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, 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) 676-1200
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 31, 1998
Common Stock 31,391,505
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
INDEX
Page
Part I
Item 1 - Financial Statements 2
Item 2 - Management's Discussion and Analysis 9
Part II
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 14
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
ASSETS:
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 14,808 $ 42,950
Marketable securities 46,508 39,887
Accounts receivable, net 38,041 24,730
Inventory 25,619 19,826
Notes receivable, current 15,923 225
Deferred tax assets 4,962 4,962
Net assets held for sale 0 3,760
Other current assets 2,608 1,647
---------- ----------
Total current assets 148,469 137,987
Fixed assets, net 31,505 25,913
Intangible assets 324,893 190,724
Notes receivable 584 729
Deferred non-current tax asset 12,332 12,332
Other assets 194 170
---------- ----------
Total assets $517,977 $367,855
========== ==========
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
<S> <C> <C>
long-term debt $ 9,235 $ 8,037
Accounts payable 17,584 13,188
Income taxes payable 7,743 3,022
Dividends payable 0 150
Other current liabilities 21,927 15,584
---------- ----------
Total current liabilities 56,489 39,981
Long-term debt, excluding
current installments 130,302 10,327
Other liabilities 0 244
Shareholders' equity:
Class B preferred stock,
$.10 par 10,000,000 shares
authorized, 808,822 and
2,721,030 outstanding 0 48
Common stock, $.01 par,
100,000,000 shares authorized,
27,883,309 and 22,961,707
outstanding 343 299
Additional paid-in capital 379,909 372,384
Cumulative translation adjustments (1,714) (1,250)
Retained earnings (deficit) (47,115) (53,941)
Treasury stock, 387,594 shares
of common stock, at cost (237) (237)
---------- ----------
Total shareholders' equity 331,186 317,303
---------- ----------
Total liabilities and
shareholders' equity $ 517,977 $ 367,855
========== ==========
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>
<TABLE>
<CAPTION>
For the six months For the three months
ended June 30, ended June 30,
1998 1997 1998 1997
------- ------- ------- -------
Sales and Revenue:
<S> <C> <C> <C> <C>
Sales $76,384 $56,616 $43,796 $30,286
Other revenue 827 0 568 0
------- ------- ------- -------
Total sales and revenue 77,211 56,616 44,364 30,286
------- ------- ------- -------
Operating costs and expenses:
Cost of sales 28,261 24,633 15,658 12,981
Research & Development 6,168 3,657 3,508 1,823
Marketing 17,378 15,966 9,515 9,029
Administration 18,085 11,096 10,898 5,612
------- ------- ------- -------
Total operating costs & expenses 69,892 55,352 39,579 29,445
------- ------- ------- -------
Operating income 7,319 1,264 4,785 841
------- ------- ------- -------
Other income (expense):
Interest income 2,386 2,709 1,113 1,541
Interest expense (466) (432) (197) (178)
Foreign currency gain (loss) (25) (64) 1 (51)
Other income(expense), net (99) (48) (56) (48)
------- ------- ------- -------
Total other income 1,796 2,165 861 1,264
------- ------- ------- -------
Income from continuing operations
before income taxes 9,115 3,429 5,646 2,105
Provision for income taxes 3,584 1,231 2,260 817
------- ------- ------- -------
Income from continuing operations 5,531 2,198 3,386 1,288
Gain on disposal of discontinued
division, net of tax provision
of $635 1,314 0 1,314 0
------- ------- ------- -------
Net income $ 6,845 $ 2,198 $ 4,700 $1,288
======= ======= ======= =======
Per share of common stock,
basic and diluted:
Net income from continuing operations $ 0.18 $ 0.06 $ 0.11 $ 0.04
Net income from discontinued operations 0.04 0.00 0.04 0.00
------- ------- ------- -------
Net income $ 0.22 $ 0.06 $ 0.15 $ 0.04
======= ======= ======= =======
Weighted average number of common
shares outstanding:
Basic 30,134,518 27,883,309 31,143,362 27,613,736
Diluted 30,342,548 28,885,892 31,351,392 28,616,319
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the six months For the three months
ended June 30, ended June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 6,845 $ 2,198 $ 4,700 $ 1,288
Other comprehensive income:
Foreign currency translation
adjustment (464) (173) (667) 67
--------- --------- --------- ---------
Other comprehensive
income (464) (173) (667) 67
--------- --------- --------- ---------
Comprehensive income $ 6,381 $ 2,025 $ 4,033 $ 1,355
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
1998 1997
<S> <C> <C>
Cash flows provided by operating activities: $11,140 $ 4,479
--------- ---------
Cash flows from investing activities:
