<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, 1998
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
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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 7, 1998, there were 24,278,182 shares of common stock outstanding.
Page 1 of 16 sequentially
numbered pages
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U.S. BIOSCIENCE, INC.
INDEX
Page
----
Part I - Financial Information
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 10
Part II - Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Securities Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
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U.S. BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,894,900 $ 26,569,400
Investments 24,513,000 24,081,400
Accounts receivable, net 2,434,800 2,577,400
Interest receivable 198,400 269,700
Inventories 2,507,600 2,434,500
Other 1,316,100 1,298,400
--------------- ----------------
Total current assets 57,864,800 57,230,800
Property, plant and equipment at cost, less accumulated depreciation 5,044,600 5,149,800
--------------- ----------------
Total assets $ 62,909,400 $ 62,380,600
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related payroll taxes payable $ 959,300 $ 1,926,200
Accrued clinical grants payable 2,865,700 2,790,500
Accrued product manufacturing costs payable 688,500 798,700
Accrued marketing costs payable 1,072,200 437,400
Accrued professional fees payable 1,925,000 977,200
Line of credit 725,300 745,300
Current maturities of long-term debt 746,100 747,100
Accounts payable and other accrued liabilities 4,173,000 3,967,500
--------------- ----------------
Total current liabilities 13,155,100 12,389,900
Long-term liabilities:
Long-term debt, net of current maturities 936,500 1,135,000
Other long-term liabilities 1,933,800 1,831,900
Total long-term liabilities 2,870,300 2,966,900
--------------- ----------------
Total liabilities 16,025,400 15,356,800
Stockholders' equity:
Preferred stock, $.005 par value-5,000,000 shares authorized;
none issued - -
Common stock, $.01 par value-50,000,000 shares authorized; 24,270,000
shares issued at March 31, 1998, and 24,208,100 shares
issued and outstanding at December 31, 1997 242,700 242,100
Additional paid-in capital 170,147,900 169,905,800
Accumulated deficit (122,663,000) (122,526,300)
Accumulated other comprehensive loss (699,000) (597,800)
--------------- ----------------
47,028,600 47,023,800
Less cost of treasury stock - 13,600 shares (144,600) -
--------------- ----------------
Total stockholders' equity 46,884,000 47,023,800
--------------- ----------------
Total liabilities and stockholders' equity $ 62,909,400 $ 62,380,600
=============== ================
</TABLE>
See accompanying notes.
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U.S. BIOSCIENSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Revenues:
Net sales $ 4,250,200 $ 2,638,400
Net investment income 756,600 503,800
Licensing, royalty and other income 5,332,300 1,067,900
-------------- --------------
10,339,100 4,210,100
Expenses:
Cost of sales 1,326,100 827,900
Selling, general and administrative costs 4,274,100 3,354,800
Research and development costs 4,833,100 3,641,300
Interest expense 42,500 46,600
-------------- --------------
10,475,800 7,870,600
-------------- --------------
Net loss $ (136,700) $ (3,660,500)
============== ==============
Basic and diluted net loss per common share $ (0.01) $ (0.16)
============== ==============
Weighted average number of common shares outstanding 24,230,400 23,267,700
============== ==============
</TABLE>
See accompanying notes.
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U.S. BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in) operating activities:
Net loss $ (136,700) $ (3,660,500)
Adjustments to reconcile net loss to net cash provided by / (used in)
operating activities:
Depreciation 223,800 298,700
Loss on investments 37,600 30,400
Change in accounts receivable 142,600 508,800
Change in interest receivable 71,300 (195,800)
Change in inventories (88,800) (272,500)
Change in other current assets (21,700) (13,900)
Change in current liabilities 714,800 (309,300)
Change in other long-term liabilities 102,000 108,600
-------------- --------------
Total adjustments 1,181,600 155,000
-------------- --------------
Net cash provided by (used in) operating activities 1,044,900 (3,505,500)
Cash flows provided by (used in) investing activities:
Proceeds from investments matured and sold 22,396,900 40,681,800
Purchase of investments (22,828,600) (44,730,300)
Purchase of property, plant and equipment (225,400) (267,400)
-------------- --------------
Net cash provided by (used in) investing activities (657,100) (4,315,900)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and private placement of securities 63,300 21,440,800
Proceeds from exercise of stock options 98,100 227,800
Proceeds from line of credit 1,600 --
Repayment of long-term debt (188,600) (79,400)
-------------- --------------
Net cash provided by (used in) financing activities (25,600) 21,589,200
Effect of exchange rate changes on cash (36,700) (107,600)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 325,500 13,660,200
Cash and cash equivalents-beginning of period 26,569,400 13,054,800
-------------- --------------
Cash and cash equivalents-end of period $ 26,894,900 $ 26,715,000
============== ==============
Supplemental cash flow disclosure:
Interest paid $ 32,800 $ 47,600
</TABLE>
See accompanying notes.
