<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-20063
THERATECH, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 87-0420511
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
417 WAKARA WAY, SALT LAKE CITY, UTAH 84108
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 588-6200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
-------- --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of: OCTOBER 31,
1996 -----------
- ----
Classes of Common Stock Number of shares outstanding
- --------------------------------------- -----------------------------------
COMMON STOCK, $0.01 PAR VALUE 20,533,545
Page 1 of 12
<PAGE> 2
THERATECH, INC.
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INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
-------------------- ----
<S> <C>
Condensed Consolidated Statements of Operations
Three months ended September 30, 1996 and 1995, and nine months ended September 30, 1996 and 1995 .............. 3
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 ....................................................................... 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995 .................................................................. 5
Notes to Condensed Consolidated Financial Statements ........................................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................................................................. 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................................................................... 11
</TABLE>
Page 2 of 12
<PAGE> 3
THERATECH, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1996 1995 1996 1995
----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues:
<S> <C> <C> <C> <C>
Research and development $ 4,644,650 $ 995,031 $13,413,503 $ 8,338,647
Product sales 2,532,367 -- 7,144,977 --
Licensing 1,075,000 2,100,000 2,060,000 2,715,000
Interest and other 333,797 329,097 1,142,186 1,156,101
----------- ------------ ----------- ------------
Total revenues 8,585,814 3,424,128 23,760,666 12,209,748
Costs and expenses:
Research and development 4,051,635 4,089,654 12,269,148 13,701,498
Cost of products sold 1,639,149 -- 5,740,323 --
General and administrative 1,209,068 1,887,401 3,682,739 5,046,872
Interest and other 260,377 250,342 849,299 701,773
----------- ------------ ----------- ------------
Total costs and expenses 7,160,229 6,227,397 22,541,509 19,450,143
----------- ------------ ----------- ------------
Net income (loss) $ 1,425,585 $ (2,803,269) $ 1,219,157 $ (7,240,395)
=========== ============ =========== ============
Net income (loss) per share $ 0.07 $ (0.14) $ 0.06 $ (0.37)
=========== ============ =========== ============
Shares used in calculation
of net income (loss) per share 21,593,435 19,848,910 21,688,750 19,738,281
=========== ============ =========== ============
</TABLE>
See accompanying notes.
Page 3 of 12
<PAGE> 4
THERATECH, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995 (1)
------------ -----------
(UNAUDITED)
Current assets:
<S> <C> <C>
Cash, cash equivalents and short-term investments (2) $ 21,073,344 $18,718,985
Contracts and accounts receivable 1,257,716 2,157,559
Inventories 2,775,362 2,418,516
Prepaid expenses 205,468 147,860
------------ ------------
Total current assets 25,311,890 23,442,920
Investments in long-term securities (2) 2,083,456 6,379,122
Plant and equipment:
Plant 9,301,171 9,291,313
Equipment 10,402,374 9,253,425
Leasehold improvements 982,882 918,484
Construction in progress 4,646,732 2,366,678
------------ ------------
25,333,159 21,829,900
Less accumulated depreciation and amortization (5,174,527) (3,666,441)
------------ ------------
Net plant and equipment 20,158,632 18,163,459
Other assets 2,982,036 2,850,553
------------ ------------
Total assets $ 50,536,014 $ 50,836,054
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,513,211 $ 4,432,665
Current portion of notes payable and capital lease obligations 1,877,527 2,047,124
Unearned revenue 3,114,888 2,432,822
------------ ------------
Total current liabilities 7,505,626 8,912,611
Notes payable and capital lease obligations, less current portion 9,039,043 10,319,993
Unearned revenue 1,212,000 1,212,000
Commitments
Stockholders' equity:
Common stock 203,645 200,077
Additional paid-in capital 68,685,755 67,509,149
Unrealized gain on investments held as available-for-sale 150,029 79,941
Accumulated deficit (36,066,915) (37,286,072)
Cumulative translation adjustment (193,169) (111,645)
------------ ------------
Total stockholders' equity 32,779,345 30,391,450
------------ ------------
Total liabilities and stockholders' equity $ 50,536,014 $ 50,836,054
============ ============
</TABLE>
See accompanying notes.
- -----------
(1) Derived from audited financial statements.
