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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File number 000-19809
DURA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3645543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5880 PACIFIC CENTER BLVD., SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (619) 457-2553
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
The number of shares of the Registrant's Common Stock outstanding as of
September 30, 1996 was 37,741,578.
Exhibit Index on Page 20
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DURA PHARMACEUTICALS, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1995 and September 30, 1996...................... 3
Consolidated Statements of Operations -
Three and nine months ended September 30, 1995 and 1996....... 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1995 and 1996................. 5
Notes to Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 8
Risk Factors.................................................... 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................ 18
SIGNATURES............................................................... 19
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 25,554 $ 33,849
Short-term investments 42,266 53,389
Accounts and other receivables 6,957 15,523
Inventory 3,069 7,743
Prepaid and other 612 919
--------- ---------
Total current assets 78,458 111,423
--------- ---------
PROPERTY 16,133 20,624
LICENSE AGREEMENTS AND PRODUCT RIGHTS 39,065 187,026
GOODWILL 7,083 6,743
OTHER 3,258 8,740
--------- ---------
Total $ 143,997 $ 334,556
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,225 $ 14,016
Accrued wages, taxes and benefits 1,341 2,884
Current portion of long-term obligations 10,175 27,972
--------- ---------
Total current liabilities 18,741 44,872
--------- ---------
LONG-TERM OBLIGATIONS:
Notes payable - bank 6,611 --
Other long-term obligations 8,816 9,300
--------- ---------
Total long-term obligations 15,427 9,300
OTHER NON-CURRENT LIABILITIES 732 1,028
--------- ---------
Total liabilities 34,900 55,200
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, shares authorized - 5,000,000;
no shares issued or outstanding ........................... -- --
Common stock, no par value, shares authorized -100,000,000;
issued and outstanding - 31,079,424 and 37,741,578
respectively ........................................... 216,514 371,406
Accumulated deficit (103,320) (88,849)
Unrealized gain on investments 103 23
Warrant subscriptions receivable (4,200) (3,224)
--------- ---------
Total shareholders' equity 109,097 279,356
--------- ---------
Total $ 143,997 $ 334,556
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 10,423 $ 18,940 $ 27,139 $ 45,900
Contract 2,766 6,980 8,556 17,407
-------- -------- -------- --------
Total revenues 13,189 25,920 35,695 63,307
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of sales 3,027 5,129 7,259 12,553
Clinical, development and regulatory 1,821 5,001 5,997 12,121
Selling, general and administrative 6,696 11,075 18,676 26,121
Goodwill amortization 113 113 262 339
-------- -------- -------- --------
Total operating costs and expenses 11,657 21,318 32,194 51,134
-------- -------- -------- --------
OPERATING INCOME 1,532 4,602 3,501 12,173
-------- -------- -------- --------
OTHER :
Interest income 672 2,253 1,636 4,664
Interest expense (402) (86) (499) (602)
Other expense 7 (1) (21) (2)
-------- -------- -------- --------
Total other 277 2,166 1,116 4,060
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,809 6,768 4,617 16,233
PROVISION FOR INCOME TAXES 42 962 182 1,762
-------- -------- -------- --------
NET INCOME $ 1,767 $ 5,806 $ 4,435 $ 14,471
======== ======== ======== ========
NET INCOME PER SHARE :
PRIMARY $ 0.06 $ 0.14 $ 0.16 $ 0.37
FULLY DILUTED $ 0.06 $ 0.14 $ 0.15 $ 0.36
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
PRIMARY 30,114 42,266 27,324 38,890
FULLY DILUTED 30,550 42,697 28,650 39,657
</TABLE>
See accompanying notes to consolidated financial statements.
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DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1995 1996
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,068 $ 17,270
--------- ---------
INVESTING ACTIVITIES:
Purchases of short-term investments (62,903) (103,902)
Sales and maturities of short-term investments 6,936 92,697
Purchases of long-term investments (5,000)
Company/product acquisitions, net of cash received (2,616) (128,600)
Capital expenditures (6,735) (5,477)
Other (40) (526)
--------- ---------
Net cash (used for) investing activities (65,358) (150,808)
--------- ---------
FINANCING ACTIVITIES:
Issuance of common stock and warrants, net of issuance cost 56,090 154,389
Bank borrowings 4,360
Principal payments on notes payable (7,056)
Principal payments on other long-term obligations (20,140) (5,500)
--------- ---------
Net cash provided by financing activities 40,310 141,833
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (21,980) 8,295
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 33,462 25,554
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,482 $ 33,849
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 13 $ --
Income taxes $ 44 $ 51
</TABLE>
See accompanying notes to consolidated financial statements.
5
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DURA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Dura Pharmaceuticals, Inc. ("Dura" or the "Company") in accordance with the
instructions to Form 10-Q. The consolidated financial statements reflect all
adjustments, consisting of only normal recurring accruals, which are, in the
opinion of management, necessary for a fair statement of the results of the
interim periods presented. These consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-K, as amended,
for the year ended December 31, 1995.
The results of operations for the interim periods are not necessarily indicative
of results to be expected for any other interim period or for the year as a
whole.
The consolidated financial statements include the accounts of Dura and its three
wholly-owned subsidiaries, Health Script Pharmacy Services, Inc., acquired on
March 22, 1995, Healthco Solutions, Inc., incorporated on July 11, 1995, and
Dura Delivery Systems, Inc. ("DDSI"), acquired on December 29, 1995. All
intercompany transactions and balances are eliminated in consolidation.
Reclassifications - Prior to Dura's acquisition of DDSI on December 29, 1995,
Dura recorded costs made on behalf of DDSI as they were incurred and
simultaneously accrued reimbursement from DDSI by crediting the related costs.
Dura is recording contract revenues from Spiros Development Corporation ("Spiros
Corp."), a separate entity formed in December 1995, equal to the amounts due
from Spiros Corp. for development and management services less a prorata amount
allocated to the Series S warrant subscriptions receivable, established in
connection with the issuance and sale of Series S warrants in December 1995. The
DDSI reimbursements for the three and nine months ended September 30, 1995 have
been reclassified to contract revenues to conform to the presentation used for
Spiros Corp.
Accounting for Stock-Based Compensation - In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation", which requires the
Company to adopt disclosure provisions for stock based compensation effective
January 1, 1996. The standard defines a fair value method of accounting for
stock options and other equity instruments. Under the fair value method,
compensation is measured at the grant date based on the fair value of the award
and is recognized over the service period, which is usually the vesting period.
This standard encourages rather than requires companies to adopt the fair value
method of accounting for employee stock-based transactions. Companies are
permitted to continue to account for such transactions under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," but will be required to disclose in a note to the financial
statements pro forma net income and net income per share as if the new method of
accounting had been applied.
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The Company has elected to continue to apply APB Opinion No. 25 in its financial
statements and will disclose in future annual reports the required pro forma
information in a footnote.
2. NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of common
and common equivalent shares during each period. Common equivalent shares
consist of stock options and warrants and are included in the computation of net
income per share using the treasury stock method. Shares have been adjusted to
reflect the 2-for-1 stock split in the form of a 100% dividend,effective July 1,
1996.
3. INCOME TAXES
The provisions for income
taxes for the 1995 and 1996 periods reflect the expected combined Federal and
state tax rate of 40% offset by the expected benefit from utilization of net
operating loss carryforwards. During the three and nine months ended September
30, 1996, the Company recorded tax benefits from stock option exercises of
$820,956 and $1,479,000 respectively, which were credited to common stock. At
September 30, 1996, the valuation allowance against deferred tax assets equaled
100% of the net deferred tax assets.
4. CAPITAL STOCK
On May 29, 1996, the Company declared a 2-for-1 stock split in the form of a
100% stock dividend on the Company's common stock effective July 1, 1996 for
shareholders of record on June 17, 1996. All share amounts and net income per
share for all periods presented have been adjusted to give effect to this stock
dividend.
Common stock - On May 29, 1996, the Company completed an offering of 2,702,500
shares (5,405,000 shares post stock dividend) of common stock resulting in net
proceeds to the Company of $150.4 million. On May 29, 1996 the Company's
shareholders approved an amendment to the Articles of Incorporation increasing
the number of authorized shares of common stock from 25 to 100 million.
