<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number: 1-10432
September 30, 1995
ROBERTS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2429994
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
MERIDIAN CENTER II
4 INDUSTRIAL WAY WEST
EATONTOWN, NEW JERSEY 07724
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code:
(908) 389-1182)
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
--- ---
Class Outstanding Shares at
October 27, 1995
Common Stock 18,531,240
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
INDEX
Page
Part I
Item 1 - Financial Statements 2
Item 2 - Management's Discussion and Analysis 9
Part II
Item 1 - Legal Proceedings 12
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
- 1 -
<PAGE>
PART I.FINANCIAL STATEMENTS
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
1995 1994
----- -----
ASSETS:
Current assets:
Cash and cash equivalents $ 10,913 $ 9,819
Marketable securities 20,996 26,663
Accounts receivable, net 32,445 28,882
Accounts receivable from
shareholder 1,200 7,256
Inventory 22,632 19,797
Net assets held for sale 2,200 - - -
Other current assets 4,109 3,784
----- -----
Total current assets 94,495 96,201
Fixed assets, net 16,158 16,800
Other assets, principally
acquired intangibles, net 238,961 223,191
------- -------
Total assets $349,614 $336,192
======== ========
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $ 45,302 $ 34,277
Accounts payable 18,586 6,735
Other current liabilities 20,541 12,922
-------- --------
Total current liabilities 84,429 53,934
Long-term debt, excluding
current installments 16,197 22,411
Other liabilities 595 718
Shareholders' equity:
Class B preferred stock,
$.10 par 10,000,000 shares
authorized, none issued - - - - - -
Common stock, $.01 par,
50,000,000 shares authorized,
18,530,490 and 18,370,805
outstanding 189 188
Additional paid-in capital 256,183 255,994
Cumulative translation adjustments (104) (674)
Retained earnings (deficit) (7,638) 3,858
Treasury stock, 387,594 shares
of common stock, at cost (237) (237)
-------- --------
Total shareholders' equity 248,393 259,129
-------- --------
Total liabilities and
shareholders' equity $349,614 $336,192
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
For the nine months For the three months
ended September 30, ended September 30,
1995 1994 1995 1994
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales and Revenue:
Sales $ 80,824 $67,232 $34,309 $27,821
Contract research revenue 3,218 1,889 553 828
Contract research-shareholder 531 7,445 171 51
Other revenue 35 33 12 11
-------- ------- ------- -------
Total sales and revenue 84,608 76,599 35,045 28,711
Operating costs and expenses:
Cost of sales 37,337 15,136 18,398 6,152
Cost of contract research 2,918 7,936 643 2,316
Research & development 5,329 7,189 1,729 2,496
Marketing & administration 37,310 28,094 13,457 9,703
-------- ------- ------- -------
Total operating costs & expenses 82,894 58,355 34,227 20,667
-------- ------- ------- -------
Operating income 1,714 18,244 818 8,044
Other income (expense):
Interest income 1,520 2,188 537 737
Interest expense (2,463) (3,032) (844) (1,004)
Other income (expense), net 54 6 30 2
-------- ------- ------- -------
Total other income (expense) (889) (838) (277) (265)
Income from continuing operations before
income taxes 825 17,406 541 7,779
Benefit (provision) for income taxes (320) (2,987) (210) (2,407)
-------- ------- ------- -------
Income from continuing operations 505 14,419 331 5,372
Discontinued operations
(Loss) from operations of discontinued Pronetics
(Homecare) Division, net of tax benefits of
$652, $584, $0 and $295, respectively. (1,009) (913) - - - (457)
Estimated (Loss) on disposal of Pronetics
(Homecare) Division, net of tax benefits of $995. (10,992) - - - - - - - - -
-------- ------- ------- -------
(Loss) from discontinued operations (12,001) (913) 0 (457)
-------- ------- ------- -------
Net (loss) income ($11,496) $13,506 $331 $4,915
======== ======= ======= =======
per share of common stock, primary and fully diluted:
Net income from continuing operations $0.03 $0.78 $0.02 $0.29
Net (loss) from discontinued operations ($0.64) ($0.05) - - - ($0.02)
