<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 MARCH 31, 1997
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)
<TABLE>
<S> <C>
DELAWARE 87-0420511
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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
APRIL 30, 1997:
<TABLE>
<CAPTION>
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING
----------------------- ----------------------------
<S> <C>
Common Stock, $0.01 par value 20,637,597
</TABLE>
<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> <C>
Condensed Consolidated Statements of Operations --
Three months ended March 31, 1997 and 1996 ...................... 3
Condensed Consolidated Balance Sheets --
March 31, 1997 and December 31, 1996 ............................ 4
Condensed Consolidated Statements of Cash Flows --
Three months ended March 31, 1997 and 1996 ...................... 5
Notes to Condensed Consolidated Financial Statements ............ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not applicable
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 12
</TABLE>
Page 2 of 13
<PAGE> 3
THERATECH, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Research and development $ 5,554,487 $ 2,852,345
Product sales 2,904,135 2,174,334
Licensing 5,000 850,000
Interest and other 373,221 475,649
----------- ------------
Total revenues 8,836,843 6,352,328
Costs and expenses:
Research and development 4,435,033 3,876,034
Cost of products sold 2,152,549 2,235,068
General and administrative 1,226,085 1,220,570
Interest and other 236,330 296,181
----------- ------------
Total costs and expenses 8,049,997 7,627,853
----------- ------------
Net income (loss) $ 786,846 $ (1,275,525)
=========== ============
Net income (loss) per share $ 0.04 $ (0.06)
=========== ============
Shares used in calculation of net income (loss) per share 21,846,343 20,101,747
=========== ============
</TABLE>
See accompanying notes.
Page 3 of 13
<PAGE> 4
THERATECH, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996 (1)
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash, cash equivalents and short-term investments (2) $ 23,368,280 $ 23,214,410
Contracts and accounts receivable 5,779,340 4,726,112
Inventories 3,185,233 2,277,021
Prepaid expenses 436,747 36,127
------------ ------------
Total current assets 32,769,600 30,253,670
Investments in long-term securities (2) 1,999,671 2,000,468
Plant and equipment:
Plant 9,301,171 9,301,171
Equipment 12,491,007 11,950,618
Leasehold improvements 987,593 986,703
Construction in progress 2,834,053 2,929,228
------------ ------------
25,613,824 25,167,720
Less accumulated depreciation and amortization (6,389,866) (5,737,034)
------------ ------------
Net plant and equipment 19,223,958 19,430,686
Other assets 1,588,236 2,161,978
------------ ------------
Total assets $ 55,581,465 $ 53,846,802
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,930,842 $ 3,744,210
Current portion of notes payable and capital lease obligations 1,726,577 1,609,587
Unearned revenue 3,404,895 2,597,942
------------ ------------
Total current liabilities 9,062,314 7,951,739
Notes payable and capital lease obligations, less current portion 8,298,630 8,660,744
Unearned revenue 1,212,000 1,212,000
Commitments and contingencies
Stockholders' equity:
Common stock 206,121 205,634
Additional paid-in capital 69,370,747 69,116,551
Accumulated deficit (32,274,317) (33,061,163)
Cumulative translation adjustment (294,030) (238,703)
------------ ------------
Total stockholders' equity 37,008,521 36,022,319
------------ ------------
Total liabilities and stockholders' equity $ 55,581,465 $ 53,846,802
============ ============
</TABLE>
See accompanying notes.
(1) Derived from audited financial statements
(2) TheraTech's total cash position as of March 31, 1997 and December 31,
1996 was $25,367,951 and $25,214,878 respectively, which includes cash,
cash equivalents, and short- and long-term investments.
