<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 March 31, 1998.
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
-------
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.)
19 Hughes
Irvine, California 92618
-----------------------------------
(Address of principal executive offices and zip code)
(949) 455-4700
------------------------
(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 79,321,780
--------------------------- -----------------------------
Class Outstanding at March 31, 1998
<PAGE>
GENSIA SICOR INC.
INDEX
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements PAGE
--------------------
Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Operations and Comprehensive
Loss for the three months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 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 months ended
March 31, 1998 and 1997 10
Liquidity and Capital Resources 11
PART II OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
GENSIA SICOR INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------------- ------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,564 $ 41,624
Short-term investments 1,000 --
Accounts receivable 51,503 45,532
Inventories 44,315 43,952
Other current assets 8,130 8,373
----------- -----------
Total current assets 125,512 139,481
Property and equipment, net 95,601 95,243
Other noncurrent assets 10,073 10,759
Intangibles, net 48,918 49,825
Goodwill, net 68,612 67,897
----------- -----------
$ 348,716 $ 363,205
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,354 $ 38,152
Accrued payroll and related expenses 4,294 4,094
Other accrued liabilities 15,394 18,454
Short-term borrowings 30,813 35,581
Current portion of long-term debt 3,486 3,487
Current portion of capital lease obligations 604 600
----------- -----------
Total current liabilities 90,945 100,368
Other long-term liabilities 5,703 6,547
Long-term debt, less current portion 42,136 42,668
Long-term capital lease obligations, less current portion 490 525
Deferred taxes 20,847 22,228
Minority interest 2,927 3,326
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized,
1,600 issued and outstanding, liquidation preference of
$80,000 16 16
Common stock, $.01 par value, 125,000 shares authorized,
79,322 and 78,649 shares issued and outstanding
at March 31, 1998 and December 31, 1997, respectively 793 786
Additional paid-in capital 531,503 529,448
Accumulated deficit (345,272) (341,831)
Foreign currency translation adjustment (1,372) (876)
----------- -----------
Total stockholders' equity 185,668 187,543
----------- -----------
$ 348,716 $ 363,205
============ ===========
</TABLE>
See accompanying notes.
3
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Revenues:
Product sales $ 41,271 $ 19,805
Contract research and license fees 2,333 2,563
---------- ---------
Total revenues 43,604 22,368
Costs and expenses:
Cost of sales 28,136 16,457
Research and development 5,233 5,914
Selling, general and administrative 9,726 9,084
Amortization expense 1,388 408
Interest and other, net 1,702 (559)
Write-down of investment 1,130 --
Acquisition of in-process research and development -- 29,200
---------- ---------
Total costs and expenses 47,315 60,504
---------- ---------
Net loss before income taxes and minority interest (3,711) (38,136)
Provision for income taxes (17) (627)
---------- ---------
Net loss before minority interest (3,728) (38,763)
Minority interest 287 --
---------- ---------
Net loss before dividends (3,441) (38,763)
Dividends on preferred stock (1,488) (1,488)
---------- ---------
Net loss applicable to common shares (4,929) (40,251)
Other comprehensive loss:
Foreign currency translation (net of minority interest of $112) (496) (484)
---------- ---------
Comprehensive net loss $ (5,425) $ (40,735)
========== =========
Basic and diluted net loss per common share $ (.06) $ (.66)
========== =========
Basic and diluted comprehensive net loss per common share $ (.07) $ (.66)
========== =========
Shares used in computing basic and diluted net loss and
comprehensive net loss per common share 79,194 61,395
========== =========
</TABLE>
See accompanying notes.
