FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 of the
Securities Exchange Act of 1934
Quarter ended June 30, 1998
Commission File Number 0-24320
NaPRO BIOTHERAPEUTICS, INC.
Incorporated in Delaware IRS ID No. 84-1187753
6304 Spine Road, Unit A
Boulder, CO 80301
(303) 530-3891
NaPro BioTherapeutics, Inc. ("NaPro" or "the Company") (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
The number of shares outstanding of each of the issuer's classes of common stock
as of August 1, 1998:
Common Stock, $.0075 par value 14,856,181
Non-voting Common Stock, $.0075 par value 395,000
Total number of pages in document--17
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NaPro BioTherapeutics, Inc.
Table of Contents
Page
Part I Financial Information
Consolidated Financial Statements
Balance Sheet 3
Statement of Operations 5
Statement of Cash Flow 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Quantitative and Qualitative Disclosures about Market Risk 13
Part II Other Information
Legal Proceedings 14
Changes in Securities 14
Defaults Upon Senior Securities 14
Submission of Matters to a Vote of Security Holders 15
Other Information 15
Exhibits and Reports on Form 8-K 15
Signatures 16
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<CAPTION>
Part I. Financial Information
Item 1. Consolidated Financial Statements
NaPro BioTherapeutics, Inc.
Balance Sheet
Assets
June 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,580,000 $ 8,102,000
Accounts receivable 930,000 1,508,000
Inventory 2,291,000 3,122,000
Restricted cash 2,000,000 ---
Prepaid expense and other 318,000 481,000
--------------- ------------
Total current assets 15,119,000 13,213,000
Property and equipment, net 14,506,000 15,187,000
Restricted cash 195,000 246,000
Inventory 1,861,000 1,176,000
Other assets 535,000 536,000
--------------- --------------
Total assets $ 32,216,000 $ 30,358,000
============= ============
</TABLE>
See accompanying notes
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<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc.
Balance Sheet
Liabilities and Stockholders' Equity
June 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,493,000 $ 4,361,000
Accrued payroll and payroll taxes 569,000 570,000
Notes payable--current portion 737,000 743,000
Senior convertible debt --- 8,134,000
Deferred revenue 4,059,000 1,890,000
--------------- --------------
Total current liabilities 7,858,000 15,698,000
Notes payable--long term 223,000 480,000
Senior convertible debt 6,304,000 ---
--------------- ------------------
Total liabilities 14,385,000 16,178,000
Minority interest 623,000 2,574,000
Senior convertible redeemable preferred stock, Series C 4,240,000 4,344,000
Stockholders' equity Preferred stock, $.001 par value:
Authorized shares--2,000,000
Issued--none (unaudited in 1998) --- ---
Non-voting common stock, convertible on disposition
into voting common stock, $.0075 par value:
Authorized shares--1,000,000 shares
Issued and outstanding shares--395,000 (unaudited
in 1998) 3,000 3,000
Common stock, $.0075 par value:
30,000,000 authorized at June 30, 1998, 19,000,000 authorized in 1997
15,752,264 shares issued in 1998 (unaudited),
and 13,134,021 in 1997 118,000 98,000
Additional paid-in capital 56,562,000 50,833,000
Deficit (39,273,000) (40,998,000)
Treasury stock--1,345,236 shares (4,442,000) (2,674,000)
--------------- --------------
Total stockholders' equity 12,968,000 7,262,000
-------------- -------------
Total liabilities and stockholders' equity $ 32,216,000 $30,358,000
============= ===========
</TABLE>
See accompanying notes
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<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc.
Statement of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Sales $ 574,000 $ 91,000 $ 2,989,000 $ 1,099,000
Expense:
Research, development and
cost of products sold 2,041,000 2,622,000 4,686,000 5,027,000
General and administrative 2,211,000 1,759,000 4,087,000 3,272,000
(Gain) Loss on retirement of assets 1,000 (218,000) 1,000 (218,000)
--------------- ------------- -------------- -------------
4,253,000 4,163,000 8,774,000 8,081,000
------------ ------------ ------------ -----------
Operating loss (3,679,000) (4,072,000) (5,785,000) (6,982,000)
Other income (expense):
License fee 3,750,000 --- 7,820,000 ---
Interest income 170,000 122,000 263,000 288,000
Interest and other expense (280,000) (292,000) (573,000) (374,000)
------------- ------------ ------------- -------------
Net income (loss) $ (39,000) $(4,242,000) $1,725,000 $(7,068,000)
============= ============ =========== ============
Earnings (loss) per share $ (0.01) $ (0.35) $ .12 $ (0.59)
============== ============== =============== ===============
Earnings per common share,
assuming dilution $ .11
===============
Weighted average shares outstanding 14,074,373 11,978,530 13,813,316 11,964,109
=========== ============ =========== ===========
Weighted average shares outstanding,
assuming dilution 15,795,390
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
NaPro BioTherapeutics, Inc.