Stock options - On February 21, 1996 the shares authorized under the Company's
stock option plan, as adjusted for the July 1, 1996 stock dividend, were
increased by 1,500,000 to a total of 6,007,360.
5. PRODUCT RIGHTS
On September 5, 1996, the Company acquired from Eli Lilly and Company ("Lilly")
the U.S. marketing rights to the patented antibiotics Keftab(R) and Ceclor(R)
CD. The purchase price consisted of $100.0 million paid in cash at closing.
Additional future contingent payments of $15 million per year starting
in 1999 and ending in 2003 are subject to Ceclor(R) CD remaining without an
extended release cefaclor competitor in the U.S.
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<PAGE> 8
On July 3, 1996, the Company acquired from Procter & Gamble Pharmaceuticals,
Inc. ("P&G") the rights to the Entex(R) products, consisting of four
prescription upper respiratory drugs. The purchase price of $45.0 million
consisted of $25.0 million in cash paid at closing and $20.0 million due on July
3, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information should be read in conjunction with the consolidated financial
statements and the notes thereto included in Item 1 of this Quarterly Report and
the audited financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1995 contained in the Company's 1995 Report on Form 10-K, as
amended, for the year ended December 31, 1995. See "Risk Factors" for trends and
uncertainties known to the Company that could cause reported financial
information not to be necessarily indicative of the future, including discussion
of the effects of seasonality on the Company.
RECENT DEVELOPMENTS
On September 5, 1996, the Company acquired from Eli Lilly and Company ("Lilly")
U.S. marketing rights to the antibiotics Keftab(R) and Ceclor(R) CD. The
purchase price consisted of $100.0 million paid in cash at closing. Additional
future contingent payments of $15 million per year starting in 1999 and ending
in 2003 are subject to Ceclor(R) CD remaining without an extended release
cefaclor competitor in the U.S.
On July 3, 1996, the Company acquired from Procter & Gamble Pharmaceuticals,
Inc. ("P&G") worldwide rights to the Entex(R) products, consisting of four
prescription upper respiratory drugs. The purchase price of $45.0 million
consisted of $25.0 million in cash paid at closing and $20.0 million due on July
3, 1997. The Company began marketing the Entex products in July 1996.
The acquisition of the above product rights will have a material impact on
future operating results.
8
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RESULTS OF OPERATIONS
Total revenues for the three and nine months ended September 30, 1996 increased
to $25.9 and $63.3 million, respectively, up 97% and 77%, respectively, compared
to the same periods in 1995. Net income for the three months ended September 30,
1996 was $5.8 million, or $0.14 per share, an increase of $4.0 million or $0.08
per share, compared to the same period in 1995. Net income for the nine months
ended September 30, 1996 was $14.5 million, or $0.37 per share, an increase of
$10.0 million, or $0.21 per share, compared to the same period in 1995.
Pharmaceutical sales for the three and nine months ended September 30, 1996
increased to $18.9 and $45.9 million, up 82 % and 69 %, respectively, compared
to the same periods in 1995. The three and nine month increases were primarily
due to the sales of newly-acquired products as well as higher revenues at Health
Script.
Gross profit (pharmaceutical sales less cost of sales) for the three and nine
months ended September 30, 1996 increased $6.4 and $13.5 million, respectively,
compared to the same periods in 1995. Gross profit as a percentage of sales for
the three months ended September 30, 1996 was 73% and 71% for the same period in
1995. Gross profit for the nine months ended September 30, 1996 and September
30, 1995 remained approximately 73%.
Contract revenues for the three and nine months ended September 30, 1996
increased $ 4.2 and $ 8.9 million, to $7.0 million and $17.4 million, up 152%
and 103%, respectively, compared to the same periods in 1995. The Company, under
agreements with several companies, conducts feasibility testing and development
work on various compounds for use with Spiros. In addition, the Company receives
royalties primarily from the co-promotion of pharmaceutical products. Contract
revenues from Spiros related development and feasibility agreements for the
three and nine months ended September 30, 1996 were $5.7 and $14.4 million,
including $5.0 and $12.8 million from Spiros Corp., and $2.0 and $6.6 million,
including $1.7 and $5.4 million from DDSI, compared to the same periods in 1995.
Contract revenues from royalties were $1.3 and $3.0 million for the three and
nine months ended September 30, 1996, compared to $0.8 and $2.0 million for the
same periods in 1995.
Clinical, development and regulatory expenses for the three and nine months
ended September 30, 1996 increased $3.2 and $6.1 million to $5.0 and
$12.1 million compared to the same periods in 1995. The increases reflect
expenses incurred by the Company under feasibility and development agreements
covering the use of various compounds with the Spiros proprietary dry powder
drug delivery system.
Selling, general and administrative expenses for the three and nine months ended
September 30, 1996 increased $4.4 and $ 7.4 million to $11.1 and $26.1 million
compared to the
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same periods in 1995, and decreased to 43 % and 41 % of revenues, respectively,
compared to 51 % and 52 % in the same periods in 1995. The dollar increase
results primarily from marketing costs related to newly-acquired products as
well as higher costs of Health Script to support a higher sales level. The
decrease as a percentage of revenues reflects the productivity of the sales
force, the growth of pharmaceutical sales due to product acquisitions and the
growth of contract revenues.
Interest income for the three and nine months ended September 30, 1996 increased
$1.6 and $3.0 million to $2.3 and $4.7 million, respectively, as compared to the
three and nine months ended September 30, 1995. The increases are due to the
cash generated from the August 1995 and May 1996 public stock offerings as well
as cash generated from operations. Interest expense for the three months ended
September 30, 1996 decreased $316,000 as compared to the same period for 1995 as
a result of retiring the bank debt in May 1996. Interest expense for the nine
months ended September 30, 1996 increased $103,000 as compared to the nine
months ended September 30, 1995 as a result of obligations incurred in
connection with the 1995 product acquisitions.
The Company recorded income tax provisions of $1.0 and $1.8 million for the
three and nine months ended September 30, 1996, and $42,000 and $182,000,
respectively, for the three and nine months ended September 30, 1995. The
increased provision is due to the decline in the relative use of net operating
loss carryforwards. The provisions reflect the expected combined Federal and
state tax rate of 40% offset by the expected benefit from utilization of net
operating loss carryforwards.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $6.9 million to $66.6 million at
September 30, 1996, from $59.7 million at December 31, 1995. Cash equivalents
and short-term investments increased by $19.4 million to $87.2 million at
September 30, 1996, from $67.8 million at December 31, 1995. The increases
resulted primarily from the net proceeds from the May 1996 public stock offering
as well as from cash generated from operations offset by amounts paid for
product acquisitions.
In 1995, the Company completed the first phase of construction, at its
headquarters, of a manufacturing facility that will be used to formulate, mill,
blend and fill drugs to be used with Spiros, pending regulatory approval. In
1996, the Company began a two-year project to expand its manufacturing facility
to meet the production needs of products to be used with Spiros, pending
regulatory approval. Included in construction in progress at September 30, 1996
are capital expenditures of $11.0 million relating to the facility. Equipment
purchases for and validation of the manufacturing facility are currently
scheduled through 1997. At September 30, 1996, the Company had open purchase
commitments for construction and validation of the facility and equipment
purchases of approximately $3.0 million and expects to spend an additional $4.0
million to complete the facility.
At September 30, 1996, the Company had available a line of credit with a
bank providing for borrowings up to $5.0 million, against which there were no
borrowings outstanding. In accordance with bank loan agreements, all assets of
the Company are pledged as collateral to loans outstanding, and the Company is
required to maintain certain financial covenants.
The Development and Management Agreement between the Company and Spiros
Corp. requires Spiros Corp. to make payments to Dura for development and
management services within 15 days after the end of the month in which the
services are incurred. Dura records contract revenues from Spiros Corp. equal to
the amounts due from Spiros Corp. for development and management services less a
pro rata amount allocated to the warrant subscriptions receivable. The Company
has a purchase option with respect to all of the shares of Spiros Corp. which is
exercisable through December 31, 1999 at predetermined prices. In addition, the
Company has an option, through specified dates, to acquire Spiros Corp.'s
exclusive rights for use of Spiros with albuterol in the cassette version for a
minimum of $15.0 million in cash. Such option is exercisable at any time through
the earlier of 60 days after FDA approval of such albuterol product or December
31, 1999.
