or otherwise
would constitute an Event of Default, Buyer shall refund to Seller by check
after the Reconciliation Date, the amount, if any, which Buyer owes to Seller at
the end of the Reconciliation Period according to the accounting prepared by
Buyer for that Reconciliation Period (the "Refund"). The Refund shall be an
amount equal to:
(A) (1) The Reserve as of the beginning of that Reconciliation Period,
PLUS
(2) the Reserve created for each Purchased Receivable purchased
during that Reconciliation Period, MINUS
(B) The total for that Reconciliation Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(3) Adjustments;
(4) Repurchase Amounts, to the extent Buyer has agreed to accept
payment thereof by deduction from the Refund;
(5) the Reserve for the Account Balance as of the first day of the
following Reconciliation Period in the minimum percentage set
forth in Section 2.4 hereof; and
(6) all amounts due, including professional fees and expenses,
as set forth in Section 12 for which oral or written demand has been made by
Buyer to Seller during that Reconciliation Period to the extent Buyer has agreed
to accept payment thereof by deduction from the Refund.
In the event the formula set forth in this Section 3.5 results in an amount due
to Buyer from Seller, Seller shall make such payment in the same manner as set
forth in Section 4.3 hereof for repurchases. If the formula set forth in this
Section 3.5 results in an amount due to Seller from Buyer, Buyer shall make such
payment by check, subject to Buyer's rights under Section 4.3 and Buyer's rights
of offset and recoupment.
4. RECOURSE AND REPURCHASE OBLIGATIONS.
4.1. RECOURSE. Buyer's acquisition of Purchased Receivables from Seller
shall be with full recourse against Seller. In the event the Obligations exceed
the amount of Purchased Receivables and Collateral, Seller shall be liable for
any deficiency.
4.2. SELLER'S AGREEMENT TO REPURCHASE. Seller agrees to pay to Buyer
on demand, the full face amount, or any unpaid portion, of any Purchased
Receivable:
(A) which remains unpaid ninety (90) calendar days after the invoice
date; or
(B) which is owed by any Account Debtor who has filed, or has had
filed against it, any bankruptcy case, assignment for the benefit of
creditors, receivership, or insolvency proceeding or who has become
insolvent (as defined in the United States Bankruptcy Code) or who is
generally not paying its debts as such debts become due; or
(C) with respect to which there has been any breach of warranty or
representation set forth in Section 6 hereof or any breach of any
covenant contained in this Agreement; or
(D) with respect to which the Account Debtor asserts any discount,
allowance, return, dispute, counterclaim, offset, defense, right of
recoupment, right of return, warranty claim, or short payment;
together with all reasonable attorneys' and professional fees and expenses and
all court costs incurred by Buyer in collecting such Purchased Receivable and/or
enforcing its rights under, or collecting amounts owed by Seller in connection
with, this Agreement(collectively, the "Repurchase Amount").
Page 2 of 6
<PAGE>
4.3. SELLER'S PAYMENT OF THE REPURCHASE AMOUNT OR OTHER AMOUNTS DUE BUYER.
When any Repurchase Amount or other amount owing to Buyer becomes due, Buyer
shall inform Seller of the manner of payment which may be any one or more of the
following in Buyer's sole discretion: (a) in cash immediately upon demand
therefor; (b) by delivery of substitute invoices and an Invoice Transmittal
acceptable to Buyer which shall thereupon become Purchased Receivables; (c) by
adjustment to the Reserve pursuant to Section 3.5 hereof; (d) by deduction from
or offset against the Refund that would otherwise be due and payable to Seller;
(e) by deduction from or offset against the amount that otherwise would be
forwarded to Seller in respect of any further Advances that may be made by
Buyer; or (f) by any combination of the foregoing as Buyer may from time to time
choose.
