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 JUNE 30, 1996
Commission file number 0-28454
ANDRX CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0366879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 SOUTHWEST 47TH AVENUE
FORT LAUDERDALE, FL 33314
(Address Of Principal (Zip Code)
Executive Offices)
954-584-0300
(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 twelve 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:
YES [ ] NO [X]
The number of shares outstanding of the Registrant's only class of common stock
as of August 1, 1996 was 13,299,372 shares.
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ANDRX CORPORATION
INDEX TO THE FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
PART I FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
as of December 31, 1995
and June 30, 1996 2
Consolidated Statements of Operations
for the three and six months ended
June 30, 1995 and 1996 3
Consolidated Statements of Cash Flows
for the six months ended
June 30, 1995 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Exhibit 11 Computation of Net Loss Per Share
Exhibit 27 Financial Data Schedule (EDGAR version only)
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ANDRX CORPORATION
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets December 31, June 30,
1995 1996
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 13,841,400 $ 22,868,300
Short-term investments - 14,503,900
Accounts receivable, net of allowances of $574,200 and $690,000
(unaudited) as of December 31, 1995 and June 30, 1996, respectively 8,263,400 9,892,400
Due from joint venture 488,500 339,500
Inventories 9,502,000 10,135,000
Prepaid and other current assets 130,500 850,000
--------------- ---------------
Total current assets 32,225,800 58,589,100
Property and equipment, net 3,831,100 5,736,100
Other assets 91,800 45,500
--------------- ---------------
Total assets $ 36,148,700 $ 64,370,700
=============== ===============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 9,860,000 $ 12,288,000
Accrued liabilities 1,724,200 3,232,800
Bank loan 6,077,500 4,418,600
Notes payable 23,500 463,800
Commitment to joint venture 139,000 93,900
--------------- ---------------
Total current liabilities 17,824,200 20,497,100
--------------- ---------------
Commitments and contingencies
Shareholders' equity
Convertible preferred stock; $0.001 par value, 1,000,000 shares authorized; no
shares issued and outstanding as of December 31, 1995 and June 30,
1996, respectively - -
Common stock; $0.001 par value, 25,000,000 shares authorized; 10,727,100 and
13,263,100 (unaudited) shares issued and outstanding as of December 31, 1995
and June 30, 1996, respectively 10,700 13,300
Additional paid-in capital 28,795,000 56,240,700
Accumulated deficit (10,481,200) (12,366,100)
Unrealized loss on short-term investments - (14,300)
--------------- ---------------
Total shareholders' equity 18,324,500 43,873,600
--------------- ---------------
Total liabilities and shareholders' equity
$ 36,148,700 $ 64,370,700
================ ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
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<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Distribution revenues, net $11,595,400 $19,736,500 $22,496,100 $37,776,400
Research and development services
to joint venture 566,600 676,800 1,091,100 1,554,800
Licensing revenues 50,000 - 50,000 -
---------- ---------- ---------- ----------
Total revenues 12,212,000 20,413,300 23,637,200 39,331,200
---------- ---------- ---------- ----------
COST OF REVENUES
Distribution revenues 9,574,800 16,449,400 18,655,500 31,498,200
Research and development services
to joint venture 566,600 676,800 1,091,100 1,554,800
---------- ---------- ---------- ----------
Total cost of revenues 10,141,400 17,126,200 19,746,600 33,053,000
---------- ---------- ---------- ----------
Gross profit 2,070,600 3,287,100 3,890,600 6,278,200
---------- ---------- ---------- ----------
OPERATING EXPENSES
Selling, general and administrative 2,137,600 3,085,900 3,886,500 5,840,000
Research and development 441,800 915,400 832,100 1,324,900
Equity in losses of joint venture 538,500 486,700 814,100 1,031,200
---------- ---------- ---------- ----------
Total operating expenses 3,117,900 4,488,000 5,532,700 8,196,100
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (1,047,300) (1,200,900) (1,642,100) (1,917,900)
Interest expense (165,500) (132,800) (275,000) (281,700)
Interest income 45,500 171,200 96,100 314,700
Other income (expense), net 33,300 - 33,300 -
---------- ---------- ---------- ----------
NET LOSS $ (1,134,000) $ (1,162,500) $ (1,787,700) $ (1,884,900)
============= ============= ============= ==============
NET LOSS PER SHARE $ (0.12) $ (0.10) $ (0.20) $ (0.17)
============= ============= ============= ==============
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 9,322,000 11,178,000 9,042,600 10,952,600
============= ============= ============= ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
