<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
June 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
July 27, 1995
Common Stock 18,520,140
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I
Item 1 - Financial Statements 2
Item 2 - Management's Discussion and Analysis 9
Part II
Item 4 - Submission of Matters to a Vote of 12
Security Holders
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
- 1 -
<PAGE>
PART I. FINANCIAL STATEMENTS
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 15,588 $ 9,819
Marketable securities 19,960 26,663
Accounts receivable, net 23,023 28,882
Accounts receivable from
shareholder 1,716 7,256
Inventory 24,722 19,797
Net assets held for sale 2,200
Other current assets 3,387 3,784
-------- --------
Total current assets 90,596 96,201
Fixed assets, net 16,330 16,800
Other assets, principally
acquired intangibles, net 240,725 223,191
-------- --------
Total assets $347,651 $336,192
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $ 32,437 $ 34,277
Accounts payable 11,183 6,735
Other current liabilities 19,261 12,922
-------- --------
Total current liabilities 62,881 53,934
Long-term debt, excluding
current installments 36,478 22,411
Other liabilities 685 718
Shareholders' equity:
Class B preferred stock,
$.10 par 10,000,000 shares
authorized, none issued - - - - - -
Common stock, $.01 par,
50,000,000 shares authorized,
18,520,140 and 18,370,805
outstanding 189 188
Additional paid-in capital 256,013 255,994
Cumulative translation adjustments (389) (674)
Retained earnings (deficit) (7,969) 3,858
Treasury stock, 387,594 shares
of common stock, at cost (237) (237)
-------- --------
Total shareholders' equity 247,607 259,129
-------- --------
Total liabilities and
shareholders' equity $347,651 $336,192
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
For the six months For the three months
ended June 30, ended June 30,
1995 1994 1995 1994
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales and Revenue:
Sales $46,515 $39,411 $30,352 $20,719
Contract research revenue 2,665 1,061 990 394
Contract research-shareholder 360 7,394 180 2,739
Other revenue 23 22 12 10
-------- ------- ------- -------
Total sales and revenue 49,563 47,888 31,534 23,862
Operating costs and expenses:
Cost of sales 18,939 8,984 13,220 4,885
Cost of contract research 2,275 5,620 1,039 2,243
Research & development 3,600 4,693 1,566 2,420
Marketing & administration 23,853 18,391 13,533 9,110
-------- ------- ------- -------
Total operating costs & expenses 48,667 37,688 29,358 18,658
-------- ------- ------- -------
Operating income 896 10,200 2,176 5,204
Other income (expense):
Interest income 983 1,451 487 733
Interest expense (1,619) (2,028) (930) (1,009)
Other income (expense), net 24 4 (7) (1)
-------- ------- ------- -------
Total other income (expense) (612) (573) (450) (277)
Income from continuing operations before
income taxes 284 9,627 1,726 4,927
Benefit (provision) for income taxes (110) (580) (673) (286)
-------- ------- ------- -------
Income from continuing operations 174 9,047 1,053 4,641
Discontinued operations
(Loss) from operations of discontinued
Pronetics (Homecare) Division, net of
tax benefits of $652, $289, $451 and $135,
respectively. (1,009) (456) (694) (212)
(Loss) on disposal of Pronetics (Homecare)
Division, net of tax benefits of $995 (10,992) - - - (10,992) - - -
-------- ------- ------- -------
(Loss) from discontinued operations (12,001) (456) (11,686) (212)
-------- ------- ------- -------
Net (loss) income ($11,827) $ 8,591 ($10,633) $ 4,429
======== ======= ======= =======
per share of common stock,
primary and fully diluted:
Net income from continuing operations $0.01 $0.49 $0.06 $0.25
Net (loss) from discontinued operations ($0.64) ($0.02) ($0.63) ($0.01)
-------- ------- ------- -------
Net (loss) income ($0.63) $0.47 ($0.57) $0.24
======== ======= ======= =======
Weighted average number of
common shares outstanding,
primary and fully diluted 18,649,093 18,456,506 18,514,493 18,456,506
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the six months ended
June 30,
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities: $ 9,845 $ 2,866
Cash flows from investing activities:
Redemption of marketable securities 6,702 15,431
Purchases of intangible assets (2,753) (8,427)
Purchases of fixed assets (419) (376)
Impact of discontinued operations (4) (32)
------- -------
Net cash provided by
investing activities 3,526 6,596
------- -------
Cash flows from financing activities:
Payments on notes payable and
long term debt (8,117) (8,742)
Net proceeds from issuance of
common stock 520 396
Impact of discontinued operations (7) (339)
------- -------
Net cash (used in)
financing activities (7,604) (8,685)
------- -------
Exchange rate changes on cash and
cash equivalents 2 (51)
Change in cash and cash equivalents 5,769 726
Beginning cash and cash equivalents 9,819 6,071
------- -------
Ending cash and cash equivalents $15,588 $ 6,797
======= =======
Supplemental cash flow information:
Interest and dividends received $983 $ 1,451
Interest paid 523 1,291
Income taxes paid 2,616 375
Contract research receipts from shareholder 5,900 3,900
Non cash activities:
Present value of notes issued in
connection with product acquisitions $18,279 $ 1,903
Acquisition of subsidiary; fair value
of assets acquired - - - 2,205
Liabilities assumed - - - (1,705)
Common stock issued - - - (500)
------- -------
Amounts paid - - - $ 1,627
======= =======
</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.
