<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or the transition period from to
Commission file number 0-18443
MEDICIS PHARMACEUTICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 52-1574808
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4343 East Camelback Road, Suite 250
Phoenix, Arizona 85018-2700
(Address of principal executive offices)
(602) 808-8800
(Registrant's telephone number, including area code)
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 issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at April 18, 1997
----- ------------------------------
<S> <C>
Class A Common Stock $.014 Par Value 13,944,750
Class B Common Stock $.014 Par Value 281,974
</TABLE>
<PAGE> 2
MEDICIS PHARMACEUTICAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1-- Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1997, and June 30, 1996 3
Condensed Consolidated Statements of
Operations for the Three Months and Nine Months
Ended March 31, 1997, and 1996 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
March 31, 1997, and 1996 6
Notes to the Condensed Consolidated Financial
Statements 7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K 14
SIGNATURE 15
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
-------------- -------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27,823,391 $ 7,956,050
Short-term investments 49,167,969 --
Accounts receivable, net 8,726,545 5,210,704
Inventories, net 2,202,418 2,080,014
Deferred tax assets 5,000,000 3,000,000
Other current assets 2,296,891 738,911
------------- ------------
Total current assets 95,217,214 18,985,679
------------- ------------
Property and equipment:
Furniture and equipment 448,982 336,544
Leasehold improvements 170,000 170,000
Less accumulated depreciation (180,914) (100,897)
------------- ------------
Net property and equipment 438,068 405,647
------------- ------------
Intangible assets:
Intangible assets related to
product acquisitions 37,010,154 9,168,853
Other intangible assets 1,403,326 203,326
Less accumulated amortization (2,912,887) (2,450,705)
------------- ------------
Net intangible assets 35,500,593 6,921,474
------------- ------------
Other non-current assets 1,000,000 --
------------- ------------
$ 132,155,875 $ 26,312,800
============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
-------------- -------------
(unaudited) (audited)
<S> <C> <C>
LIABILITIES
Current liabilities:
Accounts payable $ 4,346,947 $ 3,371,184
Accrued salaries and wages -- 204,750
Notes payable 10,325 10,000
Accrued incentives 702,649 1,184,111
Accrued royalties 571,746 552,952
Other accrued liabilities 2,324,316 1,262,134
------------- ------------
Total current liabilities 7,955,983 6,585,131
------------- ------------
Long-term liabilities:
Notes payable 111,335 116,580
Other non-current liabilities 127,528 151,437
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value, 5,000,000 -- --
shares authorized; no shares issued
Class A Common Stock, $0.014 par value,
shares authorized: 50,000,000; 13,944,750
and 10,224,543 issued and outstanding at 195,227 143,143
March 31, 1997 and at June 30, 1996,
respectively
Class B Common Stock, $0.014 par value,
1,000,000 shares authorized; 281,974
issued and outstanding at
March 31, 1997 and 3,948 3,948
at June 30, 1996
Additional paid-in capital 137,459,602 44,202,441
Accumulated deficit (13,697,748) (24,889,880)
------------- ------------
Total stockholders' equity 123,961,029 19,459,652
------------- ------------
$ 132,155,875 $ 26,312,800
============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
4
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MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 10,976,107 $ 7,016,209 $ 26,752,138 $ 18,038,872
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of product revenue 2,477,062 1,975,273 6,684,535 5,074,519
Selling, general and administrative 4,435,926 2,965,373 11,199,278 8,067,885
Research and development 360,166 186,660 972,998 607,700
Depreciation and amortization 248,619 146,869 546,846 432,160
------------ ------------ ------------ ------------
Operating costs and expenses 7,521,773 5,274,175 19,403,657 14,182,264
------------ ------------ ------------ ------------
Operating income 3,454,334 1,742,034 7,348,481 3,856,608
Interest income 1,242,190 53,288 2,677,090 85,731
Interest expense (2,844) (28,941) (19,312) (66,755)
Income tax benefit (expense), net (356,729) (7,235) 1,185,873 (66,413)
------------ ------------ ------------ ------------
Net income $ 4,336,951 $ 1,759,146 $ 11,192,132 $ 3,809,171
============ ============ ============ ============
Net income per common and common
equivalent share $ 0.29 $ 0.16 $ 0.81 $ 0.36