-------- ------- ------- -------
Net (loss) income ($0.62) $0.73 $0.02 $0.27
======== ======= ======= =======
Weighted average number of common shares
outstanding, primary and fully diluted: 18,646,636 18,467,396 18,604,968 18,467,396
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
<TABLE>
<CAPTION>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the nine months ended
September 30,
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities: $14,572 $3,111
Cash flows from investing activities:
Redemption of marketable securities 5,666 35,456
Purchases of intangible assets (2,802) (12,867)
Purchases of fixed assets (434) (584)
Impact of discontinued operations (7) (80)
------- -------
Net cash provided by
investing activities 2,423 21,925
------- -------
Cash flows from financing activities:
Payments on notes payable and
long term debt (16,631) (26,478)
Net proceeds from issuance of
common stock 690 416
Impact of discontinued operations (7) (732)
------- -------
Net cash (used in)
financing activities (15,948) (26,794)
------- -------
Exchange rate changes on cash and
cash equivalents 47 (50)
Change in cash and cash equivalents 1,094 (1,808)
Beginning cash and cash equivalents 9,819 6,071
------- -------
Ending cash and cash equivalents $10,913 $4,263
======= =======
Supplemental cash flow information:
Interest and dividends received $1,520 $2,188
Interest paid 2,364 2,582
Income taxes paid 2,624 484
Non cash activities:
Present value of notes issued in
connection with product acquisitions $18,279 $5,992
Acquisition of subsidiary; fair value
of assets acquired - - - 2,535
Liabilities assumed - - - (367)
Common stock issued - - - (500)
------- -------
Amounts paid - - - $1,668
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - - - - ------------------------------------------
1. Basis of Presentation
---------------------
In the opinion of management, the accompanying consolidated financial
statements include all necessary adjustments, consisting of normal
adjustments, necessary for a fair presentation of results for the period
reported. All dollar amounts are presented in thousands, except per share
data. Certain revenue amounts previously reported in the September 1994
Financial Statements have been reclassified. (See Note 8.)
2. Acquisitions
------------
In January, 1995, the Company acquired exclusive Canadian rights to market,
sell and distribute REPLENS from Columbia Laboratories, Ltd. The Company's
Canadian subsidiary launched this product in August, 1995.
On February 23, 1995, the Company licensed exclusive U.S. rights to market,
sell and distribute NOROXIN, a currently marketed product, from Merck and
Company, Inc.
In March, 1995, the Company acquired inventory, trademarks and other rights
to TIGAN in the U.S. and EMINASE throughout the world from SmithKline
Beecham.
In May, 1995, the Company acquired exclusive Canadian rights to market,
sell and distribute ADVANTAGE 24 from Columbia Laboratories, Inc. The
Company's Canadian subsidiary will launch this product in early 1996.
Cash paid for these acquisitions amounted to $2.8 million with balances
payable through March, 2000.
3. Inventory
---------
Inventory consists of:
September 30, 1995
------------- -------
Raw Materials $ 3,474
Finished Goods 19,158
-------
Total $22,632
=======
- 6 -
<PAGE>
4. Leases and Other Commitments
----------------------------
The Company leases office space and certain office equipment under
operating leases. Minimum rental payments in each of the next five fiscal
years required under leases which have initial or remaining lease terms in
excess of one year are as follows:
December 31,
1995 $2,810
1996 2,146
1997 1,556
1998 1,301
1999 1,069
The total of the above minimum lease payments has not been reduced by $1.6
million which the company expects to receive in the future under non-
cancelable subleases.
In accordance with several product acquisitions and licensing agreements
and subject to certain cancellation rights reserved by the Company, Roberts
may be required to purchase inventory or make minimum payments totalling
$51.9 million through 2001 and make royalty payments totalling $2 million
through 1998.
