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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-10451
NORTH AMERICAN VACCINE, INC.
(Exact name of registrant as specified in its charter)
Canada 98-0121241
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12103 Indian Creek Court, Beltsville, Maryland 20705
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 470-6100
____________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
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 _____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, no par value, outstanding as of August 7, 1996 - 30,686,435
shares
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TABLE OF CONTENTS
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations . . . . . . . . . . 5
Consolidated Statement of Shareholders' Equity . . . . . . 6
Consolidated Statements of Cash Flows . . . . . . . . . . 7
Notes to Condensed Consolidated Financial Statements . . . 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited, condensed consolidated financial statements of
North American Vaccine, Inc. and Subsidiaries (the "Company") have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
omit or condense certain footnotes and other information normally included
in financial statements prepared in accordance with generally accepted
accounting principles. This report should be read in conjunction with the
Company's Annual Report on Form 10-K filed for the year ended December 31,
1995. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
financial information for the interim period reported have been made.
Results of operations for the three and six months ended June 30, 1996,
will not necessarily be indicative of the results for the entire fiscal
year ending December 31, 1996.
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<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 86,652 $ 10,443
Accounts receivable 731 2,000
Prepaid expenses and other
current assets 1,842 1,067
-------- --------
Total current assets 89,225 13,510
Property, plant and equipment, net 17,981 18,121
Investment in affiliate, at market 1,968 9,065
Other assets 520 553
Deferred financing costs, net 3,435 -
-------- --------
Total assets $113,129 $41,249
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 1,918 $ 3,550
Other current liabilities 6,001 4,296
-------- --------
Total current liabilities 7,919 7,846
Deferred rent credit, net of current portion 160 205
6.50% Convertible subordinated notes, due May 1, 2003 86,250 -
-------- --------
Total liabilities 94,329 8,051
Shareholders' equity:
Preferred stock, no par value; unlimited shares authorized-
Series A, convertible; issued and outstanding 2,000,000 shares;
entitled to Can $2.50 per share in liquidation 6,538 6,538
Common stock, no par value; unlimited shares authorized; issued
30,684,018 shares at June 30, 1996 and 30,186,711 shares at
December 31, 1995 60,819 58,474
Unrealized investment holding gain 1,340 7,466
Accumulated deficit (49,897) (39,280)
-------- --------
Total shareholders' equity 18,800 33,198
-------- --------
Total liabilities and shareholders' equity $113,129 $ 41,249
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 499 $ - $ 727 $ -
------- ------- ------- -------
Operating expenses:
Production 3,764 1,163 6,696 2,202
Research and development 2,889 2,436 5,566 4,042
General and administrative 1,746 1,408 3,227 2,607
------- ------ ------- -------
Total operating expenses 8,399 5,007 15,489 8,851
------- ------ ------- ------
Operating loss (7,900) (5,007) (14,762) (8,851)
Other Income:
Gain on sale of investment in affiliate - 10,929 4,228 10,929
Interest and dividend income 723 211 842 445
Interest expense (925) - (925) -
------- ------- ------- -------
Net income (loss) ($8,102) $6,133 ($10,617) $2,523
====== ====== ======= ======
Net income (loss) per share ($0.26) $0.18 ($0.35) $0.07
Weighted-average number of common and
common equivalent shares outstanding 30,591 34,332 30,515 34,188
The accompanying notes are an integral part of these condensed consolidated financial
statements.
