<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2000
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______
Commission File Number 0-24424
CIMA LABS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 41-1569769
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
10000 VALLEY VIEW ROAD, EDEN PRAIRIE,
MN 55344-9361 (952) 947-8700
(Address of principal executive offices (Registrant's telephone number,
and zip code) including area code)
</TABLE>
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, 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 practical date.
<TABLE>
<S> <C>
Common Stock, $.01 par value 14,298,194
---------------------------- ----------
(Class) (Outstanding at November 7, 2000)
</TABLE>
<PAGE> 2
INDEX
CIMA LABS INC.
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 2000 and December 31, 1999. 3
Statements of Operations - Three months and nine months ended September 30, 2000 and
September 30, 1999. 4
Statements of Cash Flows - Nine months ended September 30, 2000 and September
30, 1999. 5
Notes to Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risks. 12
PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 have been omitted since all items are inapplicable or
answers negative.
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
CIMA and the CIMA logo are trademarks of CIMA LABS INC. All other trademarks
used in this Quarterly Report on Form 10-Q are the property of their respective
owners. We have registered "CIMA(R)," "CIMA LABS INC.(R)," and "OraSolv(R)" as
trademarks with the U.S. Patent and Trademark Office. We also use the trademarks
"OraSolv SR(TM)," "DuraSolv(TM)," "PakSolv(TM)," "OraVescent SL/BL(TM)," and
"OraVescent SS(TM)." "Triaminic(R)" and "Softchews(R)" are registered trademarks
of Novartis. "Zomig(R)" and "Rapimelt(TM)" are trademarks of AstraZeneca.
"Remeron(R)" and "Remeron" "SolTab(TM)" are trademarks of N.V. Organon.
"Tempra(R)" is a registered trademark of a Canadian affiliate of Bristol-Myers
Squibb. "FirsTabs(TM)" is a trademark of Bristol-Myers Squibb.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
CIMA LABS INC.
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (See note)
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,888,503 $ 2,480,698
Available-for-sale securities 4,372,998 -
Accounts receivable, net 6,322,953 3,058,258
Inventories, net 1,587,898 2,772,429
Prepaid expenses 201,215 73,042
---------------- ----------------
Total current assets 20,373,567 8,384,427
Other assets, net 342,190 525,942
Property and equipment:
Property, plant and equipment 21,661,943 16,355,463
Accumulated depreciation (7,162,705) (5,996,024)
---------------- ----------------
14,499,238 10,359,439
---------------- ----------------
Total assets $ 35,214,995 $ 19,269,808
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 883,606 $ 2,402,726
Accrued expenses 1,154,887 1,229,179
Other current liabilities 302,583 554,317
---------------- ----------------
Total current liabilities 2,341,076 4,186,222
Long term debt 101,401 3,509,660
---------------- ----------------
Total liabilities 2,442,477 7,695,882
Stockholders' equity:
Convertible preferred stock, $.01 par value; 50,000 shares
authorized; none outstanding - -
Common Stock, $.01 par value; 20,000,000 shares authorized;
10,953,774 and 9,646,241 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 109,538 96,462
Additional paid-in capital 77,874,422 57,454,661
Accumulated deficit (45,211,442) (45,977,197)
---------------- ----------------
32,772,518 11,573,926
Unrealized gain (loss) on available-for-sale securities - -
---------------- ----------------
Total stockholders' equity 32,772,518 11,573,926
---------------- ----------------
Total liabilities and stockholders' equity $ 35,214,995 $ 19,269,808
================ ================
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE> 4
STATEMENTS OF OPERATIONS
CIMA LABS INC.