4.4. SELLER'S AGREEMENT TO REPURCHASE ALL PURCHASED RECEIVABLES. Upon and
after the occurrence of an Event of Default, Seller shall, upon Buyer's demand
(or, in the case of an Event of Default under Section 9(B), immediately without
notice or demand from Buyer) repurchase all the Purchased Receivables then
outstanding , or such portion thereof as Buyer may demand. Such demand may, at
Buyer's option, include and Seller shall pay to Buyer immediately upon demand,
cash in an amount equal to the Advance with respect to each Purchased Receivable
then outstanding together with all accrued Finance Charges, Adjustments,
Administrative Fees, attorney's and professional fees, court costs and expenses
as provided for herein, and any other Obligations. Upon receipt of payment in
full of the Obligations, Buyer shall immediately instruct Account Debtors to pay
Seller directly, and return to Seller any Refund due to Seller. For the purpose
of calculating any Refund due under this Section only, the Reconciliation Date
shall be deemed to be the date Buyer receives payment in good funds of all the
Obligations as provided in this Section 4.4.
5. POWER OF ATTORNEY. Seller does hereby irrevocably appoint Buyer and its
successors and assigns as Seller's true and lawful attorney in fact, and hereby
authorizes Buyer, regardless of whether there has been an Event of Default, (a)
to sell, assign, transfer, pledge, compromise, or discharge the whole or any
part of the Purchased Receivables; (b) to demand, collect, receive, sue, and
give releases to any Account Debtor for the monies due or which may become due
upon or with respect to the Purchased Receivables and to compromise, prosecute,
or defend any action, claim, case or proceeding relating to the Purchased
Receivables, including the filing of a claim or the voting of such claims in any
bankruptcy case, all in Buyer's name or Seller's name, as Buyer may choose; (c)
to prepare, file and sign Seller's name on any notice, claim, assignment,
demand, draft, or notice of or satisfaction of lien or mechanics' lien or
similar document with respect to Purchased Receivables; (d) to notify all
Account Debtors with respect to the Purchased Receivables to pay Buyer directly;
(e) to receive, open, and dispose of all mail addressed to Seller for the
purpose of collecting the Purchased Receivables; (f) to endorse Seller's name on
any checks or other forms of payment on the Purchased Receivables; (g) to
execute on behalf of Seller any and all instruments, documents, financing
statements and the like to perfect Buyer's interests in the Purchased
Receivables and Collateral; and (h) to do all acts and things necessary or
expedient, in furtherance of any such purposes. If Buyer receives a check or
item which is payment for both a Purchased Receivable and another receivable,
the funds shall first be applied to the Purchased Receivable and, so long as
there does not exist an Event of Default or an event that with notice, lapse of
time or otherwise would constitute an Event of Default, the excess shall be
remitted to Seller. Upon the occurrence and continuation of an Event of Default,
all of the power of attorney rights granted by Seller to Buyer hereunder shall
be applicable with respect to all Purchased Receivables and all Collateral.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
6.1. RECEIVABLES' WARRANTIES, REPRESENTATIONS AND COVENANTS. To induce
Buyer to buy receivables and to render its services to Seller, and with full
knowledge that the truth and accuracy of the following are being relied upon by
the Buyer in determining whether to accept receivables as Purchased Receivables,
Seller represents, warrants, covenants and agrees, with respect to each Invoice
Transmittal delivered to Buyer and each receivable described therein, that:
(A) Seller is the absolute owner of each receivable set forth in the
Invoice Transmittal and has full legal right to sell, transfer and
assign such receivables;
(B) The correct amount of each receivable is as set forth in the
Invoice Transmittal and is not in dispute;
(C) The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future and any and
all obligations required of the Seller have been fulfilled as of the
date of the Invoice Transmittal;
(D) Each receivable set forth on the Invoice Transmittal is based on
an actual sale and delivery of goods and/or services actually
rendered, is presently due and owing to Seller, is not past due or in
default, has not been previously sold, assigned, transferred, or
pledged, and is free of any and all liens, security interests and
encumbrances other than liens, security interests or encumbrances in
favor of Buyer or any other division or affiliate of Silicon Valley
Bank;
(E) There are no defenses, offsets, or counterclaims against any of
the receivables, and no agreement has been made under which the
Account Debtor may claim any deduction or discount, except as
otherwise stated in the Invoice Transmittal;
(F) Each Purchased Receivable shall be the property of the Buyer and
shall be collected by Buyer, but if for any reason it should be paid
to Seller, Seller shall promptly notify Buyer of such payment, shall
hold any checks, drafts, or monies so received in trust for the
benefit of Buyer, and shall promptly transfer and deliver the same to
the Buyer;
(G) Buyer shall have the right of endorsement, and also the right to
require endorsement by Seller, on all payments received in connection
with each Purchased Receivable and any proceeds of Collateral;
(H) Seller, and to Seller's best knowledge, each Account Debtor set
forth in the Invoice Transmittal, are and shall remain solvent as that
term is defined in the United States Bankruptcy Code and the
California Uniform Commercial Code, and no such Account Debtor has
filed or had filed against it a voluntary or involuntary petition for
relief under the United States Bankruptcy Code;
(I) Each Account Debtor named on the Invoice Transmittal will not
object to the payment for, or the quality or the quantity of the
subject matter of, the receivable and is liable for the amount set
forth on the Invoice Transmittal;
(J) Each Account Debtor shall promptly be notified, after acceptance
by Buyer, that the Purchased Receivable has been transferred to and is
payable to Buyer, and Seller shall not take or permit any action to
countermand such notification; and
(K) All receivables forwarded to and accepted by Buyer after the date
hereof, and thereby becoming Purchased Receivables, shall comply with
each and every one of the foregoing representations, warranties,
covenants and agreements referred to above in this Section 6.1.