Page 4 of 13
<PAGE> 5
THERATECH, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1997 1996
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 786,846 $ (1,275,525)
Adjustments to reconcile net income (loss) to net cash and cash equivalents
provided by (used in) operating activities:
Depreciation and amortization 662,461 501,636
Compensation expense related to the grant of stock options - 477
Changes in operating assets and liabilities:
Contracts and accounts receivable (1,053,228) 986,940
Inventories (908,212) (683,457)
Prepaid expenses (86,535) (47,664)
Accounts payable and accrued liabilities 186,632 (926,353)
Unearned revenue 806,953 (26,741)
------------ ------------
Net cash provided by (used in) operating activities 394,917 (1,470,687)
INVESTING ACTIVITIES:
Decrease (increase) in investments (2,783,150) 149,451
Purchase of plant and equipment (446,104) (1,876,877)
Other assets 564,113 (31,742)
------------ ------------
Net cash used in investing activities (2,665,141) (1,759,168)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 254,683 658,670
Payment of notes payable and capital lease obligations (559,209) (633,307)
------------ ------------
Net cash provided by (used in) financing activities (304,526) 25,363
Effect of exchange-rate changes on cash and cash equivalents (55,327) (25,546)
------------ ------------
Net decrease in cash and cash equivalents (2,630,077) (3,230,038)
Cash and cash equivalents at beginning of period 19,116,991 14,554,352
------------ ------------
Cash and cash equivalents at end of period 16,486,914 11,324,314
Short-term investments 6,881,366 6,190,393
------------ ------------
Cash, cash equivalents and short-term investments at end of period $ 23,368,280 $ 17,514,707
============ ============
</TABLE>
See accompanying notes.
Page 5 of 13
<PAGE> 6
THERATECH, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
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. ("TheraTech" or the "Company") as of
March 31, 1997 and the results of its operations and cash flows for the interim
periods ended March 31, 1997 and 1996. The operating results for the interim
periods are not necessarily indicative of the results for a full year. For
further discussion of TheraTech's accounting policies, refer to the Company's
audited financial statements for the year ended December 31, 1996.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
TheraTech and its wholly-owned subsidiaries Nippon TTI K.K. ("TheraTech Japan")
and Natrapac, Inc. ("Natrapac"). All significant intercompany accounts and
transactions have been eliminated.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share". This statement replaces the previous standard Accounting
Principles Board ("APB") Opinion No. 15, "Earnings per Share". Effective for
periods ending after December 15, 1997, SFAS No. 128 requires companies to
report both "basic" and "diluted" earnings per share. "Basic" earnings per share
does not include the addition of common stock equivalents to the shares
outstanding. "Diluted" earnings per share requires the addition of common stock
equivalents to the shares outstanding. Average shares outstanding is the
denominator used in "basic" earnings per share calculations. Accordingly,
"basic" earnings per share will be higher than "diluted" earnings per share. For
TheraTech, "diluted" earnings per share under the new standard is approximately
equivalent to "primary" earnings per share under APB No, 15, which has
historically been reported. The impact of SFAS No. 128 on TheraTech's earnings
per share is not expected to be significant.
INVENTORIES
At March 31, 1997, inventories are stated at the lower of cost or market and
consists of the following:
<TABLE>
<S> <C>
Raw materials $2,744,708
Work in process 85,610
Finished goods 354,915
----------
$3,185,233
==========
</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 and other payments upon
execution of an agreement, milestone payments upon achievement of certain
technical and regulatory goals, and periodic payments in the form of cost
reimbursements for product development and clinical evaluation of a specified
product, including a portion of general and administrative expenses. 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.
Page 6 of 13
<PAGE> 7
THERATECH, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
(Continued)
COMMITMENTS AND CONTINGENCIES
TheraTech has entered into a purchase commitment with a commercial supplier for
material used in its manufacturing process. Under this agreement, TheraTech has
agreed to purchase, at predetermined prices, fixed quantities over four years as
follows:
<TABLE>
<S> <C>
1995 $ 136,250
1996 2,725,000
1997 2,885,000
1998 3,060,000
----------
$8,806,250
==========
</TABLE>
The 1995 and 1996 purchase commitments have been satisfied.
In the ordinary course of business, various suits and claims are filed by and
against TheraTech. In the past, TheraTech's liability claims have not been
significant. The Company is not a party to any litigation, other than legal and
arbitration proceedings incurred in the ordinary course of business.
