<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
March 31, 1998
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:
(732) 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 13, 1998
Common Stock 31,253,335
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
INDEX
Page
Part I
Item 1 - Financial Statements 2
Item 2 - Management's Discussion and Analysis 9
Signatures 12
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 37,381 $ 42,950
Marketable securities 45,008 39,887
Accounts receivable, net 25,833 24,730
Inventory 20,781 19,826
Notes receivable, current 225 225
Deferred tax assets 4,962 4,962
Net assets held for sale 4,186 3,760
Other current assets 3,555 1,647
-------- --------
Total current assets 141,931 137,987
Fixed assets, net 28,954 25,913
Intangible assets 189,095 190,724
Notes receivable 643 729
Deferred non-current tax asset 12,332 12,332
Other assets 1,169 170
-------- --------
Total assets $374,124 $367,855
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
- 2 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $ 7,881 $ 8,037
Accounts payable 12,839 13,188
Income taxes payable 4,442 3,022
Dividends payable 34 150
Other current liabilities 18,508 15,584
-------- --------
Total current liabilities 43,704 39,981
Long-term debt, excluding
current installments 6,552 10,327
Other liabilities 219 244
Shareholders' equity:
Class B preferred stock,
$.10 par 10,000,000 shares
authorized, 109,841 and
1,004,622 outstanding 11 48
Common stock, $.01 par,
100,000,000 shares authorized,
30,819,836 and 27,234,370
outstanding 313 299
Additional paid-in capital 376,440 372,384
Accumulated other comprehensive
income (1,047) (1,250)
Retained earnings (deficit) (51,831) (53,941)
Treasury stock, 387,594 shares
of common stock, at cost (237) (237)
--------- ---------
Total shareholders' equity 323,649 317,303
--------- ---------
Total liabilities and
shareholders' equity $374,124 $367,855
========= =========
</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)
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1998 1997
--------- ---------
<S> <C> <C>
Sales and Revenue:
Sales $ 32,588 $ 26,330
Other revenue 259 0
--------- ---------
Total sales and revenue 32,847 26,330
--------- ---------
Operating costs and expenses:
Cost of sales 12,603 11,652
Research & development 2,660 1,834
Marketing & administration 15,050 12,421
--------- ---------
Total operating costs & expenses 30,313 25,907
--------- ---------
Operating income 2,534 423
--------- ---------
Other income (expense):
Interest income 1,273 1,168
Interest expense (269) (254)
Foreign currency gain (loss) (26) (13)
Other income(expense), net (43) ---
--------- ---------
Total other income 935 901
--------- ---------
Income from continuing
operations before income taxes 3,469 1,324
Provision from income taxes 1,324 414
--------- ---------
Net income $ 2,145 $ 910
========= =========
Net income per share of common stock
Basic .07 .03
========= =========
Diluted .07 .02
========= =========
Weighted average number of
common shares outstanding:
Basic 30,185,163 26,265,681
Diluted 30,205,280 27,421,143
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1998 1997
-------- ---------
<S> <C> <C>
Net income $ 2,145 $ 910
-------- ---------
Other comprehensive income:
Foreign currency translation adjustment 203 (240)
-------- ---------
Other comprehensive income 203 (240)
-------- ---------
Comprehensive income $ 2,348 $ 670
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1998 1997
-------- ---------
<S> <C> <C>
Cash flows from operating activities: $ 2,972 $ 3,164
-------- ---------
Cash flows from investing activities:
Purchase (redemption) of marketable
securities (5,120) 467
Purchases of intangible assets (45) 0
Purchases of fixed assets (3,221) (92)
Collection on notes receivable 100 1,424
-------- --------
Net cash provided by (used in)
investing activities (8,286) 1,799
-------- --------
Cash flows from financing activities:
Payments on notes payable and
long term debt (4,200) (4,655)
5% Preferred stock dividends paid (150) (920)
Net proceeds from issuance of
common stock 76 288
Net proceeds from issuance of
5% preferred stock 3,957 0
-------- --------
Net cash used in
financing activities (317) (5,287)
-------- --------
Exchange rate changes on cash and
cash equivalents 62 (35)
-------- --------
Change in cash and cash equivalents (5,569) (359)
Beginning cash and cash equivalents 42,950 87,125
-------- --------
Ending cash and cash equivalents $37,381 $86,766
======== ========
Supplemental cash flow information:
Interest paid $ 638 $ 862
Income taxes paid 15 7
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
- ---------------------
Roberts Pharmaceutical Corporation is an international
pharmaceutical company which licenses, acquires, develops and
commercializes post-discovery drugs in selected therapeutic
categories. The Company currently markets approved pharmaceutical
products in the United States, Canada, the United Kingdom and
several other European countries. The consolidated financial
statements include the accounts of Roberts Pharmaceutical
Corporation and its majority-owned subsidiaries. All significant
intercompany transactions are eliminated. All dollar amounts are
presented in thousands, except for earnings per share.