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the Three Months Ended For the Nine Months Ended
----------------------------------- -----------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 3,195,075 $ 2,030,918 $ 9,291,430 $ 3,464,780
Product development fees and licensing 1,983,676 2,005,000 6,374,889 5,387,605
Royalties 187,500 171,869 1,166,500 365,836
---------------- ----------------- ----------------- ----------------
Total revenues 5,366,251 4,207,787 16,832,819 9,218,221
Operating expenses:
Cost of sales 2,692,746 2,487,735 9,417,960 5,455,989
Research and product development 1,267,697 1,217,316 3,484,806 3,044,285
Sales, general and administrative 996,202 681,834 2,845,044 2,125,432
---------------- ----------------- ----------------- ----------------
Total operating expenses 4,956,645 4,386,885 15,747,810 10,625,706
Other income:
Interest, net 220,360 (4,308) 502,906 23,680
Other income (expense) (6,982) 2,262 (22,824) 18,701
---------------- ----------------- ----------------- ----------------
213,378 (2,046) 480,082 42,381
---------------- ----------------- ----------------- ----------------
Income (loss) before cumulative effect of a
change in accounting principle 622,984 $ (181,144) 1,565,091 $ (1,365,104)
Cumulative effect of a change in accounting
principle, net of income taxes - - (799,337) -
---------------- ----------------- ----------------- ----------------
Net income (loss) $ 622,984 $ (181,144) $ 765,754 $ (1,365,104)
================ ================= ================= ================
Net income (loss) per share:
Basic
Net income (loss) per share before cumulative
effect of a change in accounting principle $ .06 $ (.02) $ .15 $ (.14)
Net loss per share from the cumulative
effect of a change in accounting principle .00 .00 (.08) .00
---------------- ----------------- ----------------- ----------------
Net income (loss) per basic share $ .06 $ (.02) $ .07 $ (.14)
================ ================= ================= ================
Diluted
Net income (loss) per share before cumulative
effect of a change in accounting principle $ .05 $ (.02) $ .13 $ (.14)
Net loss per share from the cumulative
effect of a change in accounting principle .00 .00 (.06) .00
---------------- ----------------- ----------------- ----------------
Net income (loss) per diluted share $ .05 $ (.02) $ .07 $ (.14)
================ ================= ================= ================
Weighted average of number of shares:
Basic 10,895,509 9,614,972 10,551,628 9,611,937
Diluted 12,194,910 9,614,972 11,682,029 9,611,937
Pro forma amounts assuming the
accounting change is applied retroactively:
Net income (loss) $ 622,984 $ (5,292) $ 1,565,091 $ (627,337)
Net income (loss) per diluted share $ .05 $ (.00) $ .13 $ (.07)
Weighted average number of diluted shares 12,194,910 9,614,972 11,682,029 9,611,937
</TABLE>
See accompanying notes.
4
<PAGE> 5
STATEMENTS OF CASH FLOWS
CIMA LABS INC.
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
---------------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 765,754 $ (1,365,102)
Adjustments to reconcile net income or loss to net
cash used in operating activities:
Depreciation and amortization 1,253,517 1,310,124
Loss on impairment of assets 400,000 --
Cumulative effect of change in accounting principle 799,337 --
Changes in operating assets and liabilities:
Accounts receivable and current assets (3,392,837) (34,554)
Inventories 1,184,531 (1,551,995)
Accounts payable (1,519,120) 988,589
Accrued expenses and other (407,122) 439,813
Deferred revenue (574,337) (281,396)
----------------- ----------------
Net cash provided by (used in) operating activities (1,490,277) (494,521)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,714,848) (1,323,839)
Patents and trademarks (44,819) (32,280)
Purchases of available-for-sale securities (10,292,220)
Proceeds from maturities of available-for-sale securities 5,919,222 --
----------------- ----------------
Net cash provided by (used in) investing activities (10,132,665) (1,356,119)
FINANCING ACTIVITIES:
Stock option exercise proceeds 1,032,805 20,409
Net proceeds from stock offerings 19,400,000 --
Security deposits on leases 150,103 --
Notes payable (3,500,000) 335,377
Payments on capital lease obligations (52,161) --
----------------- ----------------
Net cash provided by (used in) financing activities 17,030,747 355,786
----------------- ----------------
Increase (decrease) in cash and cash equivalents 5,407,805 (1,494,854)
Cash and cash equivalents at beginning of period 2,480,698 2,722,590
----------------- ----------------
Cash and cash equivalents at end of period $ 7,888,503 $ 1,227,736
================= ================
</TABLE>
See accompanying notes.
