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<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
_____ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- -------------
Commission file number 0-17254
-------
NOVEN PHARMACEUTICALS, INC.
--------------------------------------------------------
(Exact name of Registrant as specified in its character)
STATE OF DELAWARE 59-2767632
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11960 S.W. 144th Street, Miami, FL 33186
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 253-5099
--------------
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 last practicable date.
Class Outstanding at October 30,1995
----- ------------------------------
Common stock $.0001 par value 19,648,244
Page 1 of 11
<PAGE> 2
NOVEN PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
- ------ --------------------- --------
<S> <C>
Item 1 - Financial Statements
Statements of Operations and Accumulated Deficit
for the three months ended September 30, 1995
and 1994 3
Statements of Operations and Accumulated Deficit
for the nine months ended September 30, 1995
and 1994 4
Balance Sheets as of September 30, 1995 and December 31, 1994 5
Statements of Cash Flows for the nine months ended
September 30, 1995 and 1994 6
Notes to Financial Statements 7 - 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 10
PART II - OTHER INFORMATION
- -------- -----------------
Item 6 - Exhibits and Reports on Form 8-K 10
SIGNATURES 11
- ----------
</TABLE>
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOVEN PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
REVENUES:
Product sales $ 2,543,761
License revenue 366,616 $ 639,853
Interest income 405,313 480,595
Other income 15,346 4,457
------------- -------------
Total revenues 3,331,036 1,124,905
------------- -------------
EXPENSES:
Cost of products sold 1,390,855
Research and development 2,880,340 1,710,161
General and administrative 816,777 704,273
------------- -------------
Total expenses 5,087,972 2,414,434
------------- -------------
NET LOSS FOR THE PERIOD (1,756,936) (1,289,529)
ACCUMULATED DEFICIT BEGINNING OF PERIOD (19,344,210) (12,742,580)
------------- -------------
ACCUMULATED DEFICIT END OF PERIOD $ (21,101,146) $ (14,032,109)
============= =============
NET LOSS PER SHARE $ (0.09) $ (0.07)
============= =============
WEIGHTED AVERAGE SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS 19,396,327 18,478,324
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 3
<PAGE> 4
NOVEN PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
REVENUES:
Product sales $ 3,613,879
License revenue 1,646,281 $ 2,202,831
Interest income 1,314,222 755,924
Other income 30,664 281,274
------------- -------------
Total revenues 6,605,046 3,240,029
------------- -------------
EXPENSES:
Cost of products sold 1,990,946
Research and development 7,886,753 4,673,818
General and administrative 2,345,739 2,059,791
------------- -------------
Total expenses 12,223,438 6,733,609
------------- -------------
NET LOSS FOR THE PERIOD (5,618,392) (3,493,580)
ACCUMULATED DEFICIT BEGINNING OF PERIOD (15,482,754) (10,538,529)
------------- -------------
ACCUMULATED DEFICIT END OF PERIOD $ (21,101,146) $ (14,032,109)
============= =============
NET LOSS PER SHARE $ (0.29) $ (0.20)
============= =============
WEIGHTED AVERAGE SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS 19,094,110 17,086,064
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 4
<PAGE> 5
NOVEN PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,442,685 $ 12,070,272
Securities held to maturity 17,527,002 23,445,070
Inventory 3,796,967 1,264,553
Prepaid and other current assets 305,623 825,159
-------------- -------------
Total current assets 30,072,277 37,605,054
-------------- -------------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation
and amortization of $1,722,354 at
September 30, 1995 and $1,076,379 at
December 31, 1994 15,877,316 15,022,523
-------------- -------------
OTHER ASSETS:
Patent development costs, net 1,074,603 979,201
Deposits and other assets 43,428 45,394
-------------- -------------
Total other assets 1,118,031 1,024,595
-------------- -------------
TOTAL $ 47,067,624 $ 53,652,172
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,740,542 $ 2,558,202
-------------- -------------
DEFERRED LICENSE REVENUE 6,378,510 6,548,007
-------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 100,000
shares of $.01 par value; no shares
issued or outstanding
Common stock - authorized 30,000,000
shares, par value $.0001 per share; issued
and outstanding - 19,648,244 shares at
September 30, 1995 and 18,839,068
shares at December 31, 1994 1,965 1,884
Additional paid-in capital 60,047,753 60,026,833
Accumulated deficit (21,101,146) (15,482,754)
-------------- -------------
Total stockholders' equity 38,948,572 44,545,963
-------------- -------------
TOTAL $ 47,067,624 $ 53,652,172
============== =============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
<PAGE> 6
NOVEN PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,618,392) $ (3,493,580)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 713,835 598,377
Increase in inventory (2,532,414) (428,342)
