SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 12(g)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 12(g)
of the Securities Exchange Act of 1934
For the Transition Period from to
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Commission File Number 0-26144
International Murex Technologies Corporation
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(Exact name of registrant as specified in its charter)
Province of British Columbia, Canada N/A
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2255 B. Queen Street, East, Suite 828, Toronto, ON M4E 1G3
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (519) 836-8016
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 12(g) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The number of common shares outstanding as of April 30, 1997 was
16,187,720, excluding treasury shares.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Quarterly Report on Form 10-Q
For the Three Months Ended March 31, 1997
Table of Contents
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Item Page
Number Number
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PART I -- FINANCIAL INFORMATION
1 Financial Statements
Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations
for the Three Months Ended
March 31, 1997 and 1996 5
Consolidated Statements of Changes in
Shareholders' Equity for the
Period January 1, 1996 to March 31, 1997 6
Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 1997 and 1996 7
Notes to Consolidated Financial Statements 9
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II -- OTHER INFORMATION
1 Legal Proceedings 17
6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands of U.S. Dollars)
March 31, December 31,
----------------------------
1997 1996
------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,319 $ 9,723
Accounts receivable, net of allowance
for doubtful accounts of $2,995
and $3,174, respectively 31,683 33,718
Inventories 21,492 21,534
Amounts due from affiliate 4,227 4,415
Prepaid and other 1,735 1,207
-----------------------
Total current assets 69,456 70,597
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PROPERTY, PLANT AND EQUIPMENT-
at cost less accumulated depreciation
and amortization 10,111 10,091
PATENTS, TRADEMARKS AND LICENSES-
at cost less accumulated amortization 6,005 5,738
OTHER ASSETS 8,123 8,687
-----------------------
TOTAL $ 93,695 $ 95,113
==========================================================================
See notes to consolidated financial statements.
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March 31, December 31,
------------------------
1997 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 10,737 $ 9,757
Accrued expenses:
Professional fees 1,045 2,222
Royalty payments 2,096 1,978
Employee related 5,902 5,985
Income taxes payable 1,613 1,508
Litigation settlements 1,955 3,310
Restructuring 392 1,402
Other 3,526 2,809
Current portion of capitalized 136 151
lease obligations -------------------
Total current liabilities 27,402 29,122
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DEFERRED RENT 74 77
LINE OF CREDIT 11,058 9,638
CAPITALIZED LEASE OBLIGATIONS 76 93
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common shares, without par value,
200,000,000 shares authorized;
16,566,936 and 16,578,853 shares
issued, respectively 84,397 84,460
Additional paid-in capital 13,906 13,906
Accumulated deficit (39,996) (41,655)
Less cost of 101,043 and 286,929
common shares held in treasury,
respectively (5) (1,085)
Unrealized gain on marketable
securities 5,030 4,405
Accumulated currency translation (8,247) (3,848)
adjustment -------------------
Shareholders' equity 55,085 56,183
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TOTAL $ 93,695 $ 95,113
==============================================================
See notes to consolidated financial statements.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of U.S. Dollars, except per share data)
Three Months Ended March 31,
----------------------------
1997 1996
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REVENUES:
Product sales $ 24,718 $ 26,023
License fees and other 1,124
----------------------
Total revenues 25,842 26,023
COSTS AND EXPENSES:
Cost of products sold 8,289 9,853
Research and development 1,607 1,840
General and administrative 5,618 5,304
Sales and marketing 6,817 7,004
Foreign exchange loss 44 9
Royalty expense 1,500 1,967
----------------------
Total costs and expenses 23,875 25,977
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Income From Operations 1,967 46
Interest income 49 64
Interest expense (285) (748)
Loss on asset disposals (26)
Equity in loss of investee (408)
Other income 52 95
----------------------
Income (loss) before income taxes 1,757 (951)
Income taxes 98 158
----------------------
NET INCOME (LOSS) $ 1,659 $ (1,109)
=================================================================
Net income (loss) per common share $ 0.10 $ (0.07)
========= ==========
Weighted average common shares
outstanding (in thousands) 17,331 16,160
