<PAGE>
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 March 31, 1995
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 number 1-10392
----------------------------------------------------------
U.S. Bioscience, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified on its charter)
Delaware 23-2460100
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Bridge, One Hundred Front St., West Conshohocken, PA 19428
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 832-0570
- --------------------------------------------------------------------------------
(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
---- ----
As of May 8, 1995, there were 40,770,800 shares of common stock outstanding.
Page 1 of 14 sequentially
numbered pages
-1-
<PAGE>
U.S. BIOSCIENCE, INC.
INDEX
Page
Part I - Financial Information ----
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1995 and December 31, 1994 3
Consolidated Statements of Operations for the three month period
ended March 31, 1995 and 1994 and the period May 7, 1987
(inception) through March 31, 1995 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 1995 and 1994 and the period May 7, 1987 (inception)
through March 31, 1995 5
Consolidated Statements of Changes in Stockholders' Equity for the
period May 7, 1987 (inception) through March 31, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II - Other Information 12
-2-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,597,600 $ 11,681,900
Marketable securities 10,747,300 12,746,400
Accounts receivable, net 830,900 791,600
Interest receivable 115,400 124,100
Inventories 2,009,600 1,857,200
Other 895,200 774,300
---------------- ----------------
Total current assets 22,196,000 27,975,500
Property, plant and equipment at cost, less accumulated depreciation 6,983,200 6,488,800
---------------- ----------------
Total assets $ 29,179,200 $ 34,464,300
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related payroll taxes payable $ 1,183,700 $ 1,406,600
Accrued clinical grants payable 888,300 827,400
Accrued product manufacturing costs payable 604,200 732,300
Accrued marketing costs payable 384,800 301,700
Accrued professional fees payable 363,600 636,100
Accounts payable and other accrued liabilities 1,353,000 2,535,400
---------------- ----------------
Total current liabilities 4,777,600 6,439,500
Long-term liabilities:
Long-term debt 1,053,600 997,400
Provision for litigation 2,300,800 2,300,800
Other long-term liabilities 807,200 787,700
---------------- ----------------
Total long-term liabilities 4,161,600 4,085,900
---------------- ----------------
Total liabilities 8,939,200 10,525,400
Stockholders' equity:
Preferred stock, $.005 par value-5,000,000 shares authorized;
none issued -- --
Common stock, $.005 par value-100,000,000 shares authorized; 40,770,800
shares issued and outstanding at March 31, 1995, and 40,770,800 shares
issued and outstanding at December 31, 1994 203,900 203,900
Additional paid-in capital 128,323,100 128,323,100
Deficit accumulated during the development stage (108,847,900) (104,692,000)
Foreign currency translation adjustment 560,900 103,900
---------------- ----------------
Total stockholders' equity 20,240,000 23,938,900
---------------- ----------------
Total liabilities and stockholders' equity $ 29,179,200 $ 34,464,300
================ ================
</TABLE>
See accompanying notes.
-3-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD MAY 7, 1987
MARCH 31, (INCEPTION)
-------------------------------- THROUGH
1995 1994 MARCH 31, 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Net sales $ 2,200,200 $ 2,160,100 $ 18,629,400
Net investment income 379,400 249,000 24,206,300
Licensing, royalty and research income 62,400 -- 4,403,700
-------------- -------------- --------------
2,642,000 2,409,100 47,239,400
Expenses:
Cost of sales 742,100 494,200 4,710,000
Selling, general and administrative costs 3,247,400 3,599,000 64,314,000
Research and development costs 2,788,600 4,280,100 75,765,700
Provision for litigation -- -- 10,165,000
Interest expense 19,800 -- 1,132,600
-------------- -------------- --------------
6,797,900 8,373,300 156,087,300
-------------- -------------- --------------
Net loss $ (4,155,900) $ (5,964,200) $ (108,847,900)
============== ============== ==============
Net loss per share $ (0.10) $ (0.15)
============== ==============
Weighted average number of common shares 40,770,800 39,675,700
============== ==============
</TABLE>
See accompanying notes.