STOCK SPLIT
On June 28, 1996, TheraTech effected a 3-for-2 split of its common stock in the
form of a stock dividend. The accompanying financial statements have been
adjusted retroactively for all periods presented to reflect the split.
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. TheraTech
develops advanced, controlled release drug delivery products which administer
drugs through the skin, by oral delivery to the gastrointestinal tract, through
tissues in the oral cavity, by pulmonary and by other means. TheraTech's product
development activities have been conducted independently or pursuant to
collaborative research and development agreements generally with pharmaceutical
companies ("Collaborative Partners"). For independently developed products,
TheraTech has entered into licensing, marketing and distribution agreements
generally with pharmaceutical companies to market TheraTech manufactured
products, or has transferred the technology to other companies. TheraTech
continues to devote substantial resources to the development of drug delivery
technologies and product development programs.
The Company has entered into various product development, licensing, marketing,
manufacturing and supply agreements with Collaborative Partners. Product
development and licensing agreements generally provide for TheraTech to receive
payments in various forms, including licensing fees and other payments upon the
execution of an agreement, milestone payments upon achievement of certain
technical and regulatory goals, and periodic payments in the form of cost
reimbursements for product development and clinical evaluation of a specified
product, including a portion of general and administrative expenses.
Page 7 of 13
<PAGE> 8
THERATECH, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Manufacturing and supply agreements provide for TheraTech to manufacture and
transfer products to Collaborative Partners, which allows TheraTech to earn
product sales revenues in a variety of ways. In general, product sales represent
contract payments or sales to TheraTech's marketing partners for resale
purposes. Product sales may be recognized based on one or a combination of the
following: (i) TheraTech's fully burdened manufacturing cost; (ii) a fixed or
variable manufacturing profit; (iii) a royalty on the partners' product sales;
and/or (iv) a transfer of product where the price is based on a percentage of
the marketing partners' sales to their clients. Certain agreements also require
the marketing partner to meet certain production volumes or pay TheraTech's
fixed production costs. Accordingly, TheraTech's product sales do not
necessarily reflect the existing or future market demand for such products.
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.
To date, three research and development programs have resulted in approved
products. In late December 1996, TheraTech received marketing clearance from the
U.S. Food and Drug Administration ("FDA") for the Alora(R) Estradiol Transdermal
System for women, the Company's second commercial product approved in the U.S.
TheraTech's first commercial product in the U.S. was the Androderm(R)
Testosterone Transdermal System for men. Both marketing clearances were received
within one year of their respective initial submissions. The testosterone
transdermal system for men has also been approved in certain European countries
under different trade names. TheraTech also has a nitroglycerin transdermal
product which has been approved in certain European countries and has been
launched by TheraTech's marketing partners in France, Greece, Holland and Italy.
Worldwide marketing rights (excluding Asia) have been granted to Procter &
Gamble Pharmaceutical, Inc. ("P&G") for TheraTech's estradiol transdermal
product, and its estradiol/progestin combination product (which is currently in
Phase III clinical trials). TheraTech began commercial production of Alora in
December 1996 and made its initial shipments of this product to P&G in March
1997. The commercial launch of Alora is expected to occur in May 1997.
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, Ireland and the
United Kingdom; Laboratories Fournier S.C.A. ("Fournier") in France and
French-speaking Africa; Compania Espanola de la Penicilina y Antibioticos, S.L.
("CEPA") in Spain; Laborterapia - Produtos Farmaceuticos, S.A. ("Laborterapia")
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 Samyang Corporation ("Samyang") in South Korea.
In April 1997, TheraTech and SmithKline Beecham announced that TheraTech will
reacquire the marketing rights to its male testosterone transdermal product in
the countries where SmithKline Beecham is not currently marketing the product.
SmithKline Beecham will continue to market in North America, Ireland and the
United Kingdom while giving up their rights to the rest of Europe, Australia and
New Zealand. TheraTech intends to assign marketing rights in these territories
to another partner. TheraTech and SmithKline Beecham continue their product
development interactions and preparations for market launch of the new 5.0
milligram ("mg") single testosterone patch.