========= ==========
See notes to consolidated financial statements.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of U.S. Dollars, except share data)
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Common Stock Additional
---------------------- Paid-In Accumulated
Shares Amount Capital Deficit
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December 31, 1995 16,688,931 $84,136 $13,906 ($43,504)
Issued pursuant
to employee stock
purchase plan 23,297 91
Exercise of 15,900 50
employee stock
options
Issued as stock 281,925 1,692
compensation
Shares tendered to
treasury
Retirement of (431,200) (1,509)
treasury shares
Unrealized gain on
marketable securities
Net income 1,849
Foreign currency
translation -----------------------------------------------------
December 31, 1996 16,578,853 84,460 13,906 (41,655)
Issued pursuant
to employee stock
purchase plan 7,847 64
Exercise of 119,650 683
employee stock
options
Retirement of (185,886) (1,080)
treasury shares
Issued pursuant
to class action
settlement 46,472 270
Unrealized gain
on marketable
securities
Net income 1,659
Foreign currency
translation -----------------------------------------------------
March 31, 1997 16,566,936 $84,397 $13,906 ($39,996)
=====================================================
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Unrealized Accumulated
Gain on Currency Total
Treasury Marketable Translation Shareholders'
Shares Securities Adjustment Equity
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December 31, 1995 ($1,514) ($3,493) $49,531
Issued pursuant to
employee stock
purchase plan 91
Exercise of employee 50
stock options
Issued as stock 1,692
compensation
Shares tendered to
treasury (1,080) (1,080)
Retirement of treasury 1,509
shares
Unrealized gain on
marketable
securities $4,405 4,405
Net income 1,849
Foreign currency (355) (355)
translation -----------------------------------------------
December 31, 1996 (1,085) 4,405 (3,848) 56,183
Issued pursuant to
employee stock
purchase plan 64
Exercise of employee 683
stock options
Retirement of treasury 1,080
shares
Issued pursuant to
class action
settlement 270
Unrealized gain on
marketable 625 625
securities
Net income 1,659
Foreign currency (4,399) (4,399)
translation -----------------------------------------------
March 31, 1997 ($5) $5,030 ($8,247) $55,085
===============================================
See notes to consolidated financial statements.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of U.S. Dollars)
Three Months Ended March 31,
------------------------------
1997 1996
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OPERATING ACTIVITIES:
Net income (loss) $ 1,659 $ (1,109)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation 1,251 1,385
Amortization 183 52
Loss on sale of property and 26
equipment
Changes in working capital:
Accounts receivable 2,035 1,487
Inventories 42 (895)
Prepaid expenses and other assets 691 199
Trade accounts payable 980 609
Accrued expenses (2,445) (5,370)
----------------------------
Net cash provided by (used in)
operating activities 4,422 (3,642)
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INVESTING ACTIVITIES:
Additions to property and equipment (1,348) (1,814)
Additions to patents and licenses (450) (3,499)
Proceeds from sale of property and 51 247
equipment ----------------------------
Net cash (used in) investing
activities (1,747) (5,066)
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FINANCING ACTIVITIES:
Increase (decrease) in borrowings 1,420 (14)
under line of credit
Reduction of other long-term (35) (70)
liabilities
Proceeds from issuance of common 747 11
shares ----------------------------
Net cash provided by (used in)
financing activities 2,132 (73)
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EFFECT OF EXCHANGE RATE CHANGES ON (4,211) 631
CASH
Net Increase (Decrease) in Cash and 596 (8,150)
Cash Equivalents
Cash and Cash Equivalents at Beginning 9,723 15,771
of Period ----------------------------
CASH AND CASH EQUIVALENTS AT END OF $ 10,319 $ 7,621
PERIOD
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Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest $ 285 $ 748
Cash paid for income taxes $ 293 $ 674
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Consolidated Statements of Cash Flows (Continued)
(In Thousands of U.S. Dollars)
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the quarters ending March 31, 1997 and 1996, IMTC retired
$1,080 and $1,063, respectively, of shares held in treasury.
During the quarter ended March 31, 1996, a subsidiary of the Company,
Specialist Diagnostics Limited ("SDL"), entered voluntary liquidation.
Therefore, its financial statements were deconsolidated. This resulted in
the recognition of a $17,416 amount due from affiliate, a $17,126 amount
due to affiliate and a reduction of other assets of $290. As of March 31,
1997, the Company has an amount due from SDL of $4,227.
Unpaid acquisition costs totalled $0 and $750 at March 31, 1997 and
1996, respectively.
See notes to consolidated financial statements.