-4-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995 PERIOD MAY 7, 1987
------------------------------------- (INCEPTION)
THROUGH
1995 1994 MARCH 31, 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
Change in Cash and Cash Equivalents
Cash flows used in operating activities:
Net loss $ (4,155,900) $ (5,964,200) $ (108,847,900)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 308,000 249,100 3,274,900
Compensation element of stock option grants -- 270,000 5,303,400
Loss on marketable securities 19,600 163,500 160,200
Change in accounts receivable (39,400) (1,526,500) (830,900)
Change in interest receivable 8,800 (47,900) (115,300)
Change in inventories (151,000) 390,500 (2,000,800)
Change in other current assets (101,500) (304,200) (844,000)
Change in current liabilities (1,762,700) (1,709,500) 4,595,400
Provision for litigation -- -- 10,059,500
Change in other long-term liabilities 2,000 26,800 1,107,400
--------------- --------------- ----------------
Total adjustments (1,716,200) (2,488,200) 20,709,800
--------------- --------------- ----------------
Net cash used in operating activities (5,872,100) (8,452,400) (88,138,100)
Cash flows provided by (used in) investing activities:
Proceeds from marketable securities matured and sold 1,979,400 305,647,900 3,091,186,300
Purchase of marketable securities -- (282,086,400) (3,102,088,900)
Purchase of property, plant and equipment (213,700) (626,400) (9,531,300)
--------------- --------------- ----------------
Net cash provided by (used in) investing activities 1,765,700 22,935,100 (20,433,900)
Cash flows provided by financing activities:
Proceeds from issuance of common stock and from execise
of stock options -- 198,500 115,464,900
Proceeds from loan (12,400) -- 633,600
Proceeds from line of credit from affiliate -- -- 3,854,400
Repayment of line of credit from affiliate -- -- (3,854,400)
--------------- --------------- ----------------
Net cash provided by financing activities (12,400) 198,500 116,098,500
Foreign currency translation adjustment 34,500 81,000 71,100
--------------- --------------- ----------------
Net increase (decrease) in cash and cash equivalents (4,084,300) 14,762,200 7,597,600
Cash and cash equivalents-beginning of period 11,681,900 158,900 --
--------------- --------------- ----------------
Cash and cash equivalents-end of period $ 7,597,600 $ 14,921,100 $ 7,597,600
=============== =============== ================
Supplemental cash flow disclosure:
Interest paid to affiliate -- -- $ 1,005,800
</TABLE>
See accompanying notes.
-5-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 7, 1987 (INCEPTION) THROUGH MARCH 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK CLASS B STOCK ADDITIONAL ACCUM-
NUMBER OF NUMBER OF PAID-IN ULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- -------- --------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.005 per share of common stock
and $.005 per share of Class B stock) 9,000,000 $ 45,000 1,000,000 $ 5,000 $ 1,000,000 $ --
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 -- -- -- -- -- (1,030,500)
---------- -------- --------- ------- ------------ -------------
Balance at December 31, 1987 9,000,000 45,000 1,000,000 5,000 1,000,000 (1,030,500)
Net loss for the year ended December 31, 1988 -- -- -- -- -- (1,556,800)
---------- -------- --------- ------- ------------ -------------
Balance at December 31, 1988 9,000,000 45,000 1,000,000 5,000 1,000,000 (2,587,300)
Proceeds from exercise of stock options 2,500 -- -- -- 400 --
Compensation related to stock options -- -- -- -- 305,900 --
Issuance of shares ($6.00 per share, less costs) 2,500,000 12,500 -- -- 14,061,400 --
Conversion of class B stock to common stock 1,000,000 5,000 (1,000,000) (5,000) -- --
Net loss for the year ended December 31, 1989 -- -- -- -- -- (5,743,300)
---------- -------- --------- ------- ------------ -------------