At September 30, 1996, the Company had an aggregate of $37.3 million in
other obligations, of which $28.0 million is to be paid within the next year. In
connection with the acquisition of Ceclor CD and Keftab marketing rights, the
Company paid $100.0 million in cash. Additional future contingent payments of
$15 million per year starting in 1999 and ending in 2003 are subject to Ceclor
CD remaining without an extended release cefaclor competitor in the U.S.
The Company has a $59.8 million net operating loss carry forward for
Federal income tax purposes of which approximately $27.5 million is currently
available to offset taxable income. The tax benefit from approximately $9.4
million of the net operating loss carry forward currently available will be
credited to common stock when and if this amount is used to offset taxable
income.
The Company anticipates that its existing capital resources, together
with cash expected to be generated from operations and available bank
borrowings should be sufficient to finance its operations and working
capital requirements through at least November 1997. Significant additional
resources, however, may be required in connection with product or company
acquisitions or in-licensing opportunities. At present, the Company is actively
pursuing the acquisition of rights to several products and/or companies which
may require the use of substantial capital resources; however, there are no
present agreements or commitments with respect to any such acquisition.
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RISK FACTORS
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could effect, the
Company's actual results and could cause the Company's actual consolidated
results for the third quarter of 1996, and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company.
Reduction in Gross Margins. There is no proprietary protection for most of the
products sold by the Company and substitutes for such products are sold by other
pharmaceutical companies. The Company expects average selling prices for many of
its products to decline over time due to competitive and reimbursement
pressures. While the Company will seek to mitigate the effect of this decline in
average selling prices, there can be no assurance that the Company will be
successful in these efforts.
Third-Party Reimbursement; Pricing Pressures. The Company's commercial
success will depend in part on the availability of adequate reimbursement from
third-party health care payors, such as government and private health insurers
and managed care organizations. Third-party payors are increasingly challenging
the pricing of medical products and services. There can be no assurance that
reimbursement will be available to enable the Company to achieve market
acceptance of its products or to maintain price levels sufficient to realize an
appropriate return on the Company's investment in product acquisition,
in-licensing and development. The market for the Company's products may be
limited by actions of third-party payors. For example, many managed health care
organizations are now controlling the pharmaceuticals that are on their
formulary lists. The resulting competition among pharmaceutical companies to
place their products on these formulary lists has created a trend of downward
pricing pressure in the industry. In addition, many managed care organizations
are pursuing various ways to reduce pharmaceutical costs and are considering
formulary contracts primarily with those pharmaceutical companies that can offer
a full line of products for a given therapy sector or disease state. There can
be no assurance that the Company's products will be included on the formulary
lists of managed care organizations or that downward pricing pressure in the
industry generally will not negatively impact the Company's operations. Further,
a number of legislative and regulatory proposals aimed at changing the health
care system have been proposed. While the Company cannot predict whether any
such proposals will be adopted or the effect such proposals may have on its
business, the pending nature of such proposals, as well as the adoption of any
proposal, is likely to exacerbate industry-wide pricing pressures and could have
a material adverse effect on the Company.
Dependence on Acquisition of Rights to Pharmaceutical Products. The Company's
strategy for growth is dependent, in part, upon acquiring, in-licensing and
co-promoting pharmaceuticals targeted primarily at allergists, ear, nose and
throat physicians, pulmonologists and a selected subset of pediatricians and
generalist physicians. Other companies, including those with substantially
greater resources, are competing with the Company for the rights to such
products. There can be no assurance that the Company will be able to acquire,
in-license or co- promote additional pharmaceuticals on acceptable terms, if at
all. The failure of the Company to acquire, in-license, co-promote, develop or
market commercially successful pharmaceuticals would have a material adverse
effect on the Company. Furthermore, there can be no assurance that the Company,
once it has obtained rights to a pharmaceutical product and committed to payment
terms, will be able to generate sales sufficient to create a profit or otherwise
avoid a loss.
Development Risks Associated With Spiros. The Spiros pulmonary drug delivery
system ("Spiros") will require significant additional development. In addition,
regulatory approvals for each drug to be delivered through the use of Spiros
will have to be obtained prior to commercialization. There can be no assurance
that development of Spiros will be completed successfully, that Spiros will not
encounter problems in clinical trials that will cause the delay or suspension of
such trials, that current or future testing will show Spiros to be safe or
efficacious or that Spiros will receive regulatory approval. Moreover, even if
Spiros does receive regulatory approval, there can be no assurance that Spiros
will be commercially successful, have all of the patent and other protections
necessary to prevent competitors from producing similar products and not
infringe on patent or other proprietary rights of third parties. The failure of
Spiros to receive timely regulatory approval and achieve commercial success
would have
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a material adverse effect on the Company.
Risks Associated With Recent Acquisitions. In September 1996, the Company
acquired from Lilly exclusive U.S. rights to market and distribute Keftab and
Ceclor CD and entered into a manufacturing agreement with Lilly which terminates
in certain circumstances. Any interruption in the supply of Keftab or Ceclor CD
from Lilly due to regulatory or other causes could result in the inability of
the Company to meet demand and could have a material adverse impact on the
Company.
Both Keftab and Ceclor CD are antibiotics, and the Company has limited or no
experience in marketing such products. There can be no assurance that the
Company will be able to successfully market and distribute Keftab or that Keftab
will continue to be accepted by the market at the levels previously achieved by
Lilly or at a level sufficient to maintain growth of the product. In addition,
Ceclor CD has not previously been marketed to physicians, and no assurance can
be given that the Company will be successful in introducing this product or will
be able to successfully compete with currently available products. Furthermore,
the Company will need to significantly expand its existing sales force to
address the antibiotic market, and no assurance can be given that such expansion
can be successfully completed in a timely manner, if at all. Failure to
successfully market and sell Keftab and Ceclor CD would have a material adverse
effect on the Company's business, financial condition and results of operations.
Customer Concentration; Consolidation of Distribution Network. The distribution
network for pharmaceutical products has in recent years been subject to
increasing consolidation. As a result, a few large wholesale distributors
control a significant share of the market. In addition, the number of
independent drug stores and small chains has decreased as retail consolidation
has occurred. Further consolidation among, or any financial difficulties of,
distributors or retailers could result in the combination or elimination of
warehouses thereby stimulating product returns to the Company. Further
consolidation or financial difficulties could also cause customers to reduce
their inventory levels, or otherwise reduce purchases of the Company's products
which could result in a material adverse effect on the Company's business,
financial condition or results of operations.
Dura's customers include McKesson Drug Company, Bergen Brunswig Drug Company,
Cardinal Health Inc., Bindley Western Drug Company and major drug chains. During
the first nine months of 1996, two customers individually accounted for 15% and
11% of sales. Two customers individually accounted for 16% and 11% of 1995
sales, three customers individually accounted for 21%, 14% and 12% of 1994 sales
and two customers individually accounted for 19% and 14% of 1993 sales. The loss
of any of these customer accounts could have a material adverse effect upon the
Company's business, financial condition or results of operations.
Seasonality and Fluctuating Quarterly Results. Historically, as a result of the
winter cold and flu season, industry-wide demand for respiratory products has
been stronger in the first and fourth quarters than during the second and third
quarters of the year. In addition, variations in the timing and severity of the
winter cold and flu season have influenced the Company's results of operations
in the past. While the growth and productivity of the Company's sales force and
the introduction by the Company of new products have historically mitigated the
impact of seasonality on the Company's results of operations, recent product
acquisitions by the Company are likely to increase the impact of seasonality on
the Company's results of operations. No assurances can be given that the
Company's results of operations will not be materially adversely affected by the
seasonality of product sales.
