<PAGE> 1
THERATECH, INC.
---------------
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 MARCH 31, 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.
(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
(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 April 30,
1996:
<TABLE>
<CAPTION>
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING
----------------------- ----------------------------
<S> <C>
Common Stock, $0.01 par value 13,481,046
</TABLE>
Page 1 of 11
<PAGE> 2
THERATECH, INC.
--------------
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
Condensed Consolidated Statements of Operations --
Three months ended March 31, 1996 and 1995 ....................... 3
Condensed Consolidated Balance Sheets --
March 31, 1996 and December 31, 1995 ............................. 4
Condensed Consolidated Statements of Cash Flows --
Three months ended March 31, 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 ................................. 10
Page 2 of 11
<PAGE> 3
THERATECH, INC.
-----------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1996 1995
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Research and development $ 2,852,345 $ 2,485,898
Product sales 2,174,334 --
Licensing 850,000 550,000
Interest and other 475,649 416,392
------------ ------------
Total revenues 6,352,328 3,452,290
Costs and expenses:
Research and development 3,876,034 4,151,021
Cost of products sold 2,235,068 --
General and administrative 1,220,570 1,148,022
Interest and other 296,181 220,995
------------ ------------
Total costs and expenses 7,627,853 5,520,038
------------ ------------
Net loss $ (1,275,525) $ (2,067,748)
============ ============
Net loss per share $ (0.10) $ (0.16)
============ ============
Shares used in calculation of net loss per share 13,401,165 13,083,534
============ ============
</TABLE>
See accompanying notes.
Page 3 of 11
<PAGE> 4
THERATECH, INC.
-----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 (1)
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash, cash equivalents and short-term investments (2) $ 17,514,707 $ 18,718,985
Contracts and accounts receivable 1,170,619 2,157,559
Inventories 3,101,973 2,418,516
Prepaid expenses 493,006 147,860
------------ ------------
Total current assets 22,280,305 23,442,920
Investments in long-term securities (2) 4,176,587 6,379,122
Plant and equipment:
Plant 9,301,171 9,291,313
Equipment 9,714,396 9,253,425
Leasehold improvements 912,183 918,484
Construction in progress 3,685,101 2,366,678
------------ ------------
23,612,851 21,829,900
Less accumulated depreciation and amortization (4,108,852) (3,666,441)
------------ ------------
Net plant and equipment 19,503,999 18,163,459
Other assets 2,874,207 2,850,553
------------ ------------
Total assets $ 48,835,098 $ 50,836,054
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,506,312 $ 4,432,665
Current portion of notes payable and capital lease obligations 2,172,730 2,047,124
Unearned revenue 2,406,081 2,432,822
------------ ------------
Total current liabilities 8,085,123 8,912,611
Notes payable and capital lease obligations, less current portion 9,815,773 10,319,993
Unearned revenue 1,212,000 1,212,000
Commitments
Stockholders' equity:
Common stock 134,783 133,385
Additional paid-in capital 68,233,590 67,575,841
Unrealized gain on investments held as available-for-sale 52,617 79,941
Accumulated deficit (38,561,597) (37,286,072)
Cumulative translation adjustment (137,191) (111,645)
------------ ------------
Total stockholders' equity 29,722,202 30,391,450
------------ ------------
Total liabilities and stockholders' equity $ 48,835,098 $ 50,836,054
============ ============
</TABLE>
See accompanying notes
(1) Derived from audited financial statements
(2) TheraTech's total cash position as of March 31, 1996 and December 31, 1995
was $21,691,294 and $25,098,107, respectively, which includes cash, cash
equivalents, and short- and long-term investments.
Page 4 of 11
<PAGE> 5
THERATECH, INC.
-----------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1996 1995
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,275,525) $ (2,067,748)
Adjustments to reconcile net loss to net cash and cash equivalents
provided by (used in) operating activities:
Depreciation and amortization 501,636 224,016
Compensation expense related to the grant of stock options 477 18,750
Changes in operating assets and liabilities:
Contracts and accounts receivable 986,940 108,175
Inventories (683,457) --
Prepaid expenses (47,664) 36,155
Accounts payable and accrued liabilities (926,353) (753,640)
Unearned revenue (26,741) --
------------ ------------
Net cash used in operating activities (1,470,687) (2,434,292)
INVESTING ACTIVITIES:
Decrease (increase) in investments 149,451 (1,301,560)
Purchase of plant and equipment (1,876,877) (1,169,369)
Other assets (31,742) (146,413)
------------ ------------
Net cash used in investing activities (1,759,168) (2,617,342)
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and capital lease obligations -- 18,943
Proceeds from issuance of common stock 658,670 149,570
Payment of notes payable and capital lease obligations (633,307) (338,939)
------------ ------------
Net cash provided by (used in) financing activities 25,363 (170,426)
Effect of exchange-rate changes on cash and cash equivalents (25,546) 30,291
------------ ------------
Net decrease in cash and cash equivalents (3,230,038) (5,191,769)
Cash and cash equivalents at beginning of period 14,554,352 17,690,459
------------ ------------
Cash and cash equivalents at end of period 11,324,314 12,498,690
Short-term investments 6,190,393 5,040,022
------------ ------------
Cash, cash equivalents and short-term investments at end of period $ 17,514,707 $ 17,538,712
============ ============
</TABLE>
See accompanying notes.
