<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 June 30, 1997
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 August 11, 1997, there were 24,168,900 shares of common stock outstanding.
-1-
<PAGE>
U.S. BIOSCIENCE, INC.
INDEX
<TABLE>
<CAPTION>
Page
Part I - Financial Information ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in Stockholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II - Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
-2-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,423,800 $ 13,054,800
Investments 31,032,500 23,621,800
Accounts receivable, net 2,190,700 1,926,200
Interest receivable 312,100 220,700
Inventories 2,496,500 2,592,000
Other 11,401,300 1,620,400
---------------- ----------------
Total current assets 65,856,900 43,035,900
Property, plant and equipment at cost, less accumulated depreciation 5,466,200 6,075,200
---------------- ----------------
Total assets $ 71,323,100 $ 49,111,100
================ ================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accrued compensation and related payroll taxes payable $ 1,467,100 $ 1,717,700
Accrued clinical grants payable 2,321,200 1,611,600
Accrued product manufacturing costs payable 535,900 747,300
Accrued marketing costs payable 494,200 448,500
Accrued professional fees payable 827,100 658,000
Line of credit 601,800 664,600
Current maturities of long-term debt 750,300 732,200
Accounts payable and other accrued liabilities 5,964,600 2,329,700
---------------- ----------------
Total current liabilities 12,962,200 8,909,600
Long-term liabilities:
Long-term debt, net of current maturities 1,479,500 1,845,400
Other long-term liabilities 1,679,000 1,461,800
---------------- ----------------
Total long-term liabilities 3,158,500 3,307,200
---------------- ----------------
Total liabilities 16,120,700 12,216,800
Stockholders' equity:
Preferred stock, $.005 par value-5,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value-50,000,000 shares authorized; 24,116,000
shares issued and outstanding at June 30, 1997, and 22,879,900 shares
issued and outstanding at December 31, 1996 241,200 228,800
Additional paid-in capital 169,457,600 151,244,400
Deficit accumulated during the development stage (114,058,000) (114,617,200)
Foreign currency translation adjustment (463,100) 48,200
Unrealized gain/(loss) on investments 24,700 (9,900)
---------------- ----------------
Total stockholders' equity 55,202,400 36,894,300
---------------- ----------------
Total liabilities and stockholders' equity $ 71,323,100 $ 49,111,100
================ ================
</TABLE>
-3-
<PAGE>
U. S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30 JUNE 30
------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 3,506,100 $ 3,682,600 $ 6,144,500 $ 6,645,200
Net investment income 737,300 579,400 1,241,100 1,263,300
Licensing, royalty and other income 10,276,700 582,600 11,344,600 762,600
------------- ------------- ------------- -------------
14,520,100 4,844,600 18,730,200 8,671,100
Expenses:
Cost of sales 1,073,900 822,500 1,901,800 1,696,000
Selling, general and administrative costs 4,472,700 3,660,400 7,827,500 6,952,200
Research and development costs 4,709,800 3,053,300 8,351,100 5,817,900
Provision for litigation -- -- -- --
Interest expense 44,000 99,600 90,600 429,400
------------- ------------- ------------- -------------
10,300,400 7,635,800 18,171,000 14,895,500
------------- ------------- ------------- -------------
Net income/(loss) $ 4,219,700 $ (2,791,200) $ 559,200 $ (6,224,400)
============= ============= ============= =============
Net income/(loss) per common outstanding share $ 0.17 $ (0.12) $ 0.02 $ (0.28)
============= ============= ============= =============
Weighted average number of common shares outstanding
including common stock equivalents 25,215,400 22,553,600 24,664,300 21,983,300
============= ============= ============= =============
<CAPTION>
PERIOD MAY 7, 1987
(INCEPTION)
THROUGH
JUNE 30, 1997
-------------
<S> <C>
Revenues:
Net sales $ 42,082,900
Net investment income 28,626,400
Licensing, royalty and other income 44,427,400
-------------
115,136,700
Expenses:
Cost of sales 11,383,900
Selling, general and administrative costs 97,752,300
Research and development costs 107,897,500
Provision for litigation 10,165,000
Interest expense 1,996,000
-------------
229,194,700
-------------
Net income/(loss) $ (114,058,000)
=============
Net income/(loss) per common outstanding share
Weighted average number of common shares outstanding
including common stock equivalents
</TABLE>
See accompanying notes.