(2) TheraTech's total cash position as of September 30, 1996 and December 31,
1995 was $23,156,800 and $25,098,107, respectively, which includes cash,
cash equivalents, and short- and long-term investments.
Page 4 of 12
<PAGE> 5
THERATECH, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1996 1995
------------ -------------
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 1,219,157 $ (7,240,395)
Adjustments to reconcile net income (loss) to net cash and cash equivalents
provided by (used in) operating activities:
Depreciation and amortization 1,753,281 996,584
Compensation expense related to the grant of stock options 955 20,915
Changes in operating assets and liabilities:
Contracts and accounts receivable 899,844 (3,539,279)
Inventories (356,846) (3,269,151)
Prepaid expenses 239,874 (82,186)
Accounts payable and accrued liabilities (1,919,455) (715,616)
Unearned revenue 682,066 3,514,477
------------ ------------
Net cash provided by (used in) operating activities 2,518,876 (10,314,651)
INVESTING ACTIVITIES:
Decrease (increase) in investments, net (384,459) 933,953
Purchase of plant and equipment (3,766,120) (3,171,070)
Other assets (156,606) (111,449)
------------ ------------
Net cash used in investing activities (4,307,185) (2,348,566)
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and capital lease obligations 300,000 3,955,460
Proceeds from issuance of common stock 1,179,219 710,514
Payments of notes payable and capital lease obligations (2,005,240) (1,141,367)
------------ ------------
Net cash provided by (used in) financing activities (526,021) 3,524,607
Effect of exchange-rate changes on cash and cash equivalents (81,524) (110,417)
------------ ------------
Net decrease in cash and cash equivalents (2,395,854) (9,249,027)
Cash and cash equivalents at beginning of period 14,554,352 17,690,459
------------ ------------
Cash and cash equivalents at end of period 12,158,498 8,441,432
Short-term investments 8,914,846 3,207,255
------------ ------------
Cash, cash equivalents and short-term investments at end of period $ 21,073,344 $ 11,648,687
============ ============
</TABLE>
See accompanying notes.
Page 5 of 12
<PAGE> 6
THERATECH, INC.
-----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
FINANCIAL STATEMENTS
In the opinion of management, the accompanying condensed consolidated financial
statements contain all normal recurring adjustments necessary to present fairly
the financial position of TheraTech, Inc. ("Company") as of September 30, 1996
and the results of its operations and cash flows for the interim periods ended
September 30, 1996 and 1995. The operating results for the interim periods are
not necessarily indicative of the results for a full year. For further
discussion of the Company's accounting policies, refer to the Company's audited
financial statements for the year ended December 31, 1995.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries Nippon TTI K.K. ("TheraTech Japan")
and Natrapac, Inc. ("Natrapac"). All significant intercompany accounts and
transactions have been eliminated.
INVENTORY
At September 30, 1996, inventory is stated at the lower of cost or market and
consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $ 2,309,734
Work in process 9,209
Finished goods 456,419
-----------
$ 2,775,362
===========
</TABLE>
REVENUES
The Company has entered into various collaborative research and development,
product licensing and marketing agreements with certain pharmaceutical companies
("Collaborative Partners"). These agreements provide for TheraTech to receive
payments in various forms, including licensing fees upon execution of an
agreement, periodic payments in support of TheraTech research and product
development activities and milestone payments upon achievement of certain
technical and regulatory goals. Milestone payments can relate to both research
and development revenues and licensing fees depending on the nature of the
agreement and specified milestones. Research and development revenues and
licensing fees are recognized as earned based on terms in the specific
contracts. Milestone payments are included in revenues in the period in which
the applicable milestone is achieved.
TheraTech has also entered into various product supply agreements to manufacture
products for certain Collaborative Partners. These agreements include provisions
for TheraTech to recognize product sales and unearned revenue at the time
TheraTech ships product to the Collaborative Partner and/or at the time the
Collaborative Partner ships product to its customers. Unearned revenue relates
to advances on future revenues.
COMMITMENTS
TheraTech has entered into a purchase commitment with a sole source supplier for
material used in its manufacturing process. Under this agreement, TheraTech has
agreed to purchase, at a predetermined price, fixed quantities over three years
as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 2,725,000
1997 2,885,000
1998 3,060,000
-------------
$ 8,670,000
=============
</TABLE>
Page 6 of 12
<PAGE> 7
THERATECH, INC.