Decrease (increase) in prepaid and other
current assets 519,536 (131,006)
Decrease in accounts payable
and accrued liabilities (817,660) (229,045)
Decrease in deferred license revenue (169,497) (169,497)
------------ ------------
Cash flows used in operating
activities (7,904,592) (3,853,093)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of securities 5,918,068
Purchase of securities held to maturity (16,238,308)
Purchase of fixed assets (1,500,768) (1,826,249)
Payments for patent development costs (163,262) (236,444)
Refund of deposits 1,966
------------ ------------
Cash flows used in investing
activities 4,256,004 (18,301,001)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 21,001 28,334,204
------------ ------------
Cash flows provided by financing
activities 21,001 28,334,204
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (3,627,587) 6,180,110
CASH AND CASH EQUIVALENTS - BEGINNING OF
PERIOD 12,070,272 2,658,187
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 8,442,685 $ 8,838,297
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 6
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements of Noven Pharmaceuticals, Inc. (the "Company"),
included herein, do not include all footnote disclosures normally
included in annual financial statements and, therefore, should be read in
conjunction with the Company's financial statements and notes thereto for
each of the three years in the period ended December 31, 1994 included in
the Company's annual report on Form 10-K.
The interim financial statements for the nine months and the three months
ended September 30, 1995 are unaudited and, in the opinion of management,
reflect all adjustments (consisting only of normal recurring accruals)
necessary for fair presentation of the balance sheets, statements of
operations and cash flows of the Company. The statements of operations
for the nine months and three months ended September 30, 1995 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1995. Certain amounts in the 1995 and 1994 financial
statements have been reclassified for comparative purposes.
2. SUMMARY OF ACCOUNTING POLICIES
The following is a summary of the significant accounting policies
consistently applied in the preparation of Noven's financial statements:
"PROPERTY AND EQUIPMENT"
Property and equipment is recorded at cost. Depreciation is provided
over the estimated useful lives of the assets. Leasehold improvements
are amortized over the life of the lease or the service life of the
improvements, whichever is shorter. The straight-line method of
depreciation is followed for financial purposes.
"PATENT DEVELOPMENT COSTS"
Costs, principally legal fees related to the development of patents are
capitalized and amortized over the lesser of their estimated economic
useful lives or their remaining legal lives.
"LOSS PER SHARE"
Loss per share is based on the weighted average number of shares
outstanding during the period.
Page 7
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
3. STOCKHOLDERS' EQUITY
A schedule of the transactions in the common stock and the additional
paid in capital accounts is as follows:
<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-In
Shares Amount Capital
--------- -------- ---------
<S> <C> <C>
Balance, January 1, 1995 18,839,068 $ 1,884 $ 60,026,833
Issuance of 700,447 shares of
stock pursuant to stock
option plan, net 700,447 70 20,931
Issuance of 108,729 shares of
stock pursuant to price protection
provisions of 1993 contract for
land purchase 108,729 11 (11)
------- -- ---
Balance, September 30, 1995 19,648,244 $ 1,965 $ 60,047,753
============ ======= ============
</TABLE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since it commenced operations in 1987, the Company has been engaged
primarily in the research and development of transdermal drug delivery
systems. The Company's revenues have been generated principally by
license fees, milestone payments pursuant to various license agreements
and interest. A significant portion of revenues in 1995 is attributable
to the purchase by the Company's licensee partners of transdermal
estrogen delivery systems in anticipation of that product's commercial
launch.
To date, the Company's product development efforts have been undertaken
independently and pursuant to license agreements with Rhone-Poulenc
Rorer, Inc. and/or its affiliates ("RPR") and Ciba-Geigy Corporation
("Ciba-Geigy"). Under these agreements a license fee was paid upon
execution. All of the agreements provide for the payments of monthly
development fees or cost reimbursements for product development and/or
milestone payments upon achieving certain technical and regulatory goals.
The Company's results of operations vary significantly from quarter to
quarter and depend, among other factors, on the execution of new product
development agreements, the timing of fees and milestone payments made by
its licensees, the progress of clinical trials conducted by the Company
and/or its licensees and costs associated with the development of the
Company's products. The timing of the Company's license revenue may not
match the timing of the Company's associated product development expenses
for any particular period.