Balance at December 31, 1989 12,502,500 62,500 -- -- 15,367,700 (8,330,600)
Proceeds from exercise of stock options 285,800 1,400 -- -- 143,500 --
Compensation related to stock options -- -- -- -- 269,000 --
Issuance of shares ($9.00 per share, less costs) 4,025,000 20,200 -- -- 33,009,700 --
Net loss for the year ended December 31, 1990 -- -- -- -- -- (4,924,900)
---------- -------- --------- ------- ------------ -------------
Balance at December 31, 1990 16,813,300 84,100 -- -- 48,789,900 (13,255,500)
Proceeds from exercise of stock options 500,700 2,500 -- -- 3,349,600 --
Compensation related to stock options -- -- -- -- 1,038,900 --
Issuance of shares ($28.50 per share, less costs) 2,300,000 11,500 -- -- 61,444,300 --
Issuance of shares for a 2 for 1 stock dividend 19,614,000 98,000 -- -- (98,000) --
Net loss for the year ended December 31, 1991 -- -- -- -- -- (6,540,100)
---------- -------- --------- ------- ------------ -------------
Balance at December 31, 1991 39,228,000 196,100 -- -- 114,524,700 (19,795,600)
Proceeds from exercise of stock options 264,400 1,400 -- -- 1,336,400 --
Compensation related to stock options -- -- -- -- 1,452,400 --
Net loss for the year ended December 31, 1992 -- -- -- -- -- (20,225,800)
---------- -------- --------- ------- ------------ -------------
Balance at December 31, 1992 39,492,400 197,500 -- -- 117,313,500 (40,021,400)
Proceeds from exercise of stock options 106,500 500 -- -- 614,300 --
Compensation related to stock options -- -- -- -- 906,900 --
Net loss for the year ended December 31, 1993 -- -- -- -- -- (40,629,600)
Foreign currency translation adjustment -- -- -- -- -- --
---------- -------- --------- ------- ------------ -------------
Balance at December 31, 1993 39,598,900 198,000 -- -- 118,834,700 (80,651,000)
Proceeds from exercise of stock options 75,300 400 -- -- 404,900 --
Class Action Settlement 1,096,600 5,500 -- -- 7,753,200 --
Compensation related to stock options -- -- -- -- 1,330,300 --
Net loss for the year ended December 31, 1994 -- -- -- -- -- (24,041,000)
Foreign currency translation adjustment -- -- -- -- -- --
---------- -------- --------- ------- ------------ -------------
Balance at December 31, 1994 40,770,800 203,900 -- -- 128,323,100 (104,692,000)
Proceeds from exercise of stock options -- -- -- -- -- --
Net loss for the three months ended March 31, 1995 -- -- -- -- -- (4,155,900)
Foreign currency translation adjustment -- -- -- -- -- --
---------- -------- --------- ------- ------------ -------------
Balance at March 31, 1995 40,770,800 $203,900 -- $ -- $128,323,100 $(108,847,900)
========== ======== ========= ======= ============ =============
<CAPTION>
TOTAL
STOCK-
OTHER HOLDERS'
EQUITY EQUITY
--------- -------------
<S> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.005 per share of common stock
and $.005 per share of Class B stock) $ -- $ 1,050,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 -- (1,030,500)
--------- -------------
Balance at December 31, 1987 -- 19,500
Net loss for the year ended December 31, 1988 -- (1,556,800)
--------- -------------
Balance at December 31, 1988 -- (1,537,300)
Proceeds from exercise of stock options -- 400
Compensation related to stock options -- 305,900
Issuance of shares ($6.00 per share, less costs) -- 14,073,900
Conversion of class B stock to common stock -- --
Net loss for the year ended December 31, 1989 -- (5,743,300)
--------- -------------
Balance at December 31, 1989 -- 7,099,600
Proceeds from exercise of stock options -- 144,900
Compensation related to stock options -- 269,000
Issuance of shares ($9.00 per share, less costs) -- 33,029,900
Net loss for the year ended December 31, 1990 -- (4,924,900)
--------- -------------
Balance at December 31, 1990 -- 35,618,500
Proceeds from exercise of stock options -- 3,352,100
Compensation related to stock options -- 1,038,900