============ ============ ============ ============
Shares used in computing net income
per common and common
equivalent share 15,149,944 10,846,818 13,850,304 10,439,318
============ ============ ============ ============
</TABLE>
5
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MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net income $ 11,192,132 $ 3,809,171
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 546,846 432,160
Provision for losses on accounts receivable 255,000 60,000
Deferred income tax benefit (2,000,000) --
Accretion of discount on investments (259,677) --
Non-cash interest -- 13,100
Other non-cash expenses 58,500 5,000
Change in operating assets and liabilities
Inventories (122,404) (342,903)
Accounts receivable (3,770,841) (830,631)
Accounts payable 975,763 81,153
Interest payable -- 23,268
Accrued salaries and wages (204,750) --
Accrued royalty payable 18,794 (2,194)
Accrued incentives (481,462) 138,588
Other current liabilities 259,952 (18,067)
Other current assets (1,057,980) (454,923)
------------ -----------
Net cash provided by operating activities 5,409,873 2,913,722
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment (117,086) (156,730)
Payment for intangible assets (28,239,512) (16,667)
Purchase of available-for-sale investments (56,270,461) --
Sale of available-for-sale investments 7,185,861 --
Increase in other assets (1,500,000) --
------------ -----------
Net cash used in investing activities (78,941,198) (173,397)
------------ -----------
Cash flows from financing activities:
Proceeds from the exercise of stock options 3,308,843 909,020
Payments of notes payable (4,478) (770,463)
Payment of other non-current liabilities (23,909) --
Proceeds from common stock sale 90,118,210 --
Proceeds from the issuance of note payable -- 23,910
------------ -----------
Net cash provided by financing activities 93,398,666 162,467
------------ -----------
Net increase in cash and cash equivalents 19,867,341 2,902,792
Cash and cash equivalents at beginning of period 7,956,050 953,438
------------ -----------
Cash and cash equivalents at end of period $ 27,823,391 $ 3,856,230
------------ -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 19,312 $ 30,387
Taxes 759,364 136,147
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 7
MEDICIS PHARMACEUTICAL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Medicis Pharmaceutical Corporation ("Medicis" or the "Company") is an
independent pharmaceutical company headquartered in Phoenix, Arizona that
develops, markets and sells prescription and non-prescription
(over-the-counter) products exclusively to treat dermatological
conditions. Emphasizing the clinical effectiveness, quality, affordability
and cosmetic elegance of its products, the Company has achieved a leading
position in the treatment of acne and acne-related conditions using
prescription pharmaceuticals, while also offering the leading domestic
over-the-counter ("OTC") fade cream product line. The Company has built
its business through the successful introduction of the DYNACIN(R) and
TRIAZ(R) products for the treatment of acne, and the acquisition of the
ESOTERICA(R) fade cream product line. On February 24, 1997, Medicis
acquired the prescription topical corticosteroid brands LIDEX(R) and
SYNALAR(R). These topical corticosteroids combat inflammatory skin
diseases by reducing swelling and pain, relieving itching and constricting
blood vessels in the skin. The LIDEX(R) and SYNALAR(R) product lines
consist of various potencies and cosmetically elegant formulations,
allowing dermatologists to prescribe the most appropriate product based on
the severity and location of the patients condition. Additionally, Medicis
has formed a new business unit, TX SYSTEMS(TM) by Medicis to market
cosmetic dermatology treatments to dermatologists nationwide for
administration and dispensing to patients. Through the TX SYSTEMS(TM) by
Medicis business unit, two new skin treatments were introduced to improve
the texture and appearance of the skin - AFIRM(TM), a patented retinol
cream, and BETA-LIFTX(TM), a new skin treatment procedure.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted in
the second quarter of fiscal 1998 ended December 31, 1997. At that time,
reporting Company's will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive
effect of stock options will be excluded. The impact is expected to result
in an increase in primary earnings per share for the third quarter ended
March 31, 1997 and March 31, 1996 of $0.02 to $0.31 per share and $0.01 to
$0.17 per share, respectively. The impact of Statement 128 on the
calculation of fully diluted earnings per share for these quarters is not
expected to be material.