5
<PAGE> 6
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
CIMA LABS INC. is a Delaware corporation that develops and manufactures
fast-dissolve and enhanced-absorption oral drug delivery systems. OraSolv and
DuraSolv, our leading proprietary fast-dissolve technologies, are oral dosage
forms that dissolve quickly in the mouth without chewing or water. We currently
manufacture and package six commercial products incorporating our proprietary
fast dissolve technologies. Revenues are generated from the sale of products we
manufacture, license agreements, product development fees and royalties.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting of normal
recurring accruals, which are considered necessary for fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. For further information, you
should refer to the audited financial statements and accompanying notes
contained in our Annual Report on Form 10-K/A for the year ended December 31,
1999.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that may
affect the amounts we report in our financial statements and accompanying notes.
Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment; revenue from
product development fees as services are rendered and as milestones are
achieved; revenues from non-refundable up-front license fees are deferred and
amortized over the related contract period; and revenues from royalties are
accrued quarterly based on the sales made by a licensee.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial
Statements." SAB 101 requires that up-front license fees received from research
collaborators be recognized over the term of the agreement unless the fee is in
exchange for products delivered or services performed that represent the
culmination of a separate earnings process. The Company implemented SAB 101 in
its second quarter ending on June 30, 2000, retroactive to January 1, 2000. The
Company reported a charge to earnings of $799,337 for the cumulative effect of
change in accounting principle, which is included in income for the nine-month
period ended September 30, 2000. The pro forma amounts presented in the income
statement were calculated assuming the accounting change was made retroactively
to prior periods.
6
<PAGE> 7
For the nine months ended September 30, 2000, the Company recognized $799,337 in
revenue that is included in the cumulative effect adjustment as of January 1,
2000. The effect of that revenue in the nine-month period ended September 30,
2000 was to increase income by $799,337.
4. CASH EQUIVALENTS AND INVESTMENTS
We consider all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. We invest our cash and cash
equivalents in money market funds, investment grade commercial paper and United
States government agency securities, including discount notes and U.S Treasury
obligations. Our short-term investments consist of investment grade commercial
paper and United States government agency securities, including discount notes
and U.S Treasury obligations, with maturities ranging from three to nine months.
We classify our short-term investments as available-for-sale. Available-for-sale
investments are recorded at fair value with unrealized gains and losses reported
in the shareholders' equity. Fair values of investments are based on quoted
market prices, where available, and accrued interest, if applicable. No realized
gains and losses have been recorded to date. Dividend and interest income is
recognized when earned.
5. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share is computed by dividing income (loss) by the weighted
average number of common shares outstanding during the period, increased to
include dilutive potential common shares issuable upon the exercise of stock
options that were outstanding during the period. For loss periods, basic and
diluted share amounts are identical, as the effect of potential common shares is
antidilutive.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 622,984 $(181,144) $765,754 $(1,365,104)
------------- ---------- -------- ------------
Denominator:
Denominator for basic earnings
(loss) per share - weighted
average shares outstanding 10,895,509 9,614,972 10,551,628 9,611,937
Effect of dilutive stock options 1,299,401 -- 1,130,401 --
------------- --------- ---------- ----------
Denominator for diluted earnings
(loss) per share - weighted
average shares outstanding 12,194,910 9,614,972 11,682,029 9,611,937
------------- ---------- -------- ------------
Basic earnings (loss) per share $ .06 $ (.02) $ .07 $ (.14)
Diluted earnings (loss) per share $ .05 $ (.02) $ .07 $ (.14)
</TABLE>
7
<PAGE> 8
6. INVENTORIES
Inventories at September 30, 2000 and December 31, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
-------------------------- -------------------------
<S> <C> <C>
Raw materials $ 1,587,627 $ 916,259
Work in process - 20,535
Finished products 271 1,835,635
-------------------------- -------------------------
$ 1,587,898 $ 2,772,429
-------------------------- -------------------------
</TABLE>
7. PRIVATE PLACEMENT OF COMMON STOCK
On March 17, 2000, we issued 1.1 million shares of Common Stock through a
private placement. We received approximately $19.4 million in net cash proceeds.
8. SEGMENT INFORMATION
We operate within one business segment: the development and manufacture of
fast-dissolve and enhanced-absorption oral drug delivery systems. Our revenues
are comprised of three components: net sales of products utilizing our
proprietary fast-dissolve technologies; product development fees and licensing
revenues for development activities we conduct through collaborative agreements
with pharmaceutical companies; and royalties on the sales of products we
manufacture, which are sold by pharmaceutical companies under licenses from us.