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<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (1,787,700) $ (1,884,900)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 382,000 426,600
Provisions for losses on accounts receivable 232,200 115,800
Equity in losses of joint venture 814,100 1,031,200
Contributions to joint venture (600,000) (1,255,500)
Increase in accounts receivable (1,500,200) (1,744,800)
Increase (decrease) in due from joint venture (196,800) 328,200
Increase in inventories (4,584,300) (633,000)
Increase in prepaid and other current assets (86,700) (719,500)
Decrease in other assets 40,800 46,300
Increase in accounts payable and accrued liabilities 167,700 3,936,600
------------- -------------
Net cash used in operating activities (7,118,900) (353,000)
------------- -------------
Cash flows from investing activities
Purchase of property and equipment (511,400) (2,331,600)
Purchase of short-term investments, net - (14,518,200)
------------- -------------
Net cash used in investing activities (511,400) (16,849,800)
------------- -------------
Cash flows from financing activities
Proceeds from issuance of shares of common stock, net 1,006,300 27,430,300
Proceeds from exercise of warrants 814,100 -
Proceeds from exercise of stock options - 18,000
Net borrowings (repayments) under bank loan 3,628,800 (1,658,900)
Proceeds from notes payable 110,600 501,900
Payment on notes payable (97,000) (61,600)
------------- -------------
Net cash provided by financing activities 5,462,800 26,229,700
------------- -------------
Net increase (decrease) in cash and cash equivalents (2,167,500) 9,026,900
Cash and cash equivalents, beginning of period 3,845,800 13,841,400
------------- -------------
Cash and cash equivalents, end of period $ 1,678,300 $ 22,868,300
============= =============
Supplemental disclosure of cash paid during the period for
Interest $ 275,000 $ 281,700
============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
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ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared by Andrx Corporation ("Andrx" or the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations. However, management believes that the disclosures contained herein
are adequate to make the information presented not misleading. The unaudited
consolidated financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations.
The results of operations for the three and six months ended June 30, 1996 and
cash flows for the six months ended June 30, 1996, are not necessarily
indicative of the results of operations or cash flows which may be expected for
the remainder of 1996. The unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements and related notes
for the year ended December 31, 1995, included in the Company's Prospectus dated
June 14, 1996.
2. INITIAL PUBLIC OFFERING
Additional Paid-In
Common Stock Capital
------------ ------------------
Shares Amount
------ ------
Balance, January 1, 1996 10,727,100 $ 10,700 $ 28,795,000
Exercise of stock options 6,000 - 18,000
Initial public offering 2,530,000 2,600 27,427,700
---------- ---------- ------------
Balance, June 30, 1996 13,263,100 $ 13,300 $ 56,240,700
========== ========== ============
In June, 1996, the Company completed its initial public offering ("IPO")
of 2,530,000 shares of the Company's common stock. The gross proceeds from the
sale of such stock totaled approximately $30.4 million. The Company anticipates
that the net proceeds of $27.4 million will be used for research and product
development activities relating to the Company's drug delivery technologies
(including the Company's share of the funding of the ANCIRC joint venture) and
for capital expenditures relating to product development, primarily the
establishment of a commercial-scale manufacturing facility for the
commercialization of the Company's generic versions of Cardizem CD/registered
trademark/ and Dilacor XR/registered trademark/. Abbreviated New Drug
Applications for such products were submitted to the Food and Drug
Administration in late 1995. The balance of the net proceeds will be used for
working capital and other general corporate purposes.
5
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3. SHORT-TERM INVESTMENTS
The Company utilizes the provisions of Financial Accounting Standards Board
Statement on Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". This statement requires that
marketable equity securities and all debt securities be classified into three
categories; (i) held to maturity securities, (ii) trading securities and (iii)
available for sale securities. The Company's short-term investments are
classified as available for sale and, accordingly, the unrealized loss as of
June 30, 1996 is reported as a separate component of shareholders' equity. The
cost related to short-term investments sold is determined utilizing the specific
identification method.