Competition. Many companies, including large pharmaceutical firms with
financial and marketing resources and development capabilities substantially
greater than those of Dura, are engaged in developing, marketing and selling
products that compete with those offered by the Company. The selling prices of
such products typically decline as competition increases. Further, other
products now in use or under development by others may be more effective than
Dura's current or future products. The industry is characterized by rapid
technological change, and competitors may develop their products more rapidly
than Dura. Competitors may also be able to complete the regulatory process
sooner, and therefore, may begin to market their products in advance of Dura's
products. Dura believes that competition among both prescription pharmaceuticals
and
13
<PAGE> 14
pulmonary delivery systems aimed at the asthma and allergy, cough and cold
markets will be based on, among other things, product efficacy, safety,
reliability, availability and price.
Dura directly competes with at least 25 other companies in the U.S. which are
currently engaged in developing, marketing and selling respiratory
pharmaceuticals. Additionally, there are at least 10 companies currently
involved in development, marketing or sales of dry powder pulmonary drug
delivery systems. There are two types of dry powder inhalers ("DPIs") currently
in commercial use worldwide. In the U.S., only individual dose DPIs are
marketed, including the Rotohaler (developed and marketed by Glaxo Wellcome,
Inc.) and the Spinhaler (developed and marketed by Fisons Limited ). The
Turbuhaler (developed and marketed by Astra Pharmaceuticals ), a multiple dose
DPI and the leading DPI in worldwide sales, is considered the current industry
standard. It is not yet marketed in the U.S., although the U.S. Food and Drug
Administration ("FDA") has issued an approvable letter for the first Turbuhaler
product.
Dependence on Third Parties; Limited Manufacturing Experience. The Company's
strategy for development and commercialization of certain of its products is
dependent upon entering into various arrangements with corporate partners,
licensors and others and upon the subsequent success of these partners,
licensors and others in performing their obligations. There can be no assurance
that the Company will be able to negotiate acceptable arrangements in the future
or that such arrangements, or its existing arrangements, will be successful. In
addition, partners, licensors and others may pursue alternative technologies or
develop alternative compounds or drug delivery systems either on their own or in
collaboration with others, including the Company's competitors. The Company has
limited experience manufacturing products for commercial purposes and currently
does not have the capability to manufacture its pharmaceutical products and
therefore is dependent on contract manufacturers for the production of such
products for development and commercial purposes. The manufacture of the
Company's products is subject to current Good Manufacturing Practice ("cGMP")
regulations prescribed by the FDA. The Company relies on a single manufacturer
for each of its products. In the event that the Company is unable to obtain or
retain third-party manufacturing, it may not be able to commercialize its
products as planned. There can be no assurance that the Company will be able to
continue to obtain adequate supplies of such products in a timely fashion at
acceptable quality and prices. Also, there can be no assurance that the Company
will be able to enter into agreements for the manufacture of future products
with manufacturers whose facilities and procedures must comply with cGMP and
other regulatory requirements. The Company's current dependence upon others for
the manufacture of its products may adversely affect future profit margins, if
any, on the sale of those products and the Company's ability to develop and
deliver products on a timely and competitive basis.
In June 1995, the Company completed construction of its manufacturing facility
located in a Company-owned building adjacent to its headquarters. The Company is
currently expanding its facilities to provide additional manufacturing
capabilities. The facility initially is intended to be used to formulate, mill,
blend and manufacture drugs to be used with Spiros, pending regulatory approval.
Equipment purchases and validation are currently scheduled through 1997. The
Company's manufacturing facility must be registered with and licensed by various
regulatory authorities and comply with cGMP requirements prescribed by the FDA
and the state of California. Any failure or significant delay in the validation
of or obtaining a satisfactory regulatory inspection of the new facility could
have a material adverse effect on the Company's ability to manufacture products
in connection with Spiros.
Managing Growth of Business. The Company has recently experienced significant
growth as total revenues increased 80% in fiscal 1994, 58% in fiscal 1995 and
77% in the first nine months of 1996 as compared to prior periods. During fiscal
1995, the Company executed three agreements relating to the acquisition,
in-licensing and co-promotion of products and acquired Health Script. During
1996, the Company commenced a co-promotion of Uni-Dur and executed agreements
relating to the acquisition of the Entex, Ceclor CD and Keftab products. Due to
the Company's emphasis on acquiring and in-licensing respiratory pharmaceutical
products, the Company anticipates that the integration of the recently-acquired
businesses and products, as well as any future acquisitions, will require
significant management attention and expansion of its sales force. The Company's
ability to achieve and maintain profitability is based on management's ability
to manage its changing business effectively.
14
<PAGE> 15
Uncertainty of Profitability; Need for Additional Funds. The Company has
experienced significant operating losses in the past and at September 30, 1996,
the Company's accumulated deficit was approximately $88.8 million. Although the
Company achieved profitability on an annual basis in fiscal 1994 and 1995 (prior
to the charge of approximately $43.8 million in the fourth quarter of 1995 in
connection with the exercise of its option to purchase all of the outstanding
stock of DDSI and its cash contribution to Spiros Corp.), there can be no
assurance that revenue growth or profitability will continue on a quarterly or
annual basis in the future. The acquisition and in-licensing of products, the
expansion of the Company's sales force in response to acquisition and
in-licensing of products, the maintenance of the Company's existing sales force,
the upgrade and expansion of its facilities, continued pricing pressure and the
potential exercise of the Purchase Option or the Albuterol Purchase Option (as
defined below), as well as funds that Dura, at its option, may provide for
Spiros development, both internally and through Spiros Corp., will require the
commitment of substantial capital resources and may also result in significant
losses. Depending upon, among other things, the acquisition and in-licensing
opportunities available to it, the Company may need to raise additional funds
for these purposes. The Company may seek such additional funding through public
and private financings, including equity financings. Adequate funds for these
purposes, whether through financial markets or from other sources, may not be
available when needed or on terms acceptable to the Company. Insufficient funds
may require the Company to delay, scale back or prevent some or all of its
product acquisition and in-licensing programs, the upgrade and expansion of its
facilities, the potential exercise of the Purchase Option and/or the Albuterol
Purchase Option and further development of Spiros. The Company anticipates that
its existing capital resources, together with cash expected to be generated from
operations and bank borrowings should be sufficient to finance its current
operations and working capital requirements through at least November 1997.
Potential Exercise of Purchase Options for Spiros Corp. Callable Common Stock
and Albuterol Product; Dilution. The Company has a contractual relationship
with Spiros Corp. relating to the development of Spiros, pursuant to which
certain rights to Spiros were transferred by the Company and DDSI to Spiros
Corp. Dura has a Purchase Option with respect to all of the currently
outstanding shares of callable common stock of Spiros Corp. If Dura exercises
the Purchase Option, it will be required to make a substantial cash payment or
to issue shares of Common Stock, or both. A payment in cash would reduce Dura's
capital resources. A payment in shares of Common Stock would result in a
decrease in the percentage ownership of Dura's shareholders at that time. The
exercise of the Purchase Option will likely require Dura to record a significant
charge to earnings and may adversely impact future operating results. If Dura
does not exercise the Purchase Option prior to its expiration, the Company's
rights in and to Spiros with respect to certain compounds will be terminated.
Dura also has the option to provide funding for Spiros development in certain
circumstances. Dura believes that the current funds of Spiros Corp. will be
sufficient to fund product development by Spiros Corp. through the first half of
1998. Development of Spiros Corp. products may require significant additional
funds.
As part of the Company's contractual relationship with Spiros Corp., the Company
received an option to purchase certain rights to an albuterol product in a
cassette version of Spiros (the "Albuterol Purchase Option") exercisable at any
time through the earlier of 60 days after FDA approval of such albuterol product
or December 31, 1999. If the Company exercises the Albuterol Purchase Option, it
will be required to make a cash payment of at least $15.0 million which could
have a material adverse effect on its capital resources. The Company may not
have sufficient capital resources to exercise the Albuterol Purchase Option
which may result in the Company's loss of valuable rights. In addition,
continuation of development and commercialization of an albuterol product in a
cassette version of Spiros may require substantial additional expenditures by
Dura. As of the date of this Prospectus, Dura has no plans to provide additional
funding to Spiros Corp. and has not made any determination as to the likelihood
of its exercise of the Purchase Option or the Albuterol Purchase Option.