Cash Flow Statement
(Unaudited)
Six Months Ended
June 30,
1998 1997
------ -----
<S> <C> <C>
Operating activities
Net income (loss) $1,725,000 $(7,068,000)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 946,000 437,000
Accretion of debt issue cost, warrant allocation
and conversion rights allocation 222,000 186,000
Compensation paid with warrants 139,000 ---
Interest paid in stock 204,000 ---
(Gain) loss on sale or retirement of assets 1,000 (218,000)
Loss on early retirement of debt 96,000 ---
Changes in operating assets and liabilities:
Accounts receivable 578,000 461,000
Inventory 146,000 (882,000)
Prepaid expense and other assets 164,000 (1,158,000)
Accounts payable (1,868,000) 1,724,000
Accrued liabilities 39,000 (34,000)
Deferred revenue 2,169,000 ---
------------ -------------
Net cash provided (used) by operating activities 4,561,000 (6,552,000)
Investing activities
Transfer of restricted cash (1,949,000) (7,210,000)
Additions to property and equipment (306,000) (7,235,000)
Purchase of securities held to maturity --- (3,500,000)
Proceeds from securities available for sale --- 1,462,000
Proceeds from securities held to maturity --- 5,076,000
Proceeds from sale of property and equipment 40,000 ---
------------ -------------
Net cash used by investing activities (2,215,000) (11,407,000)
Financing activities
Proceeds from notes payable 188,000 10,879,000
Payments of notes payable (1,098,000) (344,000)
Proceeds from the sale of common stock 42,000 43,000
-------------- ---------------
Net cash provided (used) by financing activities (868,000) 10,578,000
------------- ------------
Net increase (decrease) in cash and cash equivalents 1,478,000 (7,381,000)
Cash and cash equivalents at beginning of period 8,102,000 9,531,000
------------ ------------
Cash and cash equivalents at end of period $ 9,580,000 $ 2,150,000
=========== ===========
</TABLE>
See accompanying notes.
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NaPro BioTherapeutics, Inc.
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
1. Basis of Presentation
The accompanying financial statements are unaudited. However, in the opinion of
management, the financial statements reflect all adjustments, consisting of only
normal recurring adjustments, necessary for fair presentation. Interim results
of operations are not indicative of results for the full year. These financial
statements should be read in conjunction with the NaPro Annual Report on Form
10-K for the year ended December 31, 1997.
2. Inventory June 30, December 31,
1998 1997
Raw materials $ 132,000 $ 412,000
Work-in-process 582,000 1,408,000
Finished goods 1,577,000 1,302,000
---------- -----------
$2,291,000 $3,122,000
========== ==========
Non-current inventory
Raw materials $ 296,000 $ 347,000
Work-in-process 1,565,000 288,000
Finished goods --- 541,000
---------------- -----------
$1,861,000 $1,176,000
========== ==========
3. Cash Flow Supplemental Disclosures
Six Months Ended
June 30,
1998 1997
----------- ---------
Interest paid $ 71,000 $ 149,000
Noncash transactions:
Receipt of common stock into treasury:
Note 4 1,768,000 ---
Repurchase of common stock into treasury --- 990,000
Issuance of common stock--compensation 40,000 40,000
Exchange of preferred shares of subsidiary
for common shares of parent 1,951,000 ---
Issuance of common stock for
interest payable 204,000 ---
Conversion of senior convertible debt to
common stock 1,497,000 ---
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Cash Flow Supplemental Disclosures
(Continued) Six Months Ended
June 30,
1998 1997
------------ ----------
Conversion of convertible preferred shares
to common stock 385,000 ---
Accretion of convertible preferred stock
conversion rights valuation, offering
cost and warrant valuation 277,000 ---
Issuance of common stock for dividends payable 126,000 ---
4. Common Stock
In the June 1998 quarter NaPro issued 738,438 shares of common stock in
conversion of NaPro's senior convertible debt. In June 1998 NaPro issued 94,433
shares of common stock in payment of interest on the senior convertible debt. In
the June 1998 quarter NaPro issued 149,437 shares of common stock in conversion
of NaPro's senior convertible preferred stock. In June 1998 NaPro issued 56,697
shares of common stock in payment of dividends on the senior convertible
preferred stock.
