<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 June 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 July 25, 1995
----- ----------------------------
Common stock $.0001 par value 19,038,339
Page 1 of 11
<PAGE> 2
NOVEN PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION Page No.
------ --------------------- --------
Item 1 - Financial Statements
Statements of Operations and Accumulated Deficit
for the three months ended June 30, 1995 and 1994 3
Statements of Operations and Accumulated Deficit
for the six months ended June 30, 1995 and 1994 4
Balance Sheets as of June 30, 1995 and December 31, 1994 5
Statements of Cash Flows for the six months ended
June 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 4 - Submission of Matters to a Vote of
Security Holders 10
Item 6 - Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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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
----------------------------------------
JUNE 30, JUNE 30,
1995 1994
------------ -----------
<S> <C> <C>
REVENUES:
Product sales $ 918,876
License revenue 639,833 $ 839,812
Interest income 479,668 152,982
Other income 0 173,720
------------ -----------
Total revenues 2,038,377 1,166,514
------------ -----------
EXPENSES:
Cost of products sold 524,854
Research and development 2,800,759 1,650,599
General and administrative 806,293 678,511
------------ -----------
Total expenses 4,131,906 2,329,110
------------ -----------
NET LOSS FOR THE PERIOD (2,093,529) (1,162,596)
ACCUMULATED DEFICIT BEGINNING OF PERIOD (17,250,681) (11,579,984)
------------ -----------
ACCUMULATED DEFICIT END OF PERIOD $(19,344,210) $(12,742,580)
============ ============
NET LOSS PER SHARE $ (0.11) $ (0.07)
============ ============
WEIGHTED AVERAGE SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS 19,002,225 16,574,752
============ ============
</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>
SIX MONTHS ENDED
----------------------------------------
JUNE 30, JUNE 30,
1995 1994
------------ -----------
<S> <C> <C>
REVENUES:
Product sales $ 1,070,118
License revenue 1,279,665 $ 1,562,978
Interest income 908,909 275,329
Other income 15,318 276,817
------------ -----------
Total revenues 3,274,010 2,115,124
EXPENSES:
Cost of products sold 600,091
Research and development 5,006,413 2,963,657
General and administrative 1,528,962 1,355,518
------------ -----------
Total expenses 7,135,466 4,319,175
------------ -----------
NET LOSS FOR THE PERIOD (3,861,456) (2,204,051)
ACCUMULATED DEFICIT BEGINNING OF PERIOD (15,482,754) (10,538,529)
------------ -----------
ACCUMULATED DEFICIT END OF PERIOD $(19,344,210) $(12,742,580)
============ ============
NET LOSS PER SHARE $ (0.20) $ (0.13)
============ ============
WEIGHTED AVERAGE SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS 18,939,954 16,378,395
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 4
<PAGE> 5
NOVEN PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,085,954 12,070,272
Securities held to maturity 13,414,162 23,445,070
Inventory 2,704,466 1,264,553
Prepaid and other current assets 641,132 825,159
------------ ------------
Total current assets 32,845,714 37,605,054
------------ ------------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation
and amortization of $1,507,029 at
June 30, 1995 and $1,076,379 at
December 31, 1994 15,568,698 15,022,523
------------ ------------
OTHER ASSETS:
Patent development costs, net 1,070,611 979,201
Deposits and other assets 44,261 45,394
Total other assets 1,114,872 1,024,595
------------ ------------
TOTAL $ 49,529,284 $ 53,652,172
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,388,767 $ 2,558,202
------------ ------------
DEFERRED LICENSE REVENUE 6,435,009 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 - 19,038,339 shares at
June 30, 1995 and 18,839,068
shares at December 31, 1994 1,904 1,884
Additional paid-in capital 60,047,814 60,026,833
Accumulated deficit (19,344,210) (15,482,754)
------------ ------------
Total stockholders' equity 40,705,508 44,545,963
------------ ------------
TOTAL $ 49,529,284 $ 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>
SIX MONTHS ENDED
----------------------------------------
JUNE 30, JUNE 30,
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,861,456) $(2,204,051)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 475,890 368,619
Increase in inventory (1,439,913) (100,653)
(Increase) decrease in prepaid and other current assets
184,027 (154,012)
Increase (Decrease) in accounts payable
and accrued liabilities (169,435) 29,770
Decrease in deferred license revenue (112,998) (112,998)
----------- -----------
Cash flows used in operating
activities (4,923,885) (2,173,325)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of securities 10,030,908 12,018,980
Purchase of fixed assets (976,825) (797,453)
Payments for patent development costs (136,650) (230,289)
Refund of deposits 1,133
----------- -----------
Cash flows provided by investing
activities 8,918,566 10,991,238
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 21,001 28,319,129
----------- -----------
Cash flows provided by financing
activities 21,001 28,319,129
----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 4,015,682 37,137,042
CASH AND CASH EQUIVALENTS - BEGINNING OF
PERIOD 12,070,272 2,658,187
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $16,085,954 $39,795,229
=========== ===========
</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 six months and the three months
ended June 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 six months and three months ended June 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 90,542 shares of
stock pursuant to stock
option plan, net 90,542 9 20,992
Issuance of 108,729 shares of
stock pursuant to price protection
provisions of 1993 contract for
land purchase 108,729 11 (11)
---------- ------ -----------
Balance, June 30, 1995 19,038,339 $1,904 $60,047,814
========== ====== ===========
</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. The Company anticipates that a significant portion of its
revenues in 1995 will be attributable to the launch of its first
commercial product, a transdermal estrogen delivery system.
