<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
COMMISSION FILE NUMBER: 0-23490
VIVUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3136179
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
605 EAST FAIRCHILD DRIVE MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(650) 934-5200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
At September 30, 1998, 31,823,607 shares of common stock were outstanding.
EXHIBIT INDEX ON PAGE 24
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIVUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue
US Product $ 3,485 $ 39,118 $ 34,178 $ 100,367
International Product 14,579 -- 26,391 --
Milestone 2,000 -- 3,000 5,000
--------- --------- --------- ---------
Total revenue 20,064 39,118 63,569 105,367
Operating Expenses
Cost of goods sold (1) 28,297 11,270 49,483 28,920
Research and development 4,673 3,947 13,912 7,914
Selling, general and administrative 3,882 11,507 38,516 34,574
Write-down of property 32,163 -- 32,163
Other restructuring costs 5,968 -- 12,490 --
--------- --------- --------- ---------
Total operating expenses 74,983 26,724 146,564 71,408
--------- --------- --------- ---------
Income (loss) from operations (54,919) 12,394 (82,995) 33,959
Interest and other income 194 1,106 1,702 3,491
--------- --------- --------- ---------
Income (loss) before taxes (54,725) 13,500 (81,293) 37,450
Income tax (provision) benefit -- (2,241) -- (6,679)
--------- --------- --------- ---------
Net income (loss) $ (54,725) $ 11,259 $ (81,293) $ 30,771
========= ========= ========= =========
Net income (loss) per share:
Basic $ (1.72) $ 0.34 $ (2.55) $ 0.93
Diluted $ (1.72) $ 0.31 $ (2.55) $ 0.86
Shares used in the computation of
net income (loss) per share:
Basic 31,806 33,107 31,893 33,107
Diluted 31,806 35,772 31,893 35,602
</TABLE>
(1) Cost of goods sold for three months and nine months ended September 30, 1998
include a $16.0 million write-down for excess inventory and future inventory
purchase commitments.
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VIVUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 4,690 $ 6,161
Available-for-sale securities 13,516 52,955
Accounts receivable 7,960 11,791
Inventories 7,785 9,084
Prepaid expenses and other assets 961 1,636
--------- ---------
Total current assets 34,912 81,627
Property and equipment 20,036 36,462
Available-for-sale securities, non-current 7,301 32,580
--------- ---------
Total $ 62,249 $ 150,669
========= =========
Current Liabilities:
Accounts payable $ 13,037 $ 6,574
Accrued and other liabilities 28,899 20,165
--------- ---------
Total current liabilities 41,936 26,739
Stockholders' equity:
Common stock; $.001 par value; shares
authorized 200,000; shares outstanding -
September 30, 1998, 31,824;
December 31, 1997, 33,168; 32 33
Paid in capital 131,086 153,336
Accumulated other comprehensive income 25 98
Accumulated deficit (110,830) (29,537)
--------- ---------
Total stockholders' equity 20,313 123,930
--------- ---------
Total $ 62,249 $ 150,669
========= =========
</TABLE>
3
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VIVUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
--------- ---------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $( 81,293) $ 30,771
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,865 1,448
Property write-down 32,163 --
Inventory write-down 16,083 --
Stock compensation costs 360 367
Changes in assets and liabilities:
Accounts receivable 3,831 (17,357)
Inventories (14,784) (1,672)
Prepaid expenses and other assets 675 (65)
Accounts payable 6,463 3,022
Accrued and other liabilities 8,734 18,608
--------- ---------
Net cash provided by (used for) operating activities (24,903) 35,122
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases (18,602) (21,463)
Investment purchases (134,855) (210,858)
Proceeds from sale/maturity of securities 199,499 201,099
--------- ---------
Net cash provided by (used for) investing activities 46,041 (31,222)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of common stock options 562 2,918
Sale of common stock through employee
stock purchase plan 413 173
Repurchase of common stock (23,584) (4,184)
--------- ---------
Net cash used for financing activities (22,609) (1,093)
--------- ---------
NET INCREASE (DECREASE) IN CASH (1,471) 2,807
CASH:
Beginning of period 6,161 555
--------- ---------
End of period $ 4,690 $ 3,362
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Unrealized loss on securities $ (73) $ (13)
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 71 --
</TABLE>
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VIVUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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 Regulations S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three and nine month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
2. COMPREHENSIVE INCOME
The Company has adopted the Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income", which establishes standards
for the reporting and display of comprehensive income and its components in
general purpose financial statements for the year ended December 31, 1998. The
table below sets forth "comprehensive income" as defined by SFAS No. 130 for the
three and nine month periods ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
(IN THOUSANDS)
1998 1997 1998 1997
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss) ........................ $(54,725) $ 11,259 $(81,293) $ 30,771
Other comprehensive income:
Unrealized gain (loss) on securities ... 18 80 (73) (13)
Income tax benefit (expense) ........... -- (16) -- 3
-------- -------- -------- --------
18 64 (73) (10)
-------- -------- -------- --------
Comprehensive income (loss) ............. $(54,707) $ 11,323 $(81,366) $ 30,761
======== ======== ======== ========
</TABLE>
3. NET INCOME (LOSS) PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share", which replaced Accounting Principles Board
Opinion No. 15 ("APB 15"). SFAS 128 requires a dual presentation of basic and
diluted earnings per share. Basic earnings per share is based on the weighted
average number of common shares outstanding during the periods. Diluted earnings
per share is based on the weighted average number of common and common
equivalent shares, which represent shares that may be issued in the future upon
the exercise of outstanding stock options and warrants. Such options and
warrants are excluded from the net loss per common and equivalent shares for the
three and nine months ended September 30, 1998 because they are anti-dilutive.
Diluted earnings per share is computed similarly to earnings per share
previously reported pursuant to APB 15 and for the Company, diluted earnings per
share amounts are the same as amounts previously reported under APB 15.
4. WRITE-DOWN OF PROPERTY AND EQUIPMENT
During the quarter ended September 30, 1998, the Company took multiple steps
to restructure the operations of the Company to bring the cost structure more in
line with current and anticipated future revenues. These steps included the
closing of the Company's contract
5
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manufacturing facility within PACO Pharmaceutical Services, Inc., the
abandonment of leased warehouse space, and the abandonment of the Company's
leased corporate offices. The Company recorded a $32.2 million write-down of
property and equipment. This write-down was calculated in accordance with the
provisions of SFAS No. 121 and represents the excess of the carrying values of,
property and equipment, primarily the Company's New Jersey manufacturing
leaseholds and equipment, over the projected future discounted cash flows for
the Company.
5. WRITE-DOWN OF INVENTORY
During the quarter ended September 30, 1998, the Company wrote down its
inventory to a level more in line with current and expected future demand for
MUSE(R) (alprostadil). The Company had built up its inventory level prior to and
after Pfizer's launch of sildenafil and had not anticipated the impact that
sildenafil would have on the demand for MUSE (alprostadil) and anticipating
sales to ultimately increase as a result of an expanding impotence market. Given
the protracted decline in demand for MUSE (alprostadil), the Company recorded a
valuation reserve of $16.0 million, primarily related to excess raw materials
and future inventory purchase commitments for raw materials. This write-down is
included in "Cost of Sales" for the quarter ended September 30, 1998.
6. OTHER RESTRUCTURING COSTS
In the quarter ended September 30, 1998, the Company recorded other
restructuring costs of $6.0 million related to personnel reductions in
administration, research and development, clinical, and manufacturing, and
cancellation of lease commitments. These steps were necessary as the Company
needed to reduce its infrastructure to support the current business model. For
the nine months ended September 30, 1998, other restructuring costs also include
$6.5 million that were recorded in the quarter ended June 30, 1998, primarily
associated with the Company's agreement to facilitate the transition of its
direct U.S. sales force to ALZA Corporation, as well as terminating the contract
sales force agreement with Innovex, and personnel reductions in administration,
research and development, clinical and marketing departments. This was as a
result of the Company decision to seek a major pharmaceutical partner to market
MUSE (alprostadil) in the United States.