4. JOINT VENTURE
Condensed balance sheets and statements of operations for ANCIRC are as
follows:
December 31, 1995 June 30, 1996
------------------ ---------------
Cash $ 84,900 $ 4,100
Equipment, net - 28,300
-------------- ------------
Total assets $ 84,900 $ 32,400
============== ============
Current liabilities $ 1,285,200 $ 894,800
Partners' deficit (1,200,300) (862,400)
-------------- ------------
Total liabilities and
partners' deficit $ 84,900 $ 32,400
============== ============
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------------
1995 1996 1995 1996
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Research and development
expenses $ 898,600 $ 975,500 $ 1,360,200 $ 2,065,800
========= ========= =========== ============
Net loss $(897,600) $(973,400) $(1,356,900) $ (2,062,400)
========= ========= =========== ============
Research and development
services provided by Andrx $ 566,600 $ 676,800 $ 1,091,100 $ 1,554,800
========= ========= =========== ============
Overhead included in research
and development services
provided by Andrx $ 364,100 $ 313,000 $ 703,200 $ 849,200
========= ========= =========== ============
</TABLE>
As of December 31, 1995 and June 30, 1996, the Company was due
$1,005,000 and $676,800, respectively, from ANCIRC for research and development
services rendered. In the December 31, 1995 and June 30, 1996 consolidated
balance sheets, such amounts due from the joint venture were offset by $516,500
and $337,300, respectively, representing the amount that Andrx is required to
fund to ANCIRC in order to receive the full amount due from the joint venture.
In August 1996, the joint venturers were required to make capital contributions
to ANCIRC to fund their respective capital accounts. The proceeds of these
contributions were
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utilized by ANCIRC to pay each joint venturers' outstanding balance for services
rendered through June 30, 1996. Andrx's capital contribution to ANCIRC was
$750,000 and ANCIRC paid $676,800 to the Company.
5. INCOME TAXES
For the three and six months ended June 30, 1995 and 1996 the Company
was not required to provide for federal or state income taxes due to its net
losses. Under the provisions of SFAS No. 109, "Accounting for Income Taxes", the
Company has provided a valuation allowance to reserve against 100% of its net
operating loss carryforwards given the Company's history of net losses. As of
June 30, 1996, for financial reporting purposes and federal income tax purposes,
the Company has net operating loss carryforwards of approximately $11.7 million
and $9.5 million, respectively, which if not utilized, will expire beginning in
2008. Net operating loss carryforwards are subject to review and possible
adjustment by the Internal Revenue Service and may be limited in the event of
certain cumulative changes in the ownership interest of significant shareholders
over a three-year period in excess of 50%.
6. NET LOSS PER SHARE
For the three and six months ended June 30, 1996, net loss per share is
based on the weighted average number of common shares outstanding. Since the
effect of common stock equivalents was antidilutive, all such equivalents were
excluded in loss per share.
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletins, common stock and common stock equivalents issued at prices below the
public offering price during the 12-month period prior to the Company's IPO on
June 14, 1996, are required to be included in the calculation of earnings or
loss per share, as if they were outstanding for all periods presented, using the
treasury stock method. Accordingly, the weighted average number of shares of
common stock outstanding for three and six months ended June 30, 1995 have been
adjusted to reflect the impact of such additional common stock and common stock
equivalents issued below the initial public offering price.
7. CONTINGENCIES
The Company is involved in a dispute and two litigation matters, all of
which arose in the ordinary course of business. The litigation process is
inherently uncertain and it is possible that the resolution of the lawsuits may
adversely effect the Company. There have been no material developments in any
legal matters since the Company's Prospectus dated June 14, 1996.