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. Monmouth's translation gains
and losses are accumulated as a separate component of Shareholders'
Equity.
New Accounting Pronouncements
- -----------------------------
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130), establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-
purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements.
This Statement requires that a company (a) classify items of other
comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position.
This Statement is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required.
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise Related Information" (SFAS No.
131), establishes standards for the way that public business
companies report information about operating segments in annual
financial statements and requires that those companies report
selected information about operating segments in annual financial
- 7 -
<PAGE>
statements and requires that those companies report selected
information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. This Statement supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers.
This Statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be
restated.
The adoption of these Statements will not have an impact on the
Company's consolidated results of operation, financial position or
cash flow.
Reclassification
- ----------------
Certain items have been reclassified to conform to the current year
presentation.
2. Inventory
---------
Inventory at March 31, 1998 consists of:
Raw Materials $ 3,154
Finished Goods 17,627
-------
Total $20,781
=======
3. Change in Accounting Estimate
-----------------------------
During the first quarter 1998, management made a change in
accounting estimate in the amount of $1.0 million relating to the
accrual of rebates for a product to which Roberts has sole United
States distribution rights.
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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, 1998 and 1997
Corporate Revenues
- ------------------
Total revenue for the three months ended March 31, 1998 increased
$6.5 million as compared with the first three months of 1997. This
increase was principally due to an increase in revenues from
product sales, however with the addition of Roberts manufacturing
facility during the second half of 1997, there is now a contract
manufacturing revenue component included in corporate revenue.
Product Sales
- -------------
For the three months ended March 31, 1998, product sales increased
$6.2 million from $26.3 million to $32.5.
U.S. product sales increased $6.2 million from $17.8 million to
$24.0 million. PROAMATINE provided $2.4 million of this increase,
NOROXIN provided $2.7 million and SLOWMAG showed a net increase
over NORETHIN of $0.9 million. Sales of the Company's United
Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., remained even
with the prior year reporting a $0.05 million increase. Sales of
the Company's Canadian subsidiary decreased slightly by $0.02
million from $3.21 million to $3.19 million due to negative
currency rate fluctuations. Product sales in local currency
actually increased over the same period last year.
Contract Manufacturing
- ----------------------
Outside contract manufacturing performed at Roberts manufacturing
facility amounted to $0.3 million for the three months ended March
31, 1998. The manufacturing facility, located in Oakville,
Ontario, Canada, was acquired in July 1997 and will continue to
provide outside contract and clinical manufacturing revenue.
Cost of Sales
- -------------
For the three months ended March 31, 1998, cost of sales amounted
to 38.4% of product sales, a 5.9 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 the result of the first quarter 1997 inclusion of a $1.8 million
charge for minimum royalties due to Ortho Pharmaceutical
Corporation for SUPPRELIN sales and the first quarter 1998 $1.0
million credit related to change in estimate for rebates. The 1997
charge of $1.8 million was partially reversed during the third
quarter 1997 after contract renegotiations substantially reduced
the minimum royalty due.
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<PAGE>
Research and Development
- ------------------------
Research and Development expenses increased $0.8 million to $2.7
million during the three months ended March 31, 1998 as compared to
the comparable prior year period. This increase is due to an
increased level of expenditure required to support the Company's
development program for STANATE and an increase due to the ongoing
Phase IV MIDODRINE trials offset by a decrease in the cost of
purchased research and development.
