<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 March 31, 1996
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
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NOVEN PHARMACEUTICALS, INC.
--------------------------------------------------------
(Exact name of Registrant as specified in its character)
<TABLE>
<S> <C>
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)
</TABLE>
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.
<TABLE>
<S> <C>
Class Outstanding at April 26, 1996
- ----------------------------- -----------------------------
Common stock $.0001 par value 19,766,666
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Page 1 of 10
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NOVEN PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
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<S> <C>
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1 - Financial Statements
Statements of Operations and Accumulated Deficit
for the three months ended March 31, 1996 and 1995 3
Balance Sheets as of March 31, 1996 and December
31, 1995 4
Statements of Cash Flows for the three months ended
March 31, 1996 and 1995 5
Notes to Financial Statements 6 - 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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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
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Product sales $ 5,171,991 $ 151,242
License revenue 106,499 639,832
Interest income 276,035 429,241
Other income 15,318
------------ ------------
Total revenues 5,554,525 1,235,633
------------ ------------
EXPENSES:
Cost of products sold 2,891,843 75,237
Research and development 2,483,291 2,205,654
General and administrative 799,315 722,669
------------ ------------
Total expenses 6,174,449 3,003,560
------------ ------------
NET LOSS FOR THE PERIOD (619,924) (1,767,927)
ACCUMULATED DEFICIT BEGINNING OF PERIOD (22,063,362) (15,482,754)
------------ ------------
ACCUMULATED DEFICIT END OF PERIOD $(22,683,286) $(17,250,681)
============ ============
NET LOSS PER SHARE $ (0.03) $ (0.09)
============ ============
WEIGHTED AVERAGE SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS 19,756,549 18,877,683
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 3
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NOVEN PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $16,624,049 $16,131,263
Securities held to maturity 5,904,956 7,881,397
Accounts receivable 2,278,773 2,512,561
Inventories 5,882,106 5,069,946
Prepaid and other current assets 232,979 258,220
----------- -----------
Total current assets 30,922,863 31,853,387
----------- -----------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation
and amortization of $2,279,916 at
March 31, 1996 and $1,974,138 at
December 31, 1995 15,553,018 15,532,797
----------- -----------
OTHER ASSETS:
Patent development costs, net 1,243,810 1,218,630
Deposits and other assets 65,738 40,738
----------- -----------
Total other assets 1,309,548 1,259,368
----------- -----------
TOTAL $47,785,429 $48,645,552
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $ 4,096,485 $ 4,293,185
----------- -----------
DEFERRED LICENSE REVENUE 6,265,512 6,322,011
----------- -----------
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 - 19,766,666
shares at March 31, 1996 and
19,674,144 shares at December 31,
1995 1,977 1,967
Additional paid-in capital 60,104,741 60,091,751
Accumulated deficit (22,683,286) (22,063,362)
----------- -----------
Total stockholders' equity 37,423,432 38,030,356
----------- -----------
TOTAL $47,785,429 $48,645,552
</TABLE> =========== ===========
The accompanying notes are an integral part of this statement.
Page 4
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NOVEN PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (619,924) $ (1,767,927)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 335,898 237,945
Increase in inventories (812,160) (725,613)
Decrease in prepaid and other
current assets 25,241 188,919
Decrease in accounts receivable 233,788 459,669
Decrease in accounts payable and
accrued liabilities (196,700) (1,010,836)
Decrease in deferred license revenue (56,499) (56,499)
------------ ------------
Cash flows used in operating
activities (1,090,356) (2,674,342)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of securities 1,951,441 13,878,487
Purchase of fixed assets, net (325,999) (545,536)
Payments for patent development costs (55,300) (9,016)
------------ ------------
Cash flows provided by investing
activities 1,570,142 13,323,936
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 13,000 2,001
------------ ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 492,786 10,651,594
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 16,131,263 12,070,272
------------ ------------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 16,624,049 $ 22,721,866
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
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NOTES TO FINANCIAL STATEMENTS
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, 1995 included in
the Company's annual report on Form 10-K.
The interim financial statements for the first quarter ended March 31,
1996 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 first quarter
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the year ending December 31, 1996.