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<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Series A
Convertible Unrealized Total
Preferred Stock Common Stock Investment Share-
----------------- ---------------- Holding Accumulated holders'
Shares Amount Shares Amount Gains Deficit Equity
------ ------ ------ ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 2,000 $6,538 30,187 $58,474 $7,466 ($39,280) $33,198
Exercise of stock options - - 491 2,262 - - 2,262
Shares issued under 401(k) plan - - 6 83 - - 83
Realized investment holding gain - - - - (4,228) - (4,228)
Decrease in market value of
investment - - - - (1,898) - (1,898)
Net loss - - - - - (10,617) (10,617)
------ ------ ------ ------- ------ ------ ------
Balance, June 30, 1996 2,000 $6,538 30,684 $60,819 $1,340 ($49,897) $18,800
====== ====== ====== ======= ====== ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended
June 30,
1996 1995
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($10,617) $ 2,523
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Gain on sale of investment in affiliate (4,228) (10,929)
(Gain) loss on disposal of equipment (15) 9
Depreciation and amortization 2,411 698
Contribution of common stock to 401(k) plan 83 60
Decrease (increase) in other assets 33 (211)
Decrease in deferred rent (40) (37)
Cash flows provided by (used in) other working capital items 562 (659)
Amortization of deferred financing costs 84 -
------- -------
Net cash used in operating activities (11,727) (8,546)
------- -------
Cash flows from investing activities:
Capital expenditures (2,271) (7,449)
Proceeds from sale of investment in affiliate 5,199 11,502
Proceeds from sale of equipment 15 -
------- -------
Net cash provided by investing activities 2,943 4,053
------- -------
Cash flows from financing activities:
Proceeds from issuance of convertible debt 86,250 -
Proceeds from exercises of stock options 2,262 713
Deferred financing costs (3,519) -
------- -------
Net cash provided by financing activities 84,993 713
------- -------
Net increase (decrease) in cash and cash equivalents 76,209 (3,780)
Cash and cash equivalents, beginning of period 10,443 20,922
------- -------
Cash and cash equivalents, end of period $86,652 $17,142
======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
Six Months
Ended
June 30,
1996 1995
----- -----
<S> <C> <C>
Cash Flows Provided By (Used in) Other Working Capital Items:
Decrease (increase) in:
Accounts receivable $1,269 $ -
Prepaid expenses and other current assets (775) (345)
Increase (decrease) in:
Accounts payable (1,632) (1,479)
Other current liabilities 1,700 1,165
------- -------
Net cash provided by (used in) other working capital items $ 562 ($ 659)
======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid for interest was $5 and $0 through June 30, 1996 and 1995, respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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NORTH AMERICAN VACCINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BUSINESS
The Company is engaged in the research, development and production of
vaccines for the prevention of infectious diseases in children and adults.
In the first quarter of 1996, the Swedish Medical Products Agency granted
regulatory approval of the Company's acellular pertussis vaccine
formulated as a DTaP vaccine for the prevention of diphtheria, tetanus and
pertussis (whooping cough). The Company has not received approval from
the U.S. Food and Drug Administration ("FDA") or any other regulatory
authority to market its DTaP vaccine or any other product in development.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Accounting and Currency. The accompanying consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States and are
denominated in U.S. dollars, because the Company conducts the majority of
its transactions in this currency. The application of Canadian GAAP would
not result in material adjustments to the accompanying financial
statements except for the impact of the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 115, as discussed in Note 3. The effect
of foreign currency translation has been immaterial.
(b) Pervasiveness of Estimates. The preparation of financial statements
in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from estimates.
(c) Product Sales. Revenue from product sales is recognized when all
significant risks of ownership have been transferred, the amount of the
selling price is fixed and determinable, all significant related acts of
performance have been completed, and no other significant uncertainties
exist. In most cases, these criteria are met when the goods are shipped.
(d) Net Income (Loss) Per Share. Net income per share for the three and
six month periods ended June 30, 1995, is based upon the weighted-average
number of common equivalent shares outstanding during the period. Common
stock equivalents include preferred stock that is convertible into common
stock and the dilutive effect of stock options. Fully diluted net income
(loss) per share has not been presented for the three and six month
periods ended June 30, 1995, because the difference is not material. The
effect of common stock equivalents on net loss per share for the three and
six month periods ended June 30, 1996, is not included because their
recognition would be antidilutive.
(e) Deferred Financing Costs. Deferred financing costs represent fees
and other costs incurred in connection with the issuance of long-term
debt. These costs are amortized over the term of the related debt using
the effective interest rate method.