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<PAGE>
U.S. BIOSCIENCE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUM-
NUMBER OF PAID-IN ULATED
SHARES AMOUNT CAPITAL DEFICIT
-------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 24,208,100 242,100 169,905,800 (122,526,300)
Proceeds from exercise of stock options 61,900 600 242,100 --
Treasury stock -- -- -- --
Net loss for the three months ended March 31, 1998 -- -- -- (136,700)
Foreign currency translation adjustment -- -- -- --
Unrealized gain/(loss) on investments -- -- -- --
Balance at March 31, 1998 (Unaudited) 24,270,000 $ 242,700 $ 170,147,900 $ (122,663,000)
============= ========== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
STOCK-
OTHER HOLDERS'
EQUITY EQUITY
----------- -------------
<S> <C> <C>
Balance at December 31, 1997 (597,800) 47,023,800
Proceeds from exercise of stock options -- 242,700
Treasury stock (144,600) (144,600)
Net loss for the three months ended March 31, 199 -- (136,700)
Foreign currency translation adjustment (138,800) (138,800)
Unrealized gain/(loss) on investments 37,600 37,600
Balance at March 31, 1998 (Unaudited) $(843,600) $46,884,000
========== ============
</TABLE>
See accompanying notes.
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U.S. BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS -- The company is a pharmaceutical company specializing in the
development and commercialization of products for patients with cancer and
allied diseases. Through March 31, 1998, 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, payments for achieving certain clinical
development milestones and investment income. Expenses incurred have been
primarily for the development of its drugs and related therapies, marketing and
sales activities, and corporate and administrative activities.
DEVELOPMENT STAGE ENTERPRISE -- As of March 31, 1998 the company is no
longer designated for accounting purposes as a development stage enterprise as
defined in Statement of Financial Accounting Standards No. 7 "Development Stage
Enterprises". During its development stage, the company devoted a substantial
portion of its efforts toward raising capital, developing its initial product
portfolio, establishing its manufacturing, laboratory and research capabilities
and structure and organizing its worldwide commercial presence principally
through the establishment of distribution agreements with established
pharmaceutical companies. During the quarter ended March 31, 1998, the company
completed a planned change in senior management and the transition from a
development stage enterprise to an enterprise focusing on commercial operations
and marketing.
UNAUDITED INFORMATION -- The financial information for the three month
periods ended March 31, 1998 and 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.
USE OF ESTIMATES -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. 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:
March 31, December 31,
1998 1997
---------- ------------
Raw materials $ 766,100 $ 752,000
Work-in-process 1,475,100 1,376,000
Finished goods 266,400 306,500
---------- ----------
Total $2,507,600 $2,434,500
========== ==========
PROPERTY, PLANT AND EQUIPMENT -- Buildings, equipment and furniture and
fixtures are depreciated by the straight-line method over their useful lives for
financial reporting purposes and under accelerated methods for federal income
tax purposes. Leasehold improvements are depreciated by the straight-line
method over the
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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.
