AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1996
REGISTRATION STATEMENT NO. 333-03614
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
ANDRX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 2834 65-0366879
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
DR. ELLIOT F. HAHN
PRESIDENT
ANDRX CORPORATION
4001 SOUTHWEST 47TH AVENUE 4001 SOUTHWEST 47TH AVENUE
SUITE 201 SUITE 201
FT. LAUDERDALE, FLORIDA 33314 FT. LAUDERDALE, FLORIDA 33314
(954) 584-0300 (954) 584-0300
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S INCLUDING AREA CODE, OF AGENT FOR
PRINCIPAL EXECUTIVE OFFICES) SERVICE)
----------
COPIES OF COMMUNICATIONS TO:
DALE S. BERGMAN, ESQ.
BROAD AND CASSEL NEIL GOLD, ESQ.
201 S. BISCAYNE BLVD. FULBRIGHT & JAWORSKI L.L.P.
SUITE 3000 666 FIFTH AVENUE
MIAMI, FLORIDA 33131 NEW YORK, NEW YORK 10103
TELEPHONE: (305) 373-9454 TELEPHONE: (212) 318-3000
TELECOPIER: (305) 373-9493 TELECOPIER: (212) 752-5958
----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the Securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -----------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION
(CROSS REFERENCE SHEET)
Furnished Pursuant to Item 501(b) of Regulation S-K
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- -----------------------------------------------------------------------------------------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus............... Facing Page of the Registration
Statement; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................................. Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.................. Prospectus Summary; Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Outside Front Cover Page; Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. *
8. Plan of Distribution.................................. Underwriting
9. Description of Securities to be Registered............ Description of Capital Stock
10. Interests of Named Experts and Counsel................ *
11. Information with Respect to the Registrant
(a) Description of Business........................... Prospectus Summary; Risk Factors;
Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business
(b) Description of Property........................... Business
(c) Legal Proceedings................................. Business
(d) Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters..................... Prospectus Summary; Dividend Policy;
Description of Capital Stock; Shares
Eligible for Future Sale
(e) Financial Statements.............................. Consolidated Financial Statements
(f) Selected Financial Data........................... Selected Consolidated Financial Data
(g) Supplementary Financial Information............... *
(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations............. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. *
(j) Directors and Executive Officers.................. Management
(k) Executive Compensation............................ Management
(l) Security Ownership of Certain Beneficial Owners and
Management...................................... Principal Shareholders
(m) Certain Relationships and Related Transactions.... Management; Certain Transactions
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................... *
<FN>
- ----------
* Not applicable or answer thereto is negative
</FN>
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED MAY 22, 1996
1,700,000 SHARES
[ANDRX LOGO]
COMMON STOCK
----------
All of the shares of Common Stock offered hereby are being sold by Andrx
Corporation ("Andrx" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is anticipated
that the initial public offering price will be between $11.00 and $13.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"ADRX."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
=============================================================
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
------------ --------------- --------------
Per Share ..... $ $ $
Total(3) ..... $ $ $
=============================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of this offering payable by the Company
estimated at $500,000.
(3) The Company has granted the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to 255,000
additional shares of Common Stock at the Price to Public per
share, less the Underwriting Discount, for the purposes of
covering over-allotments, if any. If the Underwriters exercise
such option in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
----------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to
withdraw, cancel or reject orders in whole or in part and subject to certain
other conditions. It is expected that delivery of the certificates
representing the shares will be made against payment on or about , 1996
at the office of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial
Center, New York, New York 10281.
----------
OPPENHEIMER & CO., INC. GRUNTAL & CO., INCORPORATED
The date of this Prospectus is , 1996.
<PAGE>
ANDRX'S GENERIC VERSION OF CARDIZEM CD/registered trademark/
ANDRX'S GENERIC VERSION OF DILACOR XR/registered trademark/
ANDRX'S FIRST TWO PRODUCTS PICTURED ABOVE, ARE CURRENTLY UNDER REVIEW BY THE
U.S. FOOD AND DRUG ADMINISTRATION AND ARE INTENDED TO BE AB RATED TO THE
CORRESPONDING BRAND NAME PRODUCT.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, AND DOES NOT GIVE EFFECT TO 1,872,616
SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF OUTSTANDING OPTIONS AND
WARRANTS.
THE COMPANY
Andrx is engaged in the formulation and commercialization of
controlled-release oral pharmaceuticals utilizing the Company's proprietary
drug delivery technologies. Pharmaceutical companies are increasingly
utilizing controlled-release drug delivery technologies to improve drug
therapy. Controlled-release drug delivery technologies generally provide more
consistent and appropriate drug levels in the bloodstream than
immediate-release dosage forms and may improve drug efficacy and reduce side
effects by releasing drug dosages at specific times and in specific locations
in the body. These technologies also allow for the development of
"patient-friendly" dosage forms, which reduce the frequency of drug
administration, thus improving patient compliance. Controlled-release
pharmaceuticals can be especially beneficial for certain patient populations,
such as the elderly, who often require several medications with differing
dosing regimens.