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3. INVESTMENTS IN AFFILIATES
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," equity securities classified as available-
for-sale are reported at fair value, with unrealized gains and losses
reported in a separate component of shareholders' equity.
At December 31, 1995, the Company owned 318,084 shares of IVAX Corporation
("IVAX") common stock. The market value of these securities, as shown on
the accompanying consolidated balance sheets, have been determined based
on the closing prices for registered securities of IVAX as of those dates.
In the first quarter of 1996, the Company sold 193,084 shares of its
investment in IVAX common stock generating approximately $5.2 million in
proceeds and a realized gain of $4.2 million. The market value of the
Company's investment in IVAX at August 7, 1996 was approximately
$1.7 million. These investment securities are volatile and therefore
subject to significant fluctuations in value.
4. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following components:
June 30, December 31,
1996 1995
-------- ------------
(in thousands)
Payroll and fringe benefits $ 1,054 $ 736
Accrued consulting and
professional fees 1,017 767
Accrued interest payable 836 -
Reserve for contract loss 720 720
Accrued taxes 607 633
Accrued costs of clinical trials 600 574
Accrued construction costs 522 310
Deferred rent credit 90 85
Other accrued liabilities 555 471
------ ------
Total other current liabilities $6,001 $4,296
====== ======
5. LONG-TERM DEBT
In May 1996, the Company completed an offering of 6.50% convertible
subordinated notes in the principal amount of $86.25 million due May 1,
2003. The net proceeds from this offering were approximately $82.7
million. Interest on the notes is payable semi-annually on May 1 and
November 1 of each year, commencing November 1, 1996. The notes will be
convertible into common shares of the Company at any time after August 5,
1996, at the initial conversion price of approximately $24.86 per common
share. The notes are subordinated to present and future senior
indebtedness of the Company and will not restrict the incurrence of future
senior or other indebtedness by the Company.
The notes are redeemable, in whole or in part, at the option of the
Company on or after May 1, 1999 at certain pre-established redemption
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prices plus accrued interest. Upon a change in control, the Company is
required to offer to purchase all or part of the notes then outstanding at
a purchase price equal to 100% of the principal amount thereof, plus
interest. The repurchase price is payable in cash or, at the option of
the Company, in common shares.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
Background
----------
The Company is engaged in the research, development and production of
vaccines for the prevention of infectious diseases in children and adults.
In 1995, the Company recognized development revenues pursuant to
agreements with Pasteur-Merieux Serums et Vaccins, a wholly-owned
subsidiary of Rhone-Poulenc, which operates in North America through its
subsidiary Connaught Laboratories ("Pasteur Merieux-Connaught"), under
which the Company and Pasteur Merieux-Connaught will jointly develop the
Company's meningococcus B vaccine. Additional funding may be provided to
the Company by Pasteur Merieux-Connaught under the terms of the clinical
development agreement. See "Outlook; Liquidity and Capital Resources,"
below.
In February 1996, the Swedish Ministry of Health granted regulatory
approval to market the Company's acellular pertussis vaccine formulated as
a combined DTaP vaccine for the prevention of diphtheria, tetanus, and
pertussis (whooping cough). This marketing authorization is the first
regulatory approval for any of the Company's products. Under a supply
agreement, the Company manufactures the acellular component of the
vaccine, and Statens Seruminstitut ("SSI") manufactures the diphtheria and
tetanus components and will market and distribute the DTaP vaccine in
Sweden, as well as, upon receipt of any required regulatory approvals,
other countries comprising SSI's territory. The Company filed a product
license application with the FDA in September 1995 for approval to market
its DTaP vaccine. See "Outlook; Liquidity and Capital Resources," below.
Results of Operations
---------------------
Three Months Ended June 30, 1996 and 1995
In 1996, the Company recognized $499,000 of revenue from product
sales of its acellular pertussis vaccine.