Property, plant and equipment consist of:
March 31, December 31,
1998 1997
----------- -----------
Land, buildings, and leasehold improvements $ 1,832,800 $ 1,871,800
Equipment, furniture and fixtures 9,085,400 8,965,700
Accumulated depreciation (5,873,600) (5,687,700)
----------- -----------
Property, plant and equipment, net $ 5,044,600 $ 5,149,800
=========== ===========
LONG-TERM DEBT -- Long-term debt consist of:
March 31, December 31,
1998 1997
---------- ------------
MELF Equipment Loan $ 162,300 $ 180,600
Mortgage Loan 440,000 462,100
Term Loan 950,000 1,100,000
Capital Lease Obligations 130,300 139,400
---------- ----------
$1,682,600 $1,882,100
Less Current Portion 746,100 747,100
---------- ----------
Long-Term Debt $ 936,500 $1,135,000
========== ==========
COMPREHENSIVE INCOME -- As of January 1, 1998, the company adopted
Financial Accounting Standards Statement 130, "Reporting Comprehensive Income".
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this statement
had no impact on the company's results of operations or stockholders' equity
during the quarter ended March 31, 1998. Statement 130 requires unrealized
gains or losses on the company's "available-for-sale" securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of Statement 130. The components of comprehensive income for
the three month periods ended March 31, 1998 and 1997 consist of:
March 31, March 31,
1998 1997
--------- ----------
Net loss $(136,700) $(3,660,500)
Foreign currency translation adjustment (138,800) (341,500)
Unrealized gain (loss) on investments 37,600 (21,700)
Comprehensive loss $(237,900) $(4,023,700)
========= ===========
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<PAGE>
COMMITMENTS -- Dr. Philip S. Schein resigned as Chairman of the Board of
Directors and Chief Executive Officer of the company in March 1998. Dr. Schein
is now serving as a consultant to the company for a two-year term ending in
March 2000, under an agreement which provides that he will receive fees at the
annual rate of $402,903, he will provide up to 500 hours of consulting services
to the company, and certain non-qualified stock options previously granted to
Dr. Schein will continue to vest during the consulting term. The company
accrued its estimated obligation under this agreement during in the first
quarter of 1998.
Additionally, all information in this quarterly report 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
Consolidated Financial Statements included in the company's Annual Report on
Form 10-K for the year ended December 31, 1997. Operating results for the three
month period ended March 31, 1998 are not necessarily indicative of the results
that may be obtained in any other interim period or the entire year.
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<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, those discussed in this
quarterly report and those discussed in the company's annual report on Form 10-K
for the fiscal year ended December 31, 1997 (including, without limitation, in
the section of Item 1 entitled "Factors Affecting the Company's Prospects"). As
a result the reader is cautioned not to rely on these forward-looking
statements.
The following discussion also should be read in conjunction with the
Consolidated Financial Statements and the Notes to the Consolidated Financial
Statements on pages 3 to 9.
Operations for the three months ended March 31, 1998, 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 and lodenosine
(formerly FddA), business development activities in the United States, Europe
and Japan and the reorganization of certain executive responsibilities.
The company received United Stated Food and Drug Administration ("FDA")
approval of its New Drug Application ("NDA") for Ethyol in December 1995 for use
in ovarian cancer and an accelerated approval for use in non-small cell lung
cancer in March 1996, and the company began co-promotion of the product with
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.
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 lodenosine and (iv) further product
development and enhancement of manufacturing and analytical capabilities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
Product sales increased to $4,250,200 for the three months ended March 31,
1998 as compared to $2,638,400 in the prior year period, as sales of all three
of the company's marketed products increased from prior year levels. Sales of
Ethyol, the company's cytoprotective product, increased due to higher shipments
to the company's domestic and international distribution partners. Sales of
NeuTrexin and Hexalen increased, due, in part, the company believes, to the
reallocation of resources among all of the company's products, in contrast to
the emphasis that had been placed on Ethyol during its launch in the United
States with co-promotion partner ALZA in 1996 and early 1997.
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<PAGE>
Net investment income increased to $756,600 in the first quarter of 1998 as
compared to $503,800 in the corresponding 1997 period due to higher interest
income provided from the larger average portfolio balance resulting from funds
raised in a $21.5 million stock purchase and amended marketing agreement with
ALZA Corporation, completed in March 1997.