To date, the Company has developed six distinct drug delivery technologies
that are patented or for which patent applications have been filed. The
Company believes that its technologies are relatively flexible and can be
modified to apply to a variety of pharmaceutical products. The Company also
believes that major pharmaceutical companies often do not possess
controlled-release drug delivery technology expertise and rely upon third
parties such as Andrx to develop such technologies for their product
candidates. The market for advanced drug delivery systems is large and is
growing rapidly. Based on published data, the market for orally-administered
drugs that utilize sustained and controlled-release drug delivery systems is
projected to increase to approximately $15 billion in 2000 from approximately
$4 billion in 1993.
The Company is applying its proprietary drug delivery technologies and
formulation skills initially to the development of generic versions of
selected high sales volume, controlled-release brand name pharmaceuticals,
for which marketing exclusivity or patent rights have expired or are near
expiration. In late 1995, the Company submitted Abbreviated New Drug
Applications ("ANDAs") to the U.S. Food and Drug Administration (the "FDA")
covering generic versions of Cardizem CD/registered trademark/ and Dilacor
XR/registered trademark/. According to data from IMS America, the brand name
versions of these drugs had combined 1995 U.S. sales in excess of $870
million. The Company currently has 12 additional generic controlled-release
drugs under development, the brand name versions of which had combined 1995
U.S. sales in excess of $3 billion. Of these product candidates, ten are in
various phases of bioequivalence studies and two are in formulation
development.
To expedite product development and reduce the Company's development
costs, the Company has entered into collaborative arrangements with major
generic pharmaceutical companies. Andrx is a 50% partner in a joint venture
known as ANCIRC with Watson Pharmaceuticals, Inc. ("Watson") for the
development of up to eight controlled-release generic pharmaceuticals and has
entered into development and licensing agreements with Mylan Laboratories,
Inc. ("Mylan"), Zenith Laboratories, Inc., a subsidiary of IVAX Corporation
("IVAX"), and Watson for four additional controlled-release products. Watson
owns approximately 19.5% of the Company's Common Stock before this offering.
Generic pharmaceuticals are therapeutic equivalents of brand name drugs
for which marketing exclusivity or patent rights have expired. According to
data from IMS America, U.S. sales of generic pharmaceuticals exceeded $6.3
billion in 1994 and have grown at an average rate of 32% since 1992. The
3
<PAGE>
Company believes that the market for generic pharmaceuticals has grown and
will continue to grow because of various factors, including the aging of the
U.S. population, continuing efforts to contain health care costs by
governmental agencies, health care institutions and third party payors, and
the increasing awareness and acceptance of generic drugs by physicians,
pharmacists and consumers.
Andrx believes that the drug delivery technologies it uses for the
development of generic controlled-release pharmaceuticals will also have
application to the development of brand name controlled-release
pharmaceuticals. To commercialize this opportunity, Andrx plans to work with
brand name pharmaceutical companies in two basic ways: (i) by developing
controlled-release formulations of existing immediate-release drugs and (ii)
by applying its drug delivery technologies to the formulation of new drugs
under development by these pharmaceutical companies. In addition to the
potential for improving drug efficacy, the Company believes that its drug
delivery technologies will provide pharmaceutical companies with the
opportunity to enhance the commercial value of their new drug product
candidates. In April 1996, the Company entered into its first collaboration
for the development of a brand name controlled-release pharmaceutical through
its agreement with Sepracor, Inc. ("Sepracor"). Pursuant to this agreement,
Andrx is using one of its controlled-release drug delivery technologies to
formulate a once-a-day version of terfenadine carboxylate, an antihistamine
being developed by Sepracor. A twice-a-day version of this drug is the
subject of a New Drug Application ("NDA") under review by the FDA.
In addition to developing controlled-release pharmaceuticals, the Company
markets and distributes generic drugs manufactured by third parties. These
operations, which commenced in late 1992, generated 1995 revenues of $50.5
million. To date, substantially all of the Company's revenues have been
generated by its distribution operations. The Company currently offers over
2,000 products to approximately 8,000 customers, consisting primarily of
independent pharmacies, regional pharmacy chains which do not maintain their
own central warehousing facilities and pharmacy buying groups. The Company
currently utilizes gross profit from its generic pharmaceutical distribution
operations to offset a portion of the Company's overall administrative costs.
These operations also provide Andrx with an ability to directly observe and
participate in developments and trends in the generic pharmaceutical
industry. The Company plans to use its distribution operations to assist in
the marketing of generic controlled-release products developed by the Company
and its collaborative partners.