Less than 10 percent of our revenues are earned from activities conducted or
products shipped outside the United States.
Revenues as a percentage of total revenues from major customers are as follows:
<TABLE>
For the Three Months Ended For The Nine Months Ended
----------------------------------- ------------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
American Home Products 3% 5% 10% 2%
AstraZeneca 24 18 15 22
Bristol-Myers Squibb 4 3 3 4
N.V. Organon 40 19 26 26
Novartis 22 46 44 36
Schwarz Pharma 2 - - -
Other 5 9 2 10
---------------- ---------------- ---------------- ----------------
Total 100% 100% 100% 100%
---------------- ---------------- ---------------- ----------------
</TABLE>
The Company currently manufactures products utilizing its proprietary
fast-dissolve technologies in two categories, branded prescription and over-the
counter, and expects to manufacture generic prescription products in the future.
The branded prescription category includes Remeron SolTab and Zomig Rapimelt.
The over-the-counter category includes Triaminic and Tempra. Net sales by
category from products manufactured and sold to pharmaceutical companies are as
follows:
8
<PAGE> 9
<TABLE>
<CAPTION>
For the Three Months Ended For The Nine Months Ended
----------------------------------- ------------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Branded prescription $ 2,193,501 $ 142,722 $ 2,575,920 $ 204,960
Over-the-counter 1,001,574 1,888,196 6,715,510 3,259,820
Generic prescription - - - -
---------------- ---------------- ---------------- ----------------
Total $ 3,195,075 $ 2,030,918 $ 9,291,430 $ 3,464,780
---------------- ---------------- ---------------- ----------------
</TABLE>
9. RECLASSIFICATIONS
Certain prior period balances have been reclassified in order to conform to the
presentation for the three-month and nine-month periods ended September 30,
2000. These reclassifications have no impact on the net income (loss) or
shareholders' equity as previously reported.
10. SUBSEQUENT EVENT
On November 7, 2000, we received cash proceeds, net of commissions and expenses,
of approximately $150.3 million from the sale of 3,197,500 shares of common
stock, including 247,500 shares from the exercise of the underwriters'
over-allotment option, at an offering price of $50.00 per share. In addition,
selling stockholders sold 195,000 shares into the offering as part of the
underwriters' over-allotment option. We have invested the net offering proceeds
in interest-bearing money market accounts, investment grade securities and
United States government agency obligations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read together with our financial statements and related
notes. This discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including but not limited to those set forth under "Risk
Factors" filed as Exhibit 99.1 to this Form 10-Q and in our other filings with
the SEC.
OVERVIEW
We develop and manufacture pharmaceutical products based on our proprietary
OraSolv and DuraSolv fast dissolve technologies. We currently have collaborative
agreements with six pharmaceutical companies regarding a variety of potential
products, with an emphasis on prescription products. We currently manufacture
seven products, of which six are commercially available, using our fast dissolve
technologies. These products include four formulations of Triaminic for
Novartis, Tempra for Bristol-Meyers Squibb, Zomig for AstraZeneca and Remeron
for Organon. We are also currently developing other drug delivery technologies.
We operate within one business segment, the development and manufacture of fast
dissolve and enhanced-absorption oral drug delivery systems. Our revenues are
comprised of three components, including net sales of products we manufacture
for pharmaceutical companies utilizing our proprietary fast dissolve
technologies, product development fees and licensing revenues for development
activities we conduct through collaborative agreements with pharmaceutical
companies and royalties on the sales of products we manufacture, which are sold
by pharmaceutical companies under licenses from us.
9
<PAGE> 10
Revenues from product sales and from royalties will fluctuate from quarter to
quarter and from year to year depending on, among other factors, demand by
consumers for the products we produce, new product introductions, the seasonal
nature of some of the products we produce to treat seasonal ailments,
pharmaceutical company ordering patterns and our production schedules. Our
ability to generate product sales and royalty revenues may be constrained by our
manufacturing capacity. We expect our second production line, now being
developed, to be operational in the second half of 2001. Revenues from product
development fees and licensing revenue will fluctuate depending on, among other
factors, the number of new collaborative agreements that we enter into, the
number and timing of product development milestones that we achieve under
collaborative agreements and the level of our development activity conducted for
pharmaceutical companies.
RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Revenues. Our total revenues increased 28% from $4.2 million in the three-month
period ended September 30, 1999 to $5.4 million in three-month period ended
September 30, 2000, and increased 83% from $9.2 million in the first nine months
of 1999 to $16.8 million in the first nine months of 2000. The increases are
primarily due to higher sales volume based on shipments of products to our
partners.
Revenues from net sales of products using our fast dissolve technologies
increased 57% from $2.0 million in the three-month period ended September 30,
1999 to $3.2 million in the three-month period ended September 30, 2000, and
increased 168% from $3.5 million in the first nine months of 1999 to $9.3
million in the first nine months of 2000. The increase for the three-months
ended September 30, 2000 is primarily due to our initial shipment of launch
supplies of Remeron SolTab to N.V. Organon, while the increase for the first
nine-months of 2000 is primarily due to higher shipments of Triaminic to
Novartis, Zomig Rapimelt to AstraZeneca, as well as Remeron Soltab. Triaminic
sales to Novartis accounted for 71% of net sales of products for the nine-month
period ended September 30, 2000, compared to 92% for the nine-month period ended
September 30, 1999. Branded prescription product sales were $2.2 million and
$2.6 million and over-the-counter product sales were $1.0 million and $6.7
million, respectively, for the three-month and nine-month periods ended
September 30, 2000. The Company expects product sales in the fourth quarter to
be comprised principally of branded prescription products.
Revenues from product development fees and licensing were unchanged at $2.0
million for the three-month periods ended September 30, 1999 and 2000, and
increased 18% from $5.4 million for the first nine months of 1999 to $6.4
million for the first nine months of 2000. Licensing revenues in 1999 are not
directly comparable to 2000 due to the change in accounting policy for up-front
license fees resulting from the implementation of SAB 101, retroactive to
January 1, 2000. Product development fees and licensing revenues for the three
and nine-month periods include amortization of deferred revenue of $0.1 and $0.9
million, respectively. Product development fees and licensing revenues in
subsequent quarters will depend on our success in signing new license and
development agreements with pharmaceutical companies and on expected FDA
regulatory approvals.
10
<PAGE> 11
Revenues from royalties were unchanged at $0.2 million for the three-month
periods ended September 30, 1999 and 2000, and increased 219% from $0.4 million
for the first nine months of 1999 to $1.2 million for the first nine months of
2000. Royalties from the European distribution of Zomig Rapimelt were lower than
expected in the third quarter of 2000 due to a later than expected launching of
the product in France, which has since occurred in the fourth quarter. The
increase for the first nine months of 2000 is primarily due to increased sales
of Triaminic by Novartis in the U.S., which was introduced in the second quarter
of 1999, and sales of Zomig by AstraZeneca, which was introduced in several
countries in Europe during the third quarter of 1999.
Cost of goods sold. Cost of sales increased 8% from $2.5 million in the
three-month period ended September 30, 1999 to $2.7 million in the three-month
period ended September 30, 2000, and increased 73% from $5.5 million for the
first nine months of 1999 to $9.4 million for the first nine months of 2000. The
increases are primarily due to higher Triaminic unit volumes being manufactured
and shipped to Novartis, initial shipments of Remeron to N.V. Organon and costs
incurred to establish multi-shift production capabilities. We expect cost of
sales to increase as a result of expected unit volume increases in subsequent
quarters.
Gross profit margins on product sales were a positive 16% and negative (1)% for
the three and nine-month periods ended September 30, 2000, respectively,
compared to a negative (23)% and negative (57)% for the three and nine-month
periods ended September 30, 1999, respectively. Gross profit margins improved
because the mix of products we manufactured included a larger proportion of
higher margin branded prescription products and improved manufacturing
efficiencies. Future gross profit margins will depend primarily, among other
things, on the pricing of our products, our ability to effectively use our
manufacturing and plant capacity, and changes in our product lines and mix of
products.
Research and product development expense. Research and product development
expenses increased 4% from $1.2 million in the three-month period ended
September 30, 1999 to $1.3 million in the three-month period ended September 30,
2000, and increased 14% from $3.0 million for the first nine months of 1999 to
$3.5 million for the first nine months of 2000. These expenses increased as the
level of product development activities increased over last year's levels and
due to expenses related to a clinical trial of our OraVescent technology, which
was completed in the third quarter of 2000. We expect research and product
development expenses to increase in subsequent quarters as we continue to
develop our drug delivery technologies.