---------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
STOCK SPLIT
On May 30, 1996, TheraTech announced that its Board of Directors had approved a
3-for-2 split of the Company's common stock. On June 28, 1996, TheraTech
effected the split in the form of a stock dividend. The accompanying financial
statements have been adjusted retroactively for all periods presented to reflect
the split.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since its inception in January 1985, TheraTech has devoted substantially all of
its resources to drug delivery research and development programs. In late
September 1995, TheraTech received marketing clearance from the U.S. Food and
Drug Administration ("FDA") for the Androderm(R) Testosterone Transdermal System
for men, the Company's first commercial product. TheraTech currently receives
its revenues primarily from research and development fees, licensing fees,
milestone payments, and product sales.
The Company has entered into various product development, marketing and
manufacturing agreements with major pharmaceutical companies. These agreements
provide for TheraTech to receive payments in various forms, including periodic
payments for research and product development activities, milestone payments
upon achievement of certain technical and regulatory goals, licensing fees and
revenues from product sales. Product sales generally represent contract payments
or sales to the Company's marketing partners for resale purposes. Accordingly,
product sales do not necessarily reflect the existing or future market demand
for such products. TheraTech may also recognize revenue based on the resale of
its products by certain of its marketing partners. In addition, TheraTech is
independently developing products involving a variety of drug delivery methods.
There can be no assurance, however, with respect to the market acceptance of the
products or the anticipated sales growth of the Company.
The Company's results of operations may vary significantly from quarter to
quarter and depend, among other factors, on the signing of new product
development agreements, the timing of fees and milestone payments made by
Collaborative Partners, the progress of clinical trials, product sales levels
and costs associated with the manufacturing processes. The timing of the
Company's research and development revenues may not match the timing of the
associated expenses. The amount of revenues in any given period is not
necessarily indicative of future revenues.
TheraTech has negotiated marketing agreements for its Testosterone Transdermal
System with several partners covering various countries. These partners and
countries include SmithKline Beecham in the U.S., Canada, Australia, New Zealand
and East and West Europe excluding France, Spain, Portugal and Scandinavia;
Laboratories Fournier S.C.A. ("Fournier") in France and French-speaking Africa;
Compania Espanola de la Penicilina y Antibioticos, S.L. ("CEPA") in Spain;
Produtos Farmaceuticos Bioty, Lda. ("Bioty") in Portugal; Astra AB ("Astra") in
Scandinavia; Wyeth-Ayerst International, Inc. ("Wyeth-Ayerst") in Mexico,
Central and South America, non-French-speaking Africa and the Middle East;
Grelan Pharmaceutical Co., Ltd. ("Grelan") in Japan and Sam Yang Co., Ltd. ("Sam
Yang") in South Korea. This product will be marketed under the trade name
Androderm in the U.S. and Canada.
Page 7 of 12
<PAGE> 8
THERATECH, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TheraTech was responsible for filing with the FDA the Androderm New Drug
Application ("NDA") in the United States. In all other countries, TheraTech's
partners are responsible for filing and obtaining regulatory approvals to market
the testosterone product. The ability to market and the timing of the
testosterone product launch in the various countries is dependent upon obtaining
the necessary regulatory approvals. In April 1996, TheraTech and Astra announced
that their testosterone transdermal patch had been granted marketing
authorization in Sweden by the Swedish Medical Products Agency under the trade
name ATMOS(R). In July 1996, TheraTech and SmithKline Beecham announced that
their testosterone transdermal patch had been granted a marketing license in the
United Kingdom by the Medicines Control Administration under the trade name
Andropatch(TM). In September 1996, TheraTech and Astra announced that ATMOS had
been granted marketing approval in Denmark by the Danish National Board of
Health. Also in September 1996, the Swiss regulatory agency approved the
testosterone transdermal patch for marketing in Switzerland by SmithKline
Beecham.
In April 1996, TheraTech established a wholly owned subsidiary Natrapac, Inc.
("Natrapac") to conduct third party non- pharmaceutical packaging operations.
Also in April 1996, Natrapac entered into a contract to package a client
company's product using certain technology developed by TheraTech.
On May 30, 1996, TheraTech announced that its Board of Directors had approved a
3-for-2 split of the Company's common stock. On June 28, 1996, TheraTech
effected the split in the form of a stock dividend. The accompanying financial
statements have been adjusted retroactively for all periods presented to reflect
the split.