For the three and six months ended June 30, 1996, the Company has
recorded provisions for $150,000 and $300,000, respectively, for anticipated
additional litigation costs related to the Company's Abbreviated New Drug
Application for its generic version of Cardizem CD/registered trademark/.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANDRX CORPORATION AND SUBSIDIARIES ("ANDRX" OR THE "COMPANY") CAUTIONS
READERS THAT CERTAIN IMPORTANT FACTORS MAY AFFECT THE COMPANY'S ACTUAL RESULTS
AND COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING
STATEMENTS WHICH MAY BE DEEMED TO HAVE BEEN MADE IN THIS REPORT OR WHICH ARE
OTHERWISE MADE BY OR ON BEHALF OF THE COMPANY. SUCH FACTORS INCLUDE, BUT ARE NOT
LIMITED TO, THE RISKS AND UNCERTAINTIES ASSOCIATED WITH A DRUG DELIVERY COMPANY
WHICH HAS NOT COMMERCIALIZED ITS FIRST PRODUCT, INCLUDING A HISTORY OF NET
LOSSES, UNPROVEN TECHNOLOGY, LACK OF MANUFACTURING EXPERIENCE, CURRENT AND
POTENTIAL COMPETITORS WITH SIGNIFICANT TECHNICAL AND MARKETING RESOURCES, NEED
FOR FUTURE CAPITAL AND DEPENDENCE ON COLLABORATIVE PARTNERS AND ON KEY
PERSONNEL. ADDITIONALLY, THE COMPANY IS SUBJECT TO THE RISKS AND UNCERTAINTIES
ASSOCIATED WITH ALL DRUG DELIVERY COMPANIES, INCLUDING COMPLIANCE WITH
GOVERNMENT REGULATIONS AND THE POSSIBILITY OF PATENT INFRINGEMENT LITIGATION.
THE COMPANY IS ALSO SUBJECT TO OTHER RISKS DETAILED HEREIN OR DETAILED FROM TIME
TO TIME IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.
INTRODUCTION
Andrx was organized in August 1992 and, in November 1992, commenced
marketing and distributing generic pharmaceuticals manufactured by third
parties. In February 1993, the Company began to engage in the development of
generic controlled-release oral pharmaceuticals utilizing its proprietary drug
delivery technologies. To date, the distribution operations have generated
substantially all of the Company's revenues and the Company expects that
revenues from the distribution of generic pharmaceuticals will continue to
comprise substantially all of its revenues until the Company receives approvals
from the Food and Drug Administration for the marketing of its products and
meaningful revenues are achieved from a product developed by the Company. The
Company expects to generate negative cash flow and net losses at least through
1997.
To expedite product development and reduce the Company's development
costs, the Company has entered into collaborative agreements with major
pharmaceutical companies. The Company is a 50% partner in the ANCIRC joint
venture with Watson Pharmaceuticals, Inc. ("Watson") for the development of up
to eight controlled-release drugs and has entered into development and licensing
agreements with Mylan Laboratories, Inc., Zenith Laboratories, Inc. (a
subsidiary of IVAX Corporation) and Watson for four additional
controlled-release drugs. Capital contributions to, and net income or losses
from, ANCIRC are allocated equally between the Company and Watson. The Company
generates revenues from research and development services provided to ANCIRC at
cost, resulting in no gross profit.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THREE MONTHS ENDED JUNE
30, 1995
Total revenues for the three months ended June 30, 1996 ("1996
Quarter") were approximately $20.4 million, an increase of approximately $8.2
million or 67%, as compared to total revenues of approximately $12.2 million for
the three months ended June 30, 1995 ("1995 Quarter"). The distribution of
generic pharmaceutical products generated revenues of
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approximately $19.7 million in the 1996 Quarter, an increase of approximately
$8.1 million or 70%, from approximately $11.6 million in the 1995 Quarter. The
increase in distribution revenues reflects the Company's increased penetration
of a growing generic market. The number of customer accounts serviced by the
Company increased from approximately 5,500 as of June 30, 1995 to approximately
9,200 as of June 30, 1996 and the number of products offered increased from
approximately 1,500 at June 30, 1995 to approximately 2,000 at June 30, 1996.
Revenues generated by research and development services to ANCIRC increased to
approximately $677,000 in the 1996 Quarter from approximately $567,000 in the
1995 Quarter. This increase resulted from an increase in the Company's research
and development efforts on ANCIRC products after the submission of Abbreviated
New Drug Applications ("ANDA") in late 1995 for the Company's generic versions
of Cardizem CD/registered trademark/ and Dilacor XR/registered trademark/ .
Gross profit on the distribution of generic pharmaceutical products was
16.7% as a percentage of distribution revenues in the 1996 Quarter, as compared
to 17.4% in the 1995 Quarter. The decrease in gross profit as a percentage of
distribution revenues is the result of the continuing competition and pricing
pressures within the generic industry.