Except as otherwise specified herein, all information in this Form 10-Q
has been adjusted to give effect to a 3-for-2 stock split in the form of a
50% stock dividend paid on March 28, 1997 to holders of record on March
17, 1997.
Certain immaterial amounts on the face of the balance sheet have been
reclassified to conform with the current years presentation.
The financial information is unaudited but reflects all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
the Company's management, necessary to a fair statement of the results for
the interim periods presented. Interim results are not necessarily
indicative of results for a full year. The financial statements should be
read in conjunction with the Company's audited financial statements for
the fiscal year ended June 30, 1996.
7
<PAGE> 8
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share have been computed by
using the weighted average number of shares outstanding and common
equivalent shares.
3. CONTINGENCIES
The Company and certain of its subsidiaries, from time to time, are
parties to certain actions and proceedings incident to their business.
Liability in the event of final adverse determinations in any of these
matters is either covered by insurance and/or established reserves or, in
the opinion of management, after consultation with counsel, should not, in
the aggregate, have a material adverse effect on the consolidated
financial position or results of operations of the Company and its
subsidiaries.
4. INVENTORIES
Although the Company utilizes third parties to manufacture and package
inventories held for sale, the Company takes title to certain inventories
and records the associated liability once inventories are manufactured.
Inventories are valued at the lower of cost or market as determined by net
realizable value using the first-in-first-out method. Inventories, net of
reserves, at March 31, 1997, and June 30, 1996, consist of the following:
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
-------------- -------------
<S> <C> <C>
Raw materials $ 296,177 $ 72,633
Work in process -- 23,749
Finished goods 1,906,241 1,983,632
---------- ----------
Total inventories $2,202,418 $2,080,014
========== ==========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto and with the
Company's audited financial statements, notes to the consolidated
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations relating thereto included or
incorporated by reference in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
The foregoing Form 10-Q contains certain forward-looking statements which
are subject to risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those discussed in
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1996, which are incorporated by reference herein.
8
<PAGE> 9
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1996
Net Sales
Net sales for the three months ended March 31, 1997 (the "third quarter of
fiscal 1997") increased 56.4%, or $4.0 million, to $11.0 million from $7.0
million for the three months ended March 31, 1996 (the "third quarter of
fiscal 1996"). The Company's net sales increased in the third quarter of
fiscal 1997 primarily as a result of continued unit and dollar growth in
the Company's prescription products primarily the DYNACIN(R) and TRIAZ(R)
products and the contribution from the LIDEX(R) and SYNALAR(R) products
which were acquired on February 24, 1997 from various affiliates of Syntex
Corporation and its parent F. Hoffmann-La Roche, Ltd. The Company has
during the third quarter of Fiscal 1997 increased the full-time equivalent
number of sales personnel and has expanded its clinical testing and
marketing activities in order to facilitate the increased net sales. The
Company's prescription products accounted for 87.9% of net sales in the
third quarter of fiscal 1997 and 84.6% in the third quarter of fiscal
1996. The unit and dollar sales volume of the Company's ESOTERICA(R)
products increased 38.4% primarily due to an increase in use of
promotional vehicles in targeted markets. The over-the-counter products
accounted for 12.1% of net sales in the third quarter of fiscal 1997 and
15.4% in the third quarter of fiscal 1996.