Issuance of shares ($28.50 per share, less costs) -- 61,455,800
Issuance of shares for a 2 for 1 stock dividend -- --
Net loss for the year ended December 31, 1991 -- (6,540,100)
--------- -------------
Balance at December 31, 1991 -- 94,925,200
Proceeds from exercise of stock options -- 1,337,800
Compensation related to stock options -- 1,452,400
Net loss for the year ended December 31, 1992 -- (20,225,800)
--------- -------------
Balance at December 31, 1992 -- 77,489,600
Proceeds from exercise of stock options -- 614,800
Compensation related to stock options -- 906,900
Net loss for the year ended December 31, 1993 -- (40,629,600)
Foreign currency translation adjustment (291,800) (291,800)
--------- -------------
Balance at December 31, 1993 (291,800) 38,089,900
Proceeds from exercise of stock options -- 405,300
Class Action Settlement 7,758,700
Compensation related to stock options -- 1,330,300
Net loss for the year ended December 31, 1994 -- (24,041,000)
Foreign currency translation adjustment 395,700 395,700
--------- -------------
Balance at December 31, 1994 103,900 23,938,900
Proceeds from exercise of stock options -- --
Net loss for the three months ended March 31, 1995 -- (4,155,900)
Foreign currency translation adjustment 457,000 457,000
--------- -------------
Balance at March 31, 1995 (unaudited) $ 560,900 $ 20,240,000
========= =============
</TABLE>
See accompanying notes.
-6-
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
The company is a pharmaceutical company established to develop and market
drugs, principally chemotherapeutic drugs, for treating patients with cancer and
allied diseases. For accounting purposes, the company is considered a
"development stage enterprise." Through March 31, 1995, the company's revenues
have been derived principally from investment income, product sales of
Hexalen(R) and NeuTrexin(R), licensing fees for rights to develop and market
certain products principally in Europe and Japan and contract development
activities. Expenses incurred have been primarily for the development of its
drugs and related therapies, marketing and sales activities, and corporate
organizational and administrative activities.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited information -- The financial information for the three month
period ended March 31, 1995 and 1994, and the period from May 7, 1987
(inception) through March 31, 1995 included herein is unaudited. The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles applicable to interim periods.
Such information includes all adjustments, consisting of adjustments of a normal
and recurring nature, which, in the opinion of the company, are necessary for a
fair presentation of the company's consolidated financial position and the
results of its operations and cash flows.
Principles of Consolidation -- The consolidated financial statements
include the accounts of U.S. Bioscience, Inc. and its wholly owned subsidiaries,
USB Pharma B.V., and USB Pharma Ltd. All significant intercompany accounts and
transactions are eliminated in consolidation.
Inventories -- Inventories are stated at the lower of cost (first in, first
out) or fair value. Inventories consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Raw materials $ 230,400 $ 38,100
Work-in-process 1,459,300 1,597,100
Finished goods 319,900 222,000
---------- ----------
Total $2,009,600 $1,857,200
========== ==========
</TABLE>
Property, Plant and Equipment -- Buildings, furniture, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Buildings furniture and equipment are depreciated by the
straight-line method over their useful lives. Leasehold improvements are
depreciated by the straight-line method over the shorter of their useful lives
or the life of the lease for financial reporting purposes and under an
accelerated method for federal income tax purposes.