Licensing, royalty and other income increased to $5,332,300 for the three
month period ended March 31, 1998 from $1,067,900 in the prior year period due
principally to the receipt of a payment from ALZA Corporation for achieving a
clinical development milestone in connection with the Phase III randomized trial
of Ethyol's radiation protective properties in patients with head and neck
cancer. The amount recorded in the 1997 period includes a milestone payment
received from an affiliate of Schering-Plough Corporation for additional
regulatory approvals of Ethyol in Europe and a payment 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 due to the increase in sales. As a
percentage of sales, cost of sales in the three month period ended March 31,
1998, remained constant at 31%.
Selling, general and administrative costs for the first quarter of 1998
increased to $4,274,100 from $3,354,800 in the corresponding 1997 period. The
$919,300 increase is principally due to higher marketing expenditures of
$497,000, higher professional fees of $315,800 and higher personnel related
costs of $86,800.
Research and development costs for the three months ended March 31, 1998
increased to $4,833,100 from $3,641,300 in the first quarter of 1997. The
increase is principally due to costs of approximately $1 million related to a
consulting arrangement entered into upon the resignation of the company's former
chairman and chief executive officer and other reorganization activities and
product development expenses related to the development of lodenosine.
Interest expense decreased to $42,500 for the first quarter of 1998 from
$46,600 in the prior year first quarter due to a lower long-term debt balance
and favorable U.S. Dollar exchange rate movement lowering the cost of foreign
denominated debt held by the company's wholly-owned Dutch manufacturing
subsidiary, USB Pharma B.V.
The net loss for the three months ended March 31, 1998 was $136,700 or
$0.01 basic and diluted net loss per common share as compared to $3,660,500 or
$0.16 basic and diluted net loss per common share in the 1997 period. The major
factor reducing the loss in the 1998 period is the $5 million milestone payment
received from ALZA Corporation as noted above.
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 March 31, 1998, the company's cash and investments totaled
$51,407,900. 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 quarter of 1998, net cash provided by operations amounted
to $1,044,900 principally reflecting the net effect of the factors discussed
above under "Results of Operations" and an increase in current liabilities.
Until such time as the company receives significantly increased revenues, the
company's cash position
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<PAGE>
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.
The company believes its current cash and investments and anticipated
revenues generated 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 expenditure and other factors as
discussed herein and in the company's annual report on Form 10-K. 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 $225,400 for the quarter ended
March 31, 1998 and total $11,993,400 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 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 $3,942,000
in capital improvements have been made since its purchase to make the facility
operational and expand its production capacity. Further capital expenditures,
estimated at $510,000, are planned during the remainder of 1998.
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
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<PAGE>
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, the company's European distributor for Ethyol, launched
Ethyol in several European markets and currently markets the product in all
major European countries under an exclusive marketing and distribution
agreement. Under this agreement, Scherico purchases Ethyol from the company at
a price based on a percentage of in-market net sales and it's exclusive rights
continue through 2003.
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 the first five years and will be responsible for sales and marketing. The
company's U.S. sales force will co-promote 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 and an additional milestone payment of $10 million in the
second quarter of 1997. The final milestone payment of $5 million was paid in
the first quarter of 1998 as noted above.
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 same factors noted elsewhere
in this section on liquidity and capital resources. The company is hopeful that
the commercialization of Ethyol in the United States and Europe will be
successful. However, no assurances can be given that the company will achieve
meaningful revenues under its agreements with ALZA and Scherico or its other
distribution arrangements.
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 distribution fees and
milestone payments from ALZA did bring the company close to a break-even
position for calendar 1995 and in the first quarter of 1998 as described above
under "Results of Operations". In addition, the company reported net earnings
in two recent periods: the third quarter of 1996 as a result of non-recurring
items relating to a September 1996 amendment to its European distribution
agreement for Ethyol with Scherico and, the second quarter and first half of
1997, due to the recording of a $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 March 31, 1998, the company had an accumulated deficit of $122,663,000.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On February 28, 1996, Ichthyol, Gesellschaft Cordes, Hermanni & Co.
filed a complaint against the company for refrain, information and damages with
the Regional Court of Hamburg against the company on the grounds of trademark
infringement in respect of the use of the trademark "Ethyol" in Germany. On
April 28, 1996 the company filed a reply to plaintiff's complaint stating the
company'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 at which time the plaintiff was given leave of appeal
against the judgement rendered in favor of the company. The plaintiff has filed
an appeal, however, the date of the hearing has not been determined. 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.