Gross Profit
Gross profit during the third quarter of fiscal 1997 increased 68.6%, or
$3.5 million, to $8.5 million from $5.0 million in the third quarter of
fiscal 1996. As a percentage of net sales, gross profit grew to 77.4% in
the third quarter of fiscal 1997 from 71.8% in the third quarter of fiscal
1996 primarily as a result of higher average sales prices for the
Company's DYNACIN(R) and ESOTERICA(R) products, and additional sales from
the Company's higher margin products primarily TRIAZ(R), LIDEX (R) and
SYNALAR(R) .
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the third quarter of
fiscal 1997 increased 49.9%, or $1.5 million, to $4.4 million from $2.9
million in the third quarter of fiscal 1996, primarily due to the
introduction and administration of the LIDEX(R) and SYNALAR(R) products
which the Company began actively promoting to dermatologists nationwide on
February 24, 1997, the introduction of two new products; BETA-LIFTX(TM)
and AFIRM(TM) through the Company's newly formed business unit TX
SYSTEMS(TM) by Medicis and an increase in promotional costs associated
with the advertising of the ESOTERICA(R) products. Additionally, selling,
general and administrative expenses increased due to personnel costs
attributable to an increase in variable compensation commensurate with
increased sales volume, a rise in full-time equivalent employees and cost
of living salary adjustments. Selling, general and administrative
expenses, decreased 180 basis points as a percentage of sales to 40.5%
from 42.3% in the third quarter of fiscal 1997 relative to the third
quarter of fiscal 1996.
9
<PAGE> 10
Research and Development Expenses
Research and development expenses in the third quarter of fiscal 1997
increased 93.0%, or approximately $174,000, to approximately $360,000 from
approximately $186,000 in the third quarter of fiscal 1996, primarily due
to expansion of new product research and development activities and an
increase in expenses associated with the expanded clinical support of the
Company's existing products.
Operating Income
Operating income during the third quarter of fiscal 1997 increased 98.3%,
or $1.7 million, to $3.4 million from $1.7 million in the third quarter of
fiscal 1996. This increase was primarily a result of a 56.4% increase in
sales volume, coupled with a 560 basis point increase in the Company's
gross profit as a percentage of net sales and a 180 basis point decrease
in selling, general, and administrative cost as a percentage of net sales.
Interest Income (Expense)
Interest income in the third quarter of fiscal 1997 increased to $1.2
million from approximately $53,000 in the third quarter of fiscal 1996,
primarily due to higher cash equivalent and short-term investment balances
in the third quarter of fiscal 1997 as a result of the Company's public
offering which raised $95.7 million before related expenses, funds
received throughout fiscal 1997 as the result of stock option exercises
and the Company's cash flow from operations.
Net Income
Net income during the third quarter of fiscal 1997 increased approximately
146.5%, or $2.6 million, to $4.3 million from $1.7 million from the third
quarter of fiscal 1996. The increase is primarily attributable to a 56.4%
increase in sales volume, a 560 basis point increase in gross profit as a
percentage of net sales and a 180 basis point decrease in selling, general
and administrative costs as a percentage of net sales.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE NINE MONTHS ENDED MARCH
31, 1996
Net Sales
Net sales for the nine months ended March 31, 1997 (the "1997 nine
months") increased 48.3%, or $8.7 million, to $26.7 million from $18.0
million for the nine months ended March 31, 1996 (the "1996 nine months")
primarily as a result of continued unit and dollar growth in sales of the
Company's prescription products primarily the DYNACIN(R) and TRIAZ(R)
products and the contribution from the LIDEX(R) and SYNALAR(R) products
which were acquired on February 24, 1997 from various affiliates of Syntex
Corporation and its parent F. Hoffmann-La Roche, Ltd. The Company has
during the 1997 nine months increased the full-time equivalent number of
sales personnel and has expanded its clinical testing and marketing
activities in order to facilitate the increase in net sales. The Company's
prescription products accounted for 86.2% of net sales in the 1997 nine
months as compared to 80.4% of net sales in the 1996 nine months.