7. RE-PRICING OF STOCK OPTIONS
Subsequent to the quarter ended September 30, 1998, the Company's Board of
Directors authorized the re-pricing of certain stock options for employees and
certain consultants to the closing market value as of October 19, 1998. All
repriced stock options have a six-month "blackout" period, whereby the repriced
stock options cannot be exercised. This action was done due to the significant
cut back in personnel, the recent decline in the Company's stock price, and the
Company's increasingly dependency on its smaller personnel structure.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DESCRIPTION OF BUSINESS
VIVUS, Inc. ("VIVUS" or the "Company") is a leader in the development of
advanced therapeutic systems for the treatment of erectile dysfunction. Erectile
dysfunction, commonly referred to as impotence, is the inability to achieve and
maintain an erection of sufficient rigidity for sexual intercourse. The
Company's transurethral system for erection is a minimally invasive, easy to use
system that delivers pharmacologic agents topically to the urethral lining. In
November 1996, the Company obtained marketing clearance by the U.S. Food and
Drug Administration (the "FDA") to manufacture and market its first product,
MUSE(R) (alprostadil). The Company commenced product shipments to wholesalers in
December 1996 and commercially introduced MUSE (alprostadil) in the United
States through its direct sales force beginning in January 1997. Furthermore,
the Company received FDA clearance in December 1996 for ACTIS(R), an adjustable
elastomeric venous flow control device designed for those patients who suffer
from veno-occlusive dysfunction (commonly referred to as venous leak syndrome).
ACTIS is currently being studied for adjunctive use with MUSE (alprostadil);
however, there can be no assurance that such studies will be completed and if
completed that such studies will demonstrate that adjunctive use of ACTIS with
MUSE (alprostadil) is a safe and effective treatment for erectile dysfunction.
The Company has entered into international marketing agreements with Astra AB
("Astra") and Janssen Pharmaceutica International ("Janssen") under which Astra
and Janssen purchase MUSE (alprostadil) for resale in various international
markets. In November 1997, the Company obtained regulatory marketing clearance
by the Medicines Control Agency ("MCA") to market MUSE (alprostadil) in the
United Kingdom. The Company began selling MUSE (alprostadil) to Astra in the
fourth quarter of 1997. Astra began selling MUSE (alprostadil) in the United
Kingdom in February 1998. MUSE (alprostadil) has also been approved in 16
countries including: Argentina, Brazil, Canada, Hong Kong, Mexico, New Zealand,
Philippines, Singapore, South Africa, South Korea, Sweden, Switzerland and
Thailand. In addition, applications for regulatory approval to market MUSE
(alprostadil) have been submitted in several other countries, including the
European Union, China, Australia and certain Middle Eastern countries. These
applications will be subject to rigorous approval processes, and there can be no
assurance such approval will be granted in a timely manner, if at all. The
Company has received indications from one of its international marketing
partners that regulatory approvals in pending Middle Eastern countries will be
granted later than initially anticipated.
On March 27, 1998, the FDA approved Viagra(R) (sildenafil), an oral pill
produced by Pfizer Inc. ("Pfizer") for the treatment of male impotence. Pfizer
commercially introduced sildenafil in the U.S. in April 1998. The introduction
of sildenafil dramatically increased the number of men seeking treatment for
impotence and significantly decreased demand for MUSE (alprostadil). Since the
launch of sildenafil, MUSE (alprostadil) prescriptions have declined
approximately 75% in the U.S. On July 8, 1998, the Company announced its
decision to seek a major pharmaceutical partner to market, distribute and sell
MUSE (alprostadil) in the U.S. As a first step, the Company facilitated the
transition of its direct sales force to ALZA Corporation. Sales personnel
joining ALZA will continue to sell MUSE (alprostadil) on a limited basis until
December 31, 1998. Accordingly, the Company is highly dependent upon the efforts
of ALZA during this period, and there can be no assurance that ALZA's sales
efforts will be successful. There can be no assurance that the Company will
partner with a major pharmaceutical Company to market, distribute and sell MUSE
(alprostadil), or that such a partnership would be on reasonable terms. Further,
there can be no assurance that such a partner will be able to successfully
market, distribute and sell MUSE (alprostadil). Should the Company establish
such a relationship, the Company's U.S. marketing efforts will depend
substantially on the partner's efforts. The partner may have other commitments
and may not commit the necessary resources to effectively market, distribute and
sell the Company's products. If the Company cannot establish such a
relationship, it will have to develop an alternative strategy for marketing,
distribution and selling its products in the U.S.
On August 25, 1998, the Company announced that it has retained the investment
banking firm, Credit Suisse First Boston Corporation, to assist the Company in
evaluating various strategic alternatives including sales and marketing
collaborations or partnerships, acquisition of the Company, or other
transactions. There can be no assurance that the efforts will result in
collaboration or acquisition of the Company. Failure to successfully negotiate a
collaboration or acquisition may have a material adverse affect on the Company's
business, financial condition and results of operations.
In September 1998, Pfizer received approval in European Union countries for
Viagra (sildenafil). Pfizer has commenced selling sildenafil on a limited basis
outside the U.S. As sildenafil is offered in other countries, it is likely that
a large number of current and future impotence patients will want to try this
new oral therapy. The Company anticipates that the commercial launch of
sildenafil in Europe and other international countries will decrease the
international demand for MUSE (alprostadil). As a result, the Company's
international marketing partners, Janssen and Astra, have significantly reduced
orders for MUSE (alprostadil) which will have a material effect on the
Company's business, financial conditions and results of operations.
Furthermore, there can be no assurances that Janssen and Astra will not
further reduce their orders.
During the third quarter of 1998, the Company took significant steps to
restructure its operations in an attempt to bring the cost structure of the
business in line with current demand for MUSE (alprostadil). These steps
included significant reductions in personnel, closing the
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contract manufacturing site located in PACO Pharmaceutical Services, Inc., the
abandonment of the Company's leased corporate offices, and recorded a
significant write-down of property, equipment and inventory. The Company was
able to sub-lease back significantly reduced space in the corporate offices. As
a result of these and other factors the Company experienced an operating loss of
$54.7 million, or $1.72 per share, in the third quarter of 1998. The goal of the
restructuring was to reduce the Company's infrastructure to one that is more in
line with the lower revenue model. The Company anticipates that these steps have
brought the cost structure in line with current demand , however, there can be
no assurance that demand will not weaken further or that these steps will result
in a return to profitability.
The Company has limited experience in manufacturing and selling MUSE
(alprostadil) in commercial quantities. Up until the commercial launch of
sildenafil, the Company had initially experienced product shortages due to
higher than expected demand and difficulties encountered in scaling up
production of MUSE (alprostadil). The Company leased 90,000 square feet of space
in New Jersey in which it has constructed manufacturing and testing facilities.
The FDA and MCA authorized the Company to begin commercial production and
shipment of MUSE (alprostadil) from its new facility in June and March 1998,
respectively. In September 1998, the Company closed its contract manufacturing
site within PACO Pharmaceutical Services, Inc. where it had previously
manufactured its product and significantly scaled back its manufacturing
operations in the new New Jersey facility as a result of lower demand
domestically and internationally for MUSE (alprostadil). Production is
significantly below capacity for the plant resulting in higher unit costs, and
the Company expects that gross margin from the sale of MUSE (alprostadil) will
be lower , which will have a material adverse affect on the Company's business,
financial condition and results of operations.
The Company in future periods has sought and will continue to seek
pharmacologic agents suitable for transurethral delivery for which significant
safety data already exists. The Company believes that such agents may progress
more rapidly through clinical development and the regulatory process than agents
without preexisting safety data. The Company began enrolling patients in a Phase
III multi-center trial in September 1998 for its second product candidate, a
combination of alprostadil and prazosin delivered via the Company's
transurethral system for erection. The Company has several other product
candidates in pre-clinical development. There can be no assurance at this point
that the Company will be able to fully develop and bring these products to the
market.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Product revenues for the quarter ended September 30, 1998 were $3.5 million in
the United States and $14.6 million internationally compared to $39.1 million in
the Unites States and zero internationally for the same period in 1997. Product
revenues for the nine months ended September 30, 1998 were $34.2 million in the
United States and $26.4 million internationally compared to $100.4 million
domestically and zero internationally for the same period in 1997. The decline
in domestic revenue is attributable to the U.S. launch of sildenafil, a
competitive oral treatment for erectile dysfunction. Underlying demand for MUSE
(alprostadil) domestically, as measured by retail prescriptions, has declined
approximately 75% since the commercial launch of sildenafil. Internationally,
revenues increased from $9.8 million in the second quarter of 1998 to $14.6
million in the third quarter of 1998 as the Company's international marketing
partners, Janssen and Astra, launched in various countries. Pfizer has commenced
selling sildenafil on a limited basis outside the U.S. As sildenafil is offered
in other countries, it is likely that a large number of current and future
impotence patients will want to try this new oral therapy. As a result, the
Company's international marketing partners, Janssen and Astra, have
significantly reduced orders for MUSE (alprostadil) which will have a material
adverse effect on the Company's business, financial condition and results of
operations.