5. Long Term Debt
--------------
The Company previously reported in Note 7 to its Consolidated Financial
Statements for the year ended December 31, 1994 that principal payments on
the $56.7 million of long term debt outstanding at December 31, 1994, would
be $34.3 million in 1995 and $20.6 million in 1996. In consideration of
certain information being furnished by the Company to the seller of certain
product rights to the Company, $8 million due in 1995 is now required to be
paid in 1996 and the principal payments in 1995 and 1996 will be reduced
and increased, respectively, by that amount.
6. Contingency
-----------
A shareholder class action suit has been instituted in the United States
District Court for the District of New Jersey against Roberts
Pharmaceutical Corporation and certain of its officers for alleged
violations of certain federal securities laws. The Company is not able to
predict the outcome of this proceeding at this time, and management is not
able to determine the amount of the potential liability, if any. Roberts
Pharmaceutical believes that it has complied with all
- 7 -
<PAGE>
of its obligations under the federal securities laws. Roberts
Pharmaceutical intends to defend vigorously against the plaintiff's
allegations and considers such allegations to be without merit.
7. Discontinued Operations
-----------------------
In August, 1995, the Company decided to seek a buyer for the assets of its
Pronetics (Homecare) subsidiaries which are located in New York, New
Jersey, North Carolina, and South Carolina. The Company expects the sale of
Homecare to be completed within a year and to result in a loss at closing.
Accordingly, the Company has charged current operations with the estimated
loss on discontinuing Homecare of $10.9 million, including a provision of
$1.9 million for operating losses until disposal of which $.4 million has
been utilized in the Third Quarter. The Company has also reclassified its
consolidated financial statements to report separately the net assets
expected to be realized and operating results of its discontinued
operations.
The Company's loss on discontinued operations includes management's best
estimates of the amounts expected to be realized on the sale of Homecare.
The amounts the Company will ultimately realize could differ materially in
the near term from the amounts assumed in calculating the loss on disposal
of Homecare.
8. Quarterly Results of Operations
-------------------------------
The Company previously reported in Note 16 to its Consolidated Financial
Statements for the year ended December 31, 1994 that its net earnings for
the Third Quarter of 1994 of $4.9 million included a $2.7 million charge
against revenues and a $1.0 increase in general and administrative expenses
resulting from an increase in estimated reserves for contracts with a
related party. As a result, operating income and net income were reduced by
approximately $3.7 million and $2.6 million, respectively. The $2.7 million
charge was taken against product revenue and has been reclassified to
contract research revenue. As a result of this reclassification, product
revenue and contract research revenue for the Third Quarter of 1994 were
increased and decreased, respectively, by $2.7 million.
- 8 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Results of Operations
Nine months ended September 30, 1995 and 1994
Corporate Revenues
- - - - - ------------------
Total revenue for the nine months ended September 30, 1995 increased $8 million
as compared with the first nine months of 1994. This increase was the result of
a $13.6 million increase in product revenue offset by a $5.6 million decrease in
contract research revenue. For the quarter ended September 30, 1995, total
revenue increased $6.3 million as compared with the Third Quarter of 1994. This
increase was the result of a $6.5 million increase in product revenue offset by
a $.2 million decrease in contract research revenue. (See Note 8.)
Product Sales
- - - - - -------------
For the nine months ended September 30, 1995, product sales increased $13.6
million from $67.2 million to $80.8 million primarily as a result of new product
acquisitions in the U.S. and United Kingdom in 1995 and 1994. After including
sales of TIGAN, EMINASE and NOROXIN, U.S. product sales increased $12.1 million
from $52 million to $64.1 million. Sales of the Company's United Kingdom
subsidiary, Monmouth Pharmaceuticals Ltd., increased $2 million from $6.7
million to $8.7 million. Sales of the Company's Canadian subsidiary decreased
slightly from $8.5 million to $7.9 million. (See Note 8.)