4
<PAGE>
GENSIA SICOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,441) $ (38,763)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,345 1,979
Minority interest (287) --
Net deferred income taxes (1,381) --
Inventory purchase price allocation adjustment 164 1,234
Write-down of investment 1,130 --
Charge for acquired in-process research and
development -- 29,200
Change in operating assets and liabilities, net of effects
from acquisitions:
Accounts receivable (6,660) 2,427
Inventories (1,248) (1,748)
Prepaid expenses and other assets (112) 807
Accounts payable and accrued expenses (1,698) 4,023
-------- ---------
Net cash used in operating activities (9,188) (841)
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (1,903) (8,868)
Proceeds from short-term investments 1,000 5,097
Purchases of short-term investments (2,000) (4,134)
Purchase of property and equipment (3,980) (2,803)
Proceeds from sale of property and equipment -- 8
Other -- 223
-------- ---------
Net cash used in investing activities (6,883) (10,477)
Cash flows from financing activities:
Payments of preferred stock dividends (1,488) (1,488)
Issuance of common stock and warrants, net 500 19,812
Change in short-term borrowings (3,791) 77
Issuance of long-term debt 842 189
Issuance of capital lease obligations 190 --
Principal payments on long-term debt (745) (198)
Principal payments on capital lease obligations (185) (21)
-------- ---------
Net cash provided by (used in) financing activities (4,677) 18,371
-------- ---------
Effect of exchange rate changes on cash (312) (55)
-------- ---------
Increase (decrease) in cash and cash equivalents (21,060) 6,998
Cash and cash equivalents at beginning of period 41,624 16,271
-------- ---------
Cash and cash equivalents at end of period $ 20,564 $ 23,269
======== =========
Supplemental schedule of noncash investing and financing
activities:
Common stock issued to settle accrued liabilities $ 3,050 $ --
Common stock issued to acquire net assets of business:
Fair value of assets acquired, other than cash -- 207,593
Liabilities assumed -- 81,309
</TABLE>
See accompanying notes.
5
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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. ("Sicor de Mexico"). In addition, in December
1997, Sicor purchased a 50% equity interest in Diaspa S.p.A. ("Diaspa"), an
Italian company engaged in the manufacture of certain raw materials used in
Sicor's business. Also in December 1997, as part of the Gensia Sicor
restructuring, the Company completed the transfer of its licensed and
proprietary medical products into Gensia Automedics, Inc. ("Automedics") in
exchange for certain milestone and other contingent payments. Subsequently,
Automedics sold an equity interest representing approximately 81% of Automedics
to private investors. Gensia Sicor is a specialty pharmaceutical company
focused on the development, manufacture and marketing of products for worldwide
oncology and injectable pharmaceutical markets. The company is headquartered in
Irvine, California.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiary companies, all of which are wholly owned, except for Diaspa,
which is 50% owned, and Metabasis Therapeutics, Inc ("Metabasis"), which is 92%
owned. The five wholly-owned subsidiaries are as follows: Rakepoll Holding
B.V., Gensia Sicor Pharmaceuticals, Inc. (formerly Gensia Laboratories, Ltd. and
herein referred to as "Gensia Sicor Pharmaceuticals"), Aramed, Inc., Gensia
Development Corporation and Genchem Pharma Ltd. All significant intercompany
accounts and transactions have been eliminated. The accompanying consolidated
balance sheets at March 31, 1998 and December 31, 1997 include the assets,
liabilities and stockholders' equity of the combined companies. The
consolidated statement of operations and statement of cash flows for the three
months ended March 31, 1997 include the results for one month for Rakepoll
Holding from February 28, 1997 (the date of acquisition). Minority interest
represents minority shareholders' proportionate share of the equity in the
Company's consolidated subsidiaries, Diaspa and Metabasis.
In March 1998, Genchem Pharma acquired a research and development branch
("Genchem Vacallo") in Vacallo, Switzerland for $1.9 million. For financial
reporting purposes, the acquisition was accounted for using the purchase method
and the excess of the purchase price over the fair value of identified assets
and liabilities of $1.5 million was recorded as goodwill. The financial
position and results of operations of the acquired company are not material.
Pro forma information has been omitted as the amounts are not significant.
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-month periods ended March 31, 1998 and 1997 have been made. The results
of operations for the three-month period ended March 31, 1998 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 1997 Form 10-K filed with the Securities and Exchange Commission.
6
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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.
The functional currency of Lemery has been the Mexican peso. In accordance with
SFAS 52, the net assets of Lemery were remeasured to the U.S. dollar during the
second quarter of 1997 as a result of a hyper-inflationary economy in Mexico
and, accordingly, gains and losses from balance sheet translation adjustments
are included in net earnings. The functional currency of Sicor de Mexico is the
U.S. dollar.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
classifications used in 1998.
2. 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
No. 128, "Earnings Per Share" ("SFAS 128"). The new Standard is effective for
financial statements for periods ending after December 15, 1997, and must be
applied retroactively. SFAS 128 simplifies the standards for computing earnings
per share and requires presentation of two new amounts, basic and diluted
earnings per share. The Company adopted SFAS 128 in the fourth quarter of 1997
and such adoption has had no effect on the previously reported earnings per
share. Diluted loss per share including shares issuable upon exercise of
outstanding stock options and warrants has not been presented since the effects
of such conversions and exercises would be anti-dilutive.