Marketing and Administrative Expenses
- -------------------------------------
For the three months ended March 31, 1998, Marketing and
Administrative expenses increased $2.6 million from $12.4 million
to $15.0 million. Marketing expenses increased $0.9 million as a
result of many factors, including $0.3 million attributable to the
1997 initiation of auto and equipment leasing agreements, $0.3
million in sales meetings, and $0.2 million in increased brokers
commissions.
Administrative expense increased $1.7 million from $5.5 million to
$7.2 million. This increase was due primarily to $1.2 million
increase in compensation cost, however $0.2 million relates to a
distribution cost overlap as Roberts moves from an outside
distribution center to the newly purchased, wholly owned,
distribution facility located in Buffalo Grove, Illinois, and $0.1
million is caused by an increase in goodwill amortization for
products purchased during 1997.
Interest Income and Expense
- ---------------------------
Interest income increased $0.1 million. Interest expense increased
by $0.01 million as a result of an increase in long-term debt
related to product acquisitions with the current increase mainly
due to the addition of debt associated with the December 1997
acquisition of SLOWMAG.
Income Taxes
- ------------
For the three months ended March 31, 1998 and 1997, 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
$17.3 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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<PAGE>
Liquidity and Capital Resources
- -------------------------------
Operating activities provided $3.0 million in cash. The primary
components of cash provided by operating activities were net income
of $2.1 million, which includes $2.1 million of non-cash charges,
offset by a $1.0 million increase in accounts receivable and
increased working capital requirements of $0.2 million.
Investing activities used $8.3 million, comprised primarily of $5.1
million in marketable securities purchases and $3.2 million in
purchases of fixed assets.
Financing activities used $0.3 million, including $4.2 million of
payments on notes payable and payment of $0.2 million of preferred
stock dividends paid partially offset by proceeds from the issuance
of Common Stock.
In April, the Company acquired exclusive U.S. rights to market
PENTASA(r), a patented gastrointestinal drug for ulcerative colitis,
from Hoechst Marion Roussel (HMR). According to the terms of the
agreement, Roberts has exclusive marketing rights for PENTASA in
the U.S. and a two year supply agreement with HMR. A $100 million
financing commitment has been signed to facilitate the acquisition.
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
capital improvements scheduled for the Canadian manufacturing
facility.
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 1998.
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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: 5/15/98 /s/ Peter M. Rogalin
------------------- ----------------------------
Peter M. Rogalin
Vice President and Treasurer
Date: 5/15/98 /s/ Peter M. Rogalin
------------------- ----------------------------
Peter M. Rogalin
Chief Accounting Officer
- 12 -
<PAGE>
Item 6 EXHIBITS AND REPORTS ON FORM 8K
REPORTS ON FORM 8K
Date of Report
January 8, 1998 Roberts Pharmaceutical Corporation announced
that it has submitted a regulatory application
in the U.S. for approval to expand the current
indication for AGRYLIN(r) (anagrelide
hydrochloride) to include polycythemia vera, a
chronic myeloproliferative disorder where an
increase in blood platelets in present. The
current approved indication for AGRYLIN is to
treat essential thrombocythemia.
A Product License Application has been filed
with the Medicines Control Agency in the
United Kingdom seeking approval to market
PROAMATINE(r) (midodrine hydrochloride) for the
treatment of orthostatic hypotension by
Monmouth Pharmaceuticals, Ltd., a wholly owned
subsidiary of Roberts located in Guildford,
England who currently markets PROAMATINE in
Ireland under the name MIDON(r) for the
treatment of orthostatic hypotension.
January 22, 1998 Roberts Pharmaceutical Corporation announced
that based on preliminary unaudited data, the
Company expects per share earnings for the
fourth quarter of 1997 to be in the range of
$0.07 to $0.09, significantly exceeding the
FIRST CALL(r) consensus estimate of $0.05.
February 5, 1998 Roberts Pharmaceutical Corporation announced
that it is voluntarily recalling its 4-ounce
size antitussive, decongestant and expectorant
product ENTUSS-D Jr. Pediatric Expectorant,
due to a labelling error in the adult dosage
instructions. Only 538 bottles of a single
lot of product is involved, Lot J960855A.
This labeling error represents a major
potential risk to health due to the potential
for overdose, which may result in serious
adverse health consequences. No
patient/pharmacist complaints subsequent to
usage since the lot was released in January
1997 have been received.