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 $872,000 or 75% for the
three month period ended June 30, 1995 from the same period in the prior
year and increased approximately $1,159,000 or 55% for the comparable six
month period. The increase in revenue during the second quarter and first
half of 1995 was primarily a result of increased product sales from the
launch of the Company's first product, a transdermal estrogen delivery
system, and increased interest income from the investment of the proceeds
of the June 1994 offering of common stock.
Cost of products sold were approximately $525,000 for the three month
period ended June 30, 1995 and $600,000 for the six months ended June 30,
1995. These manufacturing costs include the costs of being in the early
stages of manufacturing the transdermal estrogen delivery system.
Research and development expenses increased approximately $1,150,000 or
70% for the three month period ended June 30, 1995 from the same period
in the prior year and increased approximately $2,043,000 or 69% for the
comparable six 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 $128,000
or 19% for the second quarter from the same period last year and $173,000
or 13% for the comparable six month period was primarily due to increases
in staffing and recruitment expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has 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 and interest income. From its
inception through June 30, 1995, the Company received net proceeds of
approximately $56,000,000 from the sale of equity securities,
approximately $13,000,000 from license agreements and approximately
$4,000,000 from interest income. At the end of June 30, 1995 the Company
had approximately $29,500,000 in cash and securities held to maturity.
During the first half of 1995, the Company utilized approximately
$4,900,000 of its cash resources to fund research and operating
activities and $1,100,000 to fund investing activities, primarily the
purchase of property and equipment. As of June 30, 1995 the Company had
commitments for capital expenditures of approximately $100,000.
Page 9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Stockholders held on June 6, 1995.
(i) Election of Directors
<TABLE>
<CAPTION>
For Against Abstain
---- ------- -------
<S> <C> <C> <C>
Steven Sablotsky 15,971,068 81,650 0
Mitchell Goldberg 15,971,068 81,650 0
Sheldon H. Becher 15,970,968 81,750 0
Sidney Braginsky 15,966,468 86,250 0
Lawrence J. Dubow 15,968,468 84,250 0
</TABLE>
(ii) The ratification of the appointment of Deloitte
& Touche LLP as the independent certified public accountants for 1995 was
approved by an affirmative vote of 15,997,624 shares to a negative vote of
15,480 shares, with 39,614 shares abstaining.
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: August 9, 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 SIX MONTHS ENDED
JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 16,085,954
<SECURITIES> 13,414,162
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,704,466
<CURRENT-ASSETS> 32,845,714
<PP&E> 17,075,727
<DEPRECIATION> 1,507,029
<TOTAL-ASSETS> 49,529,284
<CURRENT-LIABILITIES> 2,388,767
<BONDS> 0
<COMMON> 1,904
0
0
<OTHER-SE> 40,703,604
<TOTAL-LIABILITY-AND-EQUITY> 49,529,284
<SALES> 1,070,118
<TOTAL-REVENUES> 3,274,010
<CGS> 600,091
<TOTAL-COSTS> 600,091
<OTHER-EXPENSES> 5,006,413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,861,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,861,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,861,456)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