Production expenses were $3.8 million in 1996 compared to $1.2
million in 1995. The increase in these expenses in 1996 is due to
increases in depreciation, labor, materials and supplies as the Company
produces the acellular pertussis vaccine for sale and prepares for
regulatory approval of its DTaP vaccine in the United States. The
increase in labor cost is attributable primarily to an increase in the
number of employees. In addition, facility costs increased in 1996 over
1995 due to the Company's placing in service its expanded production
facility and its adjacent support facility.
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Research and development expenses increased to $2.9 million in 1996
from $2.4 million in 1995. The increase represents primarily clinical
testing and related expenses and regulatory filing fees, as the Company
expands its clinical and regulatory affairs operations.
General and administrative expenses were $1.7 million in 1996 as
compared to $1.4 million in 1995. The increase is primarily due to higher
labor and professional fees as the Company prepares for regulatory
approval to market its DTaP vaccine in the United States.
The Company had 184 and 140 full-time employees as of June 30, 1996
and 1995, respectively.
In the second quarter of 1995, the Company sold 695,936 shares of its
investment in an affiliate, which generated proceeds of approximately
$11.5 million, and a realized gain of $10.9 million.
Interest and dividend income increased to $723,000 in 1996 from
$211,000 in 1995. This increase is due primarily to higher cash balances
as a result of the placement of $86.25 million convertible subordinated
notes in May 1996. See "Outlook; Liquidity and Capital Resources" below.
Interest expense in 1996 was $925,000 due to the issuance of the
convertible subordinated notes.
The factors cited above resulted in a net loss of $8.1 million or
$0.26 per share in 1996 as compared to a net income of $6.1 million or
$0.18 per share in 1995. Without the $10.9 million gain on the sales of
investment securities, the net loss per share for 1995 would have been
$0.16. The weighted-average number of common and common equivalent shares
outstanding was 30.6 million for 1996 compared to 34.3 million for 1995.
The decrease in the number of weighted-average shares outstanding for 1996
as compared to 1995 is attributable to the inclusion in 1995 of
convertible preferred shares and dilutive stock options as common stock
equivalents.
Six Months Ended June 30, 1996 and 1995
In 1996, the Company recognized $727,000 of revenue from product
sales of its acellular pertussis vaccine.
Production expenses were $6.7 million in 1996 compared to $2.2
million in 1995. The increase in these expenses in 1996 is due to
increases in depreciation, labor, materials and supplies as the Company
produces the acellular pertussis vaccine for sale and prepares for
regulatory approval of its DTaP vaccine in the United States. The
increase in labor cost is attributable primarily to an increase in number
of employees. In addition, facility costs increased in 1996 over 1995 due
to the Company's placing in service its expanded production facility and
its adjacent support facility.
Research and development expenses increased to $5.6 million in 1996
from $4.0 million in 1995. The increase represents primarily clinical
testing and related expenses as the Company expands its clinical and
regulatory affairs operations.
General and administrative expenses were $3.2 million in 1996 as
compared to $2.6 million in 1995. The increase is primarily due to higher
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labor and professional fees as the Company prepares for regulatory
approval to market its DTaP vaccine in the United States.
The Company had 184 and 140 full-time employees as of June 30, 1996
and 1995, respectively.
In 1996 the Company sold 193,084 shares of its investment in IVAX
common stock, which generated proceeds of approximately $5.2 million and a
realized gain of $4.2 million or $0.14 per share. In 1995, the Company
sold 695,936 shares of its investment in an affiliate, which generated
proceeds of approximately $11.5 million, and a realized gain of $10.9
million or $0.36 per share.
Interest and dividend income increased to $842,000 in 1996 from
$445,000 in 1995. This increase is due primarily to higher cash balances
as a result of the placement of $86.25 million convertible subordinated
notes in May 1996. See "Outlook; Liquidity and Capital Resources" below.
Interest expense in 1996 was $925,000 due to the issuance of the
convertible subordinated notes.
The factors cited above resulted in a net loss of $10.6 million or
$0.35 per share in 1996 as compared to net income of $2.5 million or $0.07
per share in 1995. Without the gains on the sales of investment
securities in 1995 and 1996, the net losses per share for 1996 and 1995
would have been $0.49 and $0.29 per share for 1996 and 1995, respectively.