April 9, 1998 Roberts Pharmaceutical Corporation announced
that it has acquired a U.S. distribution
facility located in Buffalo Grove, Illinois
from Novartis Pharmaceutical Company with an
experienced management and operational staff
in place. It is estimated that the facility
will be fully operational during 1998. This
acquisition complements the purchase of a
manufacturing facility in July 1997.
- 13 -
<PAGE>
April 21, 1998 Roberts Pharmaceutical Corporation announced
that it has acquired the exclusive U.S. rights
to market PENTASA(r), a patented
gastrointestinal drug for ulcerative colitis,
from Hoechst Marion Roussel, the
pharmaceutical company of Hoechst AG.
Roberts expects the first 12 months of PENTASA
sales to exceed $40 million. This would make
PENTASA the Company's largest revenue
generating drug and one of the highest gross-
profit-margin products in Roberts portfolio of
marketed pharmaceuticals. The transaction is
expected to be accretive to the Company's 1998
income and improve cash flow to help fund an
expected substantial increase in R&D
investments. It is anticipated that per share
earnings will substantially exceed current
estimates.
The transaction will involve net payments to
Hoechst Marion Roussel totalling approximately
$130 million. Donaldson, Lufkin, Jenrette
Securities Corporation is arranging for $100
million in financing for the transaction.
April 30, 1998 Roberts Pharmaceutical Corporation announced
the cash sale of its subsidiary VRG
International to Verum Staticon GmbH of
Munich, Germany. Financial details are not
disclosed, but under the terms of the
agreement, Roberts will receive cash payments
from this transaction over the next twelve
months and realize a gain on the sale of this
company over its book value.
Roberts also announced that it expects to
report strong year to year improvements in
first quarter 1998 revenues, operating profits
and net earnings. Per share earnings for the
first quarter 1998 are expected to exceed the
FIRST CALL estimate of $0.05.
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<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements included in Footnote #1 and Items 2 and 6 of
this form 10-Q are intended to be, and are hereby identified as,
forward looking statements for purposes of the safe harbor provided
by Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended. The
Registrant cautions readers that forward looking statements,
including, without limitation, those relating to the Registrant's
future business prospects, revenues, cost of sales, intangible
dispositions and write-offs, continuing operations and discontinued
operations, and liquidity and capital resources, are subject to
certain risks and uncertainties, including, without limitation, the
ability of the Registrant to secure regulatory approval in the
United States and in foreign jurisdictions for the Registrant's
developmental pipeline drugs, the efforts of the Registrant's
competitors and the introduction of rival pharmaceutical products
which may prove to be more effective than the Registrant's
products, general market conditions, the availability of capital,
and the uncertainty over the future direction of the healthcare
industry, that could cause actual results to differ materially from
those indicated in the forward looking statements.
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[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted from Form 10Q for
the quarter This schedule contains summary financial information extracted from
Form 10Q for the quarter ended March 31, 1998 and is qualified in its entirety
by reference to such financial statements.
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] MAR-31-1998
[CASH] 37,381
[SECURITIES] 45,008
[RECEIVABLES] 25,833
[ALLOWANCES] 0
[INVENTORY] 20,781<F1>
[CURRENT-ASSETS] 141,931
[PP&E] 28,954
[DEPRECIATION] 0
[TOTAL-ASSETS] 374,124
[CURRENT-LIABILITIES] 43,704
[BONDS] 6,552
[PREFERRED-MANDATORY] 0
[PREFERRED] 11
[COMMON] 313
[OTHER-SE] 323,325
[TOTAL-LIABILITY-AND-EQUITY] 374,124
[SALES] 32,588
[TOTAL-REVENUES] 32,847
[CGS] 12,603
[TOTAL-COSTS] 12,603
[OTHER-EXPENSES] 2,660
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] (269)
[INCOME-PRETAX] 3,469
[INCOME-TAX] (1,324)
[INCOME-CONTINUING] 2,145
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2,145
[EPS-PRIMARY] .07
[EPS-DILUTED] .07
<FN>
<F1>Includes raw material and work in process inventory of $3,154.
</FN>
</TABLE>