(Purchase) redemption of marketable securities (6,620) (1,536)
Purchases of intangible assets (143,654) (2,990)
Purchases of fixed assets (6,392) (382)
Collection of notes receivable 171 610
--------- ---------
Net cash provided by (used in)
investing activities (156,945) (4,298)
--------- ---------
Cash flows from financing activities:
Debt financing 125,000 ---
Payments on notes payable and
long term debt (15,291) (5,795)
Net proceeds from issuance of
common stock 3,029 828
Net proceeds from issuance of
5% Preferred stock 4,492 1,000
5% Preferred stock dividends paid (37) (1,229)
--------- ---------
Net cash used in
financing activities 117,193 (5,196)
--------- ---------
Exchange rate changes on cash and
cash equivalents 20 (24)
--------- ---------
Change in cash and cash equivalents (28,142) (5,039)
Beginning cash and cash equivalents 42,950 87,125
--------- ---------
Ending cash and cash equivalents $14,808 $82,086
========= =========
Supplemental cash flow information:
Interest paid $ 729 $ 934
Income taxes paid $ 11 $ 8
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<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, required for a fair presentation of results
for the period reported. All dollar amounts are presented in
thousands, except per share data.
New Accounting Pronouncement
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
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.
SFAS No. 131 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 this Statement will not have an impact on the
Company's consolidated results of operation, financial position or
cash flow for the year ended December 31, 1998.
Reclassification
Certain items have been reclassified to conform to the current year
presentation. These items are not material.
2. Inventory
Inventory at June 30, 1998 consists of:
Raw Materials $ 4,528
Work in Progress 1,087
Finished Goods 20,004
-------
Total $25,619
=======
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<PAGE>
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. The accrual had been established, over
a three year period, for rebates which, it was determined in the
first quarter, will not be paid by Roberts and therefore was
required to be reversed.
5. Subsequent Event
The Company made an investment of $10 million in the convertible
preferred stock of RiboGene, Inc., a drug discovery company
targeting infectious diseases. The shares have no voting rights.
The investment will be carried on the cost method, and none of the
operating results of RiboGene will be included in Roberts' income
statement. One-third of the preferred stock is convertible to
common stock of RiboGene at each of the first three anniversary
dates of the investment at a conversion price of $7.00.
The Company also entered into an arrangement whereby Roberts will
develop a new delivery formulation for RiboGene's product EMITASOL.
Under the terms of the agreement, RiboGene will provide up to $7
million in funding from the development of EMITASOL through
completion of Phase III trials and the submission of a New Drug
Application ("NDA") with the balance, if any, provided by Roberts.
Upon approval of the NDA, Roberts can exercise its option to market
EMITASOL in the United States, Canada and Mexico under the RiboGene
patents by making a milestone payment at that time plus subsequent
royalties on product sales.
6. Sale of Discontinued Division
During the second quarter 1998, the Company sold the discontinued
VRG division. The sale resulted in a net of tax gain of $1.3
million and a note was taken back for $9.7 million. A reserve was
also established for final settlement of operational expenses
subsequent to finalization of the contract of sale.
7. New Product Acquisition
During the second quarter 1998, the Company acquired the US rights
to market PENTASA, a patented gastrointestinal drug for ulcerative
colitis, from Hoechst Marion Roussel (HMR) for a net cost of $135.
million. The transaction involved a payment to HMR of $141.0
million and the Company received a note receivable for $6.2 million
from HMR. A term loan for $125.0 million was taken out to help
finance the transaction.
- 8 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Results of Operations
Six months ended June 30, 1998 and 1997
Revenues
Total revenue for the six months and quarter ended June 30, 1998
increased $20.6 million and $14.1 million respectively as compared
with the first six months and quarter ended June 30, 1997. This
increase was primarily due to an increase in revenues from product
sales.
Sales
For the six months ended June 30, 1998, product sales increased
$19.8 million from $56.6 million to $76.4 million due primarily to
the addition of PENTASA.