Page 5 of 11
<PAGE> 6
THERATECH, INC.
-----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 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. (the "Company") as of March 31, 1996
and the results of its operations and cash flows for the interim periods ended
March 31, 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 subsidiary Nippon TTI K.K. ("TheraTech Japan"). All
significant intercompany accounts and transactions have been eliminated.
INVENTORY
At March 31, 1996, inventory is stated at the lower of cost or market and
consists of the following:
<TABLE>
<S> <C>
Raw materials $2,512,732
Work in process 159,234
Finished goods 430,007
----------
$3,101,973
==========
</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. 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 product sales.
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>
<S> <C>
1996 $2,725,000
1997 2,885,000
1998 3,060,000
----------
$8,670,000
==========
</TABLE>
In November 1995, TheraTech initiated a capital project of approximately
$2,400,000 to finish and equip expansion space within its commercial
manufacturing facility. When completed, this expansion will allow TheraTech to
more quickly react to future demand for its products.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
Page 6 of 11
<PAGE> 7
THERATECH, INC.
--------------
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 beginning in October 1995, product sales from commercial
shipments of Androderm(R).
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. TheraTech may also recognize revenue based on its
Collaborative Partners' product sales. In addition, TheraTech is independently
developing products involving a variety of drug delivery methods.
The Company's results of operations 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. Although expenses in prior years have exceeded
revenues in any particular period, TheraTech's management anticipates that with
the commencement of product sales, revenues in future years should equal or
exceed expenses in the related years.
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(R) in the U.S. and Canada.
TheraTech was responsible for filing the Androderm(R) New Drug Application
("NDA") in the United States with the FDA. 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).
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
The Company had total revenues of $6,352,000 for the three months ended March
31, 1996 compared to $3,452,000 for the respective period in 1995. These
revenues when combined with the corresponding quarterly expenses resulted in net
losses of $1,276,000 in the 1996 period and $2,068,000 in the 1995 period.
Page 7 of 11
<PAGE> 8
THERATECH, INC.
--------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESEARCH AND DEVELOPMENT REVENUES were $2,852,000 and $2,486,000 for the three
months ended March 31, 1996 and 1995, respectively. During the 1996 quarter,
TheraTech earned revenues from Proctor & Gamble Pharmaceuticals, Inc. ("P&G")
for estradiol commercialization activities and for Phase II studies on the
estradiol/progestin combination product. TheraTech also earned during the 1996
quarter revenues from Grelan, SmithKline Beecham and Meiji Milk Products Co.
("Meiji"). During the 1995 quarter, TheraTech signed an agreement with P&G to
develop and market new hormone replacement products for women. Under this
agreement, TheraTech received payments for signing the agreement and for partial
reimbursement of estradiol Phase III clinical trial costs. Milestone and cost
reimbursement payments were also received from Nichiiko Pharmaceutical Co., Ltd,
Meiji, and SmithKline Beecham.
PRODUCT SALES for the three months ended March 31, 1996 were $2,174,000
consisting of sales of Androderm(R) in the U.S.
LICENSING REVENUES were $850,000 and $550,000 for the three months ended March
31, 1996 and 1995, respectively. During the 1996 quarter, TheraTech received
payments under a testosterone product licensing agreement for the achievement of
milestones. During the 1995 quarter, TheraTech earned licensing fees by signing
agreements with P&G for worldwide (excluding Asian countries) marketing rights
covering new female hormone replacement products and with Astra for distribution
of the testosterone transdermal product in Scandinavia.
INTEREST AND OTHER REVENUES were $476,000 and $416,000 for the three months
ended March 31, 1996 and 1995, respectively, and consisted primarily of interest
income of $335,000 and $411,000, respectively. Interest income during the 1996
quarter decreased from the 1995 quarter due to lower average balances in cash,
cash equivalents and investments. Other revenues in the 1996 quarter included
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 March 31, 1996 and
1995 were $3,876,000 and $4,151,000, respectively. In the 1995 quarter,
TheraTech conducted Phase III clinical trials on its estradiol transdermal
product. These clinical trials and the associated costs were substantially
completed during 1995 and therefore costs associated with clinical trials
decreased in the 1996 quarter in comparison to the 1995 quarter. However, this
decrease was partially offset by an increase in spending on commercialization
activities for the estradiol transdermal product and other projects funded both
internally and by Collaborative Partners.