Selling, general and administrative expenses were approximately $3.1
million in the 1996 Quarter, an increase of approximately $1.0 million or 44%
compared to approximately $2.1 million in the 1995 Quarter. This increase was
primarily attributable to an increase in selling activities to support the
increase in distribution revenues.
Research and development expenses were approximately $915,000 in the
1996 Quarter, as compared to $442,000 in the 1995 Quarter. Research and
development expenses in the 1996 Quarter include a $150,000 provision for
anticipated additional litigation costs in connection with the ANDA submitted in
late 1995 for the Company's generic version of Cardizem CD/registered
trademark/. The filing of an ANDA for a generic version of a brand name
pharmaceutical may result in litigation alleging infringement of patents
covering the brand name pharmaceutical. Even though the Company believes that
its drug delivery technologies do not infringe on any patent rights held by
others, the Company evaluates the probability of patent infringement litigation
with respect to its ANDA submissions on a case by case basis and, accordingly,
will reserve for anticipated legal expenses as it deems appropriate.
Additionally, research and development expenses for the 1996 Quarter include the
Company's efforts to establish a facility for the commercial-scale manufacture
of the Company's generic versions of Cardizem CD/registered trademark/ and
Dilacor XR/registered trademark/ for which ANDAs were submitted in late 1995.
Research and development expenses exclude cost of revenues for services rendered
to ANCIRC of approximately $677,000 in the 1996 Quarter and approximately
$567,000 in the 1995 Quarter of which approximately $313,000 and $364,000,
respectively, represent overhead allocations.
The Company's share of losses in ANCIRC was approximately $487,000 in
the 1996 Quarter as compared to approximately $539,000 in the 1995 Quarter. The
decrease in the Company's share of ANCIRC's losses is the result of the
amendment to the ANCIRC agreement on October 30, 1995 whereby, amongst other
changes, the Company's interest in ANCIRC was reduced from 60% to 50%.
Interest expense was approximately $133,000 in the 1996 Quarter as
compared to approximately $166,000 in the 1995 Quarter. The decrease was due to
the reduction in the interest rate on bank borrowings from the prime rate plus
2.0% to the prime rate plus 1.5% which
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occurred in January 1996. Such borrowings are utilized to fund the working
capital requirements for the Company's distribution operations.
Interest income was approximately $171,000 in the 1996 Quarter as
compared to approximately $46,000 in the 1995 Quarter. The increase in interest
income is the result of the net increase in cash, cash equivalents and
short-term investments during 1995 and 1996, primarily from the sale of shares
of common stock to Watson in August and December 1995, for net proceeds of
approximately $13.6 million and the sale of 2,530,000 shares of the Company's
common stock in an IPO in June 1996 for gross proceeds of approximately $30.4
million.
For 1996 and 1995, the Company was not required to provide for federal
or state income taxes due to its net losses. As of June 30, 1996, the net
operating loss carryforward was approximately $11.7 million for financial
reporting purposes and approximately $9.5 million for federal tax purposes,
which, if not utilized, will expire in 2008.
SIX MONTHS ENDED JUNE 30, 1996 AS COMPARED TO SIX MONTHS ENDED
JUNE 30, 1995
Total revenues for the six months ended June 30, 1996 ("1996 Period")
were approximately $39.3 million, an increase of approximately $15.7 million or
66% as compared to total revenues of approximately $23.6 million for the six
months ended June 30, 1995 ("1995 Period"). Distribution revenues were
approximately $37.8 million in the 1996 Period, an increase of approximately
$15.3 million or 68% from approximately $22.5 million in the 1995 Period. The
increase in distribution revenues resulted from an increase in the number of
customer accounts serviced by the Company and the number of products offered.
Revenues generated by research and development services to ANCIRC increased to
approximately $1.6 million in the 1996 Period from approximately $1.1 million in
the 1995 Period. This increase resulted from an increase in the Company's
research and development efforts on ANCIRC products.
Gross profit on the distribution of generic pharmaceutical products was
16.6% as a percentage of distribution revenues in the 1996 Period, as compared
to 17.1% in the 1995 Period. The decrease in gross profit as a percentage of
distribution revenues is the result of continuing competition and pricing
pressures within the generic industry.