U.S. product sales increased $18.1 million from $41.4 million to
$59.5 million. PENTASA, AGRYLIN and PROAMATINE provided $13.4, $3.2
and $3.7 million, respectively, of this increase. The COLACE line
of products, posted a significant increase of $1.6 million over
1997 and sales of SLOWMAG exceeded 1997 sales of NORETHIN by $1.7
million. These increases were offset by a decrease in NOROXIN and
EMINASE sales of $2.9 and $1.0 million, respectively. Sales of the
Company's United Kingdom subsidiary, Monmouth Pharmaceuticals,
Ltd., increased $1.3 million from $8.9 million to $10.2 million.
$1.0 million of this increase is due to increased sales of AGRYLIN.
Sales of the Company's Canadian subsidiary increased slightly by
$0.4 million from $6.3 million to $6.7 million.
Product sales in the second quarter increased $13.5 million from
$30.3 million in 1997 to $43.8 million in 1998 due to the addition
of PENTASA to the product mix. Second quarter product sales in the
U.S. increased $11.9 million from $23.5 million in 1997 to $35.4
million in 1998. Sales in the U.K. increased $1.3 million to $4.9
million in second quarter 1998 from $3.6 million in 1998. Canada's
second quarter sales increased to $3.4 million in 1998, a $0.3
million increase from 1997 second quarter sales of $3.1 million.
Cost of Sales
For the six months ended June 30, 1998, cost of sales amounted to
37.0% of product sales, a 6.5 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 a change in product mix. Sales of NOROXIN,
with a high cost of sales, decreased $2.9 million, while sales of
higher margin products, including AGRYLIN, PROAMATINE and the newly
acquired PENTASA increased significantly.
- 9 -
<PAGE>
Research and Development
Research and Development expenses increased $2.5 million to $6.2
million and $1.7 million to $3.5 million during the six and three
month periods, respectively, ended June 30, 1998 as compared to the
comparable prior year periods. The largest component of this
change is a $2.8 million spending increase for both new programs
related to the compounds purchased in 1996 from Eli Lilly and
continuing investment in STANATE and AGRYLIN.
Marketing Expenses
For the six months ended June 30, 1998, Marketing expenses
increased $1.4 million from $15.9 million to $17.3 million. The
largest components of the increase in marketing are PENTASA launch
expense of $0.7 million, auto leasing expenses of $0.5 million, and
television advertising expenses of $0.4 million. The auto leasing
and advertising differences are due to timing. In 1997,
advertising was concentrated in the second half of the year and the
leasing contract did not commence until May. For the quarter ended
June 30, 1998, Marketing expenses increased $0.5 million to $9.5
million.
Administrative Expenses
For the six months ended June 30, 1998, administrative expense
increased $7.0 million to $18.1 million from $11.1 million. This
increase was due primarily to an increase of $1.2 million in
product intangible amortization expense due to the addition of
PENTASA and a $5.0 million increase related to salaries and
benefits, particularly stock appreciation rights (SARs). In order
to mitigate the potential future compensation expense to the
Company related to SARs, the Company accelerated the vesting of all
SARs not yet vested, and the executive officers holding such SARs
agreed to voluntarily exercise the outstanding SARs, thereby
terminating any potential benefit from the SARs which such officers
may have realized in the future. The exercise of all outstanding
SARs during the current period resulted in a one time charge of
$3.3 million, of which $0.7 million relates to accelerated vesting.
In connection with the acceleration of vesting and the exercise of
all outstanding SARs, the executive officers who exercised the SARs
received options to purchase one share of the Company's Common
Stock for each two SARs exercised. Additionally, a Supplemental
Executive Retirement Plan was established in the second quarter
1998 and the related year to date expense of $0.9 million was
included in second quarter administrative expense.
Administrative expenses increased $5.3 million from the second
quarter 1997 to $10.9 million in the second quarter 1998 due to the
same factors causing the year to date increase.
Interest Income and Expense
Interest income for the six months ended June 30, 1998, decreased
$0.3 million as a result of a decrease in invested marketable
securities due to utilization of funds for the purchase of the new
distribution facility and improvements made to the Canadian
manufacturing facility as well as debt payments on purchased
products. Interest expense for the same period remained constant
at $0.4 million.
- 10 -
<PAGE>
Income Taxes
For the six months ended June 30, 1998 and 1997, income tax expense
was calculated using normal US federal and state statutory rates
for continuing operations, except for certain taxes related to
foreign operations.The Company has recorded net deferred tax assets
of approximately $17 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.