The weighted-average number of common and common equivalent shares
outstanding was 30.5 million for 1996 compared to 34.2 million for 1995.
The decrease in the number of weighted-average shares outstanding for 1996
as compared to 1995 was attributable to the inclusion in 1995 of
convertible preferred shares and dilutive stock options as common stock
equivalents.
Outlook; Liquidity and Capital Resources
----------------------------------------
The following paragraphs contain a discussion of the prospects for
the Company's future operations and certain other forward-looking
statements and information, together with a review of the Company's
liquidity and capital resources. The Company's actual results may differ
significantly from the results discussed in the forward-looking
statements, for among other things, the reasons described below.
In February 1996, the Swedish Medical Products Agency granted
regulatory approval to market the Company's acellular pertussis vaccine
formulated as a combined DTaP vaccine. This is the first regulatory
approval for any of the Company's vaccine products under development. SSI
markets the DTaP vaccine in Sweden, has a product approval application
pending in Denmark for a combined DTaP-IPV vaccine, and has indicated that
it will file additional applications for the acellular pertussis vaccine,
both alone and in combination with other antigens, in other countries
within its territory.
Following regulatory approval, the Company has recognized $727,000 in
revenues from sale of its acellular pertussis vaccine. Additional
revenues from such product sales are dependent upon successful
commercialization of the DTaP vaccine in Sweden and additional product
approvals of acellular pertussis products in other countries. The Company
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does not control the marketing and distribution efforts of SSI in its
territory and, therefore, the Company's revenues from product sales in
that territory are dependent upon effective sales, marketing and
distribution efforts of SSI. There are no assurances that further product
approvals will be obtained during 1996 or at all, or that the DTaP vaccine
will be marketed and distributed effectively.
On July 31, 1996, Connaught Laboratories announced that
Tripedia(TRADEMARK), its combined vaccine for the prevention of
diphtheria, tetanus and pertussis, has been approved by the FDA for the
primary and first booster doses administered at two, four, six and 12-18
months of age. Another competitor has received FDA Advisory Committee
review of its DTaP product for infant indications. Tripedia had
previously been approved by the FDA for the booster doses administered at
12-18 months of age and immediately prior to grade school entry. The
Company does not believe that this approval will adversely affect the
regulatory review process for its DTaP vaccine, although there can be no
assurances in this regard. The principal factors affecting the timetable
for review and approval of the Company's DTaP vaccine are believed to be
the quality of the clinical trials conducted on the product, the quality
and adequacy of the clinical data submitted for the product, and the
quality and adequacy of the manufacturing facility and operations for the
product, among other things. The Company is unable to predict the impact
that FDA approval of Tripedia for infant indications will have on the
marketing and distribution of the Company's DTaP vaccine should its
product be approved by the FDA.
In September 1995, the Company filed a product license application
with the FDA for approval to market its DTaP vaccine. If the FDA approves
the Company's DTaP vaccine and the Company successfully launches the
product in the United States, revenues from operations and the prospects
for profitability would significantly increase. There are no assurances
that the FDA's approval will be obtained during 1996 or at all, or that
once obtained the Company will be effective in marketing and distributing
the product. The factors affecting successful commercial launch of the
DTaP vaccine in the United States include, among others: establishing the
identity and reputation for the Company and its products; creating an
awareness among pediatricians of the safety and efficacy of the Company's
DTaP vaccine; distinguishing the Company's product from that of its
competitors; whether the Advisory Committee on Immunization Practices
("ACIP") and the American Academy of Pediatrics issue a nationwide
recommendation for preferred use of acellular pertussis vaccines in
infants and children; and establishing effective distribution channels.
In connection with the planned marketing and distribution of the DTaP
vaccine and further combination vaccines, the Company is considering the
advisability of executing distribution agreements for certain markets,
including the United States. The Company also intends to collaborate in
the development of selected vaccine products and may enter into additional
collaborative development agreements similar in nature to that which was
signed with Pasteur Merieux-Connaught, as described below. These
agreements, if executed, would only impact the Company's operating results
in future periods. There are no assurances that the Company will
successfully negotiate and sign any such agreements or that, if executed,
the financial terms for any distribution agreement or further
collaboration agreement will be significant.