RESULTS OF OPERATIONS
For the three months ended September 30, 1996, TheraTech had net income of
$1,426,000, equal to $0.07 per share. This compares to a net loss of $2,803,000
or $0.14 per share for the same period in 1995. Total revenues for the quarter
were $8,586,000, compared to $3,424,000 in the third quarter 1995.
For the nine months ended September 30, 1996, TheraTech had net income of
$1,219,000 or $0.06 per share. This compares to a net loss of $7,240,000 or
$0.37 per share for the corresponding period in 1995. Total revenues in the nine
month period were $23,761,000 compared to $12,210,000 for the corresponding
period in 1995.
RESEARCH AND DEVELOPMENT REVENUES were $4,645,000 and $995,000 for the three
months ended September 30, 1996 and 1995, respectively. During the 1996 quarter,
TheraTech earned revenues from Procter & Gamble Pharmaceuticals, Inc. ("P&G")
for estradiol/progestin combination product development activities and for
estradiol commercialization activities, which revenues were minimal in the 1995
quarter. Also during the 1996 quarter, TheraTech earned revenues for product
development activities from various partners including SmithKline Beecham and
Pfizer Inc ("Pfizer"). During the 1995 quarter, TheraTech earned cost
reimbursements of research and development expenses from P&G along with
SmithKline Beecham, Solvay Pharmaceuticals Inc. and Pfizer. TheraTech also
earned revenues for assisting certain Collaborative Partners in preparing
foreign regulatory filings in both periods.
For the nine months ended September 30, 1996 and 1995, research and development
revenues were $13,414,000 and $8,339,000, respectively. The revenue increase in
the 1996 period over the 1995 period was primarily additional activities
associated with the following: 1) the estradiol product commercialization
activities and estradiol/progestin combination product development activities
for P&G; 2) development activities on the testosterone one patch per day
("unipatch") product for SmithKline Beecham and Wyeth-Ayerst; 3) providing
supplies for additional Androderm clinical trials; 4) milestone payments for
product development from Meiji Milk Products Co. ("Meiji").
PRODUCT SALES for the three months and nine months ended September 30, 1996 were
$2,532,000 and $7,145,000, respectively. Product sales during the third quarter
related primarily to Androderm. Also during the third quarter, product sales
included ATMOS and Andropatch along with sales from the Natrapac client
contract. Product sales for the nine month period were primarily Androderm. No
product sales were reported during the corresponding 1995 periods as no products
had yet been approved for marketing.
Page 8 of 12
<PAGE> 9
THERATECH, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LICENSING REVENUES were $1,075,000 and $2,100,000 for the three months ended
September 30, 1996 and 1995, respectively. During the 1996 quarter, TheraTech
received payments for the achievement of milestones from SmithKline Beecham for
the approval to market Andropatch in the United Kingdom and from Astra for the
launch of ATMOS in Sweden. During the 1995 quarter, TheraTech earned licensing
fees by achieving milestones for the approval of Androderm in the United States
and upon regulatory submission of the testosterone transdermal product in
France. TheraTech also earned licensing fees upon signing an agreement with
Wyeth-Ayerst to market the testosterone transdermal product.
For the nine months ended September 30, 1996 and 1995, licensing revenues were
$2,060,000 and $2,715,000, respectively. During the 1996 period, TheraTech
earned licensing revenues from SmithKline Beecham, Wyeth-Ayerst and Astra for
achieving milestones under their testosterone product licensing agreements and
from Sam Yang for a milestone under an estradiol/progestin combination product
licensing agreement. During the 1995 period, TheraTech earned licensing fees by
achieving milestones for the approval of Androderm in the United States, upon
regulatory submission of the testosterone transdermal product in France, by
signing agreements with P&G for marketing rights covering new female hormone
replacement products, with Wyeth-Ayerst and Astra for distribution of the
testosterone transdermal product and from Sam Yang.
INTEREST AND OTHER REVENUES were $334,000 and $329,000 for the three months
ended September 30, 1996 and 1995, respectively, and primarily consisted of
interest income totaling $306,000 and $317,000, respectively. Interest income
during the 1996 quarter decreased from the 1995 quarter due to lower yields on
higher average balances in cash, cash equivalents and investments.