In May 1997, TheraTech and SmithKline Beecham announced that the FDA had cleared
the 5.0 mg Androderm patch for marketing in the U.S. The commercial launch of
this 5.0 mg Androderm patch by SmithKline Beecham is expected to occur in the
U.S. during the third quarter of 1997. The original Androderm product was a
two-patch, 2.5 mg system. The new 5.0 mg Androderm patch restores testosterone
levels to a normal range by continuous delivery of testosterone for 24 hours in
a convenient single patch formulation.
Page 8 of 13
<PAGE> 9
THERATECH, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The 2.5 mg testosterone transdermal product has received approval and is
currently being marketed under the following trade names: Androderm, by
SmithKline Beecham in the U.S. and by Samyang in South Korea; Andropatch(TM), by
SmithKline Beecham in Ireland and the United Kingdom; and Atmos(R), by Astra in
Sweden and Denmark. TheraTech anticipates that marketing of the testosterone
transdermal product will commence in Brazil and Finland, for which regulatory
approval has been obtained.
TheraTech was responsible for filing with the FDA the Alora New Drug Application
("NDA"), the Androderm 2.5 mg NDA and the Androderm 5.0 mg Supplemental New Drug
Application in the United States. In all other countries, TheraTech's partners
are responsible for filing and obtaining regulatory approvals to market these
products. The ability to market and the timing of a product launch in the
various countries is dependent, among other things, upon obtaining the necessary
regulatory approvals.
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 nine month contract to package a
client company's product using certain technology developed by TheraTech, which
has not been renewed.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996
For the three months ended March 31, 1997, TheraTech had net income of $787,000,
equal to $0.04 per share. This compares to a net loss of $1,276,000 or $0.06 per
share during the three months ended March 31, 1996. The Company had total
revenues of $8,837,000 for the three months ended March 31, 1997 compared to
$6,352,000 for the respective period in 1996.
RESEARCH AND DEVELOPMENT REVENUES were $5,554,000 and $2,852,000 for the three
months ended March 31, 1997 and 1996, respectively. During the 1997 quarter,
TheraTech earned revenues for: (i) estradiol commercialization activities
performed for P&G, which included a milestone payment and cost reimbursements;
(ii) preclinical research and development activities on the oral transmucosal
("OTM") delivery technology under the multi-product collaboration with Eli Lilly
and Company ("Lilly"), signed in January 1997, which also included a milestone
payment and cost reimbursements; (iii) Phase III product development activity
cost reimbursements on the estradiol/progestin combination product for P&G; (iv)
development activities on the 5.0 mg testosterone product for SmithKline Beecham
and Wyeth-Ayerst; and (v) other collaborative research and development
activities. The milestone payments received from Lilly and P&G along with
revenue from new and advancing collaborative programs are the principal reasons
for the increase in research and development revenues in the 1997 period over
the 1996 period.
During the 1996 quarter, TheraTech earned revenues from 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").
PRODUCT SALES were $2,904,000 and $2,174,000 for the three months ended March
31, 1997 and 1996, respectively. Product sales in the 1997 quarter consist
primarily of initial shipments of Alora to P&G, along with revenues from sales
of TheraTech's testosterone transdermal systems. For the quarter ended March 31,
1996 product sales consisted of Androderm in the U.S.
Although product sales have increased in the quarterly comparison above, product
sales have decreased when compared to the fourth quarter of 1996. This decrease
is due to SmithKline Beecham adjusting its inventory levels of the 2.5 mg
product in anticipation of the commercial introduction of the 5.0 mg product,
and revenue from the Natrapac client contract in 1996 that was not renewed for
1997. TheraTech believes that product sales in 1997 will increase over 1996
levels primarily as a result of the commercial launch of Alora in the U.S., also
from the anticipated commercial introduction of the 5.0 mg patch and through
expected continued expansion of the transdermal testosterone market in the U.S.
and foreign countries.