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 will launch this product later in 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 later in 1995.
Cash paid for these acquisitions amounted to $2.7 million with balances
payable through March, 2000.
3. Inventory
---------
<TABLE>
<CAPTION>
Inventory consists of:
June 30, 1995
-------- -------
<S> <C>
Raw Materials $ 3,387
Finished Goods 21,335
-------
Total $24,722
=======
</TABLE>
- 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:
<TABLE>
<CAPTION>
December 31,
<S> <C>
1995 $2,810
1996 2,146
1997 1,556
1998 1,301
1999 1,069
</TABLE>
The total of the above minimum lease payments has not been reduced by
$1,572 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
$51,933 through 2001 and make royalty payments totalling $2,000 through
1998.
5. Contingency
-----------
Two shareholder class action suits, which have been consolidated, have 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 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.
6. 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
- 7 -
<PAGE>
the estimated loss on discontinuing Homecare of $10,992, including a
provision of $1,931 for operating losses until disposal. The Company has
also reclassified its consolidated financial statements to report
separately the net assets 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 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Results of Operations
Six months ended June 30, 1995 and 1994
Corporate Revenues
------------------
Total revenue for the six months ended June 30, 1995 increased $1.7 million as
compared with the first six months of 1994. This increase was the result of a
$7.1 million increase in product revenue offset by a $5.4 million decline in
contract research revenue. For the quarter ended June 30, 1995, total revenue
increased $7.7 million as compared with the Second Quarter of 1994. This
increase was the result of a $9.6 million increase in product revenue offset by
a $1.9 million decline in contract research revenue.
Product Sales
-------------
For the six months ended June 30, 1995, product sales increased $7.1 million
from $39.4 million to $46.5 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 $5.5 million
from $30.1 million to $35.6 million. Sales of the Company's United Kingdom
subsidiary, Monmouth Pharmaceuticals Ltd., increased $2 million from $3.6
million to $5.6 million. Sales of the Company's Canadian subsidiary decreased
slightly from $5.6 million to $5.4 million.
Product sales in the second quarter increased $9.6 million from the $20.7
million reported for the quarter ended June 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 $8.5 million from $16.2 million to $24.7 million. Sales in
the United Kingdom increased $1.1 million from $1.6 million to $2.7 million.
Sales in Canada equaled the $2.9 million achieved during the Second Quarter of
1994.
Contract Research
-----------------
For the six months ended June 30, 1995, revenue from contract research decreased
$5.4 million to $3 million as Phase III clinical research studies for a major
shareholder neared completion. For the quarter ended June 30, 1995, contract
research revenue decreased $1.9 million to $1.2 million from $3.1 million as
Phase III clinical research studies for a major shareholder neared completion.
With the completion of these studies, the Company expects contract research
revenue to decline substantially in 1995 from revenue levels achieved in 1994.
- 9 -
<PAGE>
Cost of Sales
-------------
For the six months ended June 30, 1995, cost of sales amounted to 40.7% of
product sales, a 17.9 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 43.5% of product sales, a 20
percentage point increase from the Second Quarter of 1994. 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 six months ended June 30, 1995, cost of contract research decreased
to $2.3 million from $5.6 million incurred in 1994 as a result of decreased
contract research activity. For the current period, cost of contract research
decreased $1.2 million to $1.0 million as a result of decreased contract
research activity.
Research and Development
------------------------
Research and development expenses decreased $1.1 million to $3.6 million during
the six months ended June 30, 1995 as compared to the comparable prior year
period. For the quarter ended June 30, 1995, research and development expenses
decreased $.8 million to $1.6 million from $2.4 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 Administrative Expenses
-------------------------------------
For the six months ended June 30, 1995, Marketing and Administrative expenses
increased $5.5 million from $18.4 million to $23.9 million. Marketing expenses
increased $1.4 million as a result of promotional activities for new products
and the expansion of sales forces in the United States, United Kingdom and
Canada. Administrative expenses increased $4.1 million primarily as a result of
an increase in support costs associated with promotional activities, a non
recurring charge associated with the relocation of the Company's clinical
research division, and a $.4 million increase in amortization of intangibles
related to product and company acquisitions.
For the quarter ended June 30, 1995, Marketing and Administrative expenses
increased $4.4 million from $9.1 million to $13.5 million as administration and
support costs increased to accommodate expanded promotional activities as
compared to the comparable 1994 period. For the Second Quarter of 1995,
intangible amortization increased to $1.7 million, a $.3 million increase from
1994.