6.2. ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. In addition to
the foregoing warranties, representations and covenants, to induce Buyer to buy
receivables and to render its services to Seller, Seller hereby represents,
warrants, covenants and agrees that:
(A) Seller will not assign, transfer, sell, or grant , or permit any
lien or security interest in any Purchased Receivables or Collateral
to or in favor of any other party, without Buyer's prior written
consent;
(B) The Seller's name, form of organization, chief executive office,
and the place where the records concerning all Purchased Receivables
and Collateral are kept is set forth at the beginning of this
Agreement, Collateral is located only at the location set forth in the
beginning of this Agreement, or, if located at any additional
location, as set forth on a schedule attached to this Agreement, and
Seller will give Buyer at least thirty (30) days prior written
Page 3 of 6
<PAGE>
notice if such name, organization, chief executive office or other
locations of Collateral or records concerning Purchased Receivables or
Collateral is changed or added and shall execute any documents
necessary to perfect Buyer's interest in the Purchased Receivables and
the Collateral;
(C) Seller shall (i) pay all of its normal gross payroll for
employees, and all federal and state taxes, as and when due, including
without limitation all payroll and withholding taxes and state sales
taxes; (ii) deliver at any time and from time to time at Buyer's
request, evidence satisfactory to Buyer that all such amounts have
been paid to the proper taxing authorities; and (iii) if requested by
Buyer, pay its payroll and related taxes through a bank or an
independent payroll service acceptable to Buyer.
(D) Seller has not, as of the time Seller delivers to Buyer an Invoice
Transmittal, or as of the time Seller accepts any Advance from Buyer,
filed a voluntary petition for relief under the United States
Bankruptcy Code or had filed against it an involuntary petition for
relief;
(E) If Seller owns, holds or has any interest in, any copyrights
(whether registered, or unregistered), patents or trademarks, and
licenses of any of the foregoing, such interest has been disclosed to
Buyer and is specifically listed and identified on a schedule to this
Agreement, and Seller shall immediately notify Buyer if Seller
hereafter obtains any interest in any additional copyrights, patents,
trademarks or licenses that are significant in value or are material
to the conduct of its business; and
(F) Seller shall provide Buyer with a Compliance Certificate (i) on a
quarterly basis to be received by Buyer no later than the fifth
calendar day following each calendar quarter, and; (ii) on a more
frequent or other basis if and as requested by Buyer.
7. ADJUSTMENTS. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6.1, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall promptly
advise Buyer and shall, subject to the Buyer's approval, resolve such disputes
and advise Buyer of any adjustments. Unless the disputed Purchased Receivable is
repurchased by Seller and the full Repurchase Amount is paid, Buyer shall remain
the absolute owner of any Purchased Receivable which is subject to Adjustment or
repurchase under Section 4.2 hereof, and any rejected, returned, or recovered
personal property, with the right to take possession thereof at any time. If
such possession is not taken by Buyer, Seller is to resell it for Buyer's
account at Seller's expense with the proceeds made payable to Buyer. While
Seller retains possession of said returned goods, Seller shall segregate said
goods and mark them "property of Silicon Valley Financial Services."