Liquidity and Capital Resources
For the year to date June 30, 1998, operating cash inflows amounted
to $11.1 million as a result of the Company's net income of $6.8
million enhanced by non-cash charges, primarily depreciation and
amortization, as well as increases in payables and other current
liabilities, offset by changes in accounts and notes receivable and
inventory. As of June 30, 1998, the Company had cash, cash
equivalents and marketable securities of $61.3 million.
Investing activities used $156.5 million, comprised primarily of
$6.6 million in marketable securities redemptions, fixed and
intangible asset purchases of $6.4 and $143.6 million,
respectively.
Financing activities provided $117.2 million, including $15.3
million of payments on notes payable offset by proceeds from the
issuance of Common and Preferred Stock of $7.5 million and receipts
of $125.0 million from a five year term loan. This loan is the
primary financing for the Company's purchase of PENTASA(R), a
patented gastrointestinal drug for ulcerative colitis, from Hoechst
Marion Roussel in April, 1998.
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
completion of the capital improvements to the Canadian
manufacturing facility.
In connection with the sale of VRG, the Company took back a note in
the amount of $9.7 million.
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
second quarter 1998.
- 11 -
<PAGE>
Item 6 Exhibits and Reports on Form 8K
Reports on Form 8K
Date of Report
May 22, 1998 Roberts Pharmaceutical Corporation announced
additions to its U.S. and Canadian management
staffs and a reorganization of its U.S. sales and
marketing department into separate Rx and Consumer
Products Divisions.
June 17, 1998 Roberts Pharmaceutical announced it had agreed to
out-license to Adolor Corporation, Malvern,
Pennsylvania, the compound LY246736, a
gastrointestinal agent in the early stages of
development.
June 11, 1998 Roberts Pharmaceutical Corporation announced that
the U.S. Department of Commerce, Patent and
Trademark Office has approved the Company's patent
for a new and highly improved process for
manufacturing AGRYLIN. The process was developed
by Roberts' scientists.
June 30, 1998 Roberts Pharmaceutical Corporation announced that
it had completed a $125 million financing agreement
with a syndicate of institutional investors and
banks.
The financing was arranged by DLJ Capital
Corporation, a subsidiary of Donaldson, Lufkin &
Jenrette. The financing consists of a five year
term loan secured by the assets of the Company.
July 9, 1998 Roberts Pharmaceutical Corporation announced that
it had entered into an agreement with RiboGene,
Inc. whereby Roberts has been contracted to develop
and has been granted an option to market
exclusively, in the U.S., Canada and Mexico,
RiboGene's EMITASOL, a Phase III intranasal
delivery formulation of metoclopramide, already
approved, in oral and injectable forms, for
treatment of emesis (nausea and vomiting).
In a separate transaction, Roberts will purchase
$10 million of convertible preferred shares to be
privately placed by RiboGene.
July 29, 1998 Roberts Pharmaceutical Corporation announced that
the Israeli Ministry of Health approved the
Company's new drug application for AGRYLIN as a
treatment for essential thrombocythemia.
- 12 -
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements included in Footnotes #1 and #5 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.
- 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: 8/13/98 /s/ Peter M. Rogalin
------------------------- ------------------------------
Peter M. Rogalin
Vice President and Treasurer
Date: 8/13/98 /s/ Peter M. Rogalin
------------------------- ------------------------------
Peter M. Rogalin
Chief Accounting Officer
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 14,808
<SECURITIES> 46,508
<RECEIVABLES> 38,041
<ALLOWANCES> 0
<INVENTORY> 25,619<F1>
<CURRENT-ASSETS> 148,469
<PP&E> 31,505
<DEPRECIATION> 0
<TOTAL-ASSETS> 517,977
<CURRENT-LIABILITIES> 56,489
<BONDS> 130,302
0
0
<COMMON> 343
<OTHER-SE> 330,843
<TOTAL-LIABILITY-AND-EQUITY> 517,977
<SALES> 76,384
<TOTAL-REVENUES> 77,211
<CGS> 28,261
<TOTAL-COSTS> 28,261
<OTHER-EXPENSES> 6,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 466
<INCOME-PRETAX> 9,115
<INCOME-TAX> 3,584
<INCOME-CONTINUING> 5,531
<DISCONTINUED> 1,314
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,845
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
<FN>
<F1>Includes raw material and work-in-process inventory of $5,615.
</FN>
</TABLE>
