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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
March 31, 1997
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
May 7, 1997
Common Stock 27,470,609
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ROBERTS PHARMACEUTICAL CORPORATION
INDEX
Page
Part I
Item 1 - Financial Statements 2
Item 2 - Management's Discussion and Analysis 8
Part II
Item 1 - Legal Proceedings 11
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 16
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ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 1997 December 31, 1996
-------------- -----------------
ASSETS:
Current assets:
Cash and cash equivalents $ 86,766 $ 87,125
Marketable securities 7,326 7,793
Accounts receivable, net 24,377 30,791
Inventory 18,931 16,665
Notes receivable, current 245 1,620
Deferred tax assets 9,040 9,040
Net assets held for sale 500 500
Other current assets 1,787 2,124
-------- --------
Total current assets 148,972 155,658
Fixed assets, net 14,873 14,945
Intangible assets 181,227 183,756
Notes receivable 6,652 6,574
Deferred non-current tax asset 11,216 11,217
Other assets 74 74
-------- --------
Total assets $363,014 $372,224
======== ========
The accompanying notes are an integral part of these financial statements.
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ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 1997 December 31, 1996
-------------- -----------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $ 5,496 $ 6,376
Accounts payable 12,494 15,848
Income taxes payable 7,762 7,020
Dividends payable 310 679
Other current liabilities 18,728 21,559
-------- --------
Total current liabilities 44,790 51,482
Long-term debt, excluding
current installments 7,077 10,639
Other liabilities 320 345
Shareholders' equity:
Class B preferred stock,
$.10 par 10,000,000 shares
authorized, 1,004,622 and
2,721,030 outstanding 100 272
Common stock, $.01 par,
100,000,000 shares authorized,
27,234,370 and 22,961,707
outstanding 272 223
Additional paid-in capital 365,571 365,160
Cumulative translation adjustments (541) (301)
Retained earnings (deficit) (54,338) (55,359)
Treasury stock, 387,594 shares
of common stock, at cost (237) (237)
-------- --------
Total shareholders' equity 310,827 309,758
-------- --------
Total liabilities and
shareholders' equity $363,014 $372,224
======== ========
The accompanying notes are an integral part of these financial statements.
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ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
For the three months
ended March 31,
1997 1996
---- ----
Sales and Revenue:
Sales $ 26,330 $ 17,216
Other revenue 0 12
----------- ------------
Total sales and revenue 26,330 17,228
----------- ------------
Operating costs and expenses:
Cost of sales 11,652 8,748
Research & development 834 1,149
Marketing & administration 12,421 12,849
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Total operating costs & expenses 24,907 22,746
----------- ------------
Operating income (loss) 1,423 (5,518)
----------- ------------
Other income (expense):
Interest income 1,168 438
Interest expense (254) (651)
Foreign currency gain (loss) (13) (140)
Other income(expense), net --- 25
----------- ------------
Total other income (expense) 901 (328)
----------- ------------
Income (loss) from continuing
operations before income taxes 2,324 (5,846)
Provision (benefit) from income taxes 754 (1,634)
----------- ------------
Net income (loss) $ 1,570 $ (4,212)
=========== ============
Per share of common stock,
primary and fully diluted:
Net income (loss) $0.04 $(0.22)
=========== ============
Weighted average number of
common shares outstanding,
primary and fully diluted: 30,680,655 18,722,259
The accompanying notes are an integral part of these financial statements.
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ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the three months
ended March 31
1997 1996
---- ----
Cash flows from operating activities: $ 4,164 $11,781
------- -------
Cash flows from investing activities:
Redemption of marketable securities 467 7,527
Purchases of intangible assets (1,000) (40)
Purchases of fixed assets (92) (78)
Collection of notes receiveable 1,424 ---
Impact of discontinued operations 0 2
------- -------
Net cash provided by (used in)
investing activities 799 7,411
------- -------
Cash flows from financing activities:
Payments on notes payable and
long term debt (4,655) (8,280)
Net proceeds from issuance of
common stock 288 (217)
5% Preferred stock dividends paid (920) ---
Impact of discontinued operations 0 355
------- -------
Net cash used in
financing activities (5,287) (8,142)
------- -------
Exchange rate changes on cash and
cash equivalents (35) (8)
-------- -------
Change in cash and cash equivalents (359) 11,042
Beginning cash and cash equivalents 87,125 16,357
------- -------
Ending cash and cash equivalents $86,766 $27,399
======= =======
Supplemental cash flow information:
Interest paid $862 $62
Income taxes paid 7 ---
The accompanying notes are an integral part of these financial statements.