In April 1998 IVAX Corporation (IVAX) returned 1,126,398 shares of NaPro common
stock into the NaPro treasury in accordance with the March 1998 Termination
Agreement between NaPro and IVAX.
5. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share. Diluted earnings per share is not calculated for periods in which a loss
is reported as the impact of additional shares is antidilutive:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (39,000) $(4,242,000) $ 1,725,000 $(7,068,000)
Preferred stock dividends (61,000) --- (118, 000) ---
---------- ------------ ----------- ------------
Numerator for basic earnings per share -
income available (loss) allocated to com-
mon stockholders (100,000) (4,242,000) 1,607,000 (7,068,000)
Effect of dilutive securities:
Senior convertible debt --- --- 34,000 ---
Preferred stock dividends --- --- 19,000 ---
----------- ------------ ----------- -----------
Numerator for diluted earnings per share -
income available to common stock-
holders after assumed conversions $ (100,000) $(4,242,000) $ 1,660,000 $(7,068,000)
=========== ============ =========== ============
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<TABLE>
<CAPTION>
Earnings per Share (continued) Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ -----
<S> <C> <C> <C> <C>
Denominator:
Denominator for basic earnings per share -
weighted average shares outstanding 14,074,373 11,978,530 13,813,316 11,964,109
----------- ------------ ------------ ----------
Senior convertible debt 915,541
Convertible preferred stock 592,752
Non-voting common stock 395,000
Stock options and warrants 48,781
------------
Dilutive potential common shares 1,952,074
Denominator for diluted earnings per share-
adjusted weighted average shares out-
standing and assumed conversions 15,765,390
==========
Earnings (loss) per common share $ (0.01) $ (0.35) $ 0.12 $ (0.59)
============= ============== ============== =============
Earnings per common share, assuming dilution $ 0.11
=============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis provide information that NaPro's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere herein as well as with the consolidated financial
statements, notes thereto and the related management's discussion and analysis
of financial condition and results of operations included in NaPro's Annual
Report on Form 10-K for the year ended December 31, 1997.
General
NaPro is a natural product pharmaceutical company that is focusing primarily on
the development, manufacture and commercialization of paclitaxel, a
naturally-occurring anti-cancer agent found in certain species of yew (Taxus)
trees.
NaPro has devoted its efforts primarily to the development and implementation of
its proprietary extraction, isolation and purification (EIPTM) technology and
the development of its proprietary semi-synthetic method for producing NaPro
Paclitaxel. To advance the development and commercialization of NaPro
Paclitaxel, NaPro entered into a 20-year, exclusive agreement with each of F.H.
Faulding & Co., Ltd. ("Faulding") and IVAX Corporation (dba IVX BioScience)
(including its subsidiaries, "IVAX") for the clinical development, sales,
marketing and distribution of NaPro Paclitaxel. NaPro and IVAX entered into an
agreement on March 20, 1998, (the "Termination Agreement") terminating their
development and marketing relationship. NaPro is in discussions with a number of
pharmaceutical companies, both domestically and internationally, to assist NaPro
in developing and marketing NaPro paclitaxel in various parts of the world.
NaPro is currently dependent for revenue exclusively on sales of NaPro
Paclitaxel, on royalties from licensed technology and amounts due under the
Termination Agreement.
NaPro has initiated clinical studies exploring the use of its patented
formulation of paclitaxel using its patented method of administration. NaPro
anticipates that information gained in such studies will be useful in the filing
of a New Drug Application with the U. S. Food and Drug Administration for NaPro
paclitaxel. The cost of such studies will be significant. NaPro anticipates that
should it enter into an agreement with
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one or more pharmaceutical companies as discussed above, such agreement would
include payment for all or a significant portion of the related clinical studies
cost. Absent such an agreement or other financing of these studies, the cost of
the clinical studies may significantly reduce NaPro's working capital.