Total revenues for the nine months ended September 30, 1998 also included a $1
million and $2 million milestone payment from Janssen related to regulatory
approvals of MUSE (alprostadil) in South Korea and Canada respectively, compared
to the nine months ended September 30, 1997 which included a $5 million
milestone payment related to signing the initial distribution agreement with
Janssen.
Cost of goods sold for the quarter ended September 30, 1998 were 28.3 million
compared to 11.3 million for the same period in 1997. For the nine months ended
September 30, 1998, cost of goods sold were $49.5 million compared to $28.9
million for the same period in 1997. The increase was primarily a result of a
one time charge of $16.0 million related to the write-down of excess inventory
and future inventory purchase commitments (primarily raw materials) in excess of
anticipated future demands. The Company expects higher costs per unit in future
periods resulting from lower demand and production at significantly reduced
levels.
Research and development expenses for the quarter ended September 30, 1998
were $4.7 million compared to $3.9 million in the quarter
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ended September 30, 1997. For the nine months ended September 30, 1998 and 1997,
research and development expenses were $13.9 million and $7.9 million,
respectively. The increase was mainly due to increased spending on lab
subcontractors associated with new product development. As a result of the
Company's recent restructuring, it expects that research and development
expenses will decrease from third quarter of 1998.
Selling, general and administrative expenses for the quarter ended September
30, 1998 were $3.9 million compared to $11.5 million in the quarter ended
September 30, 1997. The decrease was primarily as a result of lower marketing
and advertising expenses, as well as personnel reductions in administration and
marketing. For the nine months ended September 30, 1998, selling, general and
administrative expenses were $38.5 million compared to $34.6 million for the
same period in 1997. The increase was almost entirely due to spending on a
direct-to-consumer advertising campaign and costs associated with expanding the
direct sales force and adding the Innovex contract sales force. The Company has
discontinued its direct-to-consumer advertising program designed to create
patient awareness. In addition, on July 8, 1998, the Company announced its
decision to seek a major pharmaceutical partner to market, distribute and sell
MUSE (alprostadil) in the U.S. and its comprehensive effort to reduce expenses.
As a first step, the Company agreed to facilitate the transition of its direct
sales force to ALZA. Sales personnel joining ALZA will continue to sell MUSE
(alprostadil) on a limited basis until December 31, 1998. VIVUS also terminated
its sales force services agreement with Innovex and reduced personnel in
administration, research and development, clinical and marketing departments. In
the quarter ended September 30, 1998, the Company took further charges
associated with termination of operating lease commitments. As a result, the
Company expects its selling, general and administrative expenses to decrease
from the current level.
Interest and other income for the three and nine months ended September 30,
1998 were $0.2 million and $1.7 million, respectively, compared with $1.1
million and $3.5 million for the same periods in 1997. The decrease was
primarily the result of lower average invested cash balances. The Company
expects lower interest income for the remainder of 1998 due to lower average
invested cash balances.
Because of losses for three and nine months ended September 30, 1998, the
Company did not recorded an income tax provision. The Company's effective tax
rate was 17 % and 18 % of income before taxes for the three and nine months
ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed operations primarily from the sale
of preferred and common stock. Through September 30, 1998, VIVUS has raised
$153.3 million from financing activities. Cash, cash equivalents and
available-for-sale securities totaled $25.5 million at September 30, 1998
compared with $25.4 million at June 30, 1998 and $91.7 million at December 31,
1997. The $66.2 million decrease in cash from December 31, 1997 resulted from
several factors, including the net losses for the first nine months of 1998, the
Company's repurchase of its Common Stock during the first quarter of 1998,
capital spending associated with the new manufacturing facility in New Jersey,
raw material inventory purchases, payments in the first quarter of 1998 for 1997
sales commissions and a lawsuit settlement payment.
Accounts receivable at September 30, 1998 were $8.0 million compared with
$11.8 million at December 31, 1997, a decrease of $3.8 million. The decrease was
primarily due to lower sales.
Current liabilities were $41.9 million at September 30, 1998, compared with
$26.7 million at December 31, 1997, an increase of $15.2 million. The increase
primarily relates to accruals associated with the restructuring charges, higher
accounts payable related primarily to inventory purchases, partially offset
by the lawsuit settlement payment and payment of 1997 sales commissions.
Capital expenditures in the nine months ended September 30, 1998 were $18.6
million compared with $21.5 million for the same period in 1997, an decrease of
$2.9 million. The higher capital expenditure in 1997 was primarily due to the
initial phase of the construction of the new manufacturing facility, in
Lakewood, New Jersey and the purchase of additional manufacturing equipment.
Current liabilities at September 30, 1998 exceed current assets resulting in
negative working capital $7.0 million. The Company anticipates that its existing
capital resources combined with anticipated future revenues may not be
sufficient to support the Company's operations through the commercial
introduction of MUSE (alprostadil) in all international markets or for the
introduction of any additional future products. The Company is currently seeking
sources of financing to support its operations. In August 1998, the
Company received a nonbinding commitment letter for a proposed $10 million lease
under an equipment leasing program. Subsequently, the lender withdrew their
letter of commitment. On October 5, 1998, the Company was named in a civil
action by the Company's Lessor ("plaintiff") in connection with the Company's
leased manufacturing facilities, located in Lakewood, New Jersey. The Company's
lease requires that the
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Company provide a removal security deposit in the form of cash or certificate
of deposit. The Company and the Lessor ("plaintiff") have not been able to agree
on the amount of the deposit, and the Lessor filed suit asking for specific
performance in the amount of $3.3 million. Should the Company not be able to
reach a settlement with the plaintiff, the Company may be required to post a
certificate of deposit of $3.3 million, which will have a material adverse
effect on the Company's business and financial condition. The Company is
currently seeking financing sources, such as receivables financing and credit
lines, to provide additional capital resources. There can be no assurance that
the Company will be able to secure financing from other sources. Furthermore,
the Company may also be required to issue additional equity or debt securities
and may use other financing sources including, but not limited to corporate
alliances and lease financing to fund operations and the future development and
possible commercial launch of its future products. The sale of additional equity
securities would result in additional dilution to the Company's stockholders.
The Company's working capital and additional funding requirements will depend
upon numerous factors, including: (i) results of operations; (ii) demand for
MUSE (alprostadil); (iii) the outcome of pending litigations; (iv) the
activities of competitors; (v) the progress of the Company's research and
development programs; (vi) the timing and results of pre-clinical testing and
clinical trials; (vii) technological advances; and (viii) the level of resources
that the Company devotes to sales and marketing capabilities.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations section contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the factors set forth in this Liquidity and Capital Resources section, the Risk
Factors section, the Results of Operations section and the Description of
Business section. The discussion of those factors is incorporated herein by this
reference as if said discussion was fully set forth at this point.
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This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ from
those set forth in such forward-looking statements as a result of certain
factors, including those set forth in this Risk Factors section.
RISK FACTORS
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
Current liabilities at September 30, 1998 exceed current assets
resulting in negative working capital $7.0 million. The Company anticipates that
its existing capital resources combined with anticipated future revenues may not
be sufficient to support the Company's operations through the commercial
introduction of MUSE (alprostadil) in all international markets or for the
introduction of any additional future products. The Company is currently seeking
other sources of financing to support its operations. In August 1998, the
Company received a nonbinding commitment letter for a proposed $10 million lease
under an equipment leasing program. Subsequently, the lender withdrew their
letter of commitment. On October 5, 1998, the Company was named in a civil
action by the Company's Lessor ("plaintiff") in connection with the Company's
leased manufacturing facilities, located in Lakewood, New Jersey. The Company's
lease requires that the Company provide a removal security deposit in the form
of cash or letter of credit. The Company and the Lessor ("plaintiff") have not
been able to agree on the amount of the deposit, and the Lessor filed suit
asking for specific performance in the amount of $3.3 million. Should the
Company not be able to reach a settlement with the plaintiff, the Company may be
required to post a certificate of deposit of $3.3 million, which will have a
material adverse effect on the Company's business and financial condition. The
Company is currently seeking financing sources, such as receivables financing
and credit lines, to provide additional capital resources. There can be no
assurance that the Company will be able to secure financing from other sources.
Furthermore, the Company may also be required to issue additional equity or debt
securities and may use other financing sources including, but not limited to
corporate alliances and lease financing to fund operations and the future
development and possible commercial launch of its future products. The sale of
additional equity securities would result in additional dilution to the
Company's stockholders. The Company's working capital and additional funding
requirements will depend upon numerous factors, including: (i) results of
operations; (ii) demand for MUSE (alprostadil); (iii) the outcome of
litigations; (iv) the activities of competitors; (v) the progress of the
Company's research and development programs; (vi) the timing and results of
pre-clinical testing and clinical trials; (vii) technological advances; and
(viii) the level of resources that the Company devotes to sales and marketing
capabilities.