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<PAGE>
1. Summary of Significant Accounting Policies
------------------------------------------
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.
Foreign Currency Translation
- ----------------------------
Effective January 1, 1997, the functional currency of the United Kingdom
subsidiary, Monmouth Pharmaceutical, Ltd., was changed from the U.S. Dollar to
the British Pound. Monmouths' translation gains and losses will now be
accumulated as a separate component of Shareholders' Equity.
New Accounting Pronouncements
- -----------------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS 128
specifies a new standard designed to improve the earnings per share ("EPS")
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and increasing
the comparability of EPS data on an international basis. Some of the changes
made to simplify the EPS computations include: (a) eliminating the presentation
of primary EPS and replacing it with basic EPS, with the principal difference
being that common stock equivalents are not considered in computing basic EPS,
(b) eliminating the modified treasury stock method and the three percent
materiality provision, and (c) revising the contingent share provisions and the
supplemental EPS data requirements. SFAS 128 also makes a number of changes to
existing disclosure requirements. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. The Company has not yet determined the impact of the implementation of
SFAS 128 and therefore this calculation has not been reflected in these
financial statements.
2. Inventory
---------
Inventory at March 31, 1997 consists of:
Raw Materials $ 2,709
Finished Goods 16,222
-------
Total $18,931
=======
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3. Net Income Per Common Share
---------------------------
Net income per common share was determined by dividing net income, as adjusted
below, by applicable shares outstanding.
March 31,
------------------------------
1997 1996
------------ --------------
Net income as reported $ 1,570 $ (4,212)
EPS Adjustment for
Preferred dividends (309) ---
------------ --------------
Per share net income
for EPS calculation $ 1,261 $ (4,212)
============ ==============
Weighted average number of
common shares outstanding 30,680,655 18,722,259
============ ==============
Per share net income $ 0.04 $ (0.22)
============ ==============
5. Contingency
-----------
A shareholder class action suit was instituted March 24, 1995, in the United
States District Court for the District of New Jersey against Roberts
Pharmaceutical Corporation and certain of its officers and a former officer 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.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Results of Operations
Three months ended March 31, 1997 and 1996
Corporate Revenues
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Total revenue for the three months ended March 31, 1997 increased $9.1 million
as compared with the first three months of 1996. This increase was due to an
increase in revenues from product sales.
Product Sales
- -------------
For the three months ended March 31, 1997, product sales increased $9.1 million
from $17.2 million to $26.3 million primarily as a result of the launch of
AGRYLIN and an increase in sales by the United Kingdom subsidiary.
U.S. product sales increased $6.3 million from $11.5 million to $17.8 million.
AGRYLIN provided $4.0 million of this increase, and COLACE, NITRODISC, and PERI-
COLACE also posted significant increases of $0.9 million, $0.9 million, and
$0.5 million, respectively. Sales of the Company's United Kingdom subsidiary,
Monmouth Pharmaceuticals, Ltd., increased $2.5 million from $2.8 million to $5.3
million, primarily due to sales of LODINE which was launched in fourth quarter
1996. Sales of the Company's Canadian subsidiary increased slightly by $0.3
million from $2.9 million to $3.2 million.
Cost of Sales
- -------------
For the three months ended March 31, 1997, cost of sales amounted to 44.3% of
product sales, a 6.6 percentage point decrease as compared to the prior year's
comparable period. This decrease in cost of sales and corresponding increase in
gross profit percentage is primarily the result of the addition of AGRYLIN to
the product mix. AGRYLIN has higher gross profit percentage as it is a product
that was developed through Roberts own research and development. Additionally
contributing to the increased gross profit is a $1.0 million decrease in sales
of NOROXIN, which has a very high cost of sales. Also included in cost of sales
is a $1.8 million charge for minimum royalties due to Ortho Pharmaceutical
Corporation for SUPPRELIN sales.
Research and Development
- ------------------------
Research and Development expenses decreased $0.3 million to $0.8 million during
the three months ended March 31, 1997 as compared to the comparable prior year
period. This decrease is due to a reduced level of expenditure required to
support the Company's development program for AGRYLIN which was recently
approved, offset by an increase due to start-up of the Phase IV midodrine
trials.
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Marketing and Administrative Expenses
-------------------------------------
For the three months ended March 31, 1997, Marketing and Administrative expenses
decreased $0.4 million from $12.8 million to $12.4 million. Marketing expenses
decreased $0.8 million as a result of a decrease of $0.9 million in consulting
costs and a decrease of $0.4 million in salaries and benefits, offset by an
increase of $0.5 million of NOROXIN sample costs.