Selling, general and administrative expenses were approximately $5.8
million the 1996 Period, an increase of approximately $1.9 million or 50% as
compared to approximately $3.9 million in the 1995 Period. This increase was
primarily attributable to an increase in selling activities to support the
increase in distribution revenues.
Research and development expenses were approximately $1.3 million in
the 1996 Period, as compared to $832,000 in the 1995 Period. Research and
development expenses in the 1996 Period include a $300,000 provision for
anticipated additional litigation costs in connection with the Company's ANDA
submitted in late 1995 for the generic version of Cardizem CD/registered
trademark/. Additionally, research and development expenses in the 1996 Period
include the expenses related to the establishment of a commercial manufacturing
facility. Research and development expenses exclude cost of revenues for
services rendered to ANCIRC of approximately $1.6 million in the 1996 Period and
approximately $1.1 million in 1995 Period of which approximately $849,000 and
$703,000, respectively, represent overhead allocations.
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The Company's share of losses in ANCIRC was approximately $1.0 million
in the 1996 Period as compared to approximately $814,000 in the 1995 Period. The
increase in the Company's share of ANCIRC's losses of approximately $200,000 is
the result of the increase in the Company's and Watson's research and
development efforts on the ANCIRC products during 1996. The increase in the
Company's share of ANCIRC's losses is net of the decrease in the Company's
interest in ANCIRC from 60% in the 1995 Period to 50% in the 1996 Period.
Interest expense was approximately $282,000 in the 1996 Period as
compared to $275,000 in the 1995 Period. Although the interest rate on the
Company's bank borrowings decreased, interest expense remained relatively
constant in the 1996 Period, as compared to the 1995 Period, due to the higher
average level of borrowings during the 1996 Period. Such higher level of
borrowings were required to finance the higher average level of working capital
supporting the growth of the distribution operations.
Interest income was approximately $315,000 in the 1996 Period as
compared to approximately $96,000 in the 1995 Period. The increase in interest
income is the result of the net increase in cash, cash equivalents and short
term investments during 1995 and 1996, primarily from the sale of shares of the
Company's common stock.
For 1996 and 1995, the Company was not required to provide for federal
or state income taxes due to its net losses.
LIQUIDITY AND CAPITAL RESOURCES
In June 1996, the Company consummated its IPO with gross proceeds of
$30.4 million. Prior to June 1996, the Company had financed its operations
primarily through private placements of equity securities for net proceeds of
$27.9 million and, to a lesser extent, through bank borrowings. As of June 30,
1996, Andrx had $37.4 million in cash, cash equivalents and short-term
investments and $38.1 million of working capital.
Net cash used in operating activities was $353,000 and $7.1 million in
the 1996 Period and the 1995 Period, respectively. The net cash used in
operating activities in both these periods was primarily attributed to research
and development and increases in accounts receivable and inventories, which were
offset by the increases in accounts payable and accrued liabilities. The
decrease in net cash used in operating activities in the 1996 Period as compared
to the 1995 Period was attributed to a larger increase in accounts payable and
accrued liabilities which was offset to a lesser extent by the increases in
accounts receivable and inventories. Research and development spending includes
the Company's contributions to ANCIRC. In 1996 the Company expects to contribute
between $2.5 million and $3.0 million to ANCIRC.
Net cash used in investing activities was $16.8 million and $511,000 in
the 1996 Period and 1995 Period, respectively. In June 1996, the Company
invested $14.5 million of the proceeds from the IPO in short-term investment
grade interest bearing securities. Additionally, in the 1996 Period the Company
invested $2.3 million in capital expenditures as compared to $511,000 in the
1995 Period. The capital expenditures in 1996 were primarily for the procurement
of manufacturing equipment and construction of the Company's commercial-scale
manufacturing facility and in 1995 were primarily for the purchase of laboratory
equipment for the Company's research and development programs.
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Net cash provided by financing activities was $26.2 million and $5.5
million in the 1996 Period and the 1995 Period, respectively. Net cash provided
by financing activities in the 1996 Period consisted primarily of $27.4 million
in net proceeds from the Company's IPO, offset by net repayments on the
Company's revolving line of credit of $1.7 million. Net cash provided by
financing activities in the 1995 Period consisted primarily of proceeds from the
issuance of common stock of $1.8 million and net cash drawn under the Company's
revolving line of credit of $3.6 million.