-4-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in)
operating activities:
Net income/(loss) $ 559,200 $ (6,224,400)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Depreciation 595,700 560,300
Compensation element of stock option grants -- --
Loss (gain) on investments 34,600 (4,500)
Amortization of debenture interest -- 154,300
Change in accounts receivable (264,500) (115,300)
Change in interest receivable (91,400) (68,200)
Change in inventories 600 (434,600)
Change in other current assets (13,334,000) 5,367,400
Change in current liabilities 4,243,900 (3,695,600)
Provision for litigation -- --
Change in other long-term liabilities 217,200 158,100
-------------- --------------
Total adjustments (8,597,900) 1,921,900
-------------- --------------
Net cash provided by (used in) operating activities (8,038,700) (4,302,500)
Cash flows provided by (used in) investing activities:
Proceeds from investments matured and sold 60,494,900 27,517,800
Purchase of investments (67,905,600) (30,392,400)
Purchase of property, plant and equipment (537,200) (302,800)
-------------- --------------
Net cash provided by (used in) investing activities (7,947,900) (3,177,400)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and private placement of securities 21,440,800 187,500
Proceeds from exercise of stock options 321,400 753,200
Proceeds from loan -- --
Proceeds from line of credit 23,800 --
Repayment of long-term debt (286,300) (337,000)
-------------- --------------
Net cash provided by (used in) financing activities 21,499,700 603,700
Effect of exchange rate changes on cash (144,100) (22,400)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 5,369,000 (6,898,600)
Cash and cash equivalents-beginning of period 13,054,800 41,618,800
-------------- --------------
Cash and cash equivalents-end of period $ 18,423,800 $ 34,720,200
============== ==============
Supplemental cash flow disclosure:
Interest paid to affiliate -- --
Interest paid $ 84,600 $ 451,500
Subordinate debentures and accrued interest converted to common stock -- $ 7,945,000
<CAPTION>
PERIOD MAY 7, 1987
(INCEPTION)
THROUGH
JUNE 30, 1997
-------------
<S> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in)
operating activities:
Net income/(loss) $ (114,058,000)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Depreciation 5,648,700
Compensation element of stock option grants 5,303,400
Loss (gain) on investments 182,700
Amortization of debenture interest 198,700
Change in accounts receivable (2,190,500)
Change in interest receivable (312,100)
Change in inventories (2,657,600)
Change in other current assets (14,906,600)
Change in current liabilities 11,541,800
Provision for litigation 10,000,000
Change in other long-term liabilities 1,678,900
------------------
Total adjustments 14,487,400
------------------
Net cash provided by (used in) operating activities (99,570,600)
Cash flows provided by (used in) investing activities:
Proceeds from investments matured and sold 3,218,111,500
Purchase of investments (3,249,296,900)
Purchase of property, plant and equipment (11,428,600)
------------------
Net cash provided by (used in) investing activities (42,614,000)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and private placement of securities 149,937,000
Proceeds from exercise of stock options 7,796,400
Proceeds from loan 3,219,100
Proceeds from line of credit 791,900
Repayment of long-term debt (1,190,200)
------------------
Net cash provided by (used in) financing activities 160,554,200
Effect of exchange rate changes on cash 54,200
------------------
Net increase (decrease) in cash and cash equivalents 18,423,800
Cash and cash equivalents-beginning of period --
------------------
Cash and cash equivalents-end of period $ 18,423,800
==================
Supplemental cash flow disclosure:
Interest paid to affiliate $ 1,005,800
Interest paid $ 963,000
Subordinate debentures and accrued interest converted to common stock $ 16,841,700
</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 JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK CLASS B STOCK
--------------- ---------------
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ---------- ---------
<S> <C> <C> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.01 per share of common stock
and $.005 per share of Class B stock) 4,500,000 $ 45,000 500,000 $ 5,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1987 4,500,000 45,000 500,000 5,000
Net loss for the year ended December 31, 1988 -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1988 4,500,000 45,000 500,000 5,000
Proceeds from exercise of stock options 1,300 -- -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($12.00 per share, less costs) 1,250,000 12,500 -- --
Conversion of class B stock to common stock 500,000 5,000 (500,000) (5,000)
Net loss for the year ended December 31, 1989 -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1989 6,251,300 62,500 -- --
Proceeds from exercise of stock options 142,900 1,400 -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($18.00 per share, less costs) 2,012,500 20,200 -- --
Net loss for the year ended December 31, 1990 -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1990 8,406,700 84,100 -- --
Proceeds from exercise of stock options 250,300 2,500 -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($57.00 per share, less costs) 1,150,000 11,500 -- --
