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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) DECEMBER 2, 1999
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CYGNUS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-18962 94-2978092
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(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
400 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA 94063-4719
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 369-4300
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
FIRST EVENT
On December 2, 1999, Cygnus, Inc. issued a press release,
the text of which is attached hereto as Exhibit 99.1, announcing the receipt
of a CE Certificate for the GlucoWartch-Registered Trademark- monitor,
indicating that the product has met the essential requirements and other
criteria of the European Community Directive 93/42/ECC, Annex V, Section 3.2.
The CE Certificate is required for selling products in the European Community.
SECOND EVENT
On December 6, 1999, Cygnus, Inc. issued a press release,
the text of which is attached hereto as Exhibit 99.2, announcing that its
premarket approval application (PMA) for the GlucoWatch-Registered Trademark-
monitor received an unanimous recommendation for approval with conditions by
the Food and Drug Administration's (FDA) Clinical Chemistry and Clinical
Toxicology Devises Panel of the Medical Devices Advisor Committee.
THIRD EVENT
Pro Forma Financial information.
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1999
Unaudited Pro Forma Condensed Consolidated Statements of Income for the
fiscal year ended December 31, 1998 and the nine month period ending
September 30, 1999.
On November 17, 1999, the Company signed a binding asset
purchase agreement (the "Asset Purchase Agreement") with Ortho-McNeil
Pharmaceutical, Inc., a Johnson & Johnson ("J&J") company. In this agreement,
the Company will sell most of its drug delivery business (as defined in the
8-K filed by the Company on November 18, 1999) to J&J. The consummation of
this transaction is contingent on, among other things, expiration of the
Hart-Scott-Rodino waiting period. The transaction is expected to close in the
fourth quarter of 1999. The gain reflected on the pro forma balance sheet
shown below assumes the transaction is consummated in accordance with the
terms of the Asset Purchase Agreement. Consummation of the transaction
depends on satisfaction of closing conditions and accordingly, there can be
no assurance that a closing will occur. The Company is also considering the
termination of its remaining drug delivery collaboration agreements, which
could result in a charge to earnings of less than $0.8 million in the fourth
quarter of 1999. These agreements accounted for $1.8 million in revenue and
$2.4 million in expenses, which are included in the Pro-Forma operating
results for the nine months ended September 30, 1999 shown below.
The following unaudited pro forma condensed consolidated
balance sheet and pro forma condensed consolidated statements of income have
been prepared to illustrate the effect of the sale of the drug delivery
business of Cygnus, Inc. to J&J and the classification of historical drug
delivery segment business as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30.
The pro forma condensed consolidated balance sheet assumes
that the sale was consummated on September 30, 1999. The pro forma condensed
consolidated statements of operations assume that the sale was consummated as of
January 1, 1998. The pro forma
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adjustments, and the assumptions on which they are based, are described in
the accompanying Notes to the Pro Forma Condensed Consolidated Financial
Statements.
These pro forma financial statements are based upon, and
should be read in conjunction with the historical consolidated financial
statements and the related notes, which were previously reported on the
Company's 1998 annual report to shareholders on Form 10-K and the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 1999.
The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of operating results or
financial position that would have occurred if the divestiture had been
consummated on the dates indicated, nor is it necessarily indicative of future
operating results or financial position.
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CYGNUS, INC.