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In December 1995, the Company signed a clinical development agreement
and license agreement with Pasteur Merieux-Connaught, under which the
parties agreed to jointly develop the Company's new conjugate vaccine
against meningococcus B infection for both adults and pediatric
indications. In 1995 the Company received $3 million from Pasteur
Merieux-Connaught, and further fees and funding would be made upon
achievement of development, clinical and regulatory milestones. Total
fees and payments to the Company upon achievement of all clinical and
regulatory milestones would amount to $52 million. Achievement of the
first milestone, which is the satisfactory completion of a pre-clinical
study and ratification of the license agreement by the National Research
Council of Canada, a Canadian federal government agency ("NRC"), would
result in further payments from Pasteur Merieux-Connaught. Additional
revenues from this collaboration will depend upon achievement of the
development milestones. The time it may take to achieve these milestones
cannot be predicted accurately and no assurances can be given that any or
all of these milestones will be achieved during 1996 or at all. In
addition, Pasteur Merieux-Connaught may terminate these agreements in its
sole discretion at any time after December 22, 1996.
The Company's cash requirements for operations were $7.2 and $7.5
million in the first and second quarters of 1996, respectively. At June
30, 1996, the Company had cash and cash equivalents of approximately $86.7
million and investment securities in an affiliate with a market value of
approximately $2.0 million. The investment securities consisted of
125,000 shares of IVAX common stock. The fair market value of these
investment securities as of August 7, 1996 was $1.7 million. These
investment securities are volatile and therefore subject to significant
fluctuations in value.
Total capital expenditures for the first six months of 1996 were $2.3
million, primarily for production equipment. The Company has been
exploring opportunities to build-out, lease or acquire additional
research, development and clinical production facilities to accommodate
the Company's expanding vaccine development program. The Company has
identified a possible additional facility, which may be acquired during
1996. The total cash required for such a project could be up to $25
million, which could involve a substantial payment on closing with
periodic payments thereafter. The amount and timing of capital
expenditures could vary depending upon a number of factors including,
among other things, the quality of the facility, the equipment and systems
requirements for the facility and the terms of the transaction. Total
projected capital expenditures for 1996 are expected to be between
approximately $3 and $4 million, exclusive of expenditures associated with
the build-out, acquisition or improvement of additional facilities. The
projected capital expenditures could fluctuate based upon a number of
factors including unanticipated costs to replace or repair existing
equipment and systems in order to keep the current production facility
operational or to maintain compliance with regulatory requirements.
The Company anticipates that cash requirements for operations will be
up to $8 million in the third quarter of 1996 and between $11 and $13
million in the fourth quarter of 1996, as the Company expands production
for commercial sale in Europe and in anticipation of regulatory approval
in the United States. The fourth quarter projection includes
approximately $2.7 million of interest payments on the convertible notes
discussed below. These cash requirements do not include possible
additional expenditures associated with the operations of a proposed
- 15 -
<PAGE>
additional facility as described above. Thereafter, cash requirements for
operations will depend upon the level of vaccine production, costs in
preparing for the market introduction of its DTaP vaccine, and the level
of expenditures for the Company's ongoing research and development
program.
In May 1996, the Company completed an offering of 6.50% convertible
subordinated notes in the principal amount of $86.25 million due May 1,
2003. The net proceeds from this offering were approximately $82.7
million. Interest on the notes is payable semiannually on May 1 and
November 1 each year, commencing November 1, 1996. The notes will be
convertible into common shares of the Company, at the initial conversion
price of approximately $24.86 per common share, at any time after
August 5, 1996. The notes also are subordinated to present and future
senior indebtedness of the Company and will not restrict the incurrence of
future senior or other indebtedness by the Company.