Issuance of shares for a 2 for 1 stock dividend 9,807,000 98,000 -- --
Net loss for the year ended December 31, 1991 -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1991 19,614,000 196,100 -- --
Proceeds from exercise of stock options 132,200 1,400 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1992 -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1992 19,746,200 197,500 -- --
Proceeds from exercise of stock options 53,300 500 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1993 -- -- -- --
Foreign currency translation adjustment -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1993 19,799,500 198,000 -- --
Proceeds from exercise of stock options 37,600 400 -- --
Class Action Settlement 548,200 5,500 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1994 -- -- -- --
Foreign currency translation adjustment -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1994 20,385,300 203,900 -- --
Proceeds from exercise of stock options 101,400 1,000 -- --
Class Action Settlement -- -- -- --
Proceeds from private placement of securities 560,100 5,600 -- --
Net loss for the year ended December 31, 1995 -- -- -- --
Foreign currency translation adjustment -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1995 21,046,800 210,500 -- --
Proceeds from exercise of stock options 255,500 2,500 -- --
Conversion of warrants 200 -- -- --
Conversion of debentures 1,577,400 15,800 -- --
Net loss for the year ended December 31, 1996 -- -- -- --
Foreign currency translation adjustment -- -- -- --
Unrealized Gain/(Loss) on investments -- -- -- --
------------ ------------- ---------- ---------
Balance at December 31, 1996 22,879,900 228,800 -- --
Proceeds from exercise of stock options 57,200 600 -- --
Issuance of shares ($18.256 per share, less costs) 1,178,900 11,800 -- --
Conversion of warrants -- -- -- --
Net income for the six months ended June 30, 1997 -- -- -- --
Foreign currency translation adjustment -- -- -- --
Unrealized Gain/(Loss) on investments -- -- -- --
------------ ------------- ---------- ---------
Balance at June 30, 1997 (Unaudited) 24,116,000 $ 241,200 -- $ --
============ ============= ========== =========
<CAPTION>
TOTAL
ADDITIONAL ACCUM- STOCK-
PAID-IN ULATED OTHER HOLDERS'
CAPITAL DEFICIT EQUITY EQUITY
------------ -------------- --------- --------------
<S> <C> <C> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.01 per share of common stock
and $.005 per share of Class B stock) $ 1,000,000 $ -- $ -- $ 1,050,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 -- (1,030,500) -- (1,030,500)
------------ -------------- --------- --------------
Balance at December 31, 1987 1,000,000 (1,030,500) -- 19,500
Net loss for the year ended December 31, 1988 -- (1,556,800) -- (1,556,800)
------------ -------------- --------- --------------
Balance at December 31, 1988 1,000,000 (2,587,300) -- (1,537,300)
Proceeds from exercise of stock options 400 -- -- 400
Compensation related to stock options 305,900 -- -- 305,900
Issuance of shares ($12.00 per share, less costs) 14,061,400 -- -- 14,073,900
Conversion of class B stock to common stock -- -- -- --
Net loss for the year ended December 31, 1989 -- (5,743,300) -- (5,743,300)
------------ -------------- --------- --------------
Balance at December 31, 1989 15,367,700 (8,330,600) -- 7,099,600
Proceeds from exercise of stock options 143,500 -- -- 144,900
Compensation related to stock options 269,000 -- -- 269,000
Issuance of shares ($18.00 per share, less costs) 33,009,700 -- -- 33,029,900
Net loss for the year ended December 31, 1990 -- (4,924,900) -- (4,924,900)
------------ -------------- --------- --------------
Balance at December 31, 1990 48,789,900 (13,255,500) -- 35,618,500
Proceeds from exercise of stock options 3,349,600 -- -- 3,352,100
Compensation related to stock options 1,038,900 -- -- 1,038,900
Issuance of shares ($57.00 per share, less costs) 61,444,300 -- -- 61,455,800
Issuance of shares for a 2 for 1 stock dividend (98,000) -- -- --
Net loss for the year ended December 31, 1991 -- (6,540,100) -- (6,540,100)
------------ -------------- --------- --------------
Balance at December 31, 1991 114,524,700 (19,795,600) -- 94,925,200
Proceeds from exercise of stock options 1,336,400 -- -- 1,337,800
Compensation related to stock options 1,452,400 -- -- 1,452,400
Net loss for the year ended December 31, 1992 -- (20,225,800) -- (20,225,800)
------------ -------------- --------- --------------
Balance at December 31, 1992 117,313,500 (40,021,400) -- 77,489,600
Proceeds from exercise of stock options 614,300 -- -- 614,800
Compensation related to stock options 906,900 -- -- 906,900
Net loss for the year ended December 31, 1993 -- (40,629,600) -- (40,629,600)
Foreign currency translation adjustment -- -- (291,800) (291,800)
------------ -------------- --------- --------------
Balance at December 31, 1993 118,834,700 (80,651,000) (291,800) 38,089,900
Proceeds from exercise of stock options 404,900 -- -- 405,300
Class Action Settlement 7,753,200 -- 7,758,700
Compensation related to stock options 1,330,300 -- -- 1,330,300
Net loss for the year ended December 31, 1994 -- (24,041,000) -- (24,041,000)
Foreign currency translation adjustment -- -- 395,700 395,700
------------ -------------- --------- --------------
Balance at December 31, 1994 128,323,100 (104,692,000) 103,900 23,938,900