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<PAGE> 11
Gross Profit
Gross profit for the 1997 nine months increased 54.8%, or $7.1 million,
to $20.1 million from $13.0 million in the 1996 nine months. As a
percentage of net sales, gross profit grew to 75.0% in the 1997 nine
months from 71.9% in the 1996 nine months primarily due to a higher
average sales price of the DYNACIN(R) products and additional sales from
the Company's higher margin products, primarily TRIAZ(R), LIDEX(R) and
SYNALAR(R).
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the 1997 nine months
increased 38.9%, or $3.1 million, to $11.2 million from $8.1 million in
the 1996 nine months. The increase is primarily due to the introduction
and administration of the LIDEX(R) and SYNALAR(R) products which the
Company acquired in the third quarter of fiscal 1997 and began actively
promoting the products to dermatologists nationwide, the introduction of
two new products; BETA-LIFTX(TM) and AFIRM(TM) through the Company's
formation of the TX SYSTEMS(TM) by Medicis business unit and an increase
in promotional costs associated with advertising of the ESOTERICA(R)
products and the Company's existing prescription products. Selling,
general and administrative expenses also increased due to personnel costs
attributable to an increase in variable compensation commensurate with
increased sales volume, personnel cost attributable to a rise in full-time
equivalent employees, and cost of living salary adjustments. Selling,
general and administrative costs, have decreased 280 basis points as a
percentage of sales to 41.9% from 44.7% in the 1997 nine months compared
to the 1996 nine months.
Research and Development Expenses
Research and development expenses in the 1997 nine months increased 60.1%
or approximately $365,000 to approximately $973,000, from approximately
$608,000 in the 1996 nine months primarily due to expansion of new product
research and development activities and an increase in expenses associated
with the clinical support of the Company's existing products.
Operating Income
Operating income during the 1997 nine months increased 90.5% or, $3.5
million to $7.4 million from $3.9 million in the 1996 nine months. This
increase was primarily a result of a 48.3% increase in sales volume
coupled with an increase of 310 basis points in the Company's gross profit
as a percentage of net sales and decrease of 280 basis points in selling,
general, and administrative costs as a percentage of net sales.
11
<PAGE> 12
Interest Income (Expense)
Interest income in the 1997 nine months increased to $2.7 million from
approximately $86,000 in the 1996 nine months, primarily due to higher
cash equivalent and short-term investment balances in the 1997 nine
months. Cash equivalent and short-term investments balances have increased
primarily due to the Company's public offering which raised $95.7 million
before related expenses, the Company's cash flow from operations and funds
received as a result of stock option exercises. Interest expense in the
1997 nine months decreased 71.1%, or approximately $47,000, to
approximately $19,000 from approximately $66,000 in the 1996 nine months.
Income Tax Benefit (Expense)
Income tax benefit (expense) during the 1997 nine months increased $1.3
million to a benefit of $1.2 million from an expense of approximately
$66,000 in the 1996 nine months. During the first quarter of fiscal 1997,
the Company reassessed the estimated amount of valuation allowance
required in light of the funds received from the public offering to reduce
deferred tax assets in accordance with Statement of Financial Accounting
Standard No. 109, Accounting for Income Taxes ("SFAS No. 109") to an
amount the Company, after consultation with its independent accountants,
believed appropriate. Accordingly, a credit to income tax benefit of $2.0
million was reflected in the first quarter of fiscal 1997's Condensed
Consolidated Statement of Operations and the corresponding deferred tax
asset on the Company's Condensed Consolidated Balance Sheets. The amount
of net deferred tax assets estimated to be recoverable was based upon the
Company's assessment of the likelihood of near term operating income
coupled with uncertainties with respect to the impact of future
competitive and market conditions. No such income tax benefit was recorded
in the 1996 nine months. The income tax benefit was partially offset by
the Company's federal and state tax payments during the 1997 nine months.