Page 8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
The Company's revenues increased approximately $2,206,000 or 196% for the
three month period ended September 30, 1995 from the same period in the
prior year and increased approximately $3,365,000 or 104% for the
comparable nine month period. The increase in revenue during the third
quarter and first nine months of 1995 was primarily a result of increased
product sales of the Company's transdermal estrogen delivery system to
its licensee partners. The increase in revenues for the first nine
months of 1995 was also attributable to increased interest income from
the investment of the proceeds of the June 1994 offering of common stock.
Cost of products sold were approximately $1,391,000 for the three month
period ended September 30, 1995 and $1,991,000 for the nine months ended
September 30, 1995. The gross margin percentage was 45% for the three and
nine month periods ended September 30, 1995. These manufacturing costs
and attendant gross margins are primarily attributable to expenses
incurred in the early stages of manufacturing the transdermal estrogen
delivery system.
Research and development expenses increased approximately $1,170,000 or
68% for the three month period ended September 30, 1995 from the same
period in the prior year and increased approximately $3,213,000 or 69%
for the comparable nine month period. The increase in research and
development expenses were attributable to new product development,
validation of the manufacturing process, preproduction start-up expense
and the hiring of additional staff for new and existing programs. New
product development included products such as the transoral dental
anesthetic system and the transdermal estrogen/progestogen combination
delivery system. Preproduction start-up includes the costs associated
with staffing and operating the Company's commercial manufacturing
facilities, obtaining regulatory approvals and preparing for product
commercialization. The increase in general and administrative expenses
of approximately $113,000 or 16% for the third quarter from the same
period last year and $286,000 or 14% for the comparable nine month period
was primarily due to increases in staffing and recruitment expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through public
offerings of common stock, including the exercise of warrants issued in
connection with the first such offering, private placements of its equity
securities, license and contract revenues, interest income and during the
current year through the sale of product. From its inception through
September 30, 1995, the Company received net proceeds of approximately
$56,000,000 from the sale of equity securities, approximately $14,000,000
from license agreements, approximately $4,000,000 from interest income
and approximately $4,000,000 from product sales. At the end of September
30, 1995 the Company had approximately $26,000,000 in cash and securities
held to maturity.
Page 9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
During the first nine months of 1995, the Company utilized approximately
$7,900,000 of its cash resources to fund research and operating
activities and $1,700,000 to fund investing activities, primarily
the purchase of property and equipment. As of September 30, 1995 the
Company had commitments for capital expenditures of approximately
$20,000.
The Company's future capital requirements depend upon numerous factors,
including (i) the progress of its product development programs, (ii) the
time required to obtain government regulatory approvals of products in
development,(iii) the resources that the Company devotes to the
development of self-funded products, proprietary manufacturing methods,
advanced technologies and a marketing and sales administration
infrastructure, (iv) the ability of the Company to obtain additional
license agreements and to manufacture products pursuant to those
agreements and (v) the demand for its products.
The Company expects to incur additional costs related to product
development activities, increased general and administrative expenses and
the completion of its manufacturing facilities. Although the Company
believes that existing cash, securities held to maturity, anticipated
contract and manufacturing revenues will be adequate for the foreseeable
future, circumstances could arise which may result in a need to raise
additional capital. There can be no assurance that such capital will be
available on acceptable terms, or at all.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule (for SEC use only).
Page 10
<PAGE> 11
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVEN PHARMACEUTICALS, INC.
(Registrant)
Date: November 8, 1995 By: /S/ Steven Sablotsky
---------------------- --------------------
Steven Sablotsky, Chairman of the
Board and President
By: /S/ William A. Pecora
---------------------
William A. Pecora
Chief Financial Officer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NOVEN PHARMACEUTICALS, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,442,685
<SECURITIES> 17,527,002
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,796,967
<CURRENT-ASSETS> 30,072,277
<PP&E> 17,599,670
<DEPRECIATION> 1,722,354
<TOTAL-ASSETS> 47,067,624
<CURRENT-LIABILITIES> 1,740,542
<BONDS> 0
<COMMON> 1,965
0
0
<OTHER-SE> 38,946,607
<TOTAL-LIABILITY-AND-EQUITY> 47,067,624
<SALES> 3,613,879
<TOTAL-REVENUES> 6,605,046
<CGS> 1,990,946
<TOTAL-COSTS> 1,990,946
<OTHER-EXPENSES> 7,886,753
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,618,392)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,618,392)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,618,392)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
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