Administrative expense increased $0.4 million from $5.1 million to $5.5 million.
This increase was due to a number of factors including a $0.2 million increase
in insurance expense and an increase of $0.3 million related to salaries and
benefits.
Interest Income and Expense
- ---------------------------
Interest income increased $0.7 million as a result of an increase in invested
marketable securities arising from the common and preferred stock offerings in
the third quarter of 1996. Interest expense decreased by $0.4 million as a
result of a decrease in long-term debt related to product acquisitions.
Income Taxes
- ------------
For the three months ended March 31, 1997 and 1996, income tax expense was
calculated using a normal statutory rate for continuing operations, except for
certain taxes related to foreign operations.
The Company has recorded net deferred tax assets of approximately $20.3 million.
Realization is dependent upon generating sufficient taxable income to utilize
such items. Although realization is not assured, management believes it is more
likely than not that all of the deferred tax assets will be realized; however,
these assets could be reduced at any time if estimates of future taxable income
are reduced.
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Liquidity and Capital Resources
- -------------------------------
Operating activities provided $4.1 million in cash. The primary components of
cash provided by operating activities were a $6.4 million decrease in accounts
receivable and the net income of $1.6 million, which includes $1.8 million of
non-cash charges, and increased working capital requirements of $5.6 million.
Investing activities provided $0.8 million, comprised primarily of $0.4 million
in marketable securities redemptions and $1.4 million in collections of notes
receivable offset by asset purchases of $1.0 million.
Financing activities used $5.3 million, including $4.6 million of payments on
notes payable and payment of $0.9 million of preferred stock dividends paid
partially offset by proceeds from the issuance of Common Stock.
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 as well as future
acquisitions of new products and the purchase of a manufacturing facility and
for the development of existing pipeline products.
Foreign Currency Fluctuations
- -----------------------------
Roberts has subsidiary operations outside the United States. As a result,
Roberts is subject to fluctuations in 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. Such fluctuations were not
material for the first quarter 1997.
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<PAGE>
Item 1. Legal Proceedings
The Company previously reported in its Current Reports on Form 8K 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 States
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.
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<PAGE>
Item 6 Exhibits and Reports on Form 8K
Reports on Form 8K
January 9, 1997 Roberts Pharmaceutical Corporation announced that it has
obtained from Wyeth Laboratories, a subsidiary of American
Home Products, an exclusive license to market and distribute
Lodine, a nonsteroidal anti-inflammatory drug indicated for
acute and long-term use in osteoarthritis and rheumatoid
arthritis, in the United Kingdom and the Republic of
Ireland. The product line has an established base of
revenues and profits in the U.K. and the marketing has
already begun; Lodine is not currently marketed in the
Republic of Ireland and plans for a future launch are being
put into place.
January 24, 1997 Roberts Pharmaceutical Corporation noted that preliminary,
unaudited data indicate substantial strengthening in
operations during the fourth-quarter ended December 31,
1996.
February 5, 1997 Roberts Pharmaceutical Corporation announced that it has
received notification from the Food and Drug Administration
(FDA) that the Company's New Drug Application for AGRYLIN
(TM) is approvable. AGRYLIN has been developed by Roberts
for the treatment of essential thrombocythemia, a life
threatening condition characterized by high blood platelet
counts, a condition for which the FDA has not previously
approved a drug. AGRYLIN is approvable under section
505(b) of the Federal Food, Drug and Cosmetic Act and does
not require any additional studies. Roberts is currently in
the process of preparing a marketing label to be submitted
to the FDA which is a prerequisite to marketing clearance.
March 11, 1997 Roberts Pharmaceutical Corporation announced that its new
drug AGRYLIN (TM) has been given "Priority Review" status by
the Health Protection Branch, Canada (HPB). Roberts filed a
New Drug Submission for AGRYLIN with the Canadian regulatory
agency subsequent to recent FDA notification that the
product was approvable in the U.S. for treating
thrombocythemia. Roberts also plans to file a Product
License Application this year for AGRYLIN according to the
EMEA harmonization procedures for approval of new drugs
within the European Community. Filings in other geographic
locations are being pursued.
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<PAGE>
March 20, 1997 Roberts Pharmaceutical Corporation announced that the Food
and Drug Administration (FDA) has approved AGRYLIN for U.S.
marketing, and the Company expect to begin shipping within
10 days. AGRYLIN is the first drug approved by FDA for the
treatment of essential thrombocythemia, associated with
heart attack and stroke. Unapproved therapies have been
employed to treat the condition until now, but these
therapies have distinct disadvantages including leukemia. A
total of 551 patients with essential thrombocythemia were
treated with AGRYLIN in three clinical trial. Adverse
reactions were mild and self-limiting. More than 2,300
patients in the U.S. have been receiving the drug under a
compassionate protocol.