Pro Forma Condensed consolidated Balance Sheet
September 30, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
As Filed
In 10-Q Pro Forma
(unaudited) Adjustments Pro Forma
---------------------------------- --------------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 18,125 $ 18,861 (a) $ 36,986
Restricted cash 871 ---- 871
Short-term investments 3,757 ---- 3,757
Trade accounts receivable, net of allowance 1,424 ---- 1,424
Prepaid expenses and other current assets 847 ---- 847
---------------------------------- --------------------
Total current assets 25,024 18,861 43,885
Equipment and leasehold improvements:
Equipment and leasehold improvements, at cost 21,751 (5,062) (a) 16,689
Less accumulated depreciation and amortization (14,381) 4,026 (a) (10,355)
---------------------------------- --------------------
Net equipment and improvements 7,370 (1,036) 6,334
Deferred compensation and other assets 1,011 ---- 1,011
Deferred financing cost 6,299 ---- 6,299
---------------------------------- --------------------
Total assets $ 39,704 $ 17,825 $ 57,529
================================== ====================
LIABILITIES AND NET CAPITAL DEFICIENCY:
Current liabilities:
Accounts payable $ 2,253 $ ---- $ 2,253
Accrued compensation 3,299 ---- 3,299
Accrued professional services 606 ---- 606
Other accrued liabilities 910 ---- 910
Customer advances 27 ---- 27
Current portion of arbitration obligation 320 ---- 320
Current portion of deferred revenue 2,120 ---- 2,120
Current portion of long-term debt 3,387 ---- 3,387
Current portion of capital lease obligations 442 ---- 442
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Total current liabilities 13,364 ---- 13,364
Long-term portion of arbitration obligation 23,909 ---- 23,909
Long-term portion of debt 4,158 ---- 4,158
Long-term portion of capital lease obligations 254 ---- 254
Convertible Debentures 17,000 ---- 17,000
Deferred compensation and other long-term liabilities 416 ---- 416
Stockholders' net capital deficiency:
Common stock 25 ---- 25
Additional paid-in-capital 172,475 ---- 172,475
Accumulated deficit (191,885) 17,825 (a) (174,060)
Accumulated other comprehensive income/(loss) (12) (12)
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Net capital deficiency (19,397) 17,825 (1,572)
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Total liabilities and stockholders' net capital
deficiency $ 39,704 $ 17,825 $ 57,529
================================== ====================
</TABLE>
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CYGNUS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1999
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
AS FILED PRO FORMA Pro
IN 10-Q ADJUSTMENTS Forma
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<S> <C> <C> <C>
PRODUCT REVENUES $ ---- $ ---- $ ----
- -------------------------------------------
Contract revenues 10,278 (7,561) (b) 2,717
Royalty and other revenues 972 (972) (b) ----
----------- -------------- -----------
TOTAL REVENUES 11,250 (8,533) 2,717
Costs and expenses:
Costs of products sold ---- ---- ----
Research and development 19,297 (5,335) (b) 13,962
Marketing, general and
administrative 5,176 (1,147) (b) 4,029
----------- -------------- -----------
TOTAL COSTS AND EXPENSES 24,473 (6,482) 17,991
LOSS FROM OPERATIONS (13,223) (2,051) (15,274)
Interest income/(expense), net (2,707) ---- (2,707)
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NET LOSS $ (15,930) $ (2,051) $ (17,981)
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Basic and diluted net loss per share $ (0.70) $ (0.79)
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Shares used in computation of basic and diluted
net loss per share 22,854 22,854
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</TABLE>
(See accompanying notes to Pro Forma Condensed Consolidated Financial
Statements.)
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CYGNUS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
AS FILED PRO FORMA Pro
IN 10-K ADJUSTMENTS Forma
-------
<S> <C> <C> <C>
PRODUCT REVENUES $ 587 $ (587) (b) $ ----
- -------------------------------------------
Contract revenues 10,178 (7,955) (b) 2,223
Royalty and other revenues 890 (890) (b) ----
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TOTAL REVENUES 11,655 (9,432) 2,223
Costs and expenses:
Costs of products sold 3,478 (3,478) (b) ----
Research and development 32,149 (6,335) (b) 25,814
Marketing, general and
administrative 11,730 (2,920) (b) 8,810
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TOTAL COSTS AND EXPENSES 47,357 (12,733) 34,624
LOSS FROM OPERATIONS (35,702) 3,301 (32,401)
Interest income/(expense), net (3,726) (2,738) (b) (6,464)
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NET LOSS $ (39,428) $ 563 $ (38,865)
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Basic and diluted net loss per share $ (1.95) $ (1.92)
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Shares used in computation of basic and diluted
net loss per share 20,226 20,226
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</TABLE>
(See accompanying notes to Pro Forma Condensed Consolidated Financial
Statements.)
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Pro Forma Condensed Consolidated Balance Sheet Adjustments:
The pro forma condensed consolidated balance sheet assumes
that the sale of the drug delivery business occurred as of September 30, 1999.
Assumptions and adjustments to reflect the drug delivery business sale in the
condensed consolidated balance sheet include:
(a) To reflect the estimated net cash proceeds and gain on the sale of the drug
delivery business to J&J.:
- - $20.0 million Sales price
- - $ 1.2 million Estimated costs resulting directly from the sale including
transaction fees, sales tax, legal and accounting fees,
termination benefits and contract termination expenses
- - $18.8 million Estimated net cash proceeds
- - $ 1.0 million Net operating assets of drug delivery business as of
September 30, 1999
- - $17.8 million Estimated after-tax gain
For the purpose of these statements certain employee termination benefits and
costs for severance provisions have been included in the estimated costs
resulting directly from the sale of the drug delivery business.
The asset purchase agreement between the two parties dated
November 17, 1999 provides for a payment of up to an additional $55.0 million
over the next seven years subject to certain conditions. As this additional
consideration is of a contingent nature, it has not been reflected in the pro
forma condensed consolidated financial statements or adjustments.