Proceeds from exercise of stock options 359,900 -- -- 360,900
Class Action Settlement 2,241,200 -- -- 2,241,200
Proceeds from private placement of securities 2,233,500 -- -- 2,239,100
Net loss for the year ended December 31, 1995 -- (237,800) -- (237,800)
Foreign currency translation adjustment -- -- 245,600 245,600
------------ -------------- --------- --------------
Balance at December 31, 1995 133,157,700 (104,929,800) 349,500 28,787,900
Proceeds from exercise of stock options 1,256,300 -- -- 1,258,800
Conversion of warrants 4,500 -- -- 4,500
Conversion of debentures 16,825,900 -- -- 16,841,700
Net loss for the nine months ended December 31, 1996 -- (9,687,400) -- (9,687,400)
Foreign currency translation adjustment -- -- (301,300) (301,300)
Unrealized Gain/(Loss) on investments -- -- (9,900) (9,900)
------------ -------------- --------- --------------
Balance at December 31, 1996 151,244,400 (114,617,200) 38,300 36,894,300
Proceeds from exercise of stock options 320,800 -- -- 321,400
Issuance of shares ($18.256 per share, less costs) 17,892,000 -- -- 17,903,800
Conversion of warrants 400 -- -- 400
Net income for the six months ended June 30, 1997 -- 559,200 -- 559,200
Foreign currency translation adjustment -- -- (511,300) (511,300)
Unrealized Gain/(Loss) on investments -- -- 34,600 34,600
------------ -------------- --------- --------------
Balance at June 30, 1997 (Unaudited) $169,457,600 $(114,058,000) $(438,400) $ 55,202,400
============ ============== ========= ==============
</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 specializing in the development and
commercialization of products for patients with cancer and allied diseases. For
accounting purposes, the company is considered a "development stage enterprise."
Through June 30, 1997, the company's revenues have been derived principally from
product sales of Hexalen(R), NeuTrexin(R), and Ethyol(R), licensing fees for
rights to develop and market certain products principally in the United States,
and investment income. Expenses incurred have been primarily for the
development of its drugs and related therapies, marketing and sales activities,
and corporate organizational and administrative activities.
At the company's annual stockholders meeting on April 22, 1996, the
company's stockholders approved a 1 for 2 reverse stock split effected April 23,
1996. Accordingly all references to the number of shares and per share amounts
included in the financial statements and related notes thereto, reflect the 1
for 2 reverse stock split.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Information -- The financial information for the three and six
month periods ended June 30, 1997 and 1996, and the period from May 7, 1987
(inception) through June 30, 1997 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.
Pervasiveness of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventories -- Inventories are stated at the lower of cost (first in, first
out) or fair value. Inventories consist of:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Raw materials $ 780,600 $ 850,500
Work-in-process 1,334,700 1,121,500
Finished goods 381,200 620,000
---------- ----------
Total $2,496,500 $2,592,000
========== ==========
</TABLE>
-7-
<PAGE>
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. All assets are depreciated under accelerated methods
for federal income tax purposes. Property, plant and equipment consists of:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- --------------
<S> <C> <C>
Land, buildings, and leasehold improvements $1,745,800 $2,071,900
Equipment, furniture and fixtures 9,095,400 9,079,700
Accumulated depreciation (5,375,000) (5,076,400)
------------- --------------
Property, plant and equipment, net $5,466,200 $6,075,200
============= ==============
</TABLE>
Long-Term Debt -- Long-term debt consists of:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- --------------
<S> <C> <C>
MELF Equipment Loan $ 216,900 $ 252,800
Mortgage Loan 504,800 589,400
Term Loan 1,400,000 1,700,000
Capital Lease Obligations 108,100 35,400
------------- --------------
2,229,800 2,577,600
Less Current Portion 750,300 732,200
------------- --------------
Long-Term Debt $1,479,500 $1,845,400
============= ==============
</TABLE>
Stockholders' Equity -- On February 4, 1997, the company entered into a
Stock Purchase Agreement with ALZA Corporation ("ALZA"), the company's co-
promotion partner in the United States, whereby ALZA agreed to purchase
1,178,882 shares of Common Stock (the "Shares") from the company in a private
placement at a purchase price of $18.256 per share. The company will invest a
portion of the proceeds in programs supporting Ethyol, the company's
cytoprotective agent, which is distributed in the United States by ALZA under a
distribution and co-promotion agreement. In connection with this transaction,
ALZA represented to the company, among other things, that the Shares were being
acquired for ALZA's own account and not with a view toward sale or distribution,
and agreed not to make any disposition of the Shares prior to March 24, 1998.
The purchase and sale of the Shares was consummated in accordance with the Stock
Purchase Agreement on March 24, 1997 for an aggregate purchase price of
approximately $21.5 million cash to the company. No underwriters were involved
in the sale and no underwriting discounts or commissions were paid.