The notes are redeemable, in whole or in part, at the option of the
Company on or after May 1, 1999 at certain pre-established redemption
prices, plus accrued interest. Upon a change in control, the Company is
required to offer to purchase all or part of the notes then outstanding at
a purchase price equal to 100% of the principal amount thereof, plus
interest. The repurchase price is payable in cash or, at the option of
the Company, in common shares.
The Company is obligated to and has filed a registration statement
registering resales of the notes and the underlying common shares.
The quarterly operating results for the remaining quarters in 1996
may fluctuate significantly based upon a number of factors including,
among other things: the magnitude of sales of product for distribution in
Europe; the timing of FDA approval for, and the commercial introduction
of, the DTaP vaccine; the costs associated with additional facilities; the
timing of the satisfactory completion of milestones under the development
agreement with Pasteur Merieux-Connaught; the timing and amount of
payments under any additional collaboration agreement or distribution
agreement; and the timing of and amount of proceeds from the sale of
additional investment securities. There are, however, no assurances that
any further regulatory approvals will be received, or that development
milestones will be achieved, or that if obtained will contribute
materially to the quarterly operating results of the Company. Further,
failure or significant delays in receiving additional regulatory approvals
and meeting required milestones would have a significant adverse effect on
the Company's future operating results and future financial position.
Tax and Other Matters
---------------------
At December 31, 1995, the Company and its subsidiaries had income tax
loss carryforwards of approximately $11 million to offset future Canadian
source income and approximately $48.5 million to offset future United
States taxable income subject to the alternative minimum tax rules in the
United States.
- 16 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1996 Annual Meeting of Shareholders was held on June 18,
1996. The matters voted on and approved by the shareholders at the
meeting, together with a tabulation of the respective votes, are as
follows:
1. Election of Directors. The following individuals were elected, by
the following votes to serve as the directors of the Company until the
Company's next annual meeting of shareholders, or until their respective
successors are duly elected and qualified or until their prior resignation
or removal:
Name For Withheld
---- --- --------
Francesco Bellini 27,584,911 41,614
Alain Cousineau 27,584,911 41,614
Jonathan Deitcher 27,584,911 41,614
Denis Dionne 27,584,911 41,614
Neil Flanzraich 27,584,911 41,614
Phillip Frost 27,584,911 41,614
Lyle Kasprick 27,584,911 41,614
Francois Legault 27,583,911 42,614
Sharon Mates 27,584,911 41,614
Richard Pfenniger 27,584,911 41,614
Rondi Grey 27,583,911 42,614
There were no broker non-votes or abstentions in the election of
directors. These individuals constitute the entire Board of Directors of
the Company.
2. Appointment of Accountants. Arthur Andersen LLP was duly appointed
as independent public accountants of the Company for the year ending
December 31, 1996, by the following vote:
FOR AGAINST ABSTAIN
--- ------- -------
Appointment of Arthur Andersen 27,587,033 32,891 6,601
LLP as independent public
accountants of the Company
There were no broker non-votes in the appointment of the independent
public accountants.
- 17 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
- 18 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NORTH AMERICAN VACCINE, INC.
----------------------------
(Registrant)
By: /s/ Sharon Mates
-----------------------
Sharon Mates, Ph.D.
President
By: /s/ Lawrence J. Hineline
-------------------------
Lawrence J. Hineline
Vice President - Finance
Date: August 9, 1996
- 19 -
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30,
1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 86,652
<SECURITIES> 1,968
<RECEIVABLES> 731
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 89,225
<PP&E> 30,266
<DEPRECIATION> 12,285
<TOTAL-ASSETS> 113,129
<CURRENT-LIABILITIES> 7,919
<BONDS> 86,250
0
6,538
<COMMON> 60,819
<OTHER-SE> (48,557)
<TOTAL-LIABILITY-AND-EQUITY> 113,129
<SALES> 727
<TOTAL-REVENUES> 727
<CGS> 0
<TOTAL-COSTS> 15,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 925
<INCOME-PRETAX> (10,617)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,617)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,617)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
<PAGE>
</TABLE>