HISTORY OF LOSSES AND LIMITED OPERATING HISTORY
The Company has generated a cumulative net loss of $110.8 million for
the period from its inception through September 30, 1998. In order to return to
profitability, the Company must successfully manufacture and market MUSE
(alprostadil) and adjust its expenditures in conjunction with lower product
revenues. The Company is subject to a number of risks including its ability to
successfully market, distribute and sell its product, intense competition, its
reliance on a single therapeutic approach to erectile dysfunction and its
ability to secure additional operating capital. There can be no assurance that
the Company will be able to achieve profitability on a sustained basis.
Accordingly, there can be no assurance of the Company's future success. Since
the launch of sildenafil, a competitive oral product, MUSE (alprostadil)
prescriptions have declined approximately 75% in the U.S. In September 1998,
Pfizer received approval in European Union countries for Viagra (sildenafil).
Pfizer has commenced selling sildenafil on a limited basis outside the U.S. As
sildenafil is offered in other countries, it is likely that a large number of
current and future impotence patients will want to try this new oral therapy.
The Company anticipates that the commercial launce of sildenafil in Europe and
other international countries will decrease the international demand for MUSE
(alprostadil). As a result, the Company's international marketing partners,
Janssen and Astra, have significantly reduced orders for MUSE (alprostadil)
which will have a material effect on the Company's business, financial
conditions and results of operations. Furthermore, there can be no assurances
that Janssen and Astra will not further reduce their orders.
The Company took significant steps to restructure its operations in an
attempt to bring the cost structure of the business in line with current demand
for MUSE (alprostadil). These steps included significant reductions in
personnel, closing the contract manufacturing site located in PACO
Pharmaceutical Services, Inc., the abandonment of the Company's leased corporate
offices, and recorded significant write-down of property, equipment and
inventory. The Company was able to sub-lease back significantly reduced space in
the corporate offices. As a result of these and other factors the Company
experienced an operating loss of $81.3 million, or $2.55 per share, in the nine
months ended September 30, 1998. The goal of the restructuring is to reduce the
Company's infrastructure to one that is more in line with the lower revenue
model. The Company anticipates that these steps have brought the cost structure
in line with current demand , however, there can be no assurance that demand
will not weaken further or that these steps will result in a return to
profitability in the future.
The Company began generating revenues from product sales in January 1997. The
Company has limited experience in manufacturing and selling MUSE (alprostadil)
in commercial quantities. Up until the commercial launch of sildenafil, the
Company had initially experienced product shortages due to higher than expected
demand and difficulties encountered in scaling up production of MUSE
(alprostadil). The Company leased 90,000 square feet of space in New Jersey in
which it has constructed manufacturing and testing facilities. The FDA and MCA
authorized the Company to begin commercial production and shipment of MUSE
(alprostadil) from its new facility in June and March 1998, respectively. In
September 1998, the Company closed its contract manufacturing site within PACO
Pharmaceutical Services, Inc. and significantly scaled back its manufacturing
operations in the new New Jersey facility as a result of lower demand
domestically and
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internationally for MUSE (alprostadil). Production is currently significantly
below capacity for the plant resulting in higher unit cost, and the Company
expects that gross margin from the sale of MUSE (alprostadil) will be lower in
future periods, which will have a material adverse affect on the Company's
business, financial condition and results of operations.
LIMITED SALES AND MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
Before commercially launching its first product, MUSE (alprostadil), in
January 1997, the Company had no experience in the sale, marketing and
distribution of pharmaceutical products. In the United States, the Company
initially marketed and sold its products through a direct sales force of
approximately 74 sales representatives. Effective February 1998, the Company
entered into a sales force services agreement with Innovex Inc. ("Innovex")
under which it added approximately 150 contract sales representatives, the
substantial majority of whom called upon primary care physicians ("PCPs"). On
March 27, 1998, the FDA approved Viagra (sildenafil), an oral pill produced by
Pfizer for the treatment of male impotence. Pfizer commercially introduced
sildenafil in the U.S. in April 1998. The introduction of sildenafil
dramatically increased the number of men seeking treatment for impotence and
significantly decreased demand for MUSE (alprostadil). Since the launch of
sildenafil, MUSE (alprostadil) prescriptions have declined approximately 75%.
The Company believes that the launch of sildenafil has dramatically increased
the role of the PCP in the treatment of erectile dysfunction patients. Under the
new erectile dysfunction market dynamics, the Company recognized that the
infrastructure of a major pharmaceutical company was needed to support a sales
force large enough to effectively address the needs of the PCP. Therefore, on
July 8, 1998, the Company announced a strategic decision to seek a major
pharmaceutical partner to market, distribute and sell MUSE (alprostadil) in the
U.S. As the first step in the implementation of the Company's new strategy and
to immediately reduce expenses, the Company terminated its agreement with
Innovex and agreed to facilitate the transition of its direct sales
representatives to ALZA. Sales personnel joining ALZA will continue to sell MUSE
(alprostadil) on a limited basis until December 31, 1998. Accordingly, the
Company is highly dependent upon the efforts of ALZA during this period, and
there can be no assurance that ALZA's sales efforts will be successful. There
can be no assurance that the Company will partner with a major pharmaceutical
company to market, distribute and sell MUSE (alprostadil), or that such a
partnership would be on reasonable terms. Further, there can be no assurance
that such a partner will be able to successfully market, distribute and sell
MUSE (alprostadil). Should the Company establish such a relationship, the
Company's U.S. marketing efforts will depend substantially on the partner's
efforts. The partner may have other commitments and may not commit the necessary
resources to effectively market, distribute and sell the Company's products. If
the Company cannot establish such a relationship, it will have to develop an
alternative strategy for marketing, distributing and selling its products in the
U.S.
In February 1996, the Company entered into a distribution agreement with CORD
Logistics, Inc. ("CORD"), a wholly-owned subsidiary of Cardinal Health, Inc.
Under this agreement, CORD warehouses the Company's finished goods for U.S.
distribution, takes customer orders, picks, packs and ships its product,
invoices customers and collects related receivables. The Company also has access
to CORD's information systems that support these functions. As a result of this
distribution agreement with CORD, the Company is heavily dependent on CORD's
efforts to fulfill orders and warehouse its products effectively. There can be
no assurance that such efforts will be successful.
In May 1996, the Company entered into an international marketing agreement
with Astra to purchase the Company's products for resale in Europe, South
America, Central America, Australia and New Zealand. As consideration for
execution of the international marketing agreement, Astra paid the Company $10
million in June 1996. In September 1996, the Company received a $10 million
milestone payment from Astra upon filing an application for marketing
authorization for MUSE (alprostadil) in the United Kingdom, and, in December
1997, received a $2 million milestone payment upon receiving approval of this
application by the MCA. The Company will be paid up to an additional $8 million
in the event certain other milestones are achieved. However, there can be no
assurance that such milestones will be achieved. Pfizer has commenced selling
sildenafil on a limited basis outside the U.S. As sildenafil is offered in other
countries, it is likely that a large number of current and future impotence
patients will want to try this new oral therapy. As a result, Astra, has
significantly reduced orders for MUSE (alprostadil). The marketing agreement
does not have minimum purchase commitments, and Astra may take up to twelve
months to introduce a product in a given country following regulatory approval
in such country. As a result, the Company is dependent on Astra's efforts to
market, distribute and sell the Company's products effectively in the above
mentioned markets. There can be no assurance that such efforts will be
successful.
In July 1996, the Company entered into a distribution agreement with ASD, a
subsidiary of Bergen Brunswig Corporation. ASD provides "direct-to-physician"
distribution, telemarketing and customer service capabilities in support of the
U.S. marketing and sales efforts. As a result of this distribution agreement
with ASD, the Company is dependent on ASD's efforts to distribute, telemarket,
and provide customer
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service effectively. ASD has recently changed its name to ICS (Integrated
Commercialization Services.) There can be no assurance that such efforts will be
successful.