Pro Forma Condensed Consolidated Statement of Operations
Adjustments: The pro forma condensed consolidated statements of operations
assume that the sale of the drug delivery business occurred as of January 1,
1998. The statements do not include any impact of the gain on disposal or costs
related to the sale. The pro forma adjustments (b) are to eliminate results of
operations of drug delivery business from historical financial statement amounts
and relate entirely to the drug delivery business. In future public filings,
historical results will be restated from those previously filed to reflect
results of the drug delivery business as discontinued operations in accordance
with Accounting Principles Board Opinion No. 30.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
EXHIBIT NUMBER
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99.1 Press Release by Cygnus, Inc. dated December 2, 1999
referred to in Item 5 above.
99.2 Press Release by Cygnus, Inc. dated December 6, 1999
referred to in Item 5 above.
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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 hereunto duly authorized.
CYGNUS, INC.
Date: December 10, 1999 By: /s/ Barbara G. McClung
-----------------------------------
Barbara G. McClung
Senior Vice President
and General Counsel
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EXHIBIT 99.1
FOR ADDITIONAL INFORMATION:
Corporate Communications, Cygnus
(650) 369-4300 WWW.CYGN.COM
BURNS MCCLELLAN (212) 213-0006
JUSTIN JACKSON - MEDIA
FOR IMMEDIATE RELEASE
CYGNUS' GLUCOWATCH-Registered Trademark- MONITOR APPROVED
FOR SALE IN EUROPE
Redwood City, CA - December 2, 1999 - Cygnus, Inc. (NASDAQ: CYGN) announced
today the receipt of a CE Certificate for the GlucoWatch-Registered Trademark-
monitor, indicating that the product has met the essential requirements and
other criteria of the European Community Directive 93/42/ECC, Annex V,
Section 3.2. The CE Certificate is required for selling products in the
European Community. Cygnus demonstrates compliance to BS EN ISO 9002 and
EN 46002.
"Receiving the CE Certificate is another important step in the progress of
the GlucoWatch monitor. The quality standards and processes required to
receive the CE Certificate will serve us well in the future," stated John C.
Hodgman, Chairman, President and Chief Executive Officer of Cygnus, Inc.
The GlucoWatch monitor provides frequent, automatic and non-invasive glucose
measurements and is intended for detecting trends and tracking patterns in
glucose levels in adults, 18 years and older, who have diabetes. The device
is intended for use by patients at home and in health care facilities.
Following a three-hour warm-up period, the device is capable of providing up
to three non-invasive glucose measurements per hour for 12 hours. After the
warm-up period, a finger stick blood glucose measurement is input into the
GlucoWatch monitor for calibration. The frequent readings provided by the
GlucoWatch monitor have the potential to help people with diabetes to better
control their glucose levels. The GlucoWatch monitor has the capability to
alert users when glucose levels are too high or too low. These situations may
be hard to identify with regular glucose testing alone.
The United States Food and Drug Administration (FDA) has scheduled December 6,
1999 as the date for an advisory committee review of Cygnus' premarket
approval application (PMA) for the GlucoWatch monitor. The meeting will be
held with the Clinical Chemistry and Clinical Toxicology Devices Panel of the
Medical Devices Advisory Committee at the Gaithersburg Marriott Washingtonian
Center, 9751 Washingtonian Boulevard, Gaithersburg, Maryland.
Cygnus is currently seeking an alliance for the commercialization of the
GlucoWatch monitor worldwide (except Japan and Korea) which would include
distribution, sales, marketing, and customer service support. Tokyo-based
Yamanouchi Pharmaceutical Co., Ltd., a significant participant in the
Japanese pharmaceutical market, has marketing and distribution rights for the
GlucoWatch monitor in Japan and Korea.
Cygnus is engaged in the development and manufacture of diagnostic and drug
delivery systems utilizing its proprietary technologies to satisfy unmet
medical needs cost effectively. Cygnus' current efforts are primarily focused
on two core areas: a frequent, automatic and non-invasive glucose monitoring
device (the GlucoWatch device) and transdermal drug delivery systems. Cygnus
has signed a binding agreement to sell most of the assets of its drug
delivery business to Ortho-McNeil Pharmaceutical, Inc, a Johnson & Johnson
company.