3. COMPREHENSIVE NET INCOME
As of January 1, 1998, the Company adopted the Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS
130"). The new Standard established new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or stockholders' equity. SFAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in stockholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of SFAS 130.
7
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
4. INVENTORIES
Inventories at March 31, 1998 and December 31, 1997 consisted of (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Raw materials $ 16,735 $ 16,332
Work-in-progress 8,316 6,182
Finished goods 21,073 23,363
-------- --------
46,124 45,877
Less reserves (1,809) (1,925)
-------- --------
$ 44,315 $ 43,952
======== ========
</TABLE>
5. CONTINGENCIES
During 1995, Sicor received claims from certain of its customers in
connection with shipments of a contaminated product. While to the best of
Sicor's knowledge no customer lawsuits have been filed against Sicor with
respect to this matter, Sicor has a reserve of approximately $2.5 million at
March 31, 1998, which represents management's best estimate of attorneys' costs
and other settlement costs. Actual costs to be incurred in relation to the
ultimate settlement may vary from the amount estimated.
In a lawsuit related to the contaminated product, entitled Pharmacia &
Upjohn Company v. Great Lakes Chemical Corporation in the State of Michigan,
Kalamazoo County Circuit Court, No. E96-188 NZ, Pharmacia & Upjohn, which
supplied Sicor with certain of the contaminated materials and agreed to
indemnify Sicor under certain conditions, has sued Sicor for declaratory relief
regarding their respective duties and rights.
The Company is also a defendant in various actions, claims, and legal
proceedings arising from its normal business operations. Management believes
the Company has meritorious defenses and intends to vigorously defend against
all allegations and claims. As the ultimate outcome of these matters is
uncertain, no contingent liabilities or provisions have been recorded in the
accompanying financial statements for such matters. However, in management's
opinion, liabilities arising from the matters described in this paragraph, if
any, will not have a material adverse effect on consolidated financial
position, results of operations or cash flows.
6. SUBSEQUENT EVENTS
In December 1997, Gensia Sicor completed the transfer of its medical
products business, including the GenESA(R) System, to Automedics. As part of the
Automedics divestiture, obligations under the Gensia Clinical Partners, L.P.
(the "Partnership") agreements and the Protocol Systems, Inc. supply agreement
were assigned to Automedics as part of this transaction; however, Gensia Sicor
remains liable for these obligations and has agreed to indemnify Automedics
under certain circumstances.
Gensia Sicor and Automedics announced on April 27, 1998 that they have
determined not to exercise an option granted by the Partnership to repurchase
the technology associated with the GenESA System (the "Partnership Purchase
Option") and have informed Gensia Development Corporation, the general partner
of the Partnership, of this decision. The decision was based on, among other
things, the lack of market acceptance of the GenESA System since its U.S. market
introduction in October 1997 and its European market introduction in the second
quarter of 1995. Automedics plans to continue to provide technical support for
the GenESA System in the U.S. and Europe through May 31, 1998.
8
<PAGE>
GENSIA SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
Gensia Sicor and Automedics have also informed Protocol Systems, Inc., the
supplier of the GenESA device under a supply agreement which provides for the
purchase of devices through the year 2002, that no additional GenSEA System
devices will be purchased. The purchase commitment with Protocol Systems, Inc.
totals approximately $20 million. Discussions are expected to take place
regarding the termination of the Protocol Supply Agreement. The ultimate
outcome with respect to these discussions or other developments discussed in
this footnote could have a material effect on the Company's financial position,
results of operations or cash flows. However, the Company is unable to estimate
the impact at this time.
As a result of the lack of market acceptance of the GenESA System, Gensia
Sicor management has reevaluated the carrying value of the Company's investment
in Automedics and has recorded a write-down during the first quarter of 1998 of
$1.1 million, which is reflected as a current period write-down of investment.
9
<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 the
second quarter of 1998. For the period from its inception to March 31, 1998,
the Company has incurred a cumulative net loss of $345.3 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, 1997. 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 $4.9 million, or $.06 per common share
(after dividends on preferred stock of $1.5 million), in the first quarter ended
March 31, 1998 compared to a net loss of $40.3 million, or $.66 per common share
(after dividends on preferred stock of $1.5 million), in the first quarter of
1997. The 1997 first quarter includes the results of Rakepoll Holding from
February 28, 1997, the date of its acquisition, and a $29.2 million write-off of
in-process research and development associated with the acquisition of Rakepoll
Holding.