COST OF PRODUCTS SOLD for the three months ended March 31, 1996 were $2,235,000,
which includes direct and indirect manufacturing costs attributable to the
production of Androderm(R) for sales in the U.S.
GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended March 31, 1996
and 1995 were $1,221,000 and $1,148,000, respectively.
INTEREST AND OTHER EXPENSES for the three months ended March 31, 1996 and 1995
were $296,000 and $221,000, respectively, and consisted primarily of interest
expense. The Company incurred interest expense of $282,000 and $218,000 for the
three months ended March 31, 1996 and 1995, respectively, which 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 March 31, 1996 and December 31, 1995, TheraTech had cash,
cash equivalents and investments totaling $21,691,000 and $25,098,000,
respectively. This decrease was the result of cash used in operating and
investing activities, partially offset with cash provided by financing
activities as reflected in the Condensed Consolidated Statements of Cash Flows.
Page 8 of 11
<PAGE> 9
THERATECH, INC.
--------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net cash used in operating activities for the three months ended March 31, 1996
was $1,471,000 compared to $2,434,000 for the three months ended March 31, 1995.
Cash used in the 1996 quarter was primarily due to the net operating loss along
with increases in inventory and decreases in accounts payable and accrued
liabilities, partially offset by a decrease in contracts and accounts
receivable. In comparison, cash used in operating activities during the 1995
quarter was primarily due to a net loss along with decreases in accounts payable
and accrued liabilities, partially offset by a decrease in contracts and
accounts receivable.
The net use of cash in operating activities in the current period is not
necessarily indicative of future levels. As a result of changing levels of
product sales and production costs, the timing of milestone payments and
licensing fees, and the timing of expenditures for new and existing product
development programs, net income or loss and accordingly the levels of net cash
provided by or used in operations will vary from year to year.
During the three months ended March 31, 1996, the Company's investing activities
used $1,759,000 compared to $2,617,000 for the 1995 quarter. Cash used during
the 1996 quarter in investing activities was primarily for the purchase of
equipment for the commercial manufacturing facility, additional research and
development and office equipment. In comparison, cash used in the 1995 quarter
was primarily for the net purchase of investments and for the purchase of
equipment for the commercial manufacturing facility, additional research and
development and office equipment.
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 provided by financing activities for the three months ended March 31,
1996 was $25,000 compared to net cash used in financing of $170,000 for the
three months ended March 31, 1995. Cash provided in the 1996 quarter consists
primarily of proceeds from the issuance of stock in both the employee stock
purchase plan and the employee stock option plan, offset by payments on notes
payable and capital lease obligations. In comparison, cash used in the 1995
quarter was primarily for payments on notes payable and capital lease
obligations partially offset by proceeds from the issuance of stock in both the
employee stock purchase plan and the employee stock option plan. 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.
Page 9 of 11
<PAGE> 10
THERATECH, INC.
--------------
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) No reports were filed on Form 8-K during the quarter.
Page 10 of 11
<PAGE> 11
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: May 13, 1996 By: DINESH C. PATEL
-----------------------------
Dinesh C. Patel, Ph.D.
President and
Chief Executive Officer
Date: May 13, 1996 By: ALEXANDER L. SEARL
-----------------------------
Alexander L. Searl
Senior Vice President and
Chief Financial Officer
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
THERATECH, INC. CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS
FOR THE THREE-MONTHS ENDED MARCH 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,324,314
<SECURITIES> 6,190,393
<RECEIVABLES> 1,170,619
<ALLOWANCES> 0
<INVENTORY> 3,101,973
<CURRENT-ASSETS> 22,280,305
<PP&E> 23,612,851
<DEPRECIATION> 4,108,852
<TOTAL-ASSETS> 48,835,098
<CURRENT-LIABILITIES> 8,085,123
<BONDS> 9,815,773
<COMMON> 134,783
0
0
<OTHER-SE> 29,587,419
<TOTAL-LIABILITY-AND-EQUITY> 48,835,098
<SALES> 2,174,334
<TOTAL-REVENUES> 6,352,328
<CGS> 2,235,068
<TOTAL-COSTS> 7,331,672
<OTHER-EXPENSES> 14,181
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 282,000
<INCOME-PRETAX> (1,275,525)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,275,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,275,525)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