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:
"INVENTORIES"
Inventories are stated at the lower of cost (first-in, first-out method)
or net realizable value. Inventories at March 31, 1996 related primarily
to the Company's transdermal estrogen delivery system. To date Noven has
not experienced and does not anticipate in the future, any difficulty
acquiring materials necessary to manufacture its transdermal systems.
"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 primarily 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.
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NOTES TO FINANCIAL STATEMENTS
(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> <C>
Balance, January 1, 1996 19,674,144 $ 1,967 $60,091,751
Issuance of 92,522 shares of
stock pursuant to stock
option plan, net 92,522 10 12,990
---------- ------- -----------
Balance, March 31, 1996 19,766,666 $ 1,977 $60,104,741
========== ======= ===========
</TABLE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues increased approximately $4,319,000 from approximately
$1,236,000 for the first quarter ended March 31, 1995 to approximately
$5,555,000 for the same period in 1996. This increase in revenues was the
result of the increase in product sales of the Company's transdermal
estrogen delivery system to its licensee partners from approximately
$151,000 in 1995 to $5,172,000 in 1996. No royalties were received or
recorded during the quarter. License revenues decreased 83% from
approximately $640,000 in the first quarter of 1995 to approximately
$106,000 in the same period in 1996. The Company believes that license
revenues will fluctuate from period to period depending on contributing
factors which include, but are not limited to, future success in
finalizing new collaborative agreements, timely achievement of milestones
and strategic decisions on self-funding certain projects. Interest income
decreased 36% from approximately $429,000 in the first quarter of 1995 to
approximately $276,000 in 1996 primarily due to lower average balances in
cash, cash equivalents and securities.
Cost of product sold increased by $2,817,000 from approximately $75,000 in
the first quarter of 1995 to approximately $2,892,000 in the same period
in 1996. The gross margin percentage was 50% in the first quarter of 1995
and 44% in the same period in 1996. These manufacturing costs and
attendant gross margins were primarily attributable to expenses incurred
in the early stages of manufacturing the transdermal estrogen delivery
systems.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Research and development expenses increased by approximately $277,000 or
13% from approximately $2,206,000 in the first quarter of 1995 to
approximately $2,483,000 in the same period in 1996. The increases 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. General and administrative expenses increased
11% from approximately $723,000 in the first quarter of 1995 to
approximately $799,000 in 1996 primarily due to increases in staffing and
associated office 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, interest income and through the sale of product.
From its inception through March 31, 1996, the Company received net
proceeds of approximately $56,000,000 from the sale of equity securities,
approximately $14,000,000 from product sales, approximately $14,000,000
from license agreements, and approximately $5,000,000 from interest
income. At the end of March 31, 1996 the Company had approximately
$23,000,000 in cash, cash equivalents and securities held to maturity.
The decrease in cash, cash equivalents, and securities held to maturity of
$1,484,000 during the first quarter of 1996 reflects the funding of a net
loss of approximately $620,000, an increase in inventory of approximately
$812,000 and an approximate $326,000 investment in property and equipment.
As of March 31, 1996 the Company had commitments for capital expenditures
of approximately $97,000.
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 desire to raise
additional capital. There can be no assurance that such capital will be
available on acceptable terms, or at all.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
27 Financial Data Schedule (for SEC use only)
Page 9
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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: May 10, 1996 By: /s/ Steven Sablotsky
------------ --------------------------
Steven Sablotsky, Chairman
of the Board and President
By: /s/ William A. Pecora
--------------------------
William A. Pecora
Chief Financial Officer
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,624,049
<SECURITIES> 5,904,956
<RECEIVABLES> 2,278,773
<ALLOWANCES> 0
<INVENTORY> 5,882,106
<CURRENT-ASSETS> 30,922,863
<PP&E> 17,832,934
<DEPRECIATION> 2,279,916
<TOTAL-ASSETS> 47,785,429
<CURRENT-LIABILITIES> 4,096,485
<BONDS> 0
0
0
<COMMON> 1,977
<OTHER-SE> 37,421,455
<TOTAL-LIABILITY-AND-EQUITY> 47,785,429
<SALES> 5,171,991
<TOTAL-REVENUES> 5,554,525
<CGS> 2,891,843
<TOTAL-COSTS> 2,891,843
<OTHER-EXPENSES> 2,483,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (619,924)
<INCOME-TAX> 0
<INCOME-CONTINUING> (619,924)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (619,924)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