Product sales in the first quarter of 1998 increased to $41.3 million from
$19.8 million in the first quarter of 1997. The increase in product sales is
primarily due to the inclusion of only one month of Rakepoll Holding companies'
sales in the first quarter of 1997 compared to three months of sales in the
first quarter of 1998, and increased sales of certain of Gensia Sicor
Pharmaceuticals' newer multisource injectable products, offset by a decrease in
Laryngeal Mask Airway ("LMA") sales. The Company's distribution agreement with
the Laryngeal Mask Company, Ltd. ended on December 31, 1997. The Company did
not enter into a new agreement to distribute the LMA products, and thus stopped
selling these products effective December 31, 1997. Cost of sales for the first
quarter of 1998 was $28.1 million which yielded a gross margin of 32%, compared
to a cost of sales of $16.5 million for the first quarter of 1997 which yielded
a gross margin of 17%. The increase in gross margin is primarily due to improved
margins for certain of Gensia Sicor Pharmaceuticals newer multisource injectable
products and to a decrease in cost of sales for Rakepoll Holding products
resulting from the write-up of inventory associated with the acquisition of
Rakepoll Holding.
Contract research and license fees in the first quarter of 1998 decreased
to $2.3 million from $2.6 million in the first quarter of 1997. The decrease is
primarily due to an up-front non-refundable commitment received from Sankyo Co.,
Ltd. under the provisions of a Letter of Intent signed in March 1997. The
Company continued to receive contract research revenues through its research
collaboration with Pfizer Inc. in the areas of pain and inflammation research.
Metabasis is engaged in discussions with other pharmaceutical companies
concerning collaborations under which these companies would fund a portion of
Metabasis' research and development efforts; however, these discussions are at
an early stage and there is no assurance that any such agreement will be
completed.
Research and development expenses in the first quarter of 1998 decreased to
$5.2 million from $5.9 million in the 1997 first quarter. The decrease is
primarily due to the exclusion of Automedics' expenses as a result of the
divestiture of an 81% interest in Automedics in the fourth quarter of 1997
offset by increased expenses by the Rakepoll Holding companies as a result of
only one month of expenses included in the first quarter of 1997 compared to
three months
10
<PAGE>
GENSIA SICOR INC.
of expenses in the first quarter of 1998. The Company is continuing to pursue
plans to establish Metabasis as an independent company, which if accomplished
would eliminate ongoing expenses from its Metabasis research operation, causing
future research and development expenses to trend downward from current levels.
Selling, general and administrative expenses in the first quarter of 1998
increased to $9.7 million from $9.1 million in the first quarter of 1997. The
increase is primarily due to the inclusion of only one month of Rakepoll
Holding's expenses in the first quarter of 1997 compared to three months of
expenses in the first quarter of 1998 offset by a decrease in expenses due to
the exclusion of Automedics' expenses as a result of the Automedics divestiture
in the fourth quarter of 1997.
The Company had amortization expense of $1.4 million in the first quarter
of 1998 compared to $0.4 million in the first quarter of 1997 primarily due to
the inclusion of only one month of amortization expense in the first quarter of
1997 compared to three months of expenses in the first quarter of 1998 related
to the identified intangibles and goodwill resulting from the acquisition of
Rakepoll Holding.
The Company had interest and other expenses of $1.7 million in the first
quarter of 1998 compared to interest and other income of $0.6 million in the
first quarter of 1997. The increase in expenses is due to the inclusion of only
one month of interest expense and foreign currency exchange and translation net
gains of Rakepoll Holding companies in the first quarter of 1997 compared to
three months of interest expense and foreign currency and translation net losses
in the first quarter of 1998.
As discussed in Note 6, due to, among other things, the lack of market
acceptance of the GenESA System, Gensia Sicor management elected to write-down
the investment value of its 19% interest in Automedics from $1.8 million to $0.7
million, which reflects Gensia Sicor's ownership interest in Automedics' cash on
hand as of March 31, 1998. Accordingly, the difference in investment balance of
$1.1 million has been reflected as a current period charge to write-down of
investment.
In connection with the Rakepoll Holding acquisition in 1997, the assets and
liabilities of Rakepoll Holding were adjusted to their estimated fair values,
and the Company incurred a one-time $29.2 million write-off related to the value
assigned to the acquired in-process research and development. This charge is
not deductible for income tax purposes.