Product sales in the third quarter increased $6.5 million from the $27.8 million
reported for the quarter ended September 30, 1994, primarily as a result of new
product acquisitions in both the U.S. and United Kingdom. Product sales in the
U.S. increased $6.7 million from $21.9 million to $28.6 million. Sales in the
United Kingdom increased $.1 million from $3.1 million to $3.2 million. Sales
in Canada decreased $.3 million from the Third Quarter of 1994. (See Note 8.)
Contract Research
- - - - - -----------------
For the nine months and the quarter ended September 30, 1995, revenue from
contract research decreased $5.6 million to $3.7 million and $.2 million to $.7
million, respectively, as Phase III clinical research studies for a major
shareholder neared completion. (See Note 8.) With the completion of these
studies, contract research revenue will decline substantially in 1995 from
revenue levels achieved in 1994.
- 9 -
<PAGE>
Cost of Sales
- - - - - -------------
For the nine months ended September 30, 1995, cost of sales amounted to 46.2%
of product sales, a 23.7 percentage point increase as compared to the prior
year's comparable period. This increase in cost of sales and corresponding
decrease in gross profit percentage is primarily the result of the addition of
NOROXIN. For the current period, cost of sales amounted to 53.6% of product
sales, a 31.5 percentage point increase from the Third Quarter of 1994. (See
Note 8.) With the continued distribution of NOROXIN, the Company expects cost
of sales and gross profit as percentages of product sales to be similarly
impacted for the foreseeable future.
Cost of Contract Research
- - - - - -------------------------
During the nine months ended September 30, 1995, cost of contract research
decreased to $2.9 million from $7.9 million incurred in 1994 as a result of
decreased contract research activity. For the current period, cost of contract
research decreased $1.7 million to $.6 million as a result of decreased contract
research activity.
Research and Development
- - - - - ------------------------
Research and development expenses decreased $1.9 million to $5.3 million during
the nine months ended September 30, 1995 as compared to the comparable prior
year period. For the quarter ended September 30, 1995, research and development
expenses decreased $.8 million to $1.7 million from $2.5 million incurred in
1994. Both decreases are due to a reduced level of expenditure required to
support the Company's development program for AGRELIN.
Marketing and Administration Expenses
- - - - - -------------------------------------
For the nine months ended September 30, 1995, Marketing and Administration
expenses increased $9.2 million from $28.1 million to $37.3 million. Marketing
expenses increased $3.3 million as a result of promotional activities for new
products and the expansion of sales forces in the United States, United Kingdom
and Canada. Administration expenses increased $5.9 million primarily as a
result of an increase in personnel costs associated with and the relocation of
the Company's contract research division of $1.5 million, an increase in legal
and professional fees, insurance, bad debt, charitable product contributions,
distribution expenses, and other corporate support costs totalling $3.7 million,
and a $.7 million increase in amortization of intangibles related to product
acquisitions.
For the quarter ended September 30, 1995, Marketing and Administration expenses
increased $3.7 million from $9.7 million to $13.4 million as administration and
support costs increased to accommodate expanded promotional activities as
compared to the comparable 1994 period. For the Third Quarter of 1995,
intangible amortization increased to $1.8 million, a $.3 million increase from
1994.
- 10 -
<PAGE>
Interest Income and Expense
- - - - - ---------------------------
Interest income decreased from $2.2 million to $1.5 million as a result of a
decrease in invested marketable securities. Interest expense decreased $.6
million from $3 million primarily as a result of a decrease in long term debt as
compared to the prior year's comparable period.
Income Taxes
- - - - - ------------
For the nine months and quarter ended September 30, 1995, the income tax expense
represents a normal statutory rate for continuing operations. For the nine
months and quarter ended September 30, 1994, the rate was lower than the normal
statutory rate due to the recognition of tax benefits associated with operating
losses and credits.