The foregoing 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, 1996. Operating results for the three and six month periods ended June 30,
1997 are not necessarily indicative of the results that may be obtained in any
other interim period or the entire year.
-8-
<PAGE>
U.S. BIOSCIENCE, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
This report on Form 10-Q contains forward-looking statements
concerning the business and financial conditions of the company, which are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in any forward-looking statements.
Factors that could cause such differences include, but are not limited to, the
success of the company and its collaborative partners in marketing,
manufacturing and selling the company's products, the availability of adequate
funds for the company's operations, the success of the company in obtaining
timely regulatory approvals to market its potential products in the United
States and other major markets, the success of the company in obtaining rights
to new compounds for commercial development, policies relating to product
pricing and reimbursement levels in the markets where the company's products are
or may be commercialized, technological change and competition, the incidence of
diseases for which the company's products are indicated, the product liability
risks associated with being the manufacturer or seller of pharmaceutical
products, and the company's reliance on its key personnel and collaborative
partners.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes to the Consolidated Financial
Statements on pages 3 to 8. At the company's annual stockholders meeting on
April 22, 1996, the company's stockholders approved a 1 for 2 reverse stock
split effected April 23, 1996. Accordingly all references to the number of
shares and per share amounts included in this quarterly report reflect the 1 for
2 reverse stock split.
Operations for the six months ended June 30, 1997, consisted primarily
of activities relating to the promotion of Ethyol(R) in the United States with
co-promotion partner ALZA Corporation ("ALZA"), the marketing of Hexalen(R) and
NeuTrexin(R) in the United States, continuing clinical trials of Ethyol and
NeuTrexin and product development of Ethyol, NeuTrexin, AZQ and FddA, business
development activities in the United States, Europe and Japan and the award to
the company by the National Cancer Institute of a contract for shelf life
studies of certain clinical drug formulations.
The company also completed during the first quarter of 1997 the sale
of 1,178,882 shares of the company's common stock to ALZA Corporation at a
purchase price of $18.256 per share for an aggregate investment of $21,521,700.
The purchase price was 120% of the average closing price of U.S. Bioscience,
Inc. shares as traded on the AMEX for the 10 days preceding the date of the
agreement. The company will invest a portion of the proceeds in programs
supporting Ethyol.
The company received United Stated Food and Drug Administration
("FDA") approval of it's New Drug Application ("NDA") for Ethyol in December
1995 for use in ovarian cancer and an accelerated approval for use in lung
cancer in March 1996 and the company began co-promotion of the product with co-
promotion partner ALZA in April 1996. The company has also received regulatory
approval for Ethyol in several European countries, and received approval to
expand the labeled indication in July 1996. The company's marketing partner for
European territories is Scherico Ltd. ("Scherico"), an affiliate of Schering-
Plough Corporation. Ethyol was approved by Canadian regulatory authorities in
late April 1996, where Eli Lilly is the company's marketing partner.
-9-
<PAGE>
The company believes that its expenditures for research and
development, marketing and administration, capital equipment and facilities will
continue to exceed revenues as a result of (i) further clinical trials aimed at
label expansion and regulatory approvals for Ethyol and NeuTrexin, (ii) the
marketing of Hexalen, NeuTrexin and Ethyol in the United States, (iii)
expansion of clinical and preclinical testing of drug compounds, including
expanded indications for existing drugs and (iv) further development and
enhancement of manufacturing and analytical capabilities.
Results of Operations
Three months ended June 30, 1997
Product sales declined slightly to $3,506,100 in the three months
ended June 30, 1997 as compared to $3,682,600 in the prior year period, as
increased sales of Hexalen, the company's ovarian cancer treatment were offset
by a decline in the sales of NeuTrexin in the United States. The company
believes that sales of NeuTrexin continued to be adversely affected by a decline
in the incidence and severity of Pneumocystis carinii pneumonia ("PCP") due to
improvements in treatment for human immunodeficiency virus (HIV) and the
prophylactic treatment of patients at risk for PCP.
Net investment income increased to $737,300 in the second quarter of
1997 as compared to $579,400 in the corresponding 1996 period due to higher
interest income resulting from the larger average portfolio balance which is due
to funds raised in the ALZA stock purchase completed in the first quarter of
1997.
Licensing, royalty and other income increased to $10,276,700 for the
three month period ended June 30, 1997 from $582,600 in the prior year period
due principally to the accrual of a $10 million milestone payment from ALZA
Corporation, for meeting a clinical development milestone in connection the
company's Phase III randomized trial of Taxol, carboplatin and Ethyol, the
company's cytoprotective agent, in patients with advanced non-small cell lung
cancer.
Cost of sales, which consists of product manufacturing, testing,
distribution and royalty expenses, increased in value and as a percentage of
sales in the three month period ended June 30, 1997, due principally to product
mix and the effect of lower margins on sales of Ethyol to the company's
distribution partners.