Net Income
Net income during the 1997 nine months increased approximately 193.8%, or
$7.4 million, to $11.2 million from $3.8 million in the 1996 nine months.
The increase was primarily attributable to a 48.3% increase in sales
volume, a 310 basis point increase in gross profit as a percentage of net
sales, the decrease in selling, general and administrative as a percentage
of net sales of 280 basis points and the recording of the $2.0 million
income tax benefit in the 1997 nine months.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 and June 30, 1996, the Company had cash equivalents and
short-term investments of approximately $77.0 million and $8.0 million,
respectively. The Company's working capital was $87.3 million and $12.4
million at March 31, 1997 and June 30, 1996, respectively. The increase in
working capital is primarily attributable to the Company's public offering
of $95.7 million before related expenses, income from operations of $7.3
million, and funds received due to the exercise of stock options of $3.3
million.
12
<PAGE> 13
At March 31, 1997 and June 30, 1996, the Company had accounts receivable
of $8.7 million and $5.2 million, respectively. The increase in the
Company's accounts receivable balance is primarily due to an increase in
sales volume in the third quarter of fiscal 1997 as compared to the
quarter ended June 30, 1996. The Company also began recording sales for
LIDEX(R) and SYNALAR(R) on February 24, 1997 pursuant to a transition
service agreement with F. Hoffman-La Roche, Ltd. The Company will receive
payment for sales recorded during the March 31, 1997 quarter in April,
1997.
At March 31, 1997 and June 30, 1996, the Company had accounts payable
balances of $4.3 million and $3.4 million, respectively. The increase in
the Company's accounts payable balance is primarily due to inventory value
associated with the Company's LIDEX(R), SYNALAR(R), AFIRM(TM) and
BETA-LIFTX(TM) products.
During fiscal 1997, the Company reassessed the estimated amount of
valuation allowance required or necessary to reduce deferred tax assets
available in accordance with SFAS No. 109 to an amount the Company, after
consultation with its independent accounts, believed appropriate.
Accordingly, a deferred tax asset of an additional $2.0 million was
reflected in the consolidated balance sheet and a credit to deferred tax
benefit of $2.0 million in the consolidated income statement. The amount
of net deferred tax assets available that are estimated to be recoverable
was based upon the Company's assessment of the likelihood of near-term
operating income coupled with the uncertainties with respect to the impact
of future competitive and market conditions. The amount of deferred tax
asset available that ultimately will be realized will depend upon future
events which are uncertain.
On October 2, 1996, the Company completed a public offering for 2,775,000
primary shares of the Company's Class A Common Stock at a price of $30.00
per share. The underwriters also exercised the over allotment option of
416,250 shares at a price of $30.00 per share. Gross proceeds from the
offering before related expenses totaled approximately $95,737,500. The
Company anticipates using the proceeds from the offering for marketing
expenses associated with new product introductions, the licensing or
acquisition of formulations, technologies, products or businesses,
research and development, expansion of marketing and sales capabilities
and general corporate purposes.
In November 1996, the Company increased its credit facility with Norwest
Bank Arizona, N.A. from $5 million to $25 million. The credit facility is
secured by principal assets of the Company. The Company is required to
comply with certain covenants and restrictions, including covenants
relating to the Company's financial condition and result of operations.
This credit facility has not been accessed by Medicis.