Interest and other revenues for the nine months ended September 30, 1996 and
1995 were $1,142,000 and $1,156,000, respectively, and primarily consisted of
interest income totaling $944,000 and $1,112,000, respectively. Interest income
during the 1996 period decreased from the 1995 period due to lower yields on
lower average balances in cash, cash equivalents and investments. Other revenues
in the 1996 period consisted primarily of intermediate materials sold to a
Collaborative Partner and a foreign currency transaction gain on a Collaborative
Partner payment.
RESEARCH AND DEVELOPMENT EXPENSES for the three months ended September 30, 1996
and 1995 were $4,052,000 and $4,090,000, respectively. This reduction was the
result of Phase III clinical trials and NDA preparation activities for the
estradiol transdermal product and Androderm commercialization activities
conducted during 1995 and not repeated in 1996. This decrease was largely offset
by additional spending on product development activities for other existing and
advancing programs.
Research and development expenses for the nine months ended September 30, 1996
and 1995 were $12,269,000 and $13,701,000, respectively. The decrease in
research and development spending was also the result of Phase III clinical
trials for the estradiol transdermal product and Androderm commercialization
activities conducted during 1995 and not repeated in 1996. This decrease was
partially offset by additional spending on the following: 1) commercialization,
Pre-Approval Inspection preparation and follow-up activities for the estradiol
transdermal product; 2) estradiol/progestin combination product development
activities including, Phase II studies; 3) testosterone unipatch product
development activities; 4) female testosterone product Phase I clinical
activities; and 5) other projects funded by Collaborative Partners and by
TheraTech.
COST OF PRODUCTS SOLD for the three months and nine months ended September 30,
1996 were $1,639,000 and $5,740,000, respectively, which included direct and
indirect manufacturing costs attributable to the production of Androderm, ATMOS
and Andropatch, and the packaging cost of the Natrapac client contract. No cost
of products were reported during the corresponding 1995 periods as no products
had yet been approved for marketing.
GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended September 30,
1996 and 1995 were $1,209,000 and $1,887,000, respectively. For the nine months
ended September 30, 1996 and 1995, general and administrative expenses were
$3,683,000 and $5,047,000, respectively. The reduction of expenses in both the
three and nine month periods was primarily the result of 1995 outside services
associated with the negotiation of several major contracts being greater than
those costs in 1996.
Page 9 of 12
<PAGE> 10
THERATECH, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST AND OTHER EXPENSES for the three months ended September 30, 1996 and
1995 were $260,000 and $250,000, respectively, which consisted primarily of
interest expense totaling $260,000 and $248,000, respectively. The increase in
interest expense reflects an increase in notes payable and capital lease
obligations.
Interest and other expenses for the nine months ended September 30, 1996 and
1995 were $849,000 and $702,000, respectively, which consisted primarily of
interest expense totaling $815,000 and $687,000, respectively. The increase in
interest expense during the nine month period also reflects an increase in notes
payable and capital lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, TheraTech has funded its operations primarily through
equity and debt financing, collaborative research and development agreements,
licensing fees, interest income, other revenues and, beginning in October 1995,
product sales. As of September 30, 1996 and December 31, 1995, TheraTech had
cash, cash equivalents and investments totaling $23,157,000 and $25,098,000,
respectively. This decrease was primarily the result of cash used in investing
and financing activities, partially offset from cash provided by operating
activities as reflected in the Condensed Consolidated Statements of Cash Flows.
Net cash provided by operating activities for the nine months ended September
30, 1996 was $2,519,000 compared to net cash used in operating activities of
$10,315,000 for the same period in 1995. Cash provided in the 1996 period was
primarily from net income and depreciation and amortization adjustments,
partially offset by the net changes in operating assets and liabilities. In
comparison, cash used in operating activities during the 1995 period was
primarily due to the net loss along with increases in contracts and accounts
receivable and inventory, partially offset by an increase in unearned revenue.
Net cash provided by operating activities in the current period is not
necessarily indicative of future levels. Net income or loss and accordingly the
levels of net cash provided by or used in operations will vary from year to
year, as a result of changing levels of product sales and production costs as
new products are expected to establish market acceptance and market share, the
timing of milestone payments and licensing fees, and the timing of expenditures
for new and existing product development programs.