April 8, 1997 Roberts Pharmaceutical Corporation announced that the
Company has filed its 1996 Annual Report on Form 10-K
containing audited financial statements. As a result of (i)
a newly adopted position by the Securities and Exchange
Commission (SEC) Staff on accounting for convertible
preferred stock that is convertible at a discount to market
and (ii) payments and accrual of dividends with respect to
shares of its Convertible Preferred Stock during the third
and fourth quarters 1996, the Company is required to
recalculate the previously reported unaudited earnings per
share figures for the third and fourth quarters of 1996 and
the full fiscal year ended December 31, 1996. This
adjustment to the earnings per share calculation has no
effect on the operating income and net income of the Company
which remain as previously announced for the third and
fourth quarters and the full fiscal year of 1996.
April 8, 1997 Roberts Pharmaceutical Corporation, through its wholly owned
subsidiary Roberts Laboratories Inc., has received an
exclusive license from Pfizer Inc. to develop and market
Sampatrilat, a novel new compound to treat essential
hypertension and congestive heart failure. The agreement
provides for transfer of data and assignment of patent
rights to Roberts from Pfizer. Sampatrilat incorporates, in
a single substance, two different but complimentary modes of
activity. It is a potent inhibitor of angiotensin
converting enzyme (ACE) and therefore offers
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<PAGE>
benefits of ACE inhibitors such as captopril. Sampatrilat
also inhibits neutral endopeptidase which, in turn results
in an elevation of atrial natriuretic factor (ANF), the
body's own natural diuretic. This dual mode of activity may
offer patients and managed care providers the potential
advantages of a treatment regime involving fewer drugs,
reduced risks, and lower costs in comparison to existing
therapies. The Company noted that this is their second
strategic alliance, in the past few months, with a major
pharmaceutical company for development of compounds
representing significant therapeutic potentials for very
large markets.
April 10, 1997 Roberts Pharmaceutical Corporation announced it has
responded to a FORM FDA 483 issued November 18, 1996 citing
certain deficiencies following a routine inspection of its
Eatontown facility, where there are no manufacturing or
quality control operations. Roberts anticipated near-term
receipt of and FDA letter indicating that the Company's
written reply to FORM FDA 483 was satisfactory.
The FDA raised questions about documentation and stability
dates for certain batches of a topical medicine, Topicycline
and the Company noted that: 1) all appropriate tests were
done; 2) the tested lots comply with specifications; and 3)
no product recall was requested by the agency. The Company
further notes that written procedures do exist concerning
quality control (QC) and that QC responsibilities are being
formalized in a written document. Roberts also indicted
that it does have a system for evaluating the quality of
drug products.
April 11, 1997 Roberts Pharmaceutical Corporation announced that David S.
Tierney, M.D., formerly of Elan Pharmaceutical Research
Corporation, has joined Roberts as Senior Vice President,
Medical and Regulatory Affairs. In this newly created
position, Dr. Tierney will assume overall responsibility for
the drug development program at Roberts which, in recent
months, has been significantly expanded with the addition of
compounds licensed from Lilly and Pfizer that address
potentially large markets.
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<PAGE>
April 21, 1997 Roberts Pharmaceutical Corporation today reported first
quarter 1997 results with significant year-to-year
improvements recorded in revenues, gross profits, and net
earnings.
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<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: _________________ _____________________________
Peter M. Rogalin
Vice President and Treasurer
Date: ________________ _____________________________
Peter M. Rogalin
Chief Accounting Officer
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 86,766
<SECURITIES> 7,326
<RECEIVABLES> 24,377
<ALLOWANCES> 0
<INVENTORY> 18,931<F1>
<CURRENT-ASSETS> 148,972
<PP&E> 14,873
<DEPRECIATION> 0
<TOTAL-ASSETS> 363,014
<CURRENT-LIABILITIES> 44,790
<BONDS> 0
0
100
<COMMON> 272
<OTHER-SE> 310,455
<TOTAL-LIABILITY-AND-EQUITY> 363,014
<SALES> 26,330
<TOTAL-REVENUES> 26,330
<CGS> 11,652
<TOTAL-COSTS> 11,652
<OTHER-EXPENSES> 834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 254
<INCOME-PRETAX> 2,324
<INCOME-TAX> 754
<INCOME-CONTINUING> 1,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,570
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<FN>
<F1>Includes Raw Material Inventory of $2,709.
</FN>
</TABLE>