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<PAGE>
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Notes to Consolidated Financial Statements
(In Thousands of U.S. Dollars)
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1. NATURE OF THE COMPANY AND BASIS OF PRESENTATION:
International Murex Technologies Corporation ("IMTC"), has many
incorporated subsidiaries operating throughout the world under the
Murex name (the "Murex Group"). The Murex Group develops, manufactures
and markets medical diagnostic products, licenses its technology and
provides medical services for the screening, diagnosis and monitoring
of infectious diseases and other medical conditions. (IMTC and the
Murex Group are collectively referred to herein for consolidated
financial purposes only as the "Company"). The accompanying financial
statements include IMTC and its wholly-owned, incorporated
subsidiaries doing business in various territories generally under the
name Murex Diagnostics.
Effective January 1, 1996, IMTC's United Kingdom ("UK") operating
business was restructured into two companies, Murex Diagnostics
Limited ("MDL") and Murex Biotech Limited ( MBL ). MDL retained the
business encompassing the sale in the UK of all of the Company's
Hepatitis C ("HCV") products and manufacturing of the HCV Serotyping
test. All other MDL business was sold to another of IMTC's UK
subsidiaries, MBL. MDL subsequently changed its name to Specialist
Diagnostics Limited ("SDL") and entered voluntary liquidation
following the British High Court ruling that an interim cash security
of $9.3 million be posted by SDL relating to its then ongoing patent
litigation. Co-liquidators have been appointed. As of March 31, 1997
and December 31, 1996, IMTC and its subsidiaries represented
predominantly all creditors of SDL. In the consolidated financial
statements, the subsidiary is assumed to be fully liquidated.
Management expects to ultimately receive net proceeds of $4,227 after
settlement of all liquidation costs, which is reflected as of March
31, 1997 as amounts due from affiliates.
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X promulgated by the Securities and Exchange Commission.
Such financial statements do not include all disclosures required by
generally accepted accounting principles for annual financial
statement reporting purposes. However, there has been no material
change in the information disclosed in the Company's annual
consolidated financial statements dated December 31, 1996, except as
disclosed herein. Accordingly, the information contained herein
should be read in conjunction with such annual consolidated financial
statements and related disclosures. The accompanying financial
statements reflect, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the results for the interim periods presented.
Results of operations for the quarter ended March 31, 1997 are not
necessarily indicative of results expected for an entire year.
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2. INVENTORIES:
March 31, December 31,
1997 1996
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Raw materials and supplies . . . . $ 5,896 $ 5,911
Work in process . . . . . . . . . 5,461 5,244
Finished goods . . . . . . . . . . 10,135 10,379
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Total inventories . . . . . . . . $21,492 $21,534
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3. CONTINGENCIES:
Four class action lawsuits were instituted on behalf of all persons
who had purchased IMTC's securities between May 21, 1992 and August
19, 1992 against IMTC, two executive officers of IMTC, and Messrs.
Edward J. DeBartolo, Sr. (now deceased) and Edward J. DeBartolo, Jr.,
in the Southern District of Texas, Houston Division. In January 1993,
the class actions were voluntarily transferred to the United States
District Court, Eastern District of New York. The complaints alleged
that the defendants omitted and/or misrepresented material facts about
IMTC which resulted in artificially inflating the market price of
IMTC's securities permitting, in part, Messrs. DeBartolo, Sr. and
DeBartolo, Jr. to sell their IMTC securities in violation of the
federal and Texas securities laws. One further action alleged
violations of insider trading rules under the federal securities laws.
The defendants answered denying the allegations in the complaints.
During 1996, the parties agreed to settle all outstanding claims for
$5.4 million, a portion of which has been paid by IMTC into escrow
held by the claims administrator. In accordance with the Stipulation
Settlement Agreement, Edward J. DeBartolo, Jr. and the Estate of
Edward J. DeBartolo, Sr. each transferred 92,943 common shares of the
Company's stock to the Company to be used as their portion of the
settlement. The claims administrator is currently qualifying
claimants and management expects this matter to be finalized during
the first half of 1997.
During 1995, the UK Inland Revenue questioned the tax basis of
inventory, accounts receivable and property, plant and equipment
related to the 1992 purchase of assets from The Wellcome Foundation
Limited ("Wellcome"). If Inland Revenue is successful in its
argument, a tax charge of up to $4.2 million could arise. Management
believes it has meritorious defenses against the claims of Inland
Revenue and that the Company has sufficient tax loss carryforwards to
offset any tax charges. Therefore, the Company has not recorded a
provision for losses related to this matter.