Through June 30, 1998, NaPro's production of NaPro Paclitaxel was limited
primarily to research and pilot-scale production, and much of NaPro's product
sales were for use in clinical trials and for research and development purposes.
Accordingly, NaPro has generated only limited revenue from such activities and
has incurred significant losses, including losses of approximately $4.1 million,
$6.8 million and $15.5 million for the years ended December 31, 1995, 1996 and
1997, respectively. For the six months ended June 30, 1998, largely as a result
of a nonrecurring license fee received from IVAX, NaPro recorded net income of
approximately $1.7 million, resulting in an accumulated deficit of $39.3 million
as of June 30, 1998. NaPro expects that it will continue to have a high level of
operating expense and will be required to make significant up-front expenditures
in connection with its biomass procurement, product development, and research
and development activities. NaPro anticipates that annual losses will continue
until such time, if ever, as NaPro is able to generate sufficient revenue to
support its operations. NaPro believes that its ability to generate such revenue
depends primarily on the ability to obtain regulatory approval in the U. S. or
another major market for the commercial sale of NaPro Paclitaxel, on NaPro's
ability to obtain one or more partners to replace IVAX, on NaPro's ability to
obtain regulatory approval for its manufacturing facilities and on NaPro's
ability to construct manufacturing facilities that produce quantities of NaPro
Paclitaxel sufficient to supply NaPro's strategic partners' requirements for
commercial sales. Moreover, NaPro's future growth and profitability will depend
on the success of its strategic partners in fostering acceptance in the
oncological market for NaPro Paclitaxel as a preferred dosing regimen of taxane
chemotherapy to be used alone or in combination with other chemotherapeutic
agents.
In February 1998, due to the delay in receiving marketing approval for NaPro
Paclitaxel, NaPro underwent a restructuring to decrease overall cost, resulting
in a one-time charge of approximately $250,000. NaPro's total number of
employees was reduced by 53, a 43% reduction in full time positions, resulting
in an expected annual savings of $2.8 million in payroll expense. This payroll
expense is reflected in research and development, as well as general and
administrative expense. In addition, nonpayroll expense is also expected to
decrease as the result of the restructuring. As part of the restructuring NaPro
temporarily closed its British Columbia manufacturing facility and suspended
construction of its commercial scale manufacturing facility in Boulder,
Colorado. Completion of the Boulder facility will require additional financing,
which NaPro intends to seek at such time, if ever, as NaPro anticipates
sufficient product demand to warrant completion of the facility.
In March 1998, NaPro and IVAX entered into the Termination Agreement. Under the
terms of the Termination Agreement, IVAX received a royalty-free, limited,
nonexclusive license to one of NaPro's pending patents in the U. S., Europe, and
certain other world markets. In return, NaPro received a cash payment of $6
million, $2 million of which was placed in escrow to be released as remaining
product is delivered through March 1999. Revenue related to the escrow funds has
been deferred and is to be recognized as funds are released from the escrow. In
addition, IVAX returned in April 1998 approximately 1.1 million shares of NaPro
common stock, IVAX made an additional payment of $3,750,000 in April 1998 and is
to make a payment of $2,610,000 in the quarter ended September 1998. NaPro will
continue to manufacture a fixed amount of NaPro Paclitaxel for IVAX to be
delivered and paid for through March 1999.
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The termination of the IVAX Agreement leaves NaPro free to seek regulatory
approvals and market NaPro Paclitaxel itself or to seek a new partner or
partners with which to pursue regulatory approvals and marketing of NaPro
Paclitaxel, in either case outside the territory contractually allocated to
Faulding. However, the termination of the IVAX Agreement currently leaves NaPro
without such a partner. There can be no assurance that NaPro will be able to
secure such approvals or form new long-term relationships for the approval,
marketing, and distribution of NaPro Paclitaxel in these areas, or that NaPro or
such a partner, if found, will be able to effectively market NaPro Paclitaxel.
NaPro's future growth and profitability will depend on the success of NaPro's
strategic partners in fostering acceptance in the oncology market for NaPro
Paclitaxel as a preferred dosing regimen of taxane chemotherapy to be used alone
or in combination with other chemotherapeutic agents.