8. SECURITY INTEREST. To secure the prompt payment and performance to Buyer of
all of the Obligations, Seller hereby grants to Buyer a continuing lien upon and
security interest in all of Seller's now existing or hereafter arising rights
and interest in the following , whether now owned or existing or hereafter
created, acquired, or arising, and wherever located (collectively, the
"Collateral"):
(A) All accounts, receivables, contract rights, chattel paper,
instruments, documents, letters of credit, bankers acceptances, drafts,
checks, cash, securities, and general intangibles (including, without
limitation, all claims, causes of action, deposit accounts, guaranties,
rights in and claims under insurance policies (including rights to
premium refunds), rights to tax refunds, copyrights, patents,
trademarks, rights in and under license agreements, and all other
intellectual property);
(B) All inventory, including Seller's rights to any returned or
rejected goods, with respect to which Buyer shall have all the rights
of any unpaid seller, including the rights of replevin, claim and
delivery, reclamation, and stoppage in transit;
(C ) All monies, refunds and other amounts due Seller, including,
without limitation, amounts due Seller under this Agreement (including
Seller's right of offset and recoupment);
(D) All equipment, machinery, furniture, furnishings, fixtures, tools,
supplies and motor vehicles; *SEE ADDENDUM
(E) All farm products, crops, timber, minerals and the like (including
oil and gas);
(F) All accessions to, substitutions for, and replacements of, all of
the foregoing;
(G) All books and records pertaining to all of the foregoing; and
(H) All proceeds of the foregoing, whether due to voluntary or
involuntary disposition, including insurance proceeds.
Seller is not authorized to sell, assign, transfer or otherwise convey
any Collateral without Buyer's prior written consent, except for the sale of
finished inventory in the Seller's usual course of business. Seller agrees to
sign UCC financing statements, in a form acceptable to Buyer, and any other
instruments and documents requested by Buyer to evidence , perfect, or protect
the interests of Buyer in the Collateral. Seller agrees to deliver to Buyer the
originals of all instruments, chattel paper and documents evidencing or related
to Purchased Receivables and Collateral.
9. DEFAULT. The occurrence of any one or more of the following shall constitute
an Event of Default hereunder.
(A) Seller fails to pay any amount owed to Buyer as and when due;
(B) There shall be commenced by or against Seller any voluntary or
involuntary case under the United States Bankruptcy Code, or any
assignment for the benefit of creditors, or appointment of a receiver
or custodian for any of its assets;
(C) Seller shall become insolvent in that its debts are greater than
the fair value of its assets, or Seller is generally not paying its
debts as they become due or is left with unreasonably small capital;
(D) Any involuntary lien, garnishment, attachment or the like is
issued against or attaches to the Purchased Receivables or any
Collateral;
(E) Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Buyer's
satisfaction within ten (10) days after Buyer has given Seller oral or
written notice thereof; provided, that if such breach is incapable of
being cured it shall constitute an immediate default hereunder;
(F) Seller is not in compliance with, or otherwise is in default
under, any term of any document, instrument or agreement evidencing a
debt, obligation or liability of any kind or character of Seller, now
or hereafter existing, in favor of Buyer or any division or affiliate
of Silicon Valley Bank, regardless of whether such debt, obligation or
liability is direct or indirect, primary or secondary, joint, several
or joint and several, or fixed or contingent, together with any and
all renewals and extensions of such debts, obligations and
liabilities, or any part thereof;
(G) An event of default shall occur under any guaranty executed by any
guarantor of the Obligations of Seller to Buyer under this Agreement,
or any material provision of any such guaranty shall for any reason
cease to be valid or enforceable or any such guaranty shall be
repudiated or terminated, including by operation of law;
(H) A default or event of default shall occur under any agreement
between Seller and any creditor of Seller that has entered into a
subordination agreement with Buyer; or
(I) Any creditor that has entered into a subordination agreement with
Buyer shall breach any of the terms of or not comply with such
subordination agreement.
(J) With each funding, Seller shall provide Buyer a chargeback report.
10. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, (1)
without implying any obligation to buy receivables, Buyer may cease buying
receivables or extending any financial accommodations to Seller; (2) all or a
portion of the Obligations shall be, at the option of and upon demand by Buyer,
or with respect to an Event of Default described in Section 9(B), automatically
and without notice or demand, due and payable in full; and (3) Buyer shall have
and may exercise all the rights and remedies under this Agreement and under
applicable law, including the rights and remedies of a secured party under
Page 4 of 6
<PAGE>
the California Uniform Commercial Code, all the power of attorney rights
described in Section 5 with respect to all Collateral, and the right to collect,
dispose of, sell, lease, use, and realize upon all Purchased Receivables and all
Collateral in any commercial reasonable manner. Seller and Buyer agree that any
notice of sale required to be given to Seller shall be deemed to be reasonable
if given five (5) days prior to the date on or after which the sale may be held.
In the event that the Obligations are accelerated hereunder, Seller shall
repurchase all of the Purchased Receivables as set forth in Section 4.4.
11. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not paid when
due, including, without limitation, amounts due under Section 3.5, Repurchase
Amounts, amounts due under Section 12, and any other Obligations, such amounts
shall bear interest at a per annum rate equal to the per annum rate of the
Finance Charges until the earlier of (i) payment in good funds or (ii) entry of
a final judgment thereof, at which time the principal amount of any money
judgment remaining unsatisfied shall accrue interest at the highest rate allowed
by applicable law.
12. FEES, COSTS AND EXPENSES; INDEMNIFICATION. The Seller will pay to Buyer
immediately upon demand all fees, costs and expenses (including fees of
attorneys and professionals and their costs and expenses ) that Buyer incurs or
may from time to time impose in connection with any of the following: (a)
preparing, negotiating , administering, and enforcing this Agreement or any
other agreement executed in connection herewith, including any amendments,
waivers or consents in connection with any of the foregoing, (b) any litigation
or dispute (whether instituted by Buyer, Seller or any other person) in any way
relating to the Purchased Receivables, the Collateral, this Agreement or any
other agreement executed in connection herewith or therewith, (d) enforcing any
rights against Seller or any guarantor, or any Account Debtor, (e) protecting or
enforcing its interest in the Purchased Receivables or the Collateral, (f)
collecting the Purchased Receivables and the Obligations, and (g) the
representation of Buyer in connection with any bankruptcy case or insolvency
proceeding involving Seller, any Purchased Receivable, the Collateral, any
Account Debtor, or any guarantor. Seller shall indemnify and hold Buyer harmless
from and against any and all claims, actions, damages, costs, expenses, and
liabilities of any nature whatsoever arising in connection with any of the
foregoing.
13. SEVERABILITY, WAIVER, AND CHOICE OF LAW. In the event that any provision of
this Agreement is deemed invalid by reason of law, this Agreement will be
construed as not containing such provision and the remainder of the Agreement
shall remain in full force and effect. Buyer retains all of its rights, even if
it makes an Advance after a default. If Buyer waives a default, it may enforce a
later default. Any consent or waiver under, or amendment of, this Agreement must
be in writing. Nothing contained herein, or any action taken or not taken by
Buyer at any time, shall be construed at any time to be indicative of any
obligation or willingness on the part of Buyer to amend this Agreement or to
grant to Seller any waivers or consents. This Agreement has been transmitted by
Seller to Buyer at Buyer's office in the State of California and has been
executed and accepted by Buyer in the State of California. This Agreement shall
be governed by and interpreted in accordance with the internal laws of the State
of California.
14. ACCOUNT COLLECTION SERVICES. Certain Account Debtors may require or prefer
that all of Seller's receivables be paid to the same address and/or party, or
Seller and Buyer may agree that all receivables with respect to certain Account
Debtors be paid to one party. In such event Buyer and Seller may agree that
Buyer shall collect all receivables whether owned by Seller or Buyer and
(provided that there does not then exist an Event of Default or event that with
notice, lapse or time or otherwise would constitute an Event of Default, and
subject to Buyer's rights in the Collateral) Buyer agrees to remit to Seller the
amount of the receivables collections it receives with respect to receivables
other than Purchased Receivables. It is understood and agreed by Seller that
this Section does not impose any affirmative duty on Buyer to do any act other
than to turn over such amounts. All such receivables and collections are
Collateral and in the event of Seller's default hereunder, Buyer shall have no
duty to remit collections of Collateral and may apply such collections to the
obligations hereunder and Buyer shall have the rights of a secured party under
the California Uniform Commercial Code.