In January 1997, the Company signed an international marketing agreement with
Janssen, a subsidiary of Johnson & Johnson. Janssen will purchase the Company's
products for resale in China, multiple Pacific Rim countries (excluding Japan),
Canada, Mexico and South Africa. As consideration for execution of the
international marketing agreement, Janssen paid the Company $5 million. In
October 1997, the Company signed an international marketing agreement that
amended the earlier agreement with Janssen and expanded Janssen's territories to
include the Middle East, Russia, the Indian sub-continent, and Africa. As
consideration for execution of the expanded international territory marketing
agreement, Janssen paid the Company $2 million. In August 1998, the Company
received $2.0 million payment from Janssen related to regulatory approval of
MUSE (alprostadil) in Canada. The Company will receive additional payments in
the event certain other milestones are achieved. However, there can be no
assurance that such milestones will be achieved. Pfizer has commenced selling
sildenafil on a limited basis outside the U.S. and it is likely that a large
number of current and future impotence patients will want to try this new oral
therapy. As a result, Janssen, has significantly reduced orders for MUSE
(alprostadil). The marketing agreement does not have minimum purchase
commitments and the Company is dependent on Janssen's efforts to distribute and
sell the Company's products effectively in the above mentioned markets. Janssen
may take up to twelve months to introduce a product in a given country following
regulatory approval in such country. There can be no assurance that such efforts
will be successful. Additionally, the Company has received indications from
Janssen that regulatory approvals in certain Middle Eastern countries will be
granted later than initially anticipated.
The Company intends to market and sell its products in other foreign markets
through distribution, co-promotion or license agreements with corporate
partners. To date, the Company has entered into international marketing
agreements with Astra and Janssen. There can be no assurance that the Company
will be able to successfully enter into additional agreements with corporate
partners upon reasonable terms, if at all. To the extent that the Company enters
into distribution, co-promotion or license agreements for the sale of its
products, the Company will be dependent upon the efforts of third parties. These
third parties may have other commitments, and there can be no assurance that
they will commit the necessary resources to effectively market, distribute and
sell the Company's product.
INTENSE COMPETITION
Competition in the pharmaceutical and medical products industries is intense
and is characterized by extensive research efforts and rapid technological
progress. Certain treatments for erectile dysfunction exist, such as oral
medications, needle injection therapy, vacuum constriction devices and penile
implants, and the manufacturers of these products will continue to improve these
therapies. The most significant competitive therapy is Viagra (sildenafil), an
oral medication by Pfizer, for which it received regulatory approval in the
United States in March 1998 and received approval in European Union countries in
September 1998. The commercial launch of sildenafil in the U.S. in April, 1998
dramatically increased the number of men seeking treatment for impotence and
significantly decreased demand for MUSE (alprostadil). Since the launch of
sildenafil, MUSE (alprostadil) prescriptions have declined approximately 75% in
the U.S. The Company anticipates that the commercial launch of sildenafil in
Europe and other international countries will decrease the international demand
for MUSE (alprostadil) and will have a material adverse effect on the Company's
business, financial condition, and results of operations. As a result of this,
U.S revenues have decreased dramatically, and international revenues are
expected to decrease as well. The Company is currently seeking a major
pharmaceutical partner to market, distribute and sell MUSE (alprostadil) in the
U.S. There can be no assurance that this strategy will be successful in
increasing domestic demand for MUSE (alprostadil).
Additional competitive products in the erectile dysfunction market include
needle injection therapy products from The Upjohn Company and Schwartz Pharma,
which were approved by the FDA in July 1995 and June 1997, respectively. Other
large pharmaceutical companies are also actively engaged in the development of
therapies for the treatment of erectile dysfunction. These companies have
substantially greater research and development capabilities as well as
substantially greater marketing, financial and human resources than the Company.
In addition, these companies have significantly greater experience than the
Company in undertaking pre-clinical testing, human clinical trials and other
regulatory approval procedures. There are also small companies, academic
institutions, governmental agencies and other research organizations that are
conducting research in the area of erectile dysfunction. For instance,
Zonagen,Inc. has filed for FDA approval of its oral treatment and has recently
received approval in Mexico; Pentech Pharmaceutical, Inc. has an oral medication
in Phase III clinical trials; Icos Corporation has an oral medication in phase
II clinical trials; and Senetek has a needle injection therapy product approved
recently in Denmark and has filed for approval in other countries. These
entities may market commercial products either on their own or through
collaborative efforts. For example, Zonagen, Inc. announced a worldwide
marketing agreement with Schering-Plough in November 1997; and Icos Corporation
formed a joint venture with Eli Lilly in October 1998 to jointly develop and
market its oral treatment. The Company's competitors may develop technologies
and products that are more effective than those currently marketed or being
developed by the
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Company. Such developments would render the Company's products less competitive
or possibly obsolete. The Company is also competing with respect to marketing
capabilities and manufacturing efficiency, areas in which it has limited
experience.
LIMITED MANUFACTURING EXPERIENCE
The Company has limited experience in manufacturing and selling MUSE
(alprostadil) in commercial quantities. Up until the commercial launch of
sildenafil, the Company had initially experienced product shortages due to
higher than expected demand and difficulties encountered in scaling up
production of MUSE (alprostadil). The Company leased 90,000 square feet of space
in New Jersey in which it has constructed manufacturing and testing facilities.
The FDA and MCA authorized the Company to begin commercial production and
shipment of MUSE (alprostadil) from its new facility in June and March 1998,
respectively. In September 1998, the Company closed its contract manufacturing
site within PACO Pharmaceutical Services, Inc. and significantly scaled back its
manufacturing operations in the New Jersey facility, as a result of lower demand
domestically and internationally for MUSE (alprostadil). Production is currently
significantly below capacity for the plant resulting in higher per unit cost. As
a result, the Company expects that gross margin from the sale of MUSE
(alprostadil) will be lower , which will have a material adverse affect on the
Company's business, financial condition and results of operations.
The Company and certain of its suppliers and service providers are subject to
routine periodic inspections by the FDA and certain state and foreign regulatory
agencies for compliance with current Good Manufacturing Practices (cGMP) and
other applicable regulations. Certain of the Company's suppliers were inspected
for compliance with cGMP requirements as part of the approval process. However,
upon routine re-inspection of these facilities, there can be no assurance that
the FDA will find the manufacturing process or facilities to be in compliance
with cGMP and other regulations. A routine re-inspection of Chinoin, one of the
Company's two sources of alprostadil, resulted in the issuance of an FDA Form
483 which set forth areas where Chinoin was not in compliance with cGMP
requirements. Chinoin has successfully responded to the observations cited in
the FDA Form 483. Failure to achieve satisfactory cGMP compliance as confirmed
by routine regulatory inspections could have a significant adverse effect on the
Company's ability to continue to manufacture and distribute its products and, in
the most serious cases, result in the issuance of a regulatory warning letter or
seizure or recall of products, injunction and/or civil fines, or closure of the
Company's manufacturing facility until cGMP compliance is achieved.
DEPENDENCE ON THE COMPANY'S TRANSURETHRAL SYSTEM FOR ERECTION
The Company currently relies upon a single therapeutic approach to treat
erectile dysfunction, its transurethral system for erection. Certain side
effects have been found to occur with the use of MUSE (alprostadil). Mild to
moderate transient penile/perineal pain was experienced by 21 percent to 42
percent of patients (depending on dosage) treated with MUSE (alprostadil) in the
Company's Phase II/III Dose Ranging study. Moderate to severe decreases in blood
pressure were experienced by 1 percent to 4 percent of patients (depending on
dosage) treated with MUSE (alprostadil) in such study and in a few instances
(0.4 percent), patients experienced syncope (fainting). During 1997, the first
year of commercial use of MUSE (alprostadil), the incidence of adverse side
effects was consistent with that experienced in clinical trials.
The existence of side effects or dissatisfaction with product results may
impact a patient's decision to use or continue to use, or a physician's decision
to recommend, MUSE (alprostadil) as a therapy for the treatment of erectile
dysfunction thereby affecting the commercial viability of MUSE (alprostadil). In
addition, technological changes or medical advancements could diminish or
eliminate the commercial viability of the Company's products. As a result of the
Company's single therapeutic approach and its current focus on MUSE
(alprostadil), the failure to successfully commercialize such product would have
an adverse effect on the Company and could threaten the Company's ability to
continue as a viable entity.
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DEPENDENCE ON KEY PERSONNEL
The Company's progress to date has been highly dependent upon the skills of a
limited number of key management personnel. To reach its future business
objectives, the Company will need to hire and retain numerous qualified
personnel in the areas of research and development, manufacturing, clinical
trial management and pre-clinical testing. Due to recent decreases in the
Company's stock price and demand for MUSE (alprostadil), there can be no
assurance that the Company will be able to hire and retain such personnel, as
the Company must compete with other companies, academic institutions, government
entities and other agencies. Due to the significant cut back in personnel and
decreases in the Company's stock price, the Company's Board of directors
authorized a re-pricing of certain stock options for employees and certain
consultants to the closing market value as of October 19, 1998. All repriced
stock options have a six-month "blackout" period, whereby the repriced stock
options cannot be exercised. There can be no assurance that this action will
help in retaining key employees. The loss of any of the Company's key personnel
or the failure to attract or retain necessary new employees could have an
adverse effect on the Company's research, product development and business
operations.