-7-
<PAGE>
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Land, buildings, and leasehold improvements $ 2,225,400 $ 2,026,900
Equipment, furniture and fixtures 8,054,000 7,428,800
Accumulated depreciation (3,296,200) (2,966,900)
------------ ------------
Property, plant and equipment, net $ 6,983,200 $ 6,488,800
============ ============
</TABLE>
Additionally, all information should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and Notes to Financial Statements
included in the company's Annual Report on Form 10-K for the year ended December
31, 1994. Operating results for the three month period ended March 31, 1995 are
not necessarily indicative of the results that may be obtained for the entire
year.
-8-
<PAGE>
U.S. BIOSCIENCE, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Operations for the three months ended March 31, 1995, consisted
primarily of the commercial marketing of Hexalen(R) and NeuTrexin(R) in the
United States, the preparation of and follow-up activities on regulatory filings
for Ethyol(R) in the United States, Canada and Europe, continuing clinical
trials and product development of Ethyol, NeuTrexin and Hexalen, and business
development activities in the United States, Canada and Europe.
The company, in January 1995, following the December 1994 meeting of
the Oncologic Drug Advisory Committee of the FDA ("ODAC") which withheld
recommendation for the U.S. approval of Ethyol, went through an internal
restructuring and downsizing in an effort to reduce expenditures so as to
preserve financial resources for its research, product development and
commercial objectives. This restructuring resulted in a reduction in the
company's staff and expenditures and a reprioritization of research efforts
focusing on near-term projects, which management believes may be capable of
providing additional revenues. A one-time restructuring charge of $600,000,
principally to cover severance payments, was charged to results of operations in
the first quarter of 1995.
The company received regulatory approval for Ethyol in several
European countries in late 1994 and early 1995, and its marketing partner for
European territories Scherico Ltd., an affiliate of Schering-Plough Corporation
("Scherico"), launched Ethyol in Germany and the United Kingdom in April and May
1995, respectively and plans to begin sales and marketing efforts in other
European countries where regulatory approvals have been received and as soon as
local pricing and reimbursement approvals are granted.
The company believes that its expenditures for research and
development, marketing, capital equipment and facilities will continue to exceed
revenues as a result of (i) seeking U.S. regulatory approval for Ethyol and
further clinical trials and regulatory approvals for Ethyol, NeuTrexin and
Hexalen, (ii) the marketing of Hexalen and NeuTrexin and marketing preparation
for its other drugs particularly Ethyol in Europe where the company has received
regulatory approval and shares initial profits and losses with its marketing
partner, Scherico, (iii) expansion of clinical and preclinical testing of drug
compounds, including expanded indications for existing drugs and (iv)
development and enhancement of manufacturing and analytical capabilities.
Results of Operations
Three months ended March 31, 1995
Product sales increased to $2,200,200 in the three month period ended
March 31, 1995 from $2,160,100 in the prior year period. The increase is
primarily attributable to an increase in Hexalen sales in the United States and
the initial shipments of Ethyol to Scherico for use in Europe. These increases
were partly offset by a decline in NeuTrexin sales due to the substantial
wholesale stocking which occurred with the launch of NeuTrexin in the United
States in January 1994.
Net investment income increased to $379,400 in the first quarter of
1995 as compared to $249,000 in the corresponding 1994 period due to a net
realized gain of $50,000 on marketable securities recorded in the first quarter
of 1995 as compared to a net loss of $172,000 recorded in the 1994 quarter.
This increase is partly offset by a reduction in interest income of $102,300 due
to the smaller average portfolio balance in the 1995 period.
-9-
<PAGE>
Cost of sales, which consists of product manufacturing, testing,
delivery and royalty expenses, increased due to the increase in sales. As a
percentage of sales, cost of sales in the 1995 period increased to 33.7% from
22.9% in the prior year period due principally to the sale of Ethyol to Scherico
which was approximately at cost of manufacture. Sales of Ethyol to Scherico
will generate positive returns to the company if and when the product achieves
profitability as defined in the company's agreement with Scherico.