Government Regulation; No Assurance of FDA Approval. Development, testing,
manufacturing and marketing of the Company's products are subject to extensive
regulation by numerous governmental authorities in the U.S. and other countries.
The process of obtaining FDA approval of pharmaceutical products and drug
delivery systems is costly and time-consuming. Any new pharmaceutical must
undergo rigorous preclinical and clinical testing and an extensive regulatory
approval process mandated by the FDA. Marketing of drug delivery systems also
requires FDA approval, which can be costly and time-consuming to obtain. The
Company will need to obtain regulatory approval for each drug to be delivered
through the use of
15
<PAGE> 16
Spiros. There can be no assurance that the pharmaceutical products currently in
development, or those products acquired or in-licensed by the Company, will be
approved by the FDA. In addition, there can be no assurance that all necessary
clearances will be granted to the Company or its licensors for future products
or that FDA review or actions will not involve delays adversely affecting the
marketing and sale of the Company's products. For both currently marketed and
future products, failure to comply with applicable regulatory requirements can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. In addition, changes in regulations could
have a material adverse effect on the Company.
The FDA is continuing an evaluation of the effectiveness of all drug products
containing ingredients marketed prior to 1962 (the year of enactment of the
"Drug Amendments of 1962" to the Federal Food, Drug, and Cosmetic Act) as part
of its Drug Efficacy Study Implementation ("DESI") program and will determine
which drugs are considered "new drugs" requiring approval through a New Drug
Application ("NDA") for marketing. A policy guide issued by the FDA indicates
that the FDA will implement procedures to determine whether the new drug
provisions are applicable to existing products. If a final determination is made
that a particular drug requires an approved NDA, such approval will be required
for marketing to continue. If such a determination is made, the FDA might impose
various requirements; for example, it might require that the current product be
the subject of an approved NDA, that the product be reformulated and an NDA
approval be obtained, that the product must be sold on an over-the-counter basis
rather than as a prescription drug or that the product must be removed from the
market. There can be no assurance as to which of these courses the FDA will
require, if any, with respect to most of the Company's pharmaceutical products
or whether the Company will be able to obtain any approvals that the FDA may
deem necessary. If any of these actions are taken by the FDA, such actions could
have a material adverse effect on the Company's business. In addition, the
Company's Tornalate Metered Dose Inhaler uses chlorofluorocarbon ("CFC")
propellants. If CFCs are banned for use in the Tornalate Metered Dose Inhaler,
then the Company will not be able to market that product for sale, which could
have a material adverse effect on the Company. Health Script is subject to
regulation by state regulatory authorities, principally state boards of
pharmacy. In addition, Health Script is subject to regulation by other state and
federal agencies with respect to reimbursement for prescription drug benefits
provided to individuals covered primarily by publicly-funded programs.
Patents and Proprietary Rights. The Company's success will depend in part on
its ability to obtain patents on current or future products or formulations,
defend its patents, maintain trade secrets and operate without infringing upon
the proprietary rights of others, both in the U.S. and abroad. However, only
four of the pharmaceuticals currently marketed by the Company are covered by
patents. The Company also has licenses or license rights to certain other U.S.
and foreign patent and patent applications. There can be no assurance that
patents, U.S. or foreign, will be obtained, or that, if issued or licensed to
the Company, they will be enforceable or will provide substantial protection
from competition or be of commercial benefit to the Company or that the Company
will possess the financial resources necessary to enforce or defend any of its
patent rights. Federal court decisions establishing legal standards for
determining the validity and scope of patents in the field are in transition.
For example, in a currently pending case, the U.S. Supreme Court will consider
whether to alter or replace the traditional standard for determining patent
infringement under the doctrine of equivalents. There can be no assurance that
the historical legal standards surrounding questions of validity and scope will
continue to be applied or that current defenses as to issued patents in the
field will offer protection in the future. The commercial success of the Company
will also depend upon avoiding the infringement of patents issued to competitors
and upon maintaining the technology licenses upon which certain of the Company's
current products are, or any future products under development might be, based.
Litigation, which could result in substantial cost to the Company, may be
necessary to enforce the Company's patent and license rights or to determine the
scope and validity of the proprietary rights of third parties. If any of the
Company's products are found to infringe upon patents or other rights owned by
third parties, the Company could be required to obtain a license to continue to
manufacture or market such products. There can be no assurance that licenses to
such patent rights would be made available to the Company on commercially
reasonable terms, if at all. If the Company does not obtain such licenses, it
could encounter delays in marketing affected products while it attempts to
design around such patents or it could find that the
16
<PAGE> 17
development, manufacture or sale of products requiring such licenses are not
possible. The Company currently has certain licenses from third parties and in
the future may require additional licenses from other parties to develop,
manufacture and market commercially viable products effectively. There can be no
assurance that such licenses will be obtainable on commercially reasonable
terms, if at all, or that the patents underlying such licenses will be valid and
enforceable.
Product Liability and Recall. The Company faces an inherent business risk
of exposure to product liability claims in the event that the use of its
technologies or products is alleged to have resulted in adverse effects. Such
risks will exist even with respect to those products that receive regulatory
approval for commercial sale. While the Company has taken, and will continue to
take, what it believes are appropriate precautions, there can be no assurance
that it will avoid significant product liability exposure. The Company currently
has product liability insurance; however, there can be no assurance that the
level or breadth of any insurance coverage will be sufficient to fully cover
potential claims. There can be no assurance that adequate insurance coverage
will be available in the future at acceptable costs, if at all, or that a
product liability claim or recall would not materially and adversely affect the
business or financial condition of the Company.
Attraction and Retention of Key Personnel. The Company is highly dependent
on the principal members of its management staff, the loss of whose services
might impede the achievement of development objectives. Although the Company
believes that it is adequately staffed in key positions and that it will be
successful in retaining skilled and experienced management, operational and
scientific personnel, there can be no assurance that the Company will be able to
attract and retain such personnel on acceptable terms. The loss of the services
of key scientific, technical and management personnel could have a material
adverse effect on the Company, especially in light of the Company's recent
significant growth. The Company does not maintain key-person life insurance on
any of its employees.
Volatility of the Company Stock Price. The market prices for securities of
emerging companies, including the Company, have historically been highly
volatile. Future announcements concerning the Company or its competitors may
have a significant impact on the market price of the Common Stock. Such
announcements might include financial results, the results of testing,
technological innovations, new commercial products, changes to government
regulations, government decisions on commercialization of products, developments
concerning proprietary rights, litigation or public concern as to safety of the
Company's products.
Absence of Dividends. The Company has never paid any cash dividends on its
Common Stock. In accordance with certain bank loan agreements, the Company is
restricted from paying cash dividends without prior bank approval. The Company
currently anticipates that it will retain all available funds for use in its
business and does not expect to pay any cash dividends in the foreseeable
future.
Change in Control. Certain provisions of the Company's charter documents
(including cumulative voting provisions for electing directors, provisions
providing for two classes of directors serving staggered two-year terms and
provisions permitting the Company to issue preferred stock in the future) and
terms relating to the acceleration of the exercisability of certain warrants and
options relating to the purchase of such securities by the Company in the event
of a change in control may have the effect of delaying, deferring or preventing
a change in control of the Company, thereby possibly depriving shareholders of
receiving a premium for their shares of the Common Stock.
Proposition 211. A pending initiative on the November 1996 California ballot
would, if passed by voters and upheld against potential court challenges,
subject corporations and their directors and officers to increased risk of suit
and may prohibit corporations from indemnifying officers and directors and
expose directors and officers of corporations to increased risk of personal
liability. Proposition 211, if passed and upheld, could increase litigation
expenses and the cost of related insurance and adversely affect the financial
position and results of operations of Dura. In addition, the increased risk of
personal liability could interfere with the ability of Dura to attract and
retain directors and officers, which could adversely affect the Company's
competitive position.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
+ 10.1 Licensing Agreement
10.2 Indemnification Agreement (Directors)
10.3 Indemnification Agreement (Officers)
11 Statements re: Computations of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
On July 17, 1996 the Company filed a Current Report on Form 8-K
dated July 3, 1996 providing the required financial statements
and pro forma financial information in connection with its
acquisition of Entex product rights from Procter & Gamble
Pharmaceuticals, Inc.