Selling, general and administrative expense. Selling, general and administrative
expenses increased 46% from $682,000 in the three-month period ended September
30, 1999 to $996,000 in the quarter ended September 30, 2000, and increased 34%
from $2.1 million for the first nine months of 1999 to $2.8 million for the
first nine months of 2000. The increases are primarily due to marketing and
related consulting costs associated with our business development efforts, and
hiring costs associated with increased staffing. We expect selling, general and
administrative expenses to increase in subsequent quarters to support our
expected increased production levels and business activity.
11
<PAGE> 12
Other income, net. Other expense was $(2,000) in the three-month period ended
September 30, 1999 compared to other income of $213,000 in the three-month
period ended September 30, 2000, and other income increased from $42,000 in the
first nine months of 1999 to $480,000 in the first nine months of 2000. Other
income consists primarily of interest income on invested funds, net of interest
expense on bank lines, loan agreements and capitalized leases. We expect
interest income to increase due to higher levels of cash available for
investment, as a result of the completion of our public offering.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date primarily through private and public
sales of equity securities and revenues from product sales, product development
fees and licensing revenue and royalties.
Net working capital increased from $4.2 million at December 31, 1999 to $18.0
million at September 30, 2000. The increase of $13.8 million is primarily due to
the positive effect of $19.4 million we received from the private placement sale
of 1.1 million shares of common stock, which was partially offset by $5.7
million in expenditures for capital improvements to our manufacturing facility
and by the $3.5 million repayment of a long-term debt obligation to AstraZeneca.
We invest excess cash in interest-bearing money market accounts and investment
grade securities.
In December 1999, we received a $3.5 million unsecured loan from AstraZeneca. We
repaid the loan, with accrued interest of $153,000, in September 2000 and
obtained a release from AstraZeneca of all further liabilities and obligations
under the agreement related to the loan.
In March 2000, we raised approximately $19.4 million in net cash proceeds from
the sale of 1.1 million shares of common stock through a private placement.
During October 2000, we announced a public offering of common stock. The public
offering, completed in November 2000, raised approximately $150.3 million in net
cash proceeds from the sale of 3,197,500 shares by the CIMA. Selling
stockholders sold 195,000 shares into the public offering. The net cash proceeds
of the November 2000 follow-on offering will be reflected in our financial
statements for the year ended December 31, 2000.
We currently expect to spend approximately $6.0 to $8.0 million over the next
nine months to complete various improvements to our Eden Prairie manufacturing
facility, including construction of a second production line. During the next
twelve months, we also expect to commence and complete the feasibility and site
planning for a second manufacturing and distribution facility. We expect the
second manufacturing and distribution facility to be operational in 2003. We
intend to use up to $50.0 million of the net proceeds from our recently
completed public stock offering for capital improvements to meet future
manufacturing requirements. We expect these capital expenditures to include the
improvements to our existing manufacturing facility and the completion of a
second manufacturing and distribution facility, both referred to above. In
addition, we expect to fund additional product development activities related to
our OraVescent technology, as well as to acquire new technologies. We believe
that our cash and cash equivalents and marketable securities, together with
expected revenues from
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operations and the $150.3 million in net cash proceeds from the recently
completed public offering, will be sufficient to meet our anticipated capital
requirements for the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not Applicable
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
-------------- ----------- ----------------
<S> <C> <C>
10.25 Employment Agreement, dated August 23, 2000, between CIMA and John Filed herewith
Hontz, Ph.D.
10.26 Development, License and Supply Agreement by and between CIMA and Filed herewith
Schwarz Pharma, Inc. dated September 29, 2000 *
27.1 Financial Data Schedule - For SEC EDGAR filing Filed herewith
99.1 Cautionary Statements Filed herewith
</TABLE>
* Confidential information has been omitted from the exhibit and filed
separately, accompanied by a confidential treatment request, with the Securities
and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended September 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CIMA LABS INC.
Registrant
Date November 10, 2000 By /s/ David A. Feste
------------------
David A. Feste
Chief Financial Officer
(principal financial and accounting
officer)
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