- 10 -
<PAGE>
Interest Income and Expense
---------------------------
Interest income decreased from $1.5 million to $1 million as a result of a
decrease in invested marketable securities. Interest expense decreased $.4
million from $2 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 six months and quarter ended June 30, 1995, the income tax expense
represents a normal statutory rate for continuing operations. For the six
months and quarter ended June 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 six months ended June 30, 1995, cash flows from operating activities
amounted to $9.8 million. This resulted from a $8.5 million decrease in
accounts receivables and $16.6 million of non cash charges, including $11
million related to the disposal of Pronetics, offset by the Company's net loss
and $3.5 million of increased working capital requirements. Cash flows from
operating activities in the comparable 1994 period amounted to $2.9 million,
resulting primarily from net income and non cash charges offset by working
capital requirements due to increased sales levels. As of June 30, 1995, the
Company had cash, cash equivalents, and marketable securities of $35.5 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. Cash equivalents
and marketable securities currently consist of immediately available money
market fund balances and investment grade securities.
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>
Part I. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
On May 24, 1995, the annual meeting of the shareholders of Roberts
Pharmaceutical Corporation was held. Two matters were submitted to the
shareholders for approval: the election of directors and a proposal to amend
the Company's Incentive Stock Option Plan to increase the number of shares of
the Company's Common Stock reserved for issuance thereunder by one million
shares.
Nine nominees, namely Robert A. Vukovich, Ph.D., Anthony P. Maris, Anthony A.
Rascio, Yale Brozen, Ph.D., Robert W. Loy, Digby Barrios, Akihiko Matsubara,
Takao Miyamoto and W. Robert Fowler, M.D. were duly elected as directors of the
Company until the next annual meeting of shareholders. Each nominee received at
least ninety-six percent of the votes cast in favor of his election. Further
results of the voting were as follows:
<TABLE>
<CAPTION>
Votes Cast for Votes
Director the Director Withheld
-------- -------------- --------
<S> <C> <C>
Robert A. Vukovich, Ph.D. 14,285,353 626,005
Anthony P. Maris 14,253,218 658,140
Anthony A. Rascio 14,287,252 624,106
Robert W. Loy 14,287,053 624,305
Yale Brozen, Ph.D. 14,284,253 627,105
Digby Barrios 14,287,953 623,405
Akihiko Matsubara 14,287,916 623,442
Takao Miyamoto 14,270,849 640,509
W. Robert Fowler, M.D. 14,284,253 627,105
</TABLE>
There were no abstentions or broken non-voters in connection with the
shareholder vote for the election of directors which occurred at the 1995 Annual
Meeting of Shareholders.
The proposal to amend the Company's Incentive Stock Option Plan to increase the
number of shares of the Company's Common stock reserved for issuance thereunder
by one million shares was approved by the Company's shareholders. 9,513,201
shares of the Company's Common Stock voted in favor of the amendment to the
Incentive Option Plan, 1,450,589 shares of the Company's Common stock voted
against the amendment, 54,958 shares of the Company's Common stock abstained
from voting, and 3,892,610 shares of the Company's Common stock were not voted
by brokers. The amendment to the Company's Incentive Option Plan received
eighty-seven percent of the votes cast.
No other matters were voted upon at the shareholders meeting.
- 12 -
<PAGE>
Item 6 Exhibits and Reports on Form 8K
Reports on Form 8K
Date of Report Item
-------------- ----
05/31/95 Roberts Pharmaceutical Corporation announces that based on
preliminary information for two months, operating results
for the Second Quarter of 1995 are expected to be at, or
about break even, and below the estimates of the security
analysts following the Company. Earnings for all of 1995 are
also expected to be below street estimates.
07/5/95 On June 26, 1995, a shareholders' class action suit was
instituted against Roberts Pharmaceutical Corporation and
certain of its officers alleging violations of Section 10(b)
and 20(a) of the Securities and Exchange Act of 1934, as
amended, and Rule 10b-5. Roberts believes that such
allegations are without merit and intends to defend
vigorously against them.
- 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.
8/9/95 /s/ A. P. Maris
Date: _____________________ ____________________________
Anthony P. Maris
Vice President and Treasurer
8/9/95 /s/ A. P. Maris
Date: _____________________ ____________________________
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 JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 15,588
<SECURITIES> 19,960
<RECEIVABLES> 24,739<F1>
<ALLOWANCES> 0
<INVENTORY> 24,722<F2>
<CURRENT-ASSETS> 90,596
<PP&E> 16,330
<DEPRECIATION> 0
<TOTAL-ASSETS> 347,651
<CURRENT-LIABILITIES> 62,881
<BONDS> 36,478
<COMMON> 189
0
0
<OTHER-SE> 247,418
<TOTAL-LIABILITY-AND-EQUITY> 347,651
<SALES> 46,515
<TOTAL-REVENUES> 49,563
<CGS> 18,939
<TOTAL-COSTS> 21,214
<OTHER-EXPENSES> 3,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,619
<INCOME-PRETAX> 284
<INCOME-TAX> 110
<INCOME-CONTINUING> 174
<DISCONTINUED> (12,001)<F3>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,827)
<EPS-PRIMARY> (0.630)
<EPS-DILUTED> (0.630)
<FN>
<F1> Includes shareholder receivable of $1,716.
<F2> Includes raw material inventory of $3,387.
<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.
</FN>
</TABLE>