The Company's investing activities during the nine months ended September 30,
1996 used $4,307,000 compared to $2,349,000 for the 1995 period. Cash used in
investing activities during the 1996 period was primarily for plant expansion
costs and the purchase of equipment for manufacturing and research and
development. In comparison, cash used in the 1995 period was primarily for the
purchase of manufacturing, research and development equipment, partially offset
from cash provided by the net maturity of investments.
The Company's future capital expenditure requirements will depend upon numerous
factors, including the progress of research and development activities, the
resources that the Company devotes to the independent development of products
and technologies, and the need for additional manufacturing plant and equipment
due to the demand for its other products if and when approved.
Net cash used in financing activities for the nine months ended September 30,
1996 was $526,000 compared to net cash provided by financing activities of
$3,525,000 for the nine months ended September 30, 1995. Cash used in the 1996
period consisted primarily of payments on notes payable and capital lease
obligations, largely offset by proceeds from the issuance of stock in both the
employee stock purchase plan and the employee stock option plan and from a
short-term note with a client company. In comparison, cash provided in the 1995
period was primarily proceeds from notes payable and capital lease obligations
and proceeds from the issuance of stock in both the employee stock purchase plan
and the employee stock option plan, partially offset by payments on notes
payable and capital lease obligations.
Page 10 of 12
<PAGE> 11
THERATECH, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Based upon current expectations of operations and capital expenditures for 1996,
the Company anticipates that its available cash, cash equivalents and
investments plus anticipated revenues from collaborative agreements, product
licensing and sales, interest income and bank financing should be sufficient to
fund its capital requirements and operating activities for the foreseeable
future.
RISK FACTORS THAT MAY AFFECT EARNINGS AND STOCK PRICE
The statements contained in this report on SEC Form 10-Q that are not purely
historical are forward looking statements, including statements regarding the
Company's future product developments, commercial opportunities, expectations,
goals, strategies, mission or intentions regarding the future. Forward looking
statements include statements regarding future regulatory approvals by U.S. or
foreign regulatory authorities, future financial performance, and continued
performance by various distributors of TheraTech's products under, but not
limited to, the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations." All forward looking statements included in
this document are made as of the date hereof, based on information available to
TheraTech as of the date hereof, and TheraTech assumes no obligation to update
any forward looking statement. It is important to note that the Company's actual
results could differ materially from those in such forward looking statements.
Among the factors that could cause actual results to differ materially are the
following: the need to continually develop and commercialize new products; the
expensive, time consuming and uncertain FDA and foreign government approval
processes; dependence on third-party marketing efforts; competitive factors such
as new product or feature introductions by rival manufacturers and price
pressures; dependence on sole source suppliers; limited history of large-scale
manufacturing of newly approved products; and exposure to product liability
suits. You should consult the risk factors listed from time to time in the
Company's reports on SEC forms 10-K and 10-Q.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Item No. Description
-------- -----------
27 Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter.
Page 11 of 12
<PAGE> 12
THERATECH, INC.
-------------
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.
THERATECH, INC.
-------------------------------
(Registrant)
Date: November 11, 1996 By: DINESH C. PATEL
-------------------------------
Dinesh C. Patel, Ph.D.
President and
Chief Executive Officer
Date: November 11, 1996 By: ALEXANDER L. SEARL
-------------------------------
Alexander L. Searl
Senior Vice President and
Chief Financial Officer
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
THERATECH, INC. CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 12,158,498
<SECURITIES> 8,914,846
<RECEIVABLES> 1,257,716
<ALLOWANCES> 0
<INVENTORY> 2,775,362
<CURRENT-ASSETS> 25,311,890
<PP&E> 25,333,159
<DEPRECIATION> 5,174,527
<TOTAL-ASSETS> 50,536,014
<CURRENT-LIABILITIES> 7,505,626
<BONDS> 9,039,043
0
0
<COMMON> 203,645
<OTHER-SE> 32,575,700
<TOTAL-LIABILITY-AND-EQUITY> 50,536,014
<SALES> 7,144,977
<TOTAL-REVENUES> 23,760,666
<CGS> 5,740,323
<TOTAL-COSTS> 21,692,210
<OTHER-EXPENSES> 34,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 815,240
<INCOME-PRETAX> 1,219,157
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,219,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219,157
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