This news release contains forward-looking statements regarding future events
and the future performance of the Company that involve risks and
uncertainties that may cause the Company's actual results to differ
materially. Such factors include the government approvals, commercial
introduction and market acceptance of the GlucoWatch monitor. There can be no
assurances that the panel meeting will result in a recommendation for
approval to the FDA. There can be no assurances that a recommendation for
approval from the advisory committee would result in a clearance from the FDA
to market the device. There can be no assurances that the Company will be
able to sign a marketing agreement. Also, there can be no assurances that if
the Company receives marketing clearance from the FDA and signs a marketing
agreement that the product could be successfully manufactured or marketed in
the U.S. or in Europe. Further, there can be no assurances that the proposed
asset sale of the drug delivery business will pass governmental review under
the Hart-Scott-Rodino Improvements Act of 1976. The Company refers you to the
documents the Company files from time to time with the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which contain
descriptions of certain factors that could cause the Company's actual results
to differ from the Company's current expectations and any forward-looking
statements contained in this news release.
<PAGE>
EXHIBIT 99.2
FOR ADDITIONAL INFORMATION:
Corporate Communications, Cygnus
(650) 369-4300 WWW.CYGN.COM
BURNS MCCLELLAN (212) 213-0006
JUSTIN JACKSON - MEDIA
FOR IMMEDIATE RELEASE
FDA ADVISORY COMMITTEE RECOMMENDS APPROVAL WITH CONDITIONS FOR
CYGNUS' GLUCOWATCH - REGISTERED TRADEMARK - AUTOMATIC GLUCOSE MONITOR
GAITHERSBURG, MD - DECEMBER 6, 1999 - Cygnus, Inc. (Nasdaq: CYGN) today
announced that its premarket approval application (PMA) for the
GlucoWatch-REGISTERED TRADEMARK- monitor received an unanimous recommendation
for approval with conditions by the Food and Drug Administration's (FDA)
Clinical Chemistry and Clinical Toxicology Devices Panel of the Medical
Devices Advisory Committee. Cygnus will work with the FDA regarding the
conditions indicated by the Advisory Committee.
The Advisory Committee suggested three conditions for approval. The first is an
education program, about which the Company has already been in discussion with
the FDA. In order to satisfy the second condition, the labeling will be revised
in accordance with recommendations to be given to the FDA by the Committee.
Third, the Committee suggested post-market study of detection of hypoglycemia
and hyperglycemia.
"We're pleased with the Advisory Committee's favorable vote and we look forward
to finalizing the remaining items with the FDA," stated John C. Hodgman,
Chairman, President and Chief Executive Officer of Cygnus. "The GlucoWatch
monitor is a powerful and unique tool that has the potential to provide glucose
information that has previously been unavailable. We believe that the frequent
and automatic measurements can provide new insights about acute trends and
long-term patterns of glucose fluctuations. We proposed a conservative label to
the FDA to allow people with diabetes and their diabetes care teams to gain
experience with, and confidence in, this new device."
The GlucoWatch monitor provides frequent, automatic and non-invasive glucose
measurements and is intended for detecting trends and tracking patterns in
glucose levels in adults, 18 years and older, who have diabetes. The device is
intended for use at home and in health care facilities as an adjunctive device
to supplement, not replace, information obtained from standard home blood
glucose monitoring devices. Following a three-hour warm-up period and
calibration from a finger stick blood measurement, the device is capable of
providing up to three non-invasive glucose measurements per hour for 12 hours.
In addition, the GlucoWatch monitor has the capability to alert users when
glucose levels are too high or too low. These situations may be hard to identify
with regular glucose testing alone.
Cygnus is engaged in the development and manufacture of diagnostic and drug
delivery systems utilizing its proprietary technologies to satisfy unmet medical
needs cost effectively. Cygnus' current efforts are primarily focused on two
core areas: a frequent, automatic and
<PAGE>
non-invasive glucose monitoring device (the GlucoWatch device) and
transdermal drug delivery systems. Cygnus has signed a binding agreement to
sell most of the assets of its drug delivery business to Ortho-McNeil
Pharmaceutical, Inc, a Johnson & Johnson company.
This news release contains forward-looking statements regarding future events
and the future performance of the Company that involve risks and uncertainties
that may cause the Company's actual results to differ materially. Such factors
include government approvals, commercial introduction and market acceptance of
the GlucoWatch monitor. There can be no assurances that this recommendation for
approval with conditions from the FDA Advisory Committee will result in approval
from the FDA to market the device. There can be no assurances that the Company
will be able to sign a marketing agreement. Also, there can be no assurances
that if the Company receives marketing approval from the FDA and signs a
marketing agreement that the product could be successfully manufactured or
marketed in the U.S. or in Europe. Further, there can be no assurances that the
proposed asset sale of the drug delivery business will pass governmental review
under the Hart-Scott-Rodino Improvements Act of 1976. The Company refers you to
the documents the Company files from time to time with the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which contain
descriptions of certain factors that could cause the Company's actual results to
differ from the Company's current expectations and any forward-looking
statements contained in this news release.
END