4. RESTRUCTURING:
During September 1996, the Company recorded a restructuring charge of
$2,100. The restructuring was driven by the need to reposition the
Company for its movement into the patient monitoring business. The
worldwide plan will result in personnel reductions of approximately 50
people from various functions. The restructuring provision consists
predominantly of estimated costs for employee severance and other
benefits. As of December 31, 1996, 35 employees left the Company
related to the restructuring plan, resulting in actual payments of
$698. As such, the remaining accrual at December 31, 1996 was $1,402.
The Company substantially completed the restructuring during the three
months ended March 31, 1997, and $392 remained accrued at March 31,
1997 for payments to former employees.
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<PAGE>
5. RECONCILIATION OF CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("CANADIAN GAAP" AND U.S. GAAP"):
There were no differences between Canadian GAAP and U.S. GAAP during
the year ended December 31, 1996 and the quarter ended March 31, 1997.
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<PAGE>
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Form 10-Q for the Three Months Ended March 31, 1997
Part I - Financial Information
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts expressed in U.S. Dollars)
This report contains or refers to forward-looking information
including future revenues, products, and income and is based upon current
expectations that involve a number of business risks and uncertainties.
Among the factors that could cause actual results to differ materially from
any forward-looking statement include, but are not limited to,
technological innovations of competitors, delays in product introductions,
changes in health care regulations and reimbursements, litigation claims,
changes in foreign economic conditions or currency translation, product
acceptance, government approvals or changes in government regulation of the
Company s products, as well as other factors discussed in other Securities
and Exchange Commission filings for the Company.
FINANCIAL CONDITION
During the three months ended March 31, 1997, the Company continued
its profitability, generated cash from operations and maintained positive
working capital.
Litigation and Technology Disputes
The Murex Group's business utilizes newly-developed technologies that
include patents on processes and devices. These types of technologies are
the focal point for the biotechnology industry. The ownership and
patentability of such processes or devices have become increasingly
complex, resulting in competitive claims of ownership within the industry.
IMTC and several subsidiaries of the Murex Group were involved in
several lawsuits, including technology patent issues, which were settled
during 1996. The Company is not presently the defendant in any material
judicial proceeding. The Company is vigorously pursuing its patent
infringement suit in which the Company is the plaintiff against Abbott
Laboratories ("Abbott"), and continues to defend one UK Inland Revenue
Claim, both of which are discussed below.
On July 2, 1996, a subsidiary of IMTC, Murex Diagnostics Corporation
("MDC"), filed a patent infringement suit against Abbott seeking injunctive
relief against Abbott and damages for infringement of a patent held by MDC
for a particle bound binding component immunoassay. The suit alleges that
two Abbott systems, the Abbott IMx(TM) Immunoassay and the Abbott AxSYM(TM)
System, infringe one or more claims of MDC's patent. Abbott has answered
the complaint and the parties are now actively engaged in discovery.
During 1995, the UK Inland Revenue questioned the tax basis of
inventory, accounts receivable and property, plant and equipment related to
the 1992 purchase of assets from Wellcome. If the Inland Revenue is
successful in its argument, a tax charge of up to $4.2 million could arise.
Management believes it has meritorious defenses against the claims of the
Inland Revenue and that the Company has sufficient tax loss carryforwards
to offset any tax charges. Therefore, the Company has not recorded a
provision for losses related to this matter.
Liquidity and Capital Resources
The Company has sufficient cash resources and adequate working capital
to carry on its current business and meet existing capital requirements.
Cash and working capital totaled $10.3 million and $42.1 million,
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respectively at March 31, 1997. For the quarter ended March 31, 1997, the
Company generated cash from operations of $4.4 million.
On November 12, 1996, the Company entered into a three year, $15
million asset-based line of credit facility with Bank of America, which is
collateralized by the accounts receivable and inventory of its United
States ("US"), UK and Barbados subsidiaries. As of March 31, 1997, there
was $406,000 of availability remaining under this facility, net of a letter
of credit outstanding of $856,000. The credit facility was drawn upon for,
among other things, payments associated with the Innogenetics alliance,
working capital and ongoing business activities. The Company has an
interest rate swap agreement with the lender that fixed the interest rate
at 8.9% for a notional principal amount of $8.0 million.
The Company's working capital and capital requirements will depend
upon numerous factors including: the results of research and development,
the levels of resources devoted to the establishment and expansion of
marketing and manufacturing, technological developments, and the timing and
costs of obtaining approvals for new products. Depending on the outcome of
these factors, the Company may need to raise additional funds in the future
for use to fund acquisitions, complete products in development, and for
general purposes. There are no assurances that such funds will be
available on favorable terms, if at all.