RISKS RELATING TO INTERNATIONAL OPERATIONS
The Company's products are currently marketed internationally. Changes in
overseas economic and political conditions, currency exchange rates, foreign tax
laws or tariffs or other trade regulations could have a material adverse effect
on the Company's business, financial condition and results of operations. The
international nature of the Company's business is also expected to subject it
and its representatives, agents and distributors to laws and regulations of the
foreign jurisdictions in which they operate or the Company's products are sold.
The regulation of drug therapies in a number of such jurisdictions, particularly
in the European Union, continues to develop, and there can be no assurance that
new laws or regulations will not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the laws
of certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do the laws of the United States.
GOVERNMENT REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS
The Company's research, pre-clinical development, clinical trials,
manufacturing and marketing of its products are subject to extensive regulation
by numerous governmental authorities in the United States and other countries.
Clinical trials, manufacturing and marketing of the Company's products will be
subject to the rigorous testing and approval processes of the FDA and equivalent
foreign regulatory agencies. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. The Company completed pivotal
clinical trials in 1995 and submitted an NDA for its first product, MUSE
(alprostadil), to the FDA in March 1996. In November 1996, the Company received
final marketing clearance from the FDA for MUSE (alprostadil). In November 1997,
the Company obtained regulatory marketing clearance by the MCA to market MUSE
(alprostadil) in the United Kingdom. MUSE (alprostadil) has also been approved
in 16 countries Argentina, Brazil, Canada, Hong Kong, Mexico, New Zealand,
Philippines, Singapore, South Africa, South Korea,Sweden, Switzerland and
Thailand.
After regulatory approval is obtained, the Company's products are subject to
continual review. Manufacturing, labeling and promotional activities are
continually regulated by the FDA, and the Company must also report certain
adverse events involving its drugs to the Agency under regulations issued by the
FDA. Additionally, previously unidentified adverse events or an increased
frequency of adverse events that occur post-approval could result in labeling
modifications of approved products, which could adversely effect future
marketing of a drug. Finally, approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing. The restriction, suspension or revocation of regulatory approvals or
any other failure to comply with regulatory requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company has submitted applications for approval of MUSE (alprostadil) in
several other countries, including China and Australia. These applications will
be subject to rigorous approval processes. There can be no assurance that
approval in these or other countries will be granted on a timely basis, if at
all, or if granted, that such approval will not contain significant limitations
in the form of warnings, precautions or contraindications with respect to
condition of use. Any delay in obtaining, or failure to obtain such approval
would adversely affect the Company's ability to generate product revenue. The
Company has received indications from one of its international marketing
partners that regulatory approvals in certain Middle Eastern countries will be
granted later than initially anticipated.
The Company's clinical trials for future products will generate safety data as
well as efficacy data and will require substantial time and significant funding.
There is no assurance that clinical trials related to future products will be
completed successfully within any specified time period, if at all. Furthermore,
the FDA may suspend clinical trials at any time if it is believed that the
subjects participating in such trials are being exposed to unacceptable health
risks. There can be no assurance that FDA or other regulatory approvals for any
products developed by the Company will be granted on a timely basis, if at all,
or if granted, that such approval will not contain significant limitations in
the form
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of warnings, precautions or contraindications with respect to conditions of use.
Any delay in obtaining, or failure to obtain, such approvals would adversely
affect the Company's ability to generate product revenue. Failure to comply with
the applicable regulatory requirements can, among other things, result in fines,
suspensions of regulatory approvals, product recalls, operating restrictions and
criminal prosecution. In addition, the marketing and manufacturing of
pharmaceutical products are subject to continuing FDA and other regulatory
review, and later discovery of previously unknown problems with a product,
manufacturer or facility may result in the FDA and other regulatory agencies
requiring further clinical research or restrictions on the product or the
manufacturer, including withdrawal of the product from the market. The
restriction, suspension or revocation of regulatory approvals or any other
failure to comply with regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company obtains the necessary raw materials and components for the
manufacture of MUSE (alprostadil) as well as certain services, such as testing
and sterilization, from third parties. The Company currently contracts with
suppliers and service providers, including foreign manufacturers, that are
required to comply with strict standards established by the Company. Certain
suppliers and service providers are required by the Federal Food, Drug, and
Cosmetic Act, as amended, and by FDA regulations to follow cGMP requirements and
are subject to routine periodic inspections by the FDA and certain state and
foreign regulatory agencies for compliance with cGMP and other applicable
regulations. Certain of the Company's suppliers were inspected for cGMP
compliance as part of the approval process. However, upon routine re-inspection
of these facilities, there can be no assurance that the FDA and other regulatory
agencies will find the manufacturing process or facilities to be in compliance
with cGMP and other regulations. A routine re-inspection of Chinoin, one of the
Company's two sources of alprostadil, resulted in the issuance of an FDA Form
483 which set forth areas where Chinoin was not in compliance with cGMP
requirements. Chinoin has successfully responded to the observations cited on
the FDA From 483. Failure to achieve satisfactory cGMP compliance as confirmed
by routine inspections could have a material adverse effect on the Company's
ability to continue to manufacture and distribute its products and, in the most
serious case, result in the issuance of a regulatory Warning Letter or seizure
or recall of products, injunction and/or civil fines closure of the Company's
manufacturing facility until cGMP compliance is achieved.
PROPRIETARY RIGHTS AND RISK OF PATENT LITIGATION
The Company's success will depend, in large part, on the strength of its
current and future patent position relating to the administration of
pharmacologic agents for the treatment of erectile dysfunction. The Company's
patent position, like that of other pharmaceutical companies, is highly
uncertain and involves complex legal and factual questions. The claims of any
patent applications may be denied or significantly narrowed and issued patents
may not provide significant commercial protection to the Company. The Company
could incur substantial costs in proceedings before the United States Patent and
Trademark Office, including interference and reexamination proceedings.
Interference proceedings could also result in adverse decisions as to the
priority of the Company's licensed or assigned inventions. There is no assurance
that the Company's patents will not be successfully challenged or designed
around by others.
The Company is presently involved in an opposition proceeding that was
instigated by the Pharmedic Company against a European patent that is
exclusively licensed to VIVUS. As a result of the opposition proceeding, certain
claims in the European patent were held to be unpatentable by the Opposition
Division of the European Patent Office ("EPO"). These claims all related to
pharmaceutical compositions that include prostaglandin E1. The patentability of
all other claims in the patent was confirmed (i.e., claims directed to the use
of active agents in the treatment of erectile dysfunction by administration via
the urethra to the corpora cavernosa, and to a pharmaceutical composition claim
for prazosin). The Company appealed the EPO's decision with respect to the
pharmaceutical composition claims that were held unpatentable and the Pharmedic
Company appealed the EPO's decision with respect to the claims that were held
patentable, but Pharmedic's appeal has since been withdrawn. Despite the
withdrawal of the Pharmedic Company from the appeal process, the Company has
continued with its own appeal in an attempt to reinstate the composition claims.
The EPO Appeals Board must make its own finding whether the claims that were
deemed unpatentable by the Opposition Division are indeed patentable before it
can reverse the Opposition Division's decision. There can be no assurance that
the appeal will be successful or that further challenges to the Company's
European patent will not occur should the Company try to enforce the patent in
the various European courts.
There can be no assurance that the Company's products do not or will not
infringe on the patent or proprietary rights of others. The Company may be
required to obtain additional licenses to the patents, patent applications or
other proprietary rights of others. There can be no assurance that any such
licenses would be made available on terms acceptable to the Company, if at all.
If the Company does not obtain such licenses, it could encounter delays in
product introductions while it attempts to design around such patents, or the
development, manufacture or sale of products requiring such licenses could be
precluded. The Company believes there will continue to be significant litigation
in the pharmaceutical industry regarding patent and other intellectual property
rights.
16
<PAGE> 17
The Company also relies on trade secrets and other unpatented proprietary
technology. No assurance can be given that the Company can meaningfully protect
its rights in such unpatented proprietary technology or that others will not
independently develop substantially equivalent proprietary products and
processes or otherwise gain access to the Company's proprietary technology. The
Company seeks to protect its trade secrets and proprietary know-how, in part,
with confidentiality agreements with employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. In
addition, protracted and costly litigation may be necessary to enforce and
determine the scope and validity of the Company's proprietary rights.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
In the United States and elsewhere, sales of pharmaceutical products are
dependent, in part, on the availability of reimbursement to the consumer from
third party payors, such as government and private insurance plans. Third party
payors are increasingly challenging the prices charged for medical products and
services. With the introduction of sildenafil, third party payors have begun to
restrict or eliminate reimbursement for patients for erectile dysfunction
treatments. While more than 70 percent of prescriptions for MUSE (alprostadil)
were reimbursed by third party payors during 1997 and the first three quarters
of 1998 there can be no assurance that the Company's products will be considered
cost effective and that reimbursement to the consumer will continue to be
available or sufficient to allow the Company to sell its products on a
competitive basis.