Income tax expense in the first quarter of 1998 was $17,000 compared to
income tax expense of $627,000 in the first quarter of 1997. The decrease in
income tax expense is primarily attributable to reduced earnings in the foreign
operations for the first quarter of 1998 compared to the first quarter of 1997.
In the first quarter of 1998, the Company recorded minority interest income
of $0.3 million which represents minority shareholders' proportionate share of
the first quarter loss in the Company's consolidated subsidiaries, Diaspa and
Metabasis.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash, cash equivalents and short-term
investments of $21.6 million.
The Company anticipates that its efforts to reduce overall costs and
expenses and working capital requirements, combined with its current cash on
hand and short-term investments at March 31, 1998 of $21.6 million, and
commitments from third parties, will enable it to maintain its current and
planned operations through at least 1998. In connection with its plans for
expanding its business, to accomplish its core strategy of being a leading
fully-integrated provider of injectable pharmaceutical products and services,
the Company's management and Board of Directors are evaluating plans to raise
11
<PAGE>
GENSIA SICOR INC.
required additional capital. The Company will continue to pursue equity, debt
and lease financing, or a combination of these, for its capital needs. In
addition, the Company may seek equity funds to finance Metabasis. Such
financings may not be available on acceptable terms, or at all. If financing is
not available, the Company may have to reduce planned expenditures, discontinue
certain operations, or otherwise restructure to continue operations.
Significant changes in operating assets and liabilities during the first
quarter of 1998, excluding the net assets acquired from the Genchem Vacallo
acquisition (see Note 1), included a $6.7 million increase in accounts
receivable, a $1.7 million decrease in accounts payable and accrued expenses and
a $1.2 million increase in inventories. Other significant cash flows in the
first quarter of 1998 included $3.8 million net payment for short-term
borrowings and $4.0 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 March 31, 1998, 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.
IMPACT OF YEAR 2000
The Company is currently developing a plan to insure that its systems and
software infrastructure are Year 2000 compliant. Key financial, information and
operational systems will be assessed and plans will be developed to address
required systems modifications. Given the size of the Company's systems and the
relative age of the hardware, software and operating systems, management does
not anticipate any significant delays in becoming Year 2000 compliant. However,
the Company is unable to control whether its current and future partners'
systems are Year 2000 compliant. To the extent that partners would be unable to
order products or pay invoices or suppliers would be unable to manufacture and
ship product, the Company's operations could be affected. However, management
does not believe that Year 2000 changes will have a material impact on the
Company's business, financial condition or results of operations.
12
<PAGE>
GENSIA SICOR INC.
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Document
------ -----------------------
27.1 Financial Data Schedule
- ----------------------
(b) Reports on Form 8-K during the first quarter
Report on Form 8-K filed on January 20, 1998, with a November 14, 1997
date of report, reporting under Item 5. Other Events, the resignation of
the Company's President and Chief Executive Officer, the reduction of the
Company's work force, the sale of a minority interest in Metabasis, the
transfer of the Company's medical products business to Automedics, the sale
of an 81% interest in Automedics, the acquisition of a 50% interest in
Diaspa, the sale of Units consisting of common stock and warrants in a
private placement, the sale of common stock in a private placement and the
sale of a parcel of land.
13
<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: May 15, 1998 By: /s/ Donald E. Panoz
----------------------------------------
Donald E. Panoz, Chairman of the Board
and Chief Executive Officer
Date: May 15, 1998 By: /s/ John W. Sayward
----------------------------------------
John W. Sayward, Vice President,
Finance, Chief Financial Officer
and Treasurer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,564
<SECURITIES> 1,000
<RECEIVABLES> 53,977
<ALLOWANCES> (2,474)
<INVENTORY> 44,315
<CURRENT-ASSETS> 125,512
<PP&E> 121,144
<DEPRECIATION> 25,543
<TOTAL-ASSETS> 348,716
<CURRENT-LIABILITIES> 90,945
<BONDS> 0
0
16
<COMMON> 793
<OTHER-SE> 184,859
<TOTAL-LIABILITY-AND-EQUITY> 348,716
<SALES> 41,271
<TOTAL-REVENUES> 43,604
<CGS> 28,136
<TOTAL-COSTS> 28,136
<OTHER-EXPENSES> 19,179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,433
<INCOME-PRETAX> (5,199)
<INCOME-TAX> 17
<INCOME-CONTINUING> (4,929)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,929)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