The Company anticipates that its current capital resources,
availability under its line of credit facility, and anticipated
profitability will enable it to maintain planned operations for the
foreseeable future.
Management Outlook
The key to the Company s growth is the ability to identify new needs
in the marketplace, and to expeditiously meet these needs through access to
appropriate innovations and technologies, and to rapidly incorporate them
into the Murex Group's product line. However, there can be no assurance
that Murex Group will successfully add a significant number of new products
to its product line.
Management believes that strategic ventures and licensing arrangements
position the Company for the future and play an important role in the
achievement of management's corporate objectives. The strategic ventures,
licensing transactions and Murex Group product innovations discussed below
are examples of the Company s recent successes of capitalizing on the
Company's world-wide distribution network and product technologies.
During February 1996, MDC entered into an exclusive distribution,
development and license agreement with Innogenetics N.V. ("Innogenetics")
to develop and market gene probe products for the monitoring of patients
and the classification of viral diseases. Under the terms of the
agreement, MDC paid $5.9 million during 1996 and will pay $1.6 million
during 1997 to Innogenetics for the exclusive rights to distribute
Innogenetics' LiPA products, excluding HCV, for 15 years. MDC will also
pay Innogenetics a royalty of 10% of the Murex Group's net sales of
Innogenetics' products. This strategic alliance with Innogenetics has
provided the Murex Group with exclusive rights to the Murex/Innogenetics
LiPA HIV-1 Reverse Transcriptase ("HIV-1 RT") monitoring test. This test
simultaneously detects wild-type and HIV mutations associated with the
reverse transcriptase drugs AZT, ddI, ddC and 3TC.
These reverse transcriptase drugs are currently being utilized,
separately and in combination, to treat HIV patients. Resistance to the
drugs occurs as virus mutations develop that may eventually cause the drug,
or combination of drugs, to become ineffective against the virus. The
Murex/Innogenetics LiPA HIV-1 RT test is the first rapid assay to identify
mutant strains.
Resistant mutations occur with all the approved HIV therapies.
Therefore, it is critical to monitor the development of mutations so
therapies can be appropriately combined and adjusted. The new HIV-1 RT
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test provides crucial information relating to the development of resistance
to individual and combination therapy. By obtaining resistance
information, physicians can avoid using drugs that may not be effective,
thereby increasing patient care and eliminating the expense of unnecessary
and ineffective therapy. In addition, a physician may utilize resistance
information prior to starting or changing therapy by screening a patient
for the presence of existing drug resistant mutations. The Company
anticipates launching the test into selected European markets during the
second quarter of 1997. In the US, Murex Diagnostics, Inc. ("MDI") has had
discussions with the Food and Drug Administration but has not yet filed an
application for the approval of the test.
Also under this agreement with Innogenetics, MDC shall fund agreed-
upon research and development programs, beginning in 1998 and for each of
the following 13 years in an amount equal to 20% of the Murex Group's net
sales of Innogenetics' products, subject to a cap.
The broadening of the Company's focus into the emerging diagnostics
monitoring market, which management expects to exceed $1 billion by the
year 2000, should support revenue growth in the coming years. The
Innogenetics distribution, developing and licensing agreement gives the
Murex Group access to the rapidly growing gene probe market for monitoring
patients and the classification of viral diseases. The monitoring market
directly complements the Company's existing markets of screening and
diagnosis and also leverages its worldwide marketing and distribution
network. The diagnostic monitoring market includes tests that among other
applications, assess a patient through the course of a disease or
infection, monitor various forms of anti-viral therapies and monitor
conditions associated with transplants. In contrast, screening and
diagnosis tests are used to indicate whether a patient is, or is not,
carrying a disease or infection. In patient use, screening and diagnosis
tests are usually only required to be administered once while monitoring
tests are usually administered numerous times.
Patient monitoring has become an important and critical element of
patient care and treatment. The Murex Group believes it can capture a
significant portion of this emerging market by strategically positioning
itself in key segments of the market including AIDS therapy, organ
transplantation and other immune compromised conditions.