Selling, general and administrative costs for the second quarter of
1997 increased to $4,472,700 from $3,660,400 in the corresponding 1996 period.
The $812,300 increase is principally due to a $700,000 provision for the
reorganization of the company's European clinical research program which is
anticipated to reduce expenses of this component of clinical research costs in
the future.
Research and development costs for the three months ended June 30,
1997 increased to $4,709,800 from $3,053,300 in the second quarter of 1996. The
increase is principally due to increased payments for clinical studies and
related supplies of $477,400, higher personnel related costs of $529,400 and
travel expenses of $85,500, all reflecting the company's phase III clinical
trials of Ethyol for use in radiation therapy and for broadened uses in
chemotherapy and for clinical trials of NeuTrexin for use in colorectal cancer.
In addition, the company incurred higher expenditures for preclinical and
product development activities during the second quarter of approximately
$695,000 related to several of its products, notably Ethyol, AZQ and FddA.
Interest expense decreased to $44,000 for the second quarter of 1997
from $99,600 in the prior year first quarter due to the conversion to equity, in
early 1996, of the company's entire $16.5 million convertible debenture issue.
-10-
<PAGE>
The net income for the three months ended June 30, 1997 was $4,219,700
or $0.17 per fully diluted common share as compared to a loss of $2,791,200 or
$0.12 loss per common share in the 1996 period. The 1997 period included a $10
million milestone payment from ALZA.
Six months ended June 30, 1997
Product sales declined to $6,144,500 in the six month period ended
June 30, 1997 as compared to $6,645,200 in the prior year period, as lower sales
of NeuTrexin and Hexalen in the United States were partly offset by an increase
in Ethyol revenues from the company's major international distribution partner,
Scherico, an affiliate of Schering-Plough Corporation. The company believes
that sales of NeuTrexin continued to be adversely affected by a decline in the
incidence and severity of Pneumocystis carinii pneumonia ("PCP") due to
improvements in treatment for human immunodeficiency virus (HIV) and the
prophylactic treatment of patients at risk for PCP. Sales of Hexalen, which
showed a rebound in the second quarter of 1997, have been the company believes,
negatively affected by competitive pressures. Ethyol revenue growth is
attributable to increasing trade sales levels and the effects of an amendment
to the agreement with Scherico undertaken in 1996.
Licensing, royalty and other income increased to $11,344,600 for the
six month period ended June 30, 1997 from $762,600 in the prior year period due
principally to the accrual of a $10 million milestone payment from ALZA
Corporation, for meeting a clinical development milestone in connection the
company's Phase III randomized trial of Taxol, carboplatin and Ethyol, the
company's cytoprotective agent, in patients with advanced non-small cell lung
cancer. The company also received, in early 1997, a payment from Scherico
relating to the development of a new crystalline dosage form of Ethyol.
Cost of sales, which consists of product manufacturing, testing,
distribution and royalty expenses, increased in value and as a percentage of
sales in the six month period ended June 30, 1997, due principally to lower
sales of Hexalen and NeuTrexin and reduced margins on sales of Ethyol to the
company's distribution partners.
Selling, general and administrative costs for the first six months of
1997 increased to $7,827,500 from $6,952,200 in the corresponding 1996 period.
The $875,300 increase is principally due to a $700,000 provision for the
reorganization of the company's European clinical research program. The
remaining $175,300 increase is principally the net result of increased personnel
costs of $800,400 being mostly offset by lower marketing expenditures of
$197,300, reduced legal and consulting costs of $157,500 and lower corporate
expenses of $170,500.
Research and development costs for the six month period ended June 30,
1997 increased to $8,351,100 from $5,817,900 in the first half of 1996. The
$2,533,200 increase is principally due to increased payments for clinical
studies and related supplies of $1,030,400, higher personnel related costs of
$669,300 and travel expenses of $144,200, all reflecting the company's phase III
clinical trials of Ethyol for use in radiation therapy and for broadened uses in
chemotherapy and for clinical trials of NeuTrexin for use in colorectal cancer.
In addition the company incurred higher expenditures for preclinical and product
development activities during the first half of 1997 of approximately $669,100
related to several of its products, notably Ethyol, AZQ and FddA.
Interest expense decreased to $90,600 for the first six months of 1997
from $429,400 in the prior year first half due to the conversion to equity, in
early 1996, of the company's entire $16.5 million convertible debenture issue.
-11-
<PAGE>
The net income for the six months ended June 30, 1997 was $559,200 or
$0.02 per fully diluted common share as compared to a loss of $6,224,400 or
$0.28 loss per common share in the 1996 period. The 1997 period included a $10
million milestone payment from ALZA.