Page 9 of 13
<PAGE> 10
THERATECH, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
LICENSING REVENUES were $5,000 and $850,000 for the three months ended March 31,
1997 and 1996, respectively. During the 1997 quarter, TheraTech received a
payment from a Collaborative Partner for the use of a product trade name, but
did not earn milestones similar to those in the comparative 1996 quarter. During
the 1996 quarter, TheraTech received payments under a testosterone product
licensing agreement for the achievement of milestones.
INTEREST AND OTHER REVENUES were $373,000 and $476,000 for the three months
ended March 31, 1997 and 1996, respectively, and consisted primarily of interest
income of $318,000 and $335,000, respectively. Interest income during the 1997
quarter decreased from the 1996 quarter due to lower average yields on higher
average balances in cash, cash equivalents and investments. Other revenues in
both the 1997 and 1996 quarters primarily consisted of intermediate materials
sold to Collaborative Partners.
RESEARCH AND DEVELOPMENT EXPENSES for the three months ended March 31, 1997 and
1996 were $4,435,000 and $3,876,000, respectively. Research and development
programs during the 1997 period included the following: (i) estradiol/progestin
combination product development activities, including certain Phase III clinical
costs; (ii) continuing estradiol development activities necessary for foreign
regulatory approval, along with stability studies and clinical costs associated
with the program; (iii) testosterone 5.0 mg development and commercialization
activities; (iv) Phase II clinical and development activities for the female
testosterone transdermal product; (v) Phase I development activities for the
Meiji product; (vi) Phase I development activities for the nicotine oral lozenge
product; and (vii) OTM technology along with various other collaboratively and
independently developed products and technologies, including a payment for the
acquisition of two inhalation drug delivery technologies.
COST OF PRODUCTS SOLD for the three months ended March 31, 1997 and 1996 were
$2,153,000 and $2,235,000, respectively, which includes direct and indirect
manufacturing costs attributable, in the 1997 period to the production of Alora
and the testosterone transdermal products, and in the 1996 period to the
production of Androderm.
GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended March 31, 1997
and 1996 were $1,226,000 and $1,221,000, respectively.
INTEREST AND OTHER EXPENSES for the three months ended March 31, 1997 and 1996
were $236,000 and $296,000, respectively, and consisted primarily of interest
expense. The Company incurred interest expense of $236,000 and $282,000 for the
three months ended March 31, 1997 and 1996, respectively, which reflects monthly
payments of principal and interest toward 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,
product sales, licensing fees and other revenues. As of March 31, 1997 and
December 31, 1996, TheraTech had cash, cash equivalents and investments totaling
$25,368,000 and $25,215,000, respectively. This increase was the result of cash
provided by operating and investing activities (when adjusted for the increase
in short-term investments), partially offset with cash used in financing
activities as reflected in the Condensed Consolidated Statements of Cash Flows.
Net cash provided by operating activities for the three months ended March 31,
1997 was $395,000 compared to net cash used in operating activities of
$1,471,000 for the three months ended March 31, 1996. Cash provided in the 1997
quarter was primarily a result of net income as compared to a net loss in the
1996 period, partially offset by increases in contracts and accounts receivable
and inventories. Cash used in the 1996 quarter was primarily due to the net
operating loss along with increases in inventories and decreases in accounts
payable and accrued liabilities, partially offset by a decrease in contracts and
accounts receivable.
Page 10 of 13
<PAGE> 11
THERATECH, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net cash provided by 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 and accordingly the levels of net cash from
operations will vary from period to period.
The Company's investing activities during the three months ended March 31, 1997
used $2,665,000 compared to $1,759,000 for the 1996 quarter. Cash used in the
1997 quarter was primarily for the purchase of short-term investments and for
the purchase of equipment. TheraTech evaluates its total cash position which
includes all investments. If the effect of cash used for the purchase of
short-term investments were removed, investing activities would have provided
cash, primarily from the release of $750,000 previously restricted as part of a
financing agreement covenant. In comparison, cash used in investing activities
during the 1996 quarter was primarily for the purchase of equipment for the
commercial manufacturing facility, additional research and development and
office equipment.