On April 30, 1998 the company held its annual meeting of stockholders.
At the meeting, the stockholders voted on the election of the seven members of
the company's Board of Directors. The votes "FOR" and "WITHHELD" for each
candidate for election were as follows:
Number of Votes Number of Votes
Name of Candidate FOR WITHHELD
- --------------------------------------------------------
Robert L. Capizzi 20,722,803 298,845
Paul Calabresi 20,791,799 229,849
C. Boyd Clarke 20,792,630 229,018
Robert I. Kriebel 20,794,290 227,358
Douglas J. MacMaster 20,787,902 233,746
Allen Misher 20,793,648 228,000
Betsey Wright 20,776,939 244,709
Item 5. Other Information.
Not applicable.
-14-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
10.40.2 Letter Agreement dated April 30, 1998 between the
company and Robert L. Capizzi, M.D.
27 Financial Data Schedule
b. There were no reports on Form 8-K filed during the quarter for
which this report is filed.
-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: May 8, 1998 By: /s/ Robert I. Kriebel
-----------------------------
Robert I. Kriebel
Executive Vice President and
Chief Financial Officer
-16-
<PAGE>
U.S. BIOSCIENCE, INC.
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
-------------
Exhibit No. Page
- ----------- ----
10.40.2 Letter Agreement dated April 30, 1998 between the company
and Robert L. Capizzi, M.D.
27 Financial Data
-17-
<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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,894,900
<SECURITIES> 24,513,000
<RECEIVABLES> 2,786,800
<ALLOWANCES> 352,000
<INVENTORY> 2,507,600
<CURRENT-ASSETS> 57,864,800
<PP&E> 10,918,200
<DEPRECIATION> 5,873,600
<TOTAL-ASSETS> 62,909,400
<CURRENT-LIABILITIES> 13,155,100
<BONDS> 2,870,300
0
0
<COMMON> 242,700
<OTHER-SE> 46,641,300
<TOTAL-LIABILITY-AND-EQUITY> 62,909,400
<SALES> 4,250,200
<TOTAL-REVENUES> 10,339,100
<CGS> 1,326,100
<TOTAL-COSTS> 10,433,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,500
<INCOME-PRETAX> (136,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (136,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136,700)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
<PAGE>
EXHIBIT 10.40.2
April 30, 1998
Robert L. Capizzi, M.D.
100 Turnbridge Circle
Haverford, PA 19041
Re: AGREEMENT DATED AS OF MARCH 4, 1996, AS AMENDED (THE "AGREEMENT")
-----------------------------------------------------------------
Dear Dr Capizzi:
The purpose of this letter is to confirm our arrangements to extend your
consulting relationship with U.S. Bioscience by modifying the Agreement in
certain respects, as follows. All capitalized terms used, and not otherwise
defined, herein are used as defined in the Agreement.
As provided in the Agreement, your Consulting Term would terminate on May 31,
1998. We are very pleased that you have agreed with U.S. Bioscience to extend
the Consulting Term for an additional year, through May 31, 1999.
Except as modified by this letter, the parties agree that the Agreement is
confirmed to be and shall remain in full force and effect.
Please indicate your acceptance of the terms set forth in this letter in the
space provided below and return it to me. An additional executed copy of this
letter is enclosed for your file.
Sincerely yours,
U.S. Bioscience, Inc.
By: /s/ C. Boyd Clarke
--------------------
C. Boyd Clarke
President and Chief Executive Officer
<PAGE>
Robert L. Capizzi, M.D.
April 30, 1998
Page 2
Accepted and agreed as of the 30th day of April, 1998:
/s/ Robert L. Capizzi
--------------------------
Robert L. Capizzi, M.D.