Effective February 1997, the Murex Group and Digene Corporation
("Digene") entered into a five year agreement to work together to create a
direct European sales operation for Digene's sexually transmitted disease
diagnostics business. Digene, will sell its Hybrid Capture human
papilloma virus ("HPV") DNA test directly in selected European markets
using the Company's existing distribution infrastructure in exchange for
selling service fees and a percentage of Digene HPV sales. All other
Digene products exclusively sold by Murex in Europe will not be affected by
this transaction. Additionally, Digene will make fixed payments over the
next two years.
During January 1997, MDC entered into a 10 year, worldwide Original
Equipment Manufacturer ("OEM") distribution agreement with Eurogenetics
N.V. ("Eurogenetics"). Pursuant to the terms of the agreement, the Murex
Group will distribute Eurogenetics mircotitre plate EIA kits for rubella,
toxoplasmosis, cytomegalovirus ("CMV"), chlamydia, herpes and beta-2
microglobulin.
The Company's worldwide marketing and distribution capabilities
motivate companies like Innogenetics, Digene and Eurogenetics to partner
with the Company in licensing agreements and product development and,
thereby, contribute to the flow of new and creative products. The
Company's alliances provide the Murex Group with access to technology,
strengthen and extend the Company's monitoring market strategy and allow
the Company to further penetrate its existing markets in blood screening
and clinical diagnostics. Throughout 1997 and in the years to come, the
Company will actively seek out acquisitions, strategic business alliances
and other opportunities that will support the Company's future.
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<PAGE>
MDC completed a non-exclusive, out-licensing transaction during the
second quarter of 1994 by licensing technology acquired as part of the 1992
acquisition of the diagnostics division of Wellcome to Abbott. This
transaction provided MDC with a $10 million minimum license fee to be paid
over four years. MDC received $4, million, $2 million and $2 million in
1994, 1995 and 1996, respectively. MDC received the final $2 million of
the guaranteed $10 million minimum license fee in January 1997.
Furthermore, MDC earned an additional $100,000 and $878,000 in 1995 and
1996, respectively, as a result of minimum royalty levels being exceeded.
For the three months ended March 31, 1997, MDC accrued $460,000 of pro-rata
excess minimum royalty revenue for 1997. The underlying revenue stream
associated with this licensing agreement has been growing at approximately
40% per year. It continues to remain strong and growing and the Company
expects the minimum royalty levels to continue to be exceeded until the
expiration of the patent in the year 2004. Therefore, as of 1998, the
Company anticipates receiving at least $3 million per year from this
licensing arrangement.
Recent Murex Group product innovations, such as SAM(TM), and tests
for Human T-Cell Lymphotropic Virus ("HTLV") syphilis and E-Coli, should
contribute to future sales growth. In addition, new and enhanced products,
created through the Company's in-house research and development endeavors,
strengthened the Company's broad line of well-established virology and
bacteriology products and allowed the Company to enter new markets in
targeted areas around the world.
In addition to relying on research and development and licensing of
core technologies, management's operation strategy also focuses on quality,
customer service, reducing costs and improving cash flows.
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<PAGE>
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RESULTS OF OPERATIONS
Total revenues for the quarter ended March 31, 1997 were $25,842,000
compared to $26,023,000 for the quarter ended March 31, 1996. Product
sales were $24,718,000 and $26,023,000 for the quarters ended March 31,
1997 and 1996, respectively. The net decrease in product sales represents
an actual decrease using a constant currency basis of $139,000 and a
negative foreign exchange impact of $1,166,000. The negative foreign
exchange effect is due to the relative strength of the US Dollar, the
reporting currency of the Company, during the first quarter of 1997 as
compared to the first quarter of 1996. Translation from the various
functional currencies to the US Dollar caused a decrease in the Dollar
equivalent product sales revenue. License fees and other revenues
increased to $1,124,000 from zero in the previous year, primarily as a
result of Abbott exceeding the minimum royalty level as defined in the
1994 agreement with Abbott, and the fixed payments made by Digene in
accordance with the February, 1997 agreement.
The gross profit on total revenues increased to 67.9% from 62.1% for
the quarters ended March 31, 1997 and 1996, respectively. Gross profit on
product sales for the quarter ended March 31, 1997 increased to 66.5%, as
compared with 62.1% for 1996. The increase in gross profit on product
sales is due to the Company's trend of replacing sales of Innogenetics
products to distributors with direct sales to customers as well as
favorable factory variances. As such, cost of products sold declined to
$8,289,000 for the three months ended March 31, 1997 from $9,853,000 in the
comparable prior year period.