Liquidity and Capital Resources
Since its inception in 1987, the company has financed operations
principally through the sale of equity capital, issuance of unsecured and
secured debt, investment income, sales of its drug products, Hexalen, NeuTrexin
and Ethyol, and revenues received through distribution and sublicense
agreements. As of June 30, 1997, the company's cash and investments totaled
$49,456,300. 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 half of 1997, net cash used in operations amounted to
$8,038,700 principally reflecting the net effect of the factors discussed above
under "Results of Operations" less the $10 million milestone payment accrued in
the second quarter and paid to the company by ALZA in early July 1997. Until
such time as the company receives significantly increased revenues, the
company's cash position will continue to be reduced due principally to
expenditures in research, clinical development, product development, marketing,
and selling and administrative activities. Failure to achieve significant sales
from the company's currently approved products and to obtain additional
regulatory approvals on products currently in development will have a material
adverse effect on the company. The level of future product sales will depend on
several factors, including product acceptance, market penetration, competitive
products, the incidence and severity of diseases and side effects for which the
company's products are indicated, the performance of the company's licensees and
distributors, and the healthcare and reimbursement system existing in each
market where the company's products are or may become commercially available.
On March 24, 1997, the company completed the sale to ALZA of 1,178,882
shares of the company's Common Stock for gross consideration of $21,521,700.
The company believes its current cash and investments and anticipated revenues
from product sales and other sources, will be sufficient to cover the company's
anticipated level of cash requirements for a period in excess of three years.
However, the company's funding requirements may change due to numerous factors,
including but not limited to, sales of the company's products, manufacturing
costs, reimbursement policies, regulatory and intellectual property
requirements, capital expenditures and other factors as discussed herein. The
company is hopeful that its products will, in the near future, generate
sufficient sales to provide meaningful cash resources, although no assurance can
be given that they will do so. The company is also hopeful that it will in the
future receive further regulatory approvals and that such approvals will
increase sales. However, no assurance can be given that further regulatory
approvals will be obtained in a timely manner, if ever, or that the return on
product sales will be sufficient to cover operating expenses or that the company
will have adequate financial resources to commercialize its products.
To meet its capital requirements, the company may from time to time
seek to access public or private financing markets by issuing debt, common or
preferred stock, warrants or other securities, either separately or in
combination. The company may also seek additional funding through corporate
collaborations or other financing vehicles, potentially including "off-balance
sheet" financing through partnerships or corporations. There can be no assurance
that such financings will be available at all or on terms acceptable to the
company. In addition, market reaction to any such financings may adversely
affect the price of the company's outstanding securities or debt.
The company's net capital expenditures were $537,200 for the six month
period ended June 30, 1997 and total $11,428,600 since inception. In April
1993, the company purchased a sterile products production
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<PAGE>
facility in The Netherlands. Validation work and pilot production on this new
facility were completed in 1995. The facility received regulatory approval for
product manufacture and distribution from the Dutch regulatory authority in June
1994 to manufacture the company's products for distribution in the European
Community, and the facility was approved by the FDA to manufacture NeuTrexin for
the U.S. market in May 1995 and to manufacture Ethyol for the U.S. market in
December 1996. The manufacturing facilities of the company and its third party
suppliers used to produce its products are required to continually comply with
all applicable FDA requirements and those of regulatory authorities in other
countries, including Good Manufacturing Practices, and are subject to inspection
by governmental agencies to determine compliance with those requirements. There
can be no assurance that the manufacturing facilities for the company's products
will comply with applicable requirements. A mortgage loan of approximately
$680,000 relating to the company's facility in The Netherlands was obtained in
May 1994. The purchase price for this facility was $2,250,000 and approximately
$3,375,000 in capital improvements have been made since its purchase to make the
facility operational and expand its production capacity. Further capital
expenditures, estimated at $500,000, are planned during the remainder of 1997.
The company's future liquidity and capital requirements are dependent
upon several factors, including, but not limited to: its success in generating
significant revenues from sales; the performance of its sublicensees and
distributors under sublicense and distribution arrangements for sales of its
products; the time and cost required to manufacture and market its products; the
time and cost required for clinical development of products to obtain regulatory
approvals, including expanded labeling for its products which are already
commercially available; obtaining the rights to additional commercially viable
compounds; competitive technological developments; additional government-imposed
regulation and control; and changes in healthcare systems which affect
reimbursement, pricing or availability of drugs and market acceptance of drugs.
The above factors may also affect realization of certain assets
currently held by the company, principally investments in plant, equipment and
inventory.
In 1995, Scherico, an affiliate of Schering-Plough Corporation and
the company's European distributor for Ethyol, launched Ethyol in several
European markets where regulatory approvals had been received. Under the terms
of its original agreement with Scherico, the company was to share in operating
profits/losses generated from marketing and sales of Ethyol in Germany, the
United Kingdom, Spain, Italy and France for a period of up to two years from
November 23, 1994. The company paid its share of the 1995 operating losses
($4.2 million) in April 1996 and had accrued $892,000 during the first six
months of 1996 for its estimated share of operating losses through the period.