Additionally, NeuTrexin production costs increased due to a change in the source
of drug substance. These unfavorable movements were partly offset by a higher
margin on U.S. sales of Hexalen reflecting an increased trade price.
Selling, general and administrative costs for the three month period
ended March 31, 1995 decreased to $3,247,400 from $3,599,000 in the year ago
period. The decrease of $351,600 was achieved despite the inclusion of a
$600,000 provision for the estimated cost of the internal restructuring noted
above. Decreases in marketing expenditures of $424,300, bonus accruals of
$117,600, annual report expenses of $90,000 and legal fees of $84,000 were the
primary contributors to the reduced overall expenditure level.
Research and development costs for the three months ended March 31,
1995 were $2,788,600 compared to $4,280,100 in the corresponding 1994 period.
The decrease was principally due to personnel cost reductions totaling $716,200,
consistent with the company's internal restructuring, lower research and product
development expenditures of $310,100 reflective of the completion and scale-down
of several development programs and the capitalization of certain previously
expensed Ethyol related inventory costs of approximately $400,000 in conjunction
with the product's marketing approval in several European countries.
The net loss for the three months ended March 31, 1995 was $4,155,900
or $0.10 per share compared to $5,964,200 or $0.15 per share in the 1994 period.
Liquidity and Capital Resources
Since its inception, the company has financed operations principally
through the sale of equity capital, investment income, sales of Hexalen and
NeuTrexin and revenues received through sublicensing its drugs. As of March 31,
1995, the company's cash, cash equivalents and marketable securities totaled
$18,344,900. The company's investment portfolio consists of securities issued
by the U.S. Government or its agencies and investment grade corporate debt
instruments.
During the first three months of 1995, net cash used in operations
amounted to $5,872,100 principally due to the net loss discussed above under
"Results of Operations" and a decrease in current liabilities. Until such time
as one or more of the company's additional products receive regulatory approval
and sales or other revenue from approved products and other sources exceed
expenditures, the company's cash position will continue to be reduced due
principally to expenditures in research, product development, marketing, selling
and administrative activities. Failure to obtain regulatory approvals on
products currently in development and to achieve significant sales will have a
material adverse effect on the company. Additionally, the level of future
product sales will also depend on several factors, including product acceptance,
market penetration, competitive products, the performance of the company's
licensees and distributors and the healthcare system existing in each market
where the company's products are or may become commercially available.
The company's capital expenditures were $213,700 in the first quarter
of 1995 and total $9,531,300 since inception. In April 1993, the company
purchased a sterile products production facility in The Netherlands. Validation
work and pilot production on this new facility progressed through 1994 and
manufacturing expenditures are expected to further increase in 1995 as
commercial quantities of NeuTrexin and Ethyol are produced, subject to U.S.
regulatory approval. The facility received regulatory approval for product
manufacture and distribution from the Dutch regulatory authority in June 1994.
A Dutch Guilder based mortgage loan, currently equivalent to approximately
$750,000 relating to this facility was obtained in
-10-
<PAGE>
May 1994. The purchase price for this facility was $2,250,000 and approximately
$2,384,000 in capital improvement were made since its purchase to make the
facility operational. Further improvements estimated at $450,000 are planned in
1995.
In April 1993, the company received $500,000 from the Commonwealth of
Pennsylvania's Machinery and Equipment Loan Fund program (MELF), which provides
financing for companies expanding employment in the Commonwealth. The loan will
amortize over a seven-year term and bears interest at a rate of 2% per annum.
The company is currently in the process of negotiating a $1,000,000 credit line
from an international financial institution. This line of credit, if obtained,
will be utilized by the company's subsidiary, USB Pharma B.V., located in The
Netherlands, for funding working capital requirements. The credit line would be
guaranteed by U.S. Bioscience, Inc.