The Company had an outstanding short-term borrowing balance under its
revolving line of credit of $4.4 million as of June 30, 1996 as compared to $6.1
million as of December 31, 1995. Borrowings under the line of credit are only
available for financing the Company's drug distribution operations, are secured
by all of the assets of that operation and are subject to a borrowing base
related to the value of that operation's accounts receivable and inventories.
The agreement requires compliance by the Company with certain covenants
including the maintenance of minimum working capital and net worth levels and
restricts the payment of dividends to the Company by, repayment of loans or
advances by the Company to, and certain asset transfers from, the Company's drug
distribution subsidiary. In January 1996, the maximum amount available under the
revolving line of credit was increased from $8.0 million to $10.0 million and
the interest rate was decreased from the prime rate plus 2.0% to the prime rate
(8.25% as of August 1, 1996) plus 1.5%.
The Company anticipates that its existing capital resources will be
sufficient to enable it to maintain its current and planned operations through
the end of 1997. The Company expects negative cash flows and net losses to
continue at least through 1997 because it will use substantial funds for its
product development efforts, including the formulation of and bioequivalence
studies for its generic controlled-release product candidates and the
establishment of commercial-scale manufacturing operations. The Company
anticipates that during 1996 and 1997, approximately $15.0 million will be used
for research and product development activities (including the Company's share
of the funding of the ANCIRC joint venture) and approximately $10.0 million will
be used for capital expenditures relating to product development, primarily the
establishment of commercial-scale manufacturing operations for the
commercialization of the Company's generic versions of Cardizem CD/registered
trademark/ and Dilacor XR/registered trademark/. The Company may need additional
funding in order to complete research and development for its product candidates
and to commercialize these products after receipt of Food and Drug
Administration approvals. Additional funding, whether obtained through public or
private debt or equity financing, or from collaborative arrangements, may not be
available when needed or may not be available on terms favorable to the Company,
if at all. If additional financing is not available, the Company may be required
to delay, scale back or eliminate some or all of its research and development
programs or to license to third parties products or technologies that the
Company would otherwise seek to develop itself.
12
<PAGE>
ANDRX CORPORATION
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 Computation of Net Loss Per Share
27 Financial Data Schedule (EDGAR version only).
(b) Reports on Form 8-K:
None.
13
<PAGE>
ANDRX CORPORATION
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.
By /s/ ALAN P. COHEN
------------------------------------
Alan P. Cohen
Chairman and Chief Executive Officer
(Principal Executive Officer)
By /s/ ANGELO C. MALAHIAS
-------------------------------------
Angelo C. Malahias
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
August 12, 1996
14
EXHIBIT 11
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (1,134,000) $ (1,162,500) $ (1,787,700) $ (1,884,900)
============= ============ ============ ============
Actual weighted average shares
of common stock outstanding 9,130,400 11,178,000 8,842,000 10,952,600
Impact of shares issued within
12 months of initial public offering,
after application of the treasury method 103,000 - 103,000 -
Impact of warrants exercised within
12 months of initial public offering,
after application of the treasury method 72,100 - 81,100 -
Impact of options granted within
12 months of initial public offering,
after application of the treasury method 16,500 - 16,500 -
------------- ------------ ------------ ------------
Weighted average shares of
common stock outstanding 9,322,000 11,178,000 9,042,600 10,952,600
============= ============ ============ ============
Net loss per share $ (0.12) $ (0.10) $ (0.20) $ (0.17)
============= ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,868,300
<SECURITIES> 14,503,900
<RECEIVABLES> 9,892,400
<ALLOWANCES> 690,000
<INVENTORY> 10,135,000
<CURRENT-ASSETS> 58,589,100
<PP&E> 5,736,100
<DEPRECIATION> 0
<TOTAL-ASSETS> 64,370,700
<CURRENT-LIABILITIES> 20,497,100
<BONDS> 0
0
0
<COMMON> 13,300
<OTHER-SE> 43,860,300
<TOTAL-LIABILITY-AND-EQUITY> 64,370,000
<SALES> 37,776,400
<TOTAL-REVENUES> 39,331,200
<CGS> 31,498,200
<TOTAL-COSTS> 8,196,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 281,700
<INCOME-PRETAX> (1,884,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,884,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,884,900)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0
</TABLE>