In September 1996, an amendment to this agreement was executed pursuant to
which, retroactive to January 1, 1996, Scherico began to purchase Ethyol from
the company at a price based on a percentage of in-market net sales and the
company no longer participates in operating profits/losses previously shared by
the parties. Scherico paid the company a total of $6.2 million under the
amendment in the fourth quarter of 1996.
In April of 1996, ALZA and the company launched Ethyol in the United
States. ALZA has exclusive rights to market the product in the United States
for five years and is responsible for sales and marketing. The company's U.S.
sales force is co-promoting the product with ALZA during this period. After the
initial five-year period, ALZA has an option to extend its exclusive rights for
one year. At the end of ALZA's exclusive period, all U.S. marketing rights to
Ethyol will revert to the company, and ALZA will receive payments from the
company for ten years based on in-market net sales of the product. ALZA paid
the company an up-front payment and initial distribution fee totaling $20
million under the Ethyol agreement and an additional clinical development
milestone payment of $10 million in July 1997. The agreement provides for $5
million in additional distribution fees to be paid to the company during the
1998 subject to the achievement of certain milestones related to the
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<PAGE>
company's clinical development of Ethyol.
As the company sells Ethyol to its partners, Scherico and ALZA, in
quantities which may or may not correspond to the product's resale to the
pharmaceutical trade, the company's sales may fluctuate from period to period
dependent upon the timing of its partners' delivery requirements and sales to
the pharmaceutical trade as well as the levels of inventory they stock and
maintain. Sales of Ethyol are also affected by the other factors relating to
product sales noted elsewhere in this section on liquidity and capital
resources.
The company has been unprofitable since its inception and expects to
incur additional operating losses until such time as substantial sales are
realized and further regulatory approvals are obtained, although the
distribution fees from ALZA did bring the company close to a break-even position
for calendar 1995. In addition, the company reported net earnings in the third
quarter of 1996 as a result of non-recurring items relating to the September
1996 amendment to the agreement with Scherico noted herein and, as reported
above, the company generated net earnings in the second quarter and first half
of 1997 due to the $10 million milestone payment made by ALZA. As the company
continues its commercialization, research and development activities, losses
are expected to continue and may fluctuate from period to period. There can be
no assurance that the company will achieve significant revenues or profitable
operations. For the period from May 7, 1987 (inception) through June 30, 1997,
the company had an accumulated deficit of $114,058,000.
-14-
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings.
On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni & Co.
filed a complaint for refrain, information and damages with the Regional Court
of Hamburg against U.S. Bioscience, Inc. on the grounds of trademark
infringement in respect of the use of the trademark "Ethyol" in Germany. On
April 29, 1996, U.S. Bioscience filed a reply to plaintiff's complaint stating
U.S. Bioscience's position that the trademark "Ethyol" does not infringe
plaintiff's trademark rights in the trademark "Ichthyol" nor the plaintiff's
firm right in the slogan "Ichthyol." The suit was dismissed on January 29,
1997, by the Regional Court of Hamburg and the plaintiff has filed an appeal
against the judgment rendered in favor of U.S. Bioscience, Inc., but the grounds
for the appeal have not yet been filed. It is not possible to evaluate how the
case will be decided on appeal.
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.
The information called for by this item is contained in the company's
report on Form 10-Q for the quarterly period ended March 31, 1997, and is hereby
incorporated by reference thereto.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
27 Financial Data Schedule
b. There were no reports on Form 8-K filed during the quarter ended
June 30, 1997.
-15-
<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: August 12, 1997 By: /s/ Robert I. Kriebel
-------------------------------
Robert I. Kriebel
Executive Vice President and
Chief Financial Officer
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<PAGE>
U.S. BIOSCIENCE, INC.
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
-------------
Exhibit No. Page
----------- ----
27 Financial Data
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 18,423,800
<SECURITIES> 31,032,500
<RECEIVABLES> 2,492,700
<ALLOWANCES> 302,000
<INVENTORY> 2,496,500
<CURRENT-ASSETS> 65,856,900
<PP&E> 10,841,100
<DEPRECIATION> 5,374,900
<TOTAL-ASSETS> 71,323,100
<CURRENT-LIABILITIES> 12,962,200
<BONDS> 3,158,500
0
0
<COMMON> 241,200
<OTHER-SE> 54,961,200
<TOTAL-LIABILITY-AND-EQUITY> 71,323,100
<SALES> 6,144,500
<TOTAL-REVENUES> 18,730,200
<CGS> 1,901,800
<TOTAL-COSTS> 18,080,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,600
<INCOME-PRETAX> 559,200
<INCOME-TAX> 0
<INCOME-CONTINUING> 559,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 559,200
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
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