Total costs and expenses, excluding cost of products sold, of
$15,586,000 for the quarter ended March 31, 1997 reflect a net decrease of
$538,000 over the quarter ended March 31, 1996. Research and development
costs for the first quarter of 1997 decreased by $233,000 to $1,607,000 as
a result of internal cost control measures and the Company shifting a
portion of its product development focus to forming strategic business
alliances such as with Innogenetics. General and administrative costs for
the quarter ended March 31, 1997 were $5,618,000 as compared to $5,304,000
for the comparable prior year period. The increase of $314,000 mainly
represents non-recurring professional fees for corporate structure and
taxation studies. Sales and marketing expenses of $6,817,000 reflect a
$187,000 decrease over the first quarter of 1996. The decrease is a result
of the Company s cost control measures and restructuring efforts.
The $463,000 decrease in interest expense from $748,000 for the
quarter ended March 31, 1996 to $285,000 for the quarter ended March 31,
1997 was due to the Company's access to capital at favorable rates via the
line of credit with Bank of America. In the prior year, the Company
factored its Italian receivables to fund the agreement with Innogenetics.
The equity in loss of investee represents SDL's net loss for the quarter
ended March 31, 1996.
-16-
<PAGE>
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Form 10-Q for the Three Months Ended March 31, 1997
Part II - Other Information
-------------------------------------------------------------------------
ITEM 1 - LEGAL PROCEEDINGS
See Note 3 to the financial statements for information regarding
current legal proceedings.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
Exhibit 11 Statement Regarding Computation of Per Share Earnings
2. Reports on Form 8-K
None
-17-
<PAGE>
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.
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
(Registrant)
Date: May 2, 1997 By: /s/ C. Robert Cusick
------------------- ----------------------------------
C. Robert Cusick, Vice Chairman
President & CEO
Date: May 2, 1997 By: /s/ Jill A. Gilmer
------------------- ----------------------------------
Jill A. Gilmer, Secretary
-18-
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
11 Statement Regarding Computation of Per
Share Earnings
27 Financial Data Schedule
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
COMPUTATIONS OF EARNINGS PER SHARE (1)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1997 1996
-------- --------
PRIMARY
Weighted average shares
outstanding during
the period 16,385 16,160
Shares issuable upon assumed
exercise of stock options
and warrants, less amounts
assumed repurchased under
the treasury stock method(2) 946
------- -------
Total common shares and
common share equivalents 17,331 16,160
======= =======
Net income (loss) $1,659 ($1,109)
======= =======
Primary per share amount $0.10 ($0.07)
======= =======
FULLY DILUTED(3)
Total common shares and
common share equivalents 17,331 16,160
Additional shares issuable
upon assumed exercise of
stock options and warrants,
less amounts assumed
repurchased under the
treasury stock method(2) ------- -------
Total 17,331 16,160
======= =======
Net income (loss) $1,659 ($1,109)
======= =======
Fully diluted per share amount $0.10 ($0.07)
======= =======
(1) Weighted average share and dollar amounts, except per share amounts,
are stated in thousands.
(2) Shares issued from assumed exercise of options and warrants include
the number of incremental shares which result from applying the
"treasury stock method" for options and warrants, APB Opinion No. 15,
paragraph 36. The options and warrants are antidilutive in 1996 and
are not included in the calculation.
(3) This calculation is submitted in accordance with 17 CPR 229.601(b)(11)
although not required by APB Opinion No. 15 because it results in
dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF OPERATIONS, BALANCE SHEETS, STATEMENTS OF STOCKHOLDERS'
EQUITY AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1996
<CASH> 10,319
<SECURITIES> 0
<RECEIVABLES> 34,678
<ALLOWANCES> (2,995)
<INVENTORY> 21,492
<CURRENT-ASSETS> 69,456
<PP&E> 26,851
<DEPRECIATION> (16,740)
<TOTAL-ASSETS> 93,695
<CURRENT-LIABILITIES> 27,402
<BONDS> 0
0
0
<COMMON> 84,397
<OTHER-SE> (29,312)
<TOTAL-LIABILITY-AND-EQUITY> 93,695
<SALES> 24,718
<TOTAL-REVENUES> 25,842
<CGS> 8,289
<TOTAL-COSTS> 23,875
<OTHER-EXPENSES> (26)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236
<INCOME-PRETAX> 1,757
<INCOME-TAX> 98
<INCOME-CONTINUING> 1,659
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,659
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