Results of Operations
Quarter ended June 30, 1998, compared to the quarter ended June 30, 1997 Sales
for the 1998 quarter were $600,000, representing an increase of $500,000 from
the 1997 quarter. The increase related primarily to the timing of product
shipments. Shipments to the strategic partners may vary significantly on a
quarter to quarter basis depending on a number of factors including the timing
and size of any clinical trials conducted by the strategic partners, the level
of inventory carried by the strategic partners, NaPro's obtaining one or more
partners to replace IVAX, and changes in approved markets. This
quarter-to-quarter variability will continue until such time, if ever, that
stable commercial demand has been established for the product in a major market.
Research and development and cost of products sold expense for the 1998 quarter
was $2 million representing a decrease of $600,000 from the 1997 quarter. The
decrease resulted from a decrease in the level of process development and
research expense as well as lower production cost. At this time NaPro's
production process is not distinct from its research and development processes.
Accordingly, the cost of products sold is included with NaPro's research and
development expense.
General and administrative expense for the 1998 quarter was $2.2 million, an
increase of $500,000 from the 1997 quarter. The increase is primarily
attributable to one-time cost associated with the IVAX termination and increased
legal fees.
License fee income for the 1998 quarter was $3.8 million. There was no analogous
income for the 1997 quarter. This revenue related to a license fee paid by IVAX
in conjunction with the Termination Agree ment. Associated with the Termination
Agreement, NaPro expects to record up to an additional $4.6 million in license
fee income through March 1999 ($2 million of which has been received but is
escrowed pending future product deliveries). NaPro is actively seeking one or
more new pharmaceutical partners to replace IVAX. There can be no assurance,
however, that NaPro will succeed in obtaining any new pharmaceutical partners or
in earning any license fees other than the Termination Agreement license fee.
Interest income for the 1998 quarter was $200,000, representing an increase of
$100,000 from the 1997 quarter. This increase is primarily due to the increased
cash balances available for investment.
Interest and other expense for the 1998 quarter was $300,000, unchanged from the
1997 quarter.
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Six months ended June 30, 1998, compared to the six months ended June 30, 1997
Sales for the 1998 period were $3 million, representing an increase of $1.9
million from the 1997 period. The increase related primarily to the timing of
product shipments.
Research and development and cost of products sold expense for the 1998 period
was $4.7 million, representing a decrease of $300,000 from the 1997 period. The
decrease resulted from a decrease in the level of process development and
research expense as well as lower production cost.
General and administrative expense for the 1998 period was $4.1 million, an
increase of $800,000 from the 1997 period. The increase is primarily
attributable to the cost associated with the IVAX termination, the February 1998
restructuring and increased legal fees.
License fee income for the 1998 period was $7.8 million. NaPro earned no
analogous income for the 1997 period. This revenue related to a license fee paid
by IVAX in conjunction with the Termination Agree ment.
Interest income for the 1998 period was $300,000, unchanged from the 1997
period.
Interest and other expense for the 1998 period was $600,000, representing an
increase of $200,000 from the 1997 period. The increase is attributable largely
to interest on the senior convertible debt.
Liquidity and Capital Resources
NaPro's capital requirements have been and will continue to be significant. At
June 30, 1998, NaPro had working capital of $7.3 million. This compared to
negative working capital of $2.5 million at December 31, 1997. To date, the
funding of NaPro's capital requirements has been dependent primarily on the net
proceeds of public offerings of its common stock of approximately $21.1 million,
on private placements of its equity securities of approximately $27.8 million,
on the exercise of warrants and options of $5.6 million, on net borrowings of
$11.8 million, and on loans and advances from its stockholders and strategic
partners.
In June and December 1997, NaPro issued its Senior Convertible Notes due in 2000
(the "Convertible Notes") and Series C Senior Convertible Preferred Stock (the"
Convertible Preferred Stock"), respectively. The Convertible Notes and the
Convertible Preferred Stock are referred to as the "Convertible Securities."
The Convertible Securities can be converted into NaPro common stock at discounts
(ranging from 5% to 10%) from the market price of the common stock during
specified periods prior to the conversion. Such conversions may be made at the
rate of up to 450,000 shares of common stock per month through December 31,
1998, and up to the full amount of the outstanding Convertible Securities
thereafter. As of June 30, 1998, $3.6 million of the Convertible Securities have
been converted into 2,197,056 shares of common stock. After June 30, 1998, over
7 million shares of common stock could be issued by NaPro upon conversion of the
Convertible Securities subject to certain limitations under the terms of the
Convertible Securities. The issuance of shares of common stock upon conversion
of the Convertible Securities would result in substantial dilution of the
interest of the current stockholders of NaPro.