Liquidity and Capital Resources
- - - - - -------------------------------
For the nine months ended September 30, 1995, cash flows from operating
activities amounted to $14.6 million. This resulted from a $11.7 million
increase in accounts payable and $18.9 million of non cash charges, including
$11 million related to the disposal of Pronetics, offset by the Company's net
loss and $4.5 million of increased working capital requirements. Cash flows
from operating activities in the comparable 1994 period amounted to $3.1
million, resulting primarily from net income and non cash charges offset by
working capital requirements due to increased sales levels. As of September 30,
1995, the Company had cash, cash equivalents, and marketable securities of $31.9
million. This balance results primarily from the public offering of Common
Stock completed in October, 1993.
The Company will use its existing cash and securities balances and cash
generated from operations to fund its operating activities and its near term and
long-term debt obligations from previous product acquisitions. Based upon its
present plans, the Company believes that it may require additional funding in
1996. If additional funds are required, the Company believes that it has various
alternative funding sources including bank debt, private debt financing, equity
financing and the sale or licensing of product rights.
Foreign Currency Fluctuations
- - - - - -----------------------------
Roberts has subsidiary operations outside the United States. As a result,
Roberts is subject to fluctuations in reported revenues and costs reported in
United States dollars as a consequence of changing currency exchange rates,
especially rates for the British pound and Canadian dollar.
- 11 -
<PAGE>
Item 1. Legal Proceedings
The Company previously reported in its Current Reports on Form 8-K dated
April 10, 1995 and June 26, 1995, respectively, and its Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, that two shareholder class action
suits had been instituted against it and certain of its officers in the United
District Court for the District of New Jersey. The second suit filed by Dieter
Zander has been voluntarily dismissed by the plaintiff. The first complaint, as
amended, was filed by Grace Cowit on behalf of all persons who purchased shares
of the Company's common stock between November 7, 1994 and May 31, 1995.
- 12 -
<PAGE>
Item 6 Exhibits and Reports on Form 8K
Reports on Form 8K
Date of Report Item
- - - - - -------------- ----
08/21/95 Roberts Pharmaceutical Corporation announces the
discontinuance of its Homecare Division and its Medical
Products Division. The Company plans to also divest certain
of its non-core prescription and non-prescription products.
The Company states that it is engaging in a more focused
utilization of resources to optimize growth.
- 13 -
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: 11/10/95 /s/ Anthony P. Maris
------------------- ---------------------------------
Anthony P. Maris
Vice President and Treasurer
Date: 11/10/95 /s/ Anthony P. Maris
------------------- ---------------------------------
Anthony P. Maris
Chief Accounting Officer
- 14 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 10,913
<SECURITIES> 20,996
<RECEIVABLES> 33,645<F1>
<ALLOWANCES> 0
<INVENTORY> 22,632<F2>
<CURRENT-ASSETS> 94,495
<PP&E> 16,158
<DEPRECIATION> 0
<TOTAL-ASSETS> 349,614
<CURRENT-LIABILITIES> 84,429
<BONDS> 16,197
<COMMON> 189
0
0
<OTHER-SE> 248,204
<TOTAL-LIABILITY-AND-EQUITY> 349,614
<SALES> 80,824
<TOTAL-REVENUES> 84,608
<CGS> 37,337
<TOTAL-COSTS> 40,255
<OTHER-EXPENSES> 5,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,463
<INCOME-PRETAX> 825
<INCOME-TAX> 320
<INCOME-CONTINUING> 505
<DISCONTINUED> (12,001)<F3>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,496)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> (.62)
<FN>
<F1>Includes shareholder receivable of $1,200.
<F2>Includes raw material inventory of $3,474.
<F3>In August, 1995, the Company decided to sell its Pronetics (Homecare)
subsidiaries. Estimated loss on discontinuing Pronetics (Homecare) is $10,992,
including a provision of $1,931 for operating losses until disposal of which
$.4 million was utilized in the third quarter.
</FN>
</TABLE>