The company's future liquidity and capital requirements are dependent
upon several factors, including, but not limited to the time and cost required
to obtain regulatory approvals; the time and cost required to manufacture and
market its products; its success in generating revenues from sales; obtaining
the rights to additional commercially viable compounds; its ability to enter
into sublicenses or distribution agreements for marketing certain of its drugs;
its dependence on sublicense and distribution arrangements for sales of its
products; competitive technological developments; additional government-imposed
regulation and control; and changes in healthcare systems which affect
reimbursement, pricing or availability of drugs. The above factors may also
affect realization of certain assets currently held by the company. These
principally include investments in plant and equipment, inventory and deferred
tax assets.
The company is hopeful that its products currently under regulatory
review will, in the near future, receive regulatory approval and generate
sufficient sales to provide meaningful cash resources. However, no assurance
can be given that regulatory approval will be obtained in a timely manner, if
ever, or that the company will have adequate financial resources to
commercialize its products when approved or that product sales, if any, will be
sufficient to cover operating expenses. Dependent upon the extent of the
company's financial resources at the time of regulatory approval, the company
may consider alternative means of commercializing it products, including but not
limited to, seeking a corporate partner to co-promote its products, licensing
arrangements, or other arrangements which will facilitate product sales and
company revenues. Assuming such regulatory approval is not obtained, the
company believes its cash and marketable securities as of March 31, 1995 were
sufficient to cover operating expenses for approximately 12 months. To extend
its current financial resources, the company has instituted programs to reduce
expenditures. As noted above, the company initiated an internal restructuring in
January 1995 in an effort to reduce expenditures and has reduced its staff from
165 individuals at January 1, 1994 to 112 at March 31, 1995. However, no
assurance can be given that these measures will be successful in reducing
expenditures to the degree necessary to allow the company to reach its
regulatory and commercial objectives and eventual profitability. While the
company has explored additional sources of funds through private and public
equity and debt markets, to date the company has not been able to arrange for
such financing on terms acceptable to the company. Although the company
continues to explore additional sources of financing, there can be no assurance
that the company's financing efforts will be successful.
In 1995, Scherico, the company's European distributor for its
cytoprotective agent, Ethyol, intends to launch Ethyol in several European
markets where regulatory approvals have been received. As noted above, Scherico
launched Ethyol in Germany and the United Kingdom in April and May 1995,
respectively. Under the terms of its agreement with Scherico, the company will
share in operating profits/losses generated from marketing and sales of Ethyol
in Germany, United Kingdom, Spain, Italy and France (the "Major Markets") for a
period of up to two years from November 23, 1994, the date of approval of Ethyol
in the United Kingdom. The company's exposure to operating losses, if any,
generated from the Major Markets is limited to approximately $4 million for
1995. A limit on operating losses, if any, attributable to the Major Markets
for 1996 will be established later in 1995 based on an operating plan for 1996.
The company will share in
-11-
<PAGE>
operating profits, if any, generated from sales of Ethyol in the other countries
in the European Territories outside the Major Markets in which Ethyol is
launched by Scherico, but is not exposed to operating losses, if any, generated
in such countries. Profits or losses under the agreement with Scherico are
affected by the same uncertainties noted in the preceding paragraphs. The
company is hopeful that the launch of its drug product Ethyol will be
financially successful in Europe. However, no assurance can be given that the
company will not be exposed to losses under this agreement and will at the time
its share of such losses is due and payable, have the financial resources to
meet its obligation. No share of operating profits or losses derived from the
company's agreement with Scherico were reflected in the company's results of
operations for the January to March 1995 period.
PART II - Other Information
Item 1. Legal Proceedings.
On May 6, 1994, the company received final court approval for the
settlement of the Consolidated Class Action Complaint In re U.S. Bioscience
Securities Litigation Civil Action No. 92-678. The settlement included
$5,250,000 in cash contributed by the company's insurance carriers and
$10,000,000 in U.S. Bioscience securities. The securities consist of 1,096,634
units of securities; each unit is comprised of one share of common stock and one
warrant to purchase from the company one share of U.S. Bioscience common stock.