Cash and cash equivalents totaled $9.6 million at June 30, 1998. During the
first six months of 1998, cash provided by operating activities totaled $4.6
million; and cash used by investing and financing activities
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totaled $2.2 million and $900,000, respectively. NaPro expended $300,000 for
plantation cost during the first six months of 1998.
The amount and timing of future capital expenditures will depend upon numerous
factors including the progress of NaPro's research and development program, the
magnitude and scope of these activities; the cost of preparing, filing,
prosecuting, maintaining and enforcing patent claims and other intellectual
property rights, competing technological and marketing developments, changes in
the existing strategic partnership; the establishment of additional strategic
relationships and the cost of manufacturing scale-up. NaPro may seek additional
long-term financing to fund capital expenditures should such financing become
available on terms acceptable to NaPro.
Special Note Regarding Forward-looking Statements.
Certain statements in this report constitute "forward-looking statements" within
the meaning of the federal securities laws. In addition, NaPro or persons acting
on its behalf sometimes make forward-looking statements in other written and
oral communications. Such forward-looking statements may include, among other
things, statements concerning NaPro's plans, objectives and future economic
prospects, such as matters relative to seeking and obtaining strategic partners;
the availability of patent and other protection for its intellectual property;
the completion of clinical trials and regulatory filings; the prospects for and
timing of regulatory approvals; the need for and availability of additional
capital; the amount and timing of capital expenditures; timing of products
introductions and revenue; the availability of raw materials; prospects for
future operations; and other statements of expectations, beliefs, future plans
and strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of NaPro, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Included, among other
things, are the following factors: adverse economic and general business
conditions, competition from Bristol-Myers Squibb Company (Bristol) and other
existing and new producers of paclitaxel and other drugs, technological advances
in cancer treatment and drug development, the ability to obtain rights to
technology, the ability to obtain and enforce patents, the ability to obtain raw
materials and commercialize manufacturing processes, the effectiveness of NaPro
Paclitaxel and other pharmaceuticals developed by NaPro in treating disease, the
results of clinical studies, the results of research and development activities,
the business abilities and judgment of NaPro's management and other personnel,
the availability of qualified personnel generally, changes in and compliance
with governmental regulations, the effect of capital market conditions and other
factors on capital availability for NaPro and other biopharmaceutical companies,
the ability of Faulding to perform its obligations under its existing agreement
with NaPro, the ability of NaPro to establish relationships with capable
strategic partners to develop and market NaPro Paclitaxel in the territories not
covered by the Faulding Agreement, and other factors referenced in this Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
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Part II--Other Information
Item 1. Legal Proceedings
Australian Petty Patents
In September 1993 and August 1994, Bristol received two Australian petty patents
claiming certain methods of administering paclitaxel. Australian petty patents
have a maximum term of six years. Such patents are allowed to contain only three
claims (one independent and two dependent) and are granted on the basis of a
prior art search, which is significantly more limited in scope than the searches
done prior to issuance of standard patents. Following publication of these
patents, Faulding instituted legal action to revoke these patents on the grounds
that the patent claims are invalid and that the subject matter claimed in the
patents was already known prior to the claimed date of invention. In February
1995, Bristol brought legal action against Faulding based upon these patent
claims, seeking an injunction against Faulding to prevent Faulding from
marketing NaPro Paclitaxel pursuant to Faulding's generic approval. In July
1998, Faulding received a favorable ruling from the Federal Court in Australia
that invalidated the patents. In addition, the court ruled against Bristol in
the countersuit which alleged infringement of those patents.
European Patent Litigation
On May 14, 1997, Bristol was issued a European Patent relating to certain
methods of treatment with paclitaxel. On the same day, NaPro instituted
revocation proceedings in the United Kingdom against this European patent as
issued in the U. K. and a separate but related British patent also owned by
Bristol. The revocation action was not in response to any lawsuit or allegations
of infringement against NaPro relating to the patents, but Bristol has
subsequently instituted a countersuit against NaPro alleging infringement. The
court heard each of the party's claims in July 1998, but no decision had been
issued in this case as of August 1, 1998. Because issues regarding the scope and
validity of these patents have yet to be resolved, it is too early to estimate
the impact, if any, which these patents may have on NaPro's business. However,
in the event that NaPro were to be held liable for infringement, NaPro expects
no significant liability because it is not involved in any activity in the U. K.
involving paclitaxel.