In addition, certain health care providers are moving towards a managed care
system in which such providers contract to provide comprehensive health care
services, including prescription drugs, for a fixed cost per person. The Company
hopes to further qualify its transurethral system for erection for reimbursement
in the managed care environment. However, the Company is unable to predict the
reimbursement policies employed by third-party health care payors. Furthermore,
attempts at qualifying its transurethral system for erection for reimbursement
could be adversely affected by changes in reimbursement policies of governmental
or private health care payors.
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
The commercial launch of MUSE (alprostadil) exposes the Company to a
significant risk of product liability claims due to its availability to a large
population of patients. In addition, pharmaceutical products are subject to
heightened risk for product liability claims due to inherent side effects. The
Company details potential side effects in the patient package insert and the
physician package insert, both of which are included with MUSE (alprostadil),
and the Company maintains product liability insurance coverage. However, the
Company's product liability coverage is limited and may not be adequate to cover
potential product liability exposure. Product liability insurance is expensive,
difficult to maintain and current or increased coverage may not be available on
acceptable terms, if at all. Product liability claims brought against the
Company in excess of its insurance coverage, if any, could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
UNCERTAINTY AND POSSIBLE NEGATIVE EFFECTS OF HEALTHCARE REFORM
The healthcare industry is undergoing fundamental changes that are the result
of political, economic and regulatory influences. The levels of revenue and
profitability of pharmaceutical companies may be affected by the continuing
efforts of governmental and third party payors to contain or reduce healthcare
costs through various means. Reforms that have been and may be considered
include mandated basic healthcare benefits, controls on healthcare spending
through limitations on the increase in private health insurance premiums and
Medicare and Medicaid spending, the creation of large insurance purchasing
groups and fundamental changes to the healthcare delivery system. Due to
uncertainties regarding the outcome of healthcare reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of the
reform proposals will be adopted or the effect such adoption may have on the
Company. There can be no assurance that future healthcare legislation or other
changes in the administration or interpretation of government healthcare or
third-party reimbursement programs will not have a material adverse effect on
the Company. Healthcare reform is also under consideration in some other
countries.
POTENTIAL VOLATILITY OF STOCK PRICE
The stock market has recently experienced significant price and volume
fluctuations unrelated to the operating performance of particular companies. In
addition, the market price of the Company's Common Stock has been highly
volatile and is likely to continue to be so. Factors such as the Company's
ability to increase demand for its product in the United States, the Company's
ability to successfully sell its product in the United States and
internationally, variations in the Company's financial results and its ability
to obtain needed financing, announcements of technological innovations or new
products by the Company or its competition, comments by security analysts,
adverse regulatory actions
17
<PAGE> 18
or decisions, any loss of key management, the results of the Company's clinical
trials or those of its competition, changing governmental regulations, patents
or other proprietary rights, product or patent litigation or public concern as
to the safety of products developed by the Company, may have a significant
effect on the market price of the Company's Common Stock.
ANTI-TAKEOVER EFFECT OF PREFERRED SHARES RIGHTS PLAN AND CERTAIN CHARTER AND
BYLAW PROVISIONS
In February 1996, the Company's Board of Directors authorized its
reincorporation in the State of Delaware (the "Reincorporation") and adopted a
Preferred Shares Rights Plan. The Company's reincorporation into the State of
Delaware was approved by its stockholders and effective in May 1996. The
Preferred Shares Rights Plan provides for a dividend distribution of one
Preferred Shares Purchase Right (a "Right") on each outstanding share of the
Company's Common Stock. The Rights will become exercisable following the tenth
day after a person or group announces acquisition of 20 percent or more of the
Company's Common Stock, or announces commencement of a tender offer, the
consummation of which would result in ownership by the person or group of 20
percent or more of the Company's Common Stock. The Company will be entitled to
redeem the Rights at $0.01 per Right at any time on or before the tenth day
following acquisition by a person or group of 20 percent or more of the
Company's Common Stock.
The Preferred Shares Rights Plan and certain provisions of the Company's
Certificate of Incorporation and Bylaws may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. The Company's Certificate of
Incorporation allows the Company to issue Preferred Stock without any vote or
further action by the stockholders, and certain provisions of the Company's
Certificate of Incorporation and Bylaws eliminate the right of stockholders to
act by written consent without a meeting, specify procedures for director
nominations by stockholders and submission of other proposals for consideration
at stockholder meetings, and eliminate cumulative voting in the election of
directors. Certain provisions of Delaware law could also delay or make more
difficult a merger, tender offer or proxy contest involving the Company,
including Section 203, which prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years unless certain conditions are met. The Preferred Shares Rights Plan, the
possible issuance of Preferred Stock, the procedures required for director
nominations and stockholder proposals and Delaware law could have the effect of
delaying, deferring or preventing a change in control of the Company, including
without limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of the Company's Common Stock. These
provisions could also limit the price that investors might be willing to pay in
the future for shares of the Company's Common Stock.
DEPENDENCE ON SINGLE SOURCE OF SUPPLY
The Company relies on a single injection molding Company, The Kipp Group
("Kipp"), for its supply of plastic applicator components. In turn, Kipp obtains
its supply of resin, a key ingredient of the applicator, from a single source,
Huntsman Corporation. The Company also relies on a single source, E-Beam
Services, Inc. ("E-Beam"), for sterilization of its product. There can be no
assurance that the Company will be able to identify and qualify additional
sources of plastic components and an additional sterilization facility. The
Company is required to receive FDA approval for suppliers. The FDA may require
additional clinical trials or other studies prior to accepting a new supplier.
Unless the Company secures and qualifies additional sources of plastic
components or an additional sterilization facility, it will be entirely
dependent upon the existing supplier and E-Beam. If interruptions in these
supplies or services were to occur for any reason, including a decision by
existing suppliers and/or E-Beam to discontinue manufacturing or services,
political unrest, labor disputes or a failure of the existing suppliers and/or
E-Beam to follow regulatory guidelines, the development and commercial marketing
of MUSE (alprostadil) and other potential products could be delayed or
prevented. An interruption in sterilization services or the Company's supply
plastic components would have a material adverse effect on the Company's
business, financial condition and results of operations.
18
<PAGE> 19
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 18, 1998, a purported shareholder class action entitled Crain et al.
v. Vivus, Inc. et al., was filed in Superior Court of the State of California
for the County of San Mateo. Five identical complaints were subsequently filed
in the same court. These complaints were filed on behalf of a purported class of
persons who purchased stock between May 15 and December 9, 1997. The complaints
allege that the Company and certain current and former officers or directors
artificially inflated the Company's stock price by issuing false and misleading
statements concerning the Company's prospects and issuing false financial
statements. The complaints do not specify the damages resulting from the alleged
conduct. The state court cases have been consolidated, and the Company
anticipates that the plaintiffs will file a consolidated and amended complaint.
On March 16, 1998, a purported shareholder class action entitled Cramblit et al.
v. Vivus, Inc. et al. was filed in the United States District Court for the
Northern District of California. Five additional complaints were subsequently
filed in the same court. The federal complaints were filed on behalf of a
purported class of persons who purchased stock between May 2 and December 9,
1997. The federal complaints assert the same factual allegations as the state
court complaints, but asserts legal claims under the Federal Securities Laws.
The federal court cases were consolidated , and a lead plaintiff has been
appointed and the plaintiff filed a consolidated and amended complaint in 1998.
The Company believes the complaints lack merit and the Company will vigorously
defend itself in the pending actions.
On October 5, 1998, the Company was named in a civil action filed in the
Superior Court of New Jersey. This complaint seeks specific performance and
other relief in connection with the Company's leased manufacturing facilities,
located in Lakewood, New Jersey. The Company's lease agreement requires that the
Company provide a removal security deposit in the form of cash or a letter of
credit. The Company and lessor ("plaintiff") have not been able to agree on the
amount of such deposit and the plaintiff filed suit asking for specific
performance in the amount of $3.3 million. The Company believes that the amount
sought by the plaintiff is excessive and will attempt to negotiate a settlement
for a reduced amount. Should the Company not be able to reach a settlement with
the plaintiff the Company may be required to post a certificate of deposit of
$3.3 million which will have a material adverse effect on the company's business
and financial condition.