The warrants are exercisable for three years from the date of issuance, April
24, 1995, at an exercise price of $9.20. The value of the common stock
component of each unit, $7.075 was determined based upon the company's average
common stock price over the ten day trading period immediately preceding May 11,
1994. The value of each warrant was calculated, based upon the $7.075 per
common share average price, using the Black-Scholes option pricing model, at
$2.044. On June 29, 1994, stock certificates representing the 1,096,634 shares
of common stock were issued to plaintiffs' counsel as escrow agent for U.S.
Bioscience Securities Litigation Class Settlement Fund. On April 24, 1995,
after completion of the claims administration process, all of the warrants and
one-third of the common stock were distributed in accordance with the terms of
the settlement. An additional one-third of the common stock will be distributed
in late August 1995 and the final one-third of the common stock will be
distributed in late December 1995.
Upon filing of the Stipulation of Settlement in January 1994, and the
issuance of the order preliminarily approving the settlement which had been
agreed by the company, counsel for the plaintiffs and the court, the company
accrued a provision for the net cost of settlement and estimated expenses of
$10,165,000 ($.26 per share) against 1993 results of operations. During 1994,
$7,758,700 of this accrual was transferred to stockholders' equity upon issuance
into escrow of the common stock component of the settlement and $105,500 was
utilized to pay legal and other related expenses. Of the remaining $2,300,800,
$2,241,400 will be transferred to stockholders' equity during the second quarter
of 1995 (upon issuance of the warrant component of the settlement) and $59,400
used to cover remaining litigation-related expenses.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
Not applicable.
-12-
<PAGE>
Item 5. Other Information.
In late April 1995, the Food and Drug Administration announced that it
has scheduled a review of the company's cytoprotective agent, Ethyol
(amifostine), for the Oncologic Drug Advisory Committee ("ODAC") meeting to be
held on June 9, 1995. Ethyol has been reviewed by the ODAC panel on two
previous occasions, in January 1992 and December 1994, and did not receive a
recommendation for approval. After each of the two previous ODAC meetings the
price of the company's common stock, which is traded on the American Stock
Exchange, suffered significant declines in value. There can be no assurance
that the ODAC review panel scheduled for June 9, 1995 will recommend approval of
Ethyol or that the company's common stock price will not suffer significant
declines if Ethyol is not recommended for approval by the ODAC. Failure to
achieve a recommendation for approval at the June 9, 1995 ODAC meeting will have
a material adverse effect on the company and severely limit its ability to raise
additional capital necessary to fund its ongoing operations at current levels
and achieve its current commercial and research objectives.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit
Not applicable.
b. There were no reports on Form 8-K filed during the quarter
for which this report is filed.
-13-
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
U.S. BIOSCIENCE, INC.
Date: May 12, 1995 By: /s/ Robert I. Kriebel
-------------------------------
Robert I. Kriebel
Senior Vice President
Finance and Administration
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS OF U.S.
BIOSCIENCE, INC. FOR THE PERIOD(S) INDICATED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 7,597,600
<SECURITIES> 10,757,300
<RECEIVABLES> 944,700
<ALLOWANCES> 113,800
<INVENTORY> 2,009,600
<CURRENT-ASSETS> 22,196,000
<PP&E> 10,279,500
<DEPRECIATION> 3,296,300
<TOTAL-ASSETS> 29,179,200
<CURRENT-LIABILITIES> 4,777,600
<BONDS> 4,161,600
<COMMON> 203,900
0
0
<OTHER-SE> 20,036,100
<TOTAL-LIABILITY-AND-EQUITY> 29,179,200
<SALES> 2,200,200
<TOTAL-REVENUES> 2,642,000
<CGS> 742,100
<TOTAL-COSTS> 6,778,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,800
<INCOME-PRETAX> (4,155,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,155,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,155,900)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
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