Cash used in investing activities is primarily a function of capital
expenditures. 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 three months ended March 31, 1997
was $305,000 compared to net cash provided by financing activities of $25,000
for the three months ended March 31, 1996. Cash used in the 1997 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. In comparison, cash provided
in the 1996 quarter consisted 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. Based upon
current expectations of operations and capital expenditures for 1997, 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
current capital requirements and operating activities.
RISK FACTORS AFFECTING EARNINGS AND STOCK PRICE
The statements contained in this Report on SEC Form 10-Q that are not purely
historical are "forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All forward looking statements involve various
risks and uncertainties. Forward looking statements contained in this Report
include statements regarding the Company's future product development and
commercialization, market opportunities and acceptance, U.S. and foreign
regulatory approval, expectations, goals, product sales and other revenues,
financial performance, strategies, mission and intentions for the future. Such
forward looking statements are included under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations." All
forward looking statements included in this Report are made as of the date
hereof, based on information available to TheraTech as of such date, and
TheraTech assumes no obligation to update any forward looking statement. It is
important to note that such statements may not prove to be accurate, and that
the Company's actual results and future events could differ materially from
those anticipated in such statements. Among the factors that could cause actual
results to differ materially are those described under the heading "Risk Factors
Affecting Earnings and Stock Price" and elsewhere in the Company's Report on
Form 10-K including, without limitation, 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; uncertainty regarding TheraTech's product
development, commercialization opportunities and market acceptance; competitive
and technological factors such as new product or technology 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 and infringement suits.
Page 11 of 13
<PAGE> 12
THERATECH, INC.
---------------
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule for the three months ended March 31,
1997.
(b) No reports were filed on Form 8-K during the quarter.
Page 12 of 13
<PAGE> 13
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 9, 1997 By: DINESH C. PATEL
------------------------------
Dinesh C. Patel, Ph.D.
President and
Chief Executive Officer
Date: May 9, 1997 By: ALEXANDER L. SEARL
----------------------------
Alexander L. Searl
Senior Vice President and
Chief Financial Officer
Page 13 of 13
<PAGE> 1
THERATECH, INC. EXHIBIT 11
-----------------
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
Primary: 1997 1996
----------- ------------
<S> <C> <C>
Weighted average shares of common stock 20,591,790 20,101,747
Common equivalent shares attributable to stock options 1,254,553
----------- ------------
Weighted average common and dilutive
common equivalent shares 21,846,343 20,101,747
=========== ============
Net income (loss) $ 786,846 $ (1,275,525)
=========== ============
Net income (loss) per share $ 0.04 $ (0.06)
=========== ============
Fully Diluted:
Weighted average shares of common stock 20,591,790 20,101,747
Common equivalent shares attributable to stock options 1,254,553
----------- ------------
Weighted average common and dilutive
common equivalent shares 21,846,343 20,101,747
=========== ============
Net income (loss) $ 786,846 $ (1,275,525)
=========== ============
Net income (loss) per share $ 0.04 $ (0.06)
=========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
THERATECH, INC. CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 16,486,914
<SECURITIES> 6,881,366
<RECEIVABLES> 5,779,340
<ALLOWANCES> 91,034
<INVENTORY> 3,185,233
<CURRENT-ASSETS> 32,769,600
<PP&E> 25,613,824
<DEPRECIATION> 6,389,866
<TOTAL-ASSETS> 55,581,465
<CURRENT-LIABILITIES> 9,062,314
<BONDS> 8,298,630
0
0
<COMMON> 206,121
<OTHER-SE> 36,802,400
<TOTAL-LIABILITY-AND-EQUITY> 55,581,465
<SALES> 2,904,135
<TOTAL-REVENUES> 8,836,843
<CGS> 2,152,549
<TOTAL-COSTS> 7,813,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,330
<INCOME-PRETAX> 786,846
<INCOME-TAX> 0
<INCOME-CONTINUING> 786,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 786,846
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