In January 1997, the Company agreed to acquire the United States and
Canadian dermatology assets of Syntex USA, Inc. from various affiliates of
Syntex and its parent company, F. Hoffmann-La Roche, Ltd. The Company,
using cash reserves, paid $28 million, and will pay an additional $3
million under certain conditions, or less than 2.5 times sales over the
past 12 months, for the purchased products. Medicis entered into four
separate Asset Purchase Agreements with various Roche affiliates (the
"Purchase Agreements") for the acquisition of the intellectual property
rights, know-how and all finished goods inventory specifically associated
with Syntex's topical corticosteroid dermatology products ("the Purchased
Products") in the United States and Canada. The purchased products include
the prescription
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topical steroid brands LIDEX(R) and SYNALAR(R). These topical
corticosteroids combat inflammatory skin diseases by reducing swelling and
pain, relieving itching, and constricting blood vessels in the skin. The
product lines consist of various potencies and cosmetically elegant
formulations, allowing dermatologists to prescribe the most appropriate
product based on the severity and location of a patient's condition. Prior
to the acquisition, the Company did not market any products in this
category of dermatological care.
On March 7, 1997, the Company announced that its Board of Directors had
approved a 3-for-2 stock split to be effected in the form of a 50% stock
dividend. The dividend was paid to holders of record of the Class A and
Class B Common Stock and all stock option holders on March 17, 1997, i.e.,
the record date. Holders of the Company's Class A and Class B Common Stock
received one additional share of Common Stock for each two shares held.
Similar adjustments will be made under the Company's Rights Agreement,
dated as of August 15, 1995 (as amended from time-to-time) between the
Company and Norwest Bank Minnesota, N.A., so that one additional right
shall be issued to accompany each share of Common Stock issued pursuant to
the dividend.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
** 4.1b Amendment No. 2 to Rights Agreement dated as of March 17,
1997 between the Company and Norwest Bank Minnesota, N.A.
** 10.79 Asset Purchase Agreement dated January 21, 1997 between the
Company and Syntex Pharmaceuticals International Limited
** 10.80 Asset Purchase Agreement dated January 21, 1997 between the
Company and Syntex (U.S.A.) Inc.
** 10.81 Asset Purchase Agreement dated January 21, 1997 between the
Company and Hoffmann-La Roche Limited
** 10.82 Asset Purchase Agreement dated January 21, 1997 between the
Company and Syntex Pharmaceuticals International Limited
** 10.83 Transition Services Agreement dated January 21, 1997 between
the Company and Hoffman-La Roche, Inc.
** 10.84 Transition Services Agreement dated January 21, 1997 between
the Company and Hoffman-La Roche Limited
** 10.85 Supply Agreement (Fluocinolone Acetonide and Fluocinonide)
dated January 21, 1997 between the Company and Syntex
Pharmaceuticals International Limited
** 10.86 License Agreement dated March 28, 1997 between the Company and
Platinum(R) Software Corporation
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* 10.87 Master Software License Agreement dated March 28, 1997 between
the Company and FocusSoft, Inc.
** 11.1 Statements re: Computation of Per Share Earnings
** 27 Financial Data Schedule
* Confidential Treatment Requested
** Previously filed as an exhibit to the Registrant's Form 10-Q filed with
the Commission on May 9, 1997.
(b) Reports on Form 8-K
During the third quarter of fiscal 1997, the Company filed the following
report on Form 8-K:
(i) Current report on Form 8-K dated January 22, 1997 reporting under
Item 5, the Company acquired the United States and Canadian assets of
Syntex USA, Inc. ("Syntex") from various affiliates of Syntex and its
parent company, F. Hoffmann-La Roche, Ltd.
(ii) Current report on Form 8-K dated March 28, 1997 reporting under Item
5, the Company effected a three-for-two stock split in the form of a 50%
stock dividend.
SIGNATURE
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.
MEDICIS PHARMACEUTICAL CORPORATION
Date: June 24, 1997 By: /s/ Jonah Shacknai
------------------------------------
Jonah Shacknai
Chairman and Chief Executive Officer
Date: June 24, 1997 By: /s/ Mark A. Prygocki Sr.
------------------------------------
Mark A. Prygocki, Sr.
Chief Financial Officer
and Assistant Treasurer
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