On September 19, 1996 the Company filed a Current Report on Form
8-K dated September 5, 1996 providing the required financial
statements and pro forma financial information in connection with
its acquisition of Keftab(R) and Ceclor(R) CD from Eli Lilly and
Company.
+ Incorporated by reference to the Company's Current Report on
Form 8-K filed on September 19, 1996.
18
<PAGE> 19
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.
DURA PHARMACEUTICALS, INC.
--------------------------
(REGISTRANT)
SIGNATURES TITLE DATE
---------- ----- ----
/S/ CAM L. GARNER Chairman, President and October 16, 1996
- ------------------------ Chief Executive Officer ----------------
(CAM L. GARNER) (Principal Executive Officer)
/S/ JAMES W. NEWMAN Senior Vice President, October 16, 1996
- ------------------------ Finance & Administration, ----------------
(JAMES W. NEWMAN) Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
<PAGE> 20
DURA PHARMACEUTICALS, INC.
FORM 10-Q
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
+10.1 Licensing Agreement dated August 21, 1996 between the Company
and Eli Lilly and Company
10.2 Indemnification Agreement (Directors)
10.3 Indemnification Agreement (Officers)
11 Statements re: Computations of Net Income Per Share
27 Financial Data Schedule
+Incorporated by reference to the Company's Current Report on Form 8-K, filed on
September 19, 1996.
<PAGE> 1
Exhibit 10.2
INDEMNIFICATION AGREEMENT
(Directors)
THIS AGREEMENT is made and entered into this 26th day of August, 1996,
between Dura Pharmaceuticals, Inc., a California corporation ("Corporation"),
and ___________________ ("Director").
RECITALS
WHEREAS, Director, a member of the Board of Directors of Corporation,
performs a valuable service in such capacity for Corporation; and
WHEREAS, the Articles of Incorporation of Corporation authorize and
permit contracts between Corporation and the members of its Board of Directors
with respect to indemnification of such directors; and
WHEREAS, by its terms the California General Corporation Law currently
purports to be the controlling law governing the Corporation with respect to
certain aspects of corporate law, including indemnification of directors and
officers; and
WHEREAS, in accordance with the authorization provided by the
California General Corporation Law, as amended ("Code"), Corporation may
purchase and maintain a policy or policies of Directors and Officers Liability
Insurance ("D & 0 Insurance"), covering certain liabilities which may be
incurred by its directors and officers in the performance of services as
directors and officers of Corporation; and
WHEREAS, as a result of recent developments affecting the terms, scope
and availability of D & 0 insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded members of the Board of
Directors by such D & 0 Insurance, if any, and by statutory and bylaw
indemnification provisions; and
WHEREAS, in order to induce Director to continue to serve as a Member
of the Board of Directors of Corporation, Corporation has determined and agreed
to enter into this contract with Director;
AGREEMENT
NOW, THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Director. Corporation hereby agrees to hold harmless
and indemnify Director to the fullest extent authorized by the provisions of the
Code, as it may be amended from time to time.
<PAGE> 2
2. Additional Indemnity. Subject only to the limitations set forth in
Section 3 hereof, Corporation hereby further agrees to hold harmless and
indemnify Director:
(a) against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Director in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of Corporation) to which Director is,
was or at any time becomes a party, or is threatened to be made a party, by
reason of the fact that Director is, was or at any time becomes a director,
officer, employee or agent of Corporation, or is or was serving at any time
serves at the request of Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise;
and
(b) otherwise to the fullest extent as may be provided to Director
by Corporation under THE indemnification non-exclusivity provision of the
Articles of Incorporation of Corporation and the Code.
3. Limitations on Additional Indemnity.
(a) No indemnity pursuant to Section 2 hereof shall be paid by
Corporation for any of the following:
(i) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which Director is indemnified
pursuant to Section 1 hereof or pursuant to any D & 0 Insurance purchased and
maintained by Corporation;
(ii) IN RESPECT TO REMUNERATION PAID TO DIRECTOR IF IT SHALL BE
DETERMINED BY A FINAL JUDGMENT OR OTHER FINAL ADJUDICATION THAT SOME
REMUNERATION WAS IN VIOLATION OF LAW;
(iii) ON ACCOUNT OF ANY SUIT IN WHICH JUDGMENT IS RENDERED AGAINST
DIRECTOR FOR AN ACCOUNTING OF PROFITS MADE FROM THE PURCHASE OR SALE BY DIRECTOR
OF SECURITIES OF CORPORATION PURSUANT TO THE PROVISIONS OF SECTION 16(b) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND AMENDMENTS THERETO OR SIMILAR PROVISIONS OF
ANY FEDERAL, STATE OR LOCAL STATUTORY LAW;
(vi) on account of Director's acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law;
(v) on account of or arising in response to any action, suit or
proceeding (other than an action, suit or proceeding referred to in Section 8(b)
hereof) initiated by Director or any of Director's affiliates against
Corporation or against any officer, director or shareholder of Corporation
unless proceeding was authorized by the board of directors of Corporation;
(vi) if a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful; or
<PAGE> 3
(vii) on account of any action, suit or proceeding to the extent
that Director is a plaintiff, a counter-complainant or a cross-complainant
therein (other than an action, suite or proceeding permitted by Section 3(a)(v)
hereof).
(b) In addition to those limitations set forth above in paragraph (a)
of this Section 3, no indemnity pursuant to Section 2 hereof in an action by or
in the right of Corporation shall be paid by Corporation for any of the
following:
(i) on account of acts or omissions that Director believes to be
contrary to the best interests of Corporation or its shareholders or that
involve the absence of good faith on the part of Director;
(ii) with respect to any transaction from which Director derived
an improper personal benefit;
(iii) on account of acts or omissions that show a reckless
disregard for Director's duty to Corporation or its shareholders in
circumstances in which Director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to Corporation or its shareholders;
(iv) on account of acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of Director's duty to
Corporation or its shareholders;
(v) to the extent prohibited by Section 310 of the California
Corporations Code, "Contracts in which director has material financial
interest;"
(vi) to the extent prohibited by Section 316 of the California
Corporations Code, "Corporation actions subjecting directors to joint and
several liability;"
(vii) in respect of any claim, issue or matter as to which Director
shall have been adjudged to be liable to Corporation in the performance of
Director's duty to Corporation and its shareholders, unless and only to the
extent that the court in which such proceeding is or was pending shall determine
upon application that, in view of all the circumstances of the case, Director is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine;
(viii) of amounts paid in settling or otherwise disposing of a
pending action without court approval; and
(ix) of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
<PAGE> 4
4. Contribution. If the indemnification provided in Sections 1 and 2
is unavailable and may not be paid to Director for any reason other than those
set forth in Section 3 (excluding subsections 3(b) (viii) and (ix)), then in
respect of any threatened, pending or completed action, suit or proceeding in
which Corporation is or is alleged to be jointly liable with Director (or would
be if joined in such action, suit or proceeding), Corporation shall contribute
to the amount of expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred and paid or payable
by Director in such proportion as is appropriate to reflect (i) the relative
benefits received by Corporation on the one hand and Director on the other hand
from the transaction from which such action, suit or proceeding arose, and (ii)
to relative fault of Corporation on the one hand and of Director on the other in
connection with the events which resulted in such expenses, judgments, fines or
settlement amounts, as well as any other relevant equitable considerations. The
relative fault of Corporation on the one hand and of Director on the other shall
be determined by reference to, among other things, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent the
circumstances resulting in such expenses, judgments, fines or settlement
amounts. Corporation agrees that it would not be just and equitable if
contribution pursuant to this Section 4 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.
5. Continuation of Obligations. All agreements and obligations of
Corporation contained herein shall continue during the period Director is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as Director shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Director was serving
Corporation or any such other entity in any capacity referred to herein.