Item 2. Changes in Securities
In the June 1998 quarter, NaPro issued 738,438 shares of common stock in
conversion of $914,000 of the Convertible Notes. In June 1998, NaPro issued
94,433 shares of common stock in payment of $97,000 interest on the Convertible
Notes. In the June 1998 quarter, NaPro issued 149,437 shares of common stock in
conversion of 122 shares of the Convertible Preferred Stock. In June 1998, NaPro
issued 56,697 shares of common stock in payment of dividends on the Convertible
Preferred Stock. The issuance of shares of common stock upon conversion of the
Convertible Securities was exempt from registration under section 3(a)(9) of the
Securities Act of 1933, as amended (the "Securities Act"). The issuance of
shares of common stock in the payment of interest and dividends was exempt as a
private placement to sophisticated investors under section 4(2) of the
Securities Act and Regulation D thereunder.
Certain provisions of the Convertible Preferred Stock may limit the ability of
NaPro to pay dividends on its common stock and to repurchase shares of its
common stock.
Item 3. Defaults upon Senior Securities. None.
14
<PAGE>
Item 4. Submission of Matters to a Vote of Securities Holders.
At the Annual Meeting of Stockholders held on May 28, 1998 (the "Annual
Meeting"), the following proposals were adopted by the margins indicated:
1. The election of two Class II directors to hold office until the 2001
annual meeting of stockholders:
Number of Shares
Nominee For Withheld
Patricia A. Pilia 13,597,507 123,431
Randolph C. Steer 13,590,861 130,077
In addition, the terms for the following members of the Board of Directors
continued after the Annual Meeting: Leonard P. Shaykin, Sterling K. Ainsworth,
Ph.D., Arthur H. Hayes, Jr., M.D., and Mark B. Hacken.
2. Approval of the issuance of 20% or more of NaPro's common stock at
discounts of up to 10% from its market value as of certain dates in
connection with each of NaPro's currently outstanding Senior Convertible
Notes and Series C Convertible Preferred Stock:
Number of Shares
For 6,854,725
Against 393,424
Abstain 29,077
3. Approval of amendments to NaPro's Amended and Restated Certificate of
Incorporation increasing the number of authorized shares of common stock
from 19 million shares to 30 million shares:
Number of Shares
For 13,414,373
Against 273,147
Abstain 33,428
4. Approval of an amendment to NaPro's 1994 Long-Term performance Incentive
Plan increasing the number of shares of common stock issuable thereunder:
Number of Shares
For 11,653,080
Against 2,027,388
Abstain 40,483
5. The ratification of the selection by the Board of Directors of Ernst &
Young LLP as NaPro's independ ent auditors for the year ending December 31,
1997.
Number of Shares
For 13,691,736
Against 16,189
Abstain 13,029
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
NaPro filed no Current Reports on Form 8-K during the quarter.
Exhibit
Number Description of Exhibit
27.1 Financial Data Schedule
15
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, NaPro has
duly caused this report to be signed on its behalf.
NaPro BioTherapeutics, Inc.
August 14, 1998 /s/ Sterling K. Ainsworth
Sterling K. Ainsworth
President and Chief Executive Officer
(Principal Executive Officer)
August 14, 1998 /s/ Gordon Link
Gordon Link
Vice President and Chief Financial Officer
(Principal Financial Officer)
August 14, 1998 /s/ Robert L. Poley
Robert L. Poley
Controller
(Principal Accounting Officer)
16
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,580
<SECURITIES> 0
<RECEIVABLES> 930
<ALLOWANCES> 0
<INVENTORY> 2,291
<CURRENT-ASSETS> 15,119
<PP&E> 18,375
<DEPRECIATION> 3,869
<TOTAL-ASSETS> 32,216
<CURRENT-LIABILITIES> 7,858
<BONDS> 223
0
4,240
<COMMON> 121
<OTHER-SE> 12,847
<TOTAL-LIABILITY-AND-EQUITY> 32,216
<SALES> 2,989
<TOTAL-REVENUES> 2,989
<CGS> 0
<TOTAL-COSTS> 8,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 566
<INCOME-PRETAX> 1,725
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,725
<EPS-PRIMARY> .12
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