15. NOTICES. All notices shall be given to Buyer and Seller at the addresses or
faxes set forth on the first page of this Agreement and shall be deemed to have
been delivered and received: (a) if mailed, three (3) calendar days after
deposited in the United States mail, first class, postage pre-paid, (b) one (1)
calendar day after deposit with an overnight mail or messenger service; or (c)
on the same date of confirmed transmission if sent by hand delivery, telecopy,
telefax or telex.
16. JURY TRIAL. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THE FOREGOING WAIVER CONSTITUTES
A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT; AND (c) REPRESENT AND
WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS DETERMINED FOR ITSELF THE
NECESSITY TO REVIEW THE SAME WITH ITS LEGAL COUNSEL, AND KNOWINGLY AND
VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.
17. TERM AND TERMINATION. The term of this Agreement shall be for one (1) year
from the date hereof, and from year to year thereafter unless terminated in
writing by Buyer or Seller. Seller and Buyer shall each have the right to
terminate this Agreement at any time. Notwithstanding the foregoing, any
termination of this Agreement shall not affect Buyer's security interest in the
Collateral and Buyer's ownership of the Purchased Receivables, and this
Agreement shall continue to be effective, and Buyer's rights and remedies
hereunder shall survive such termination, until all transactions entered into
and Obligations incurred hereunder or in connection herewith have been completed
and satisfied in full.
18. TITLES AND SECTION HEADINGS. The titles and section headings used herein are
for convenience only and shall not be used in interpreting this Agreement.
Page 5 of 6
<PAGE>
19. OTHER AGREEMENTS. The terms and provisions of this Agreement shall not
adversely affect the rights of Buyer or any other division or affiliate of
Silicon Valley Bank under any other document, instrument or agreement. The terms
of such other documents, instruments and agreements shall remain in full force
and effect notwithstanding the execution of this Agreement. In the event of a
conflict between any provision of this Agreement and any provision of any other
document, instrument or agreement between Seller on the one hand, and Buyer or
any other division or affiliate of Silicon Valley Bank on the other hand, Buyer
shall determine in its sole discretion which provision shall apply. Seller
acknowledges specifically that any security agreements, liens and/or security
interests currently securing payment of any obligations of Seller owing to Buyer
or any other division or affiliate of Silicon Valley Bank also secure Seller's
obligations under this Agreement, and are valid and subsisting and are not
adversely affected by execution of this Agreement. Seller further acknowledges
that (a) any collateral under other outstanding security agreements or other
documents between Seller and Buyer or any other division or affiliate of Silicon
Valley Bank secures the obligations of Seller under this Agreement and (b) a
default by Seller under this Agreement constitutes a default under other
outstanding agreements between Seller and Buyer or any other division or
affiliate of Silicon Valley Bank.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the
day and year above written.
SELLER: GENSIA LABORATORIES, LTD.
By /s/ John W. Sayward
______________________________________
Title Vice President, Finance, Chief
Financial Officer and Treasurer
_____________________________________
BUYER: SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By /s/ Linda S. LeBeau
________________________________________
Title Senior Vice President
Life Sciences Group
______________________________________
Page 6 of 6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 23,292
<SECURITIES> 1,997
<RECEIVABLES> 40,196
<ALLOWANCES> (1,376)
<INVENTORY> 46,109
<CURRENT-ASSETS> 7,528
<PP&E> 100,729
<DEPRECIATION> (22,659)
<TOTAL-ASSETS> 331,785
<CURRENT-LIABILITIES> 91,965
<BONDS> 0
0
16
<COMMON> 748
<OTHER-SE> 177,910
<TOTAL-LIABILITY-AND-EQUITY> 331,785
<SALES> 98,428
<TOTAL-REVENUES> 105,070
<CGS> 70,644
<TOTAL-COSTS> 70,644
<OTHER-EXPENSES> 87,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (57,671)
<INCOME-TAX> 3,000
<INCOME-CONTINUING> (60,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60,671)
<EPS-PRIMARY> (.86)
<EPS-DILUTED> (.86)
</TABLE>