6. Notification and Defense of Claim. Promptly after receipt by
Director of notice of the commencement of any action, suit or proceeding,
Director will, if a claim in respect thereof is to be made against Corporation
under this Agreement, notify Corporation of the commencement thereof; but the
omission so to notify Corporation will not relieve it from any liability which
it may have to Director otherwise, than under this Agreement. With respect to
any such action, suit or proceeding as to which Director notifies Corporation of
the commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may wish,
Corporation jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel satisfactory to Director.
After notice from Corporation to Director of its election so as to assume the
defense thereof, Corporation will not be liable to Director under this Agreement
for any legal or other expenses subsequently incurred by Director in connection
with the defense thereof other than reasonable costs of investigation or as
otherwise provided below. Director shall have the right to employ its counsel in
such action, suit or proceeding, but the fees and expenses of such counsel
incurred after notice from Corporation of its assumption of the
<PAGE> 5
defense thereof shall be at the expense of Director unless (i) the employment of
counsel by Director has been authorized by Corporation, (ii) Director shall have
reasonably concluded that there may be a conflict of interest between
Corporation and Director in the conduct of the defense of such action or (iii)
Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of counsel shall be at
the expense of Corporation. Corporation shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of Corporation
or as to which Director shall have made the conclusion provided for in (ii)
above; and
(c) Corporation shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. Corporation shall not settle any action or claim in
any manner which would impose any penalty or limitation on Director without
Director's written consent. Neither Corporation nor Director will unreasonably
withhold its consent to any proposed settlement.
7. Advancement and Repayment of Expenses.
(a) In the event that Director employs his own counsel pursuant to
Section (b)(i) through (iii) above, Corporation shall advance to Director, prior
to any final disposition of any threatened or pending action, suit or
proceeding, whether civil, criminal, administrative or investigative, any and
all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Director for such expenses;
provided, however, Corporation shall not be required to advance such expenses to
Director in connection with any action, suit or proceeding brought by
Corporation and approved by a majority of the Board of Directors which alleges
willful misappropriation of corporate assets by Director, disclosure of
confidential information in violation of Director's fiduciary or contractual
obligations to Corporation, or any other willful and deliberate breach in bad
faith of Director's duty to Corporation or its sharholders.
(b) Director agrees that Director will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Director in the event and only to the extent
it shall be ultimately determined by a final judicial decision (from which there
is no right of appeal) that Director is not entitled, under applicable law, the
Bylaws, this Agreement and otherwise, to be indemnified by Corporation for such
expenses.
8. Enforcement.
(a) Corporation expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Director to continue as a director of Corporation, and
acknowledges that Director is relying upon this Agreement in continuing in such
capacity.
<PAGE> 6
(b) In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, Corporation shall reimburse Director for all of Director's reasonable
attorneys' fees and expenses in bringing and pursuing such action.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable to any extent for
any reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, and the affected provision shall
be construed and enforced so as to effectuate the parties' intent to the maximum
extent possible.
10. Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of California.
11. Binding Effect. This Agreement shall be binding upon Director and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Director, his or her heirs, personal representatives and assigns and to the
benefit of Corporation, its successors and assigns.
12. Amendment and Termination. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
13. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
14. Non-Exclusivity of Rights. The rights conferred on Director by this
Agreement shall not be exclusive of any other right which Director may have or
hereafter acquire under any statute, provision of Corporation's Articles of
Incorporation or Bylaws, agreement vote of shareholders or directors, or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding office.
15. Survival of Rights. The rights conferred on Director by this
Agreement shall continue after Director has ceased to be a director, officer,
employee or other agent of Corporaton and shall inure to the benefit of
Director's heirs, executors and administrators.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
DIRECTOR: CORPORATION:
DURA PHARMACEUTICALS, INC.
By:
- ---------------------------- -------------------------------------
(Signature) (Signature)
Cam L. Garner, Chairman, President & CEO
- ---------------------------- ----------------------------------------
Printed Name Printed Name and Title
<PAGE> 1
Exhibit 10.3
INDEMNIFICATION AGREEMENT
(Officers)
THIS AGREEMENT is made and entered into this 26th day of August, 1996,
between Dura Pharmaceuticals, Inc., a California corporation ("Corporation"),
and ________________________ ("Officer").
RECITALS
WHEREAS, Officer is ___________________ of Corporation and performs a
valuable service in such capacity for Corporation; and
WHEREAS, the Articles of Incorporation of Corporation authorize and
permit contracts between Corporation and its officers with respect to
indemnification of such officers; and
WHEREAS, by its terms the California General Corporation Law currently
purports to be the controlling law governing the Corporation with respect to
certain aspects of corporate law, including indemnification of directors and
officers; and
WHEREAS, in accordance with the authorization provided by the
California General Corporation Law, as amended ("Code"), Corporation may
purchase and maintain a policy or policies of Directors and Officers Liability
Insurance ("D & 0 Insurance"), covering certain liabilities which may be
incurred by its directors and officers in the performance of services as
directors and officers of Corporation; and
WHEREAS, as a result of recent developments affecting the terms, scope
and availability of D & 0 insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded its officers by such D &
0 Insurance, if any, and by statutory and bylaw indemnification provisions; and
WHEREAS, in order to induce Officer to continue to serve in such
capacity for Corporation, Corporation has determined and agreed to enter into
this contract with Officer;
AGREEMENT
NOW, THEREFORE, in consideration of Officer's continued service as a
officer after the date hereof, the parties hereto agree as follows:
1. Indemnity of Officer. Corporation hereby agrees to hold harmless and
indemnify Officer to the fullest extent authorized by the provisions of the
Code, as it may be amended from time to time.
<PAGE> 2
2. Additional Indemnity. Subject only to the limitations set forth in
Section 3 hereof, Corporation hereby further agrees to hold harmless and
indemnify Officer:
(a) against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Officer in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of Corporation) to which Officer is, was
or at any time becomes a party, or is threatened to be made a party, by reason
of the fact that Officer is, was or at any time becomes a director, officer,
employee or agent of Corporation, or is or was serving at any time serves at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Officer
by Corporation under the indemnification non-exclusivity provision of the
Articles of Incorporation of Corporation and the Code.
3. Limitations on Additional Indemnity.
(a) No indemnity pursuant to Section 2 hereof shall be paid by
Corporation for any of the following:
(i) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which Officer is
indemnified pursuant to Section 1 hereof or pursuant to any D & 0 Insurance
purchased and maintained by Corporation;
(ii) in respect to remuneration paid to Officer if it shall be
determined by a final judgment or other final adjudication that some
remuneration was in violation of law;
(iii) on account of any suit in which judgment is rendered against
Officer for an accounting of profits made from the purchase or sale by Officer
of securities of Corporation pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law;
(vi) on account of Officer's acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law;
(v) on account of or arising in response to any action, suit or
proceeding (other than an action, suit or proceeding referred to in Section 8(b)
hereof) initiated by Officer or any of Officer's affiliates against Corporation
or against any officer, director or shareholder of Corporation unless proceeding
was authorized by the board of directors of Corporation;
(vi) if a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful; or
<PAGE> 3
(vii) on account of any action, suit or proceeding to the extent
that Officer is a plaintiff, a counter-complainant or a cross-complainant
therein (other than an action, suite or proceeding permitted by Section 3(a)(v)
hereof).