In the normal course of business, the Company receives and makes inquiries
regarding patent infringement and other legal matters. The Company believes that
it has meritorious claims and defenses and intends to pursue any such matters
vigorously. The Company is not aware of any asserted or unasserted claims
against it where the resolution would have an adverse material impact on the
operations or financial position of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 14, 1998, the Company and Generation Ventures, LLC ("GV") entered
into a Settlement Agreement and General Release pursuant to which GV released
all of its outstanding claims against the Company in exchange for the Company's
issuance to GV of 20,000 shares of its Common Stock. In issuing the shares to
GV, the Company relied on Section 3(a)(10) of the Securities Act of 1933, as
amended. As set forth above, the Company exchanged its Common Stock for the
release of all of GV's outstanding claims against the Company. Further, the San
Mateo County Superior Court in Redwood City, California approved the fairness of
the exchange after a duly noticed hearing.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS (IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
<TABLE>
<S> <C>
(7)3.2 Amended and Restated Certificate of Incorporation of the
Company
(4)3.3 Bylaws of the Registrant, as amended
(8)3.4 Certificate of Designations of Rights, Preferences and
Privileges of Series A Participating Preferred Stock
(7)4.1 Specimen Common Stock Certificate of the Registrant
(1)4.2 Registration Rights, as amended
(1)4.4 Form of Preferred Stock Purchase Warrant issued by the
Registrant to Invemed Associates, Inc., Frazier
Investment Securities, L.P., and Cristina H. Kepner
(8)4.5 Second Amended and Restated Preferred Shares Rights
Agreement, dated as of April 15, 1997 by and between the
Registrant and Harris Trust Company of California,
including the Certificate of Determination, the form of
Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B, and C, respectively
(1)+10.1 Assignment Agreement by and between Alza Corporation and
the Registrant dated December 31, 1993
(1)+10.2 Memorandum of Understanding by and between Ortho
Pharmaceutical Corporation and the Registrant dated
February 25, 1992
(1)10.3 Assignment Agreement by and between Ortho Pharmaceutical
Corporation and the Registrant dated June 9, 1992
(1)+10.4 License Agreement by and between Gene A. Voss, MD, Allen
C. Eichler, MD, and the Registrant dated December 28,
1992
(1)+10.5A License Agreement by and between Ortho Pharmaceutical
Corporation and Kjell Holmquist AB dated June 23, 1989
(1)+10.5B Amendment by and between Kjell Holmquist AB and the
Registrant dated July 3, 1992
(1)10.5C Amendment by and between Kjell Holmquist AB and the
Registrant dated April 22, 1992
(1)+10.5D Stock Purchase Agreement by and between Kjell Holmquist
AB and the Registrant dated April 22, 1992
(1)+10.6A License Agreement by and between Amsu, Ltd., and Ortho
Pharmaceutical Corporation dated June 23, 1989
(1)+10.6B Amendment by and between Amsu, Ltd., and the Registrant
dated July 3, 1992
(1)10.6C Amendment by and between Amsu, Ltd., and the Registrant
dated April 22, 1992
(1)+10.6D Stock Purchase Agreement by and between Amsu, Ltd., and
the Registrant dated July 10, 1992
(1)10.7 Supply Agreement by and between Paco Pharmaceutical
Services, Inc., and the Registrant dated November 10,
1993
(1)10.10 Lease by and between McCandless-Triad and the Registrant
dated November 23, 1992, as amended
(4)10.11 Form of Indemnification Agreements by and among the
Registrant and the Directors and Officers of the
Registrant
(2)10.12 1991 Incentive Stock Plan and Form of Agreement, as
amended
(1)10.13 1994 Director Option Plan and Form of Agreement
(1)10.14 Form of 1994 Employee Stock Purchase Plan and Form of
Subscription Agreement
(1)10.17 Letter Agreement between the Registrant and Leland F.
Wilson dated June 14, 1991 concerning severance pay
(3)+10.21 Distribution Services Agreement between the Registrant
and Synergy Logistics, Inc. (a wholly-owned subsidiary
of Cardinal Health, Inc.) dated February 9, 1996
(3)+10.22 Manufacturing Agreement between the Registrant and
CHINOIN Pharmaceutical and Chemical Works Co., Ltd.
dated December 20, 1995
(11)+10.22A Amendment One, dated as of December 11, 1997, to the
Manufacturing Agreement by and between VIVUS and CHINOIN
Pharmaceutical and Chemical Works Co., Ltd. dated
December 20, 1995
(6)+10.23 Distribution and Services Agreement between the
Registrant and Alternate Site Distributors, Inc. dated
July 17, 1996
(5)+10.24 Distribution Agreement made as of May 29, 1996 between
the Registrant and Astra AB
(7)+10.27 Distribution Agreement made as of January 22, 1997
between the Registrant and Janssen Pharmaceutica
International, a division of Cilag AG International
(11)+10.27A Amended and Restated Addendum 1091, dated as of
October 29, 1997, between VIVUS International Limited
and Janssen Pharmaceutica International
(7)10.28 Lease Agreement made as of January 1, 1997 between the
Registrant and Airport Associates
(7)10.29 Lease Amendment No. 1 as of February 15, 1997 between
Registrant and Airport Associates
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
(10)10.29A Lease Amendment No. 2 dated July 24, 1997 by and between
the Registrant and Airport Associates
(10)10.29B Lease Amendment No. 3 dated July 24, 1997 by and between
the Registrant and Airport Associates
(7)10.30 Lease agreement by and between 605 East Fairchild
Associates, L.P. and Registrant dated as of March 5,
1997
(9)+10.31 Manufacture and Supply Agreement between
Registrant and Spolana Chemical Works, A.S. dated May
30, 1997
(11)10.32A Agreement between ADP Marshall, Inc. and the Registrant
dated December 19, 1997
(11)10.32B General Conditions of the Contract for Construction
(11)10.32C Addendum to General Conditions of the Contract for
Construction
(12)+10.34 Agreement dated as of June 30, 1998 between Registrant
and Alza Corporation
(12)+10.35 Sales Force Transition Agreement dated July 6, 1998
between Registrant and Alza Corporation
27.1 Financial Data Schedule
</TABLE>
- - ------------
(1) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 No. 33-75698, as amended.
(2) Incorporated by reference to the same numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 No. 33-90390, as amended.
(3) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995, as amended.
(4) Incorporated by reference to the same numbered exhibit filed with the
Registrant's Form 8-B filed with the Commission on June 24, 1996.
(5) Incorporated by reference to the same numbered exhibit filed with the
Registrant's Current Report on Form 8-K/A filed with the Commission on
June 21, 1996.
(6) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996.
(7) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended December
31,1996, as amended.
(8) Incorporated by reference to exhibit 99.1 filed with Registrant's
Amendment Number 2 to the Registration Statement of Form 8-A (File No.
0-23490) filed with the Commission on April 23, 1997.
(9) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997
(10) Incorporated by reference to the same numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997.
(11) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997.
(12) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
21
<PAGE> 22
+ Confidential treatment granted.
(b) Reports on Form 8-K
None.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIVUS, Inc.
Date: November 16, 1998
/s/ Richard Walliser
-----------------------------------------
Richard Walliser
Interim Chief Financial Officer
/s/ Leland F. Wilson
-----------------------------------------
Leland F. Wilson
President and Chief
Executive Officer
23
<PAGE> 24
VIVUS, INC.
INDEX TO EXHIBITS*
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
- - ----------
* Only exhibits actually filed are listed. Exhibits incorporated by reference
are set forth in the exhibit listing included in Item 6 of the Quarterly
Report on Form 10-Q.
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,690
<SECURITIES> 20,817
<RECEIVABLES> 8,054
<ALLOWANCES> (94)
<INVENTORY> 7,785
<CURRENT-ASSETS> 34,912
<PP&E> 27,418
<DEPRECIATION> (7,382)
<TOTAL-ASSETS> 62,249
<CURRENT-LIABILITIES> 41,936
<BONDS> 0
0
0
<COMMON> 32
<OTHER-SE> 20,313
<TOTAL-LIABILITY-AND-EQUITY> 62,249
<SALES> 18,064
<TOTAL-REVENUES> 20,064
<CGS> 28,297
<TOTAL-COSTS> 28,297
<OTHER-EXPENSES> 46,686
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (54,725)
<INCOME-TAX> 0
<INCOME-CONTINUING> (54,725)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,725)
<EPS-PRIMARY> (1.72)<F1>
<EPS-DILUTED> (1.72)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEAN BASIC
</FN>
</TABLE>