(b) In addition to those limitations set forth above in paragraph (a)
of this Section 3, no indemnity pursuant to Section 2 hereof in an action by or
in the right of Corporation shall be paid by Corporation for any of the
following:
(i) on account of acts or omissions that Officer believes to be
contrary to the best interests of Corporation or its shareholders or that
involve the absence of good faith on the part of Officer;
(ii) with respect to any transaction from which Officer derived an
improper personal benefit;
(iii) on account of acts or omissions that show a reckless disregard
for Officer's duty to Corporation or its shareholders in circumstances in which
Officer was aware, or should have been aware, in the ordinary course of
performing an officer's duties, of a risk of serious injury to Corporation or
its shareholders;
(iv) on account of acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of Officer's duty to
Corporation or its shareholders;
(v) in respect of any claim, issue or matter as to which Officer
shall have been adjudged to be liable to Corporation in the performance of
Officer's duty to Corporation and its shareholders, unless and only to the
extent that the court in which such proceeding is or was pending shall determine
upon application that, in view of all the circumstances of the case, Officer is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine;
(vi) of amounts paid in settling or otherwise disposing of a
pending action without court approval; and
(vii) of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
4. Contribution. If the indemnification provided in Sections 1 and 2 is
unavailable and may not be paid to Officer for any reason other than those set
forth in Section 3 (excluding subsections 3(b) (vi) and (vii)), then in respect
of any threatened, pending or completed action, suit or proceeding in which
Corporation is or is alleged to be jointly liable with Officer (or would be if
joined in such action, suit or proceeding), Corporation shall contribute to the
amount of expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred and paid or payable by
Officer in such proportion as is appropriate to reflect (i) the relative
benefits received by Corporation on the one hand and Officer on the other
<PAGE> 4
hand from the transaction from which such action, suit or proceeding arose, and
(ii) to relative fault of Corporation on the one hand and of Officer on the
other in connection with the events which resulted in such expenses, judgments,
fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of Corporation on the one hand and of Officer
on the other shall be determined by reference to, among other things, the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent the circumstances resulting in such expenses, judgments,
fines or settlement amounts. Corporation agrees that it would not be just and
equitable if contribution pursuant to this Section 4 were determined by pro rata
allocation or any other method of allocation which does not take account of the
foregoing equitable considerations.
5. Continuation of Obligations. All agreements and obligations of
Corporation contained herein shall continue during the period Officer is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as Officer shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Officer was serving
Corporation or any such other entity in any capacity referred to herein.
6. Notification and Defense of Claim. Promptly after receipt by
Officer of notice of the commencement of any action, suit or proceeding, Officer
will, if a claim in respect thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement thereof; but the omission so
to notify Corporation will not relieve it from any liability which it may have
to Officer otherwise, than under this Agreement. With respect to any such
action, suit or proceeding as to which Officer notifies Corporation of the
commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may wish,
Corporation jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel satisfactory to Officer.
After notice from Corporation to Officer of its election so as to assume the
defense thereof, Corporation will not be liable to Officer under this Agreement
for any legal or other expenses subsequently incurred by Officer in connection
with the defense thereof other than reasonable costs of investigation or as
otherwise provided below. Officer shall have the right to employ its counsel in
such action, suit or proceeding, but the fees and expenses of such counsel
incurred after notice from Corporation of its assumption of the defense thereof
shall be at the expense of Officer unless (i) the employment of counsel by
Officer has been authorized by Corporation, (ii) Officer shall have reasonably
concluded that there may be a conflict of interest between Corporation and
Officer in the conduct of the defense of such action or (iii) Corporation shall
not in fact have employed counsel to assume the defense of such action, in each
of which cases the fees and expenses of counsel shall be at the expense of
Corporation. Corporation shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of Corporation or as to which
Officer shall have made the conclusion provided for in (ii) above; and
<PAGE> 5
(c) Corporation shall not be liable to indemnify Officer under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. Corporation shall not settle any action or claim in
any manner which would impose any penalty or limitation on Officer without
Officer's written consent. Neither Corporation nor Officer will unreasonably
withhold its consent to any proposed settlement.
7. Advancement and Repayment of Expenses.
(a) In the event that Officer employs his own counsel pursuant to
Section (b)(i) through (iii) above, Corporation shall advance to Officer, prior
to any final disposition of any threatened or pending action, suit or
proceeding, whether civil, criminal, administrative or investigative, any and
all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Officer for such expenses;
provided, however, Corporation shall not be required to advance such expenses to
Officer in connection with any action, suit or proceeding brought by Corporation
and approved by a majority of the Board of Directors which alleges willful
misappropriation of corporate assets by Officer, disclosure of confidential
information in violation of Officer's fiduciary or contractual obligations to
Corporation, or any other willful and deliberate breach in bad faith of
Officer's duty to Corporation or its sharholders.
(b) Officer agrees that Officer will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Officer in the event and only to the extent
it shall be ultimately determined by a final judicial decision (from which there
is no right of appeal) that Officer is not entitled, under applicable law, the
Bylaws, this Agreement and otherwise, to be indemnified by Corporation for such
expenses.
8. Enforcement.
(a) Corporation expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Officer to continue as an officer of Corporation, and
acknowledges that Officer is relying upon this Agreement in continuing in such
capacity.
(b) In the event Officer is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, Corporation shall reimburse Officer for all of Officer's reasonable
attorneys' fees and expenses in bringing and pursuing such action.
9. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable to any extent for
any reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof, and the affected provision shall
be construed and enforced so as to effectuate the parties' intent to the maximum
extent possible.
<PAGE> 6
10. Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of California.
11. Binding Effect. This Agreement shall be binding upon Officer and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Officer, his or her heirs, personal representatives and assigns and to the
benefit of Corporation, its successors and assigns.
12. Amendment and Termination. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
13. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Officer, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
14. Non-Exclusivity of Rights. The rights conferred on Officer by this
Agreement shall not be exclusive of any other right which Officer may have or
hereafter acquire under any statute, provision of Corporation's Articles of
Incorporation or Bylaws, agreement vote of shareholders or directors, or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding office.
15. Survival of Rights. The rights conferred on Officer by this
Agreement shall continue after Officer has ceased to be a director, officer,
employee or other agent of Corporaton and shall inure to the benefit of
Officer's heirs, executors and administrators.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
OFFICER: CORPORATION:
DURA PHARMACEUTICALS, INC.
By:
- --------------------------- -------------------------------------
(Signature) (Signature)
Cam L. Garner, Chairman, President & CEO
- --------------------------- ----------------------------------------
Printed Name Printed Name and Title
<PAGE> 1
EXHIBIT 11
DURA PHARMACEUTICALS, INC.
STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE
IN THOUSANDS, EXCEPT PER SHARE DATA (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1995 1996 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER
SHARE
NET INCOME $ 1,767 $ 5,806 $ 4,435 $14,471
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
Common stock 23,816 37,543 21,938 34,258
Stock options 2,172 1,725 2,028 1,785
Warrants 4,126 2,998 3,358 2,847
------- ------- ------- -------
Total 30,114 42,266 27,324 38,890
======= ======= ======= =======
NET INCOME PER SHARE $ 0.06 $ 0.14 $ 0.16 $ 0.37
======= ======= ======= =======
FULLY DILUTED NET INCOME
PER SHARE:
NET INCOME $ 1,767 $ 5,806 $ 4,435 $14,471
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
OF COMMON AND COMMON
EQUIVALENT SHARES ASSUMING
ISSUANCE OF ALL DILUTIVE
CONTINGENT SHARES:
Common stock 23,814 37,543 21,938 34,258
Stock options 2,317 1,842 2,446 1,987
Warrants 4,419 3,312 4,266 3,412
------- ------- ------- -------
Total 30,550 42,697 28,650 39,657
======= ======= ======= =======
NET INCOME PER SHARE $ 0.06 $ 0.14 $ 0.15 $ 0.36
======= ======= ======= =======
</TABLE>
(1) The per share data and weighted average number of common and common
equivalents shares have been adjusted to reflect the 100% stock dividend
effective July 1, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996, AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996, AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 33,849
<SECURITIES> 53,389
<RECEIVABLES> 15,523
<ALLOWANCES> 0
<INVENTORY> 7,743
<CURRENT-ASSETS> 111,423
<PP&E> 22,907
<DEPRECIATION> (2,283)
<TOTAL-ASSETS> 334,556
<CURRENT-LIABILITIES> 44,872
<BONDS> 0
0
0
<COMMON> 371,406
<OTHER-SE> (92,050)
<TOTAL-LIABILITY-AND-EQUITY> 334,556
<SALES> 45,900
<TOTAL-REVENUES> 63,307
<CGS> 12,553
<TOTAL-COSTS> 38,581
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,060)
<INCOME-PRETAX> 16,233
<INCOME-TAX> 1,762
<INCOME-CONTINUING> 14,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,471
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.36
</TABLE>