The Company was incorporated on August 28, 1992 under the name "Andrx
Pharmaceuticals, Inc.", commenced operations and assumed its present name in
November of that year. The Company's executive offices are located at 4001
Southwest 47th Avenue, Suite 201, Ft. Lauderdale, Florida 33314, and the
Company's telephone number is (954) 584-0300. Unless the context otherwise
requires, references herein to "Andrx" or the "Company" are to Andrx
Corporation and its subsidiaries.
THE OFFERING
Common Stock offered by the Company ....... 1,700,000 shares
Common Stock to be outstanding
after the offering ........................ 12,427,132 shares
Use of proceeds ............................ For research and development
activities, capital expenditures,
working capital requirements and
other general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol .... ADRX
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AUGUST 28, 1992 THREE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
THROUGH ------------------------------------------ --------------------------
DEC. 31, 1992 1993 1994 1995 1995 1996
--------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Distribution revenues, net ....... $ 243,200 $ 5,654,500 $25,915,500 $50,467,800 $10,900,700 $18,039,900
Research and development services
to joint venture ................ -- -- 375,300 2,528,700 524,500 878,000
Licensing revenues ................ -- 225,000 155,500 165,000 -- --
----------- ------------ ----------- ----------- ----------- -----------
Total revenues ..................... 243,200 5,879,500 26,446,300 53,161,500 11,425,200 18,917,900
----------- ------------ ----------- ----------- ----------- -----------
Cost of revenues:
Distribution revenues ............. 219,000 5,257,900 21,362,400 41,780,900 9,080,700 15,048,800
Research and development services
to joint venture ................ -- -- 375,300 2,528,700 524,500 878,000
----------- ------------ ----------- ----------- ----------- -----------
Total cost of revenues ............. 219,000 5,257,900 21,737,700 44,309,600 9,605,200 15,926,800
----------- ------------ ----------- ----------- ----------- -----------
Gross profit ....................... 24,200 621,600 4,708,600 8,851,900 1,820,000 2,991,100
Selling, general and administrative
expenses ......................... 169,700 1,706,300 5,389,800 8,647,200 1,748,900 2,754,100
Research and development expenses .. -- 959,900 2,109,600 3,254,700 390,300 409,500
Equity in losses of joint venture .. -- -- 315,800 1,839,700 275,600 544,500
----------- ------------ ----------- ----------- ----------- -----------
Loss from operations ............... (145,500) (2,044,600) (3,106,600) (4,889,700) (594,800) (717,000)
Interest income (expense), net .... 100 300 2,100 (297,300) (58,900) (5,400)
----------- ------------ ----------- ----------- ----------- -----------
Net loss ........................... $ (145,400) $ (2,044,300) $(3,104,500) $(5,187,000) $ (653,700) $ (722,400)
=========== ============ =========== =========== =========== ===========
Net loss per share ................. $ (0.03) $ (0.26) $ (0.35) $ (0.55) $ (0.07) $ (0.07)
=========== ============ =========== =========== =========== ===========
Weighted average shares of
Common Stock outstanding ......... 4,681,400 7,745,100 8,758,400 9,446,800 8,758,400 10,743,600
=========== ============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------
ACTUAL AS ADJUSTED(1)
-------------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $11,488,000 $29,960,000
Total assets .................... 33,894,200 52,366,200
Short-term borrowings .......... 2,342,100 2,342,100
Total shareholders' equity ..... 17,602,100 36,074,100
<FN>
(1) Adjusted to reflect the sale of the 1,700,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $12.00 per
share and after deducting the estimated underwriting discount and
expenses of this offering and the application of the net proceeds
therefrom. See "Use of Proceeds."
</FN>
</TABLE>
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY IS SPECULATIVE
IN NATURE AND INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS. The Company has not
generated any earnings to date and incurred net losses of approximately $2.0
million, $3.1 million and $5.2 million during 1993, 1994 and 1995,
respectively, and $654,000 and $722,000 during the three months ended March
31, 1995 and 1996, respectively. As of March 31, 1996, the Company had an
accumulated deficit of approximately $11.2 million. The Company expects
negative cash flow and net losses to continue at least through 1997.
Substantially all of the Company's revenues have been generated from the
distribution of generic pharmaceuticals manufactured by third parties. None
of the controlled-release products being developed by the Company have been
approved by the FDA for marketing. To achieve profitable operations, Andrx
must expand its generic pharmaceutical distribution operations to cover its
operating overhead or either alone or through collaborative arrangements with
joint venture partners and/or licensees successfully develop, manufacture and
market pharmaceuticals utilizing its proprietary drug delivery technologies.
The time required to reach profitability is highly uncertain and no assurance
can be given that the Company will be able to achieve profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNPROVEN TECHNOLOGY; NO COMMERCIALIZED PRODUCTS. The Company is focusing
its product formulation efforts on the development of generic versions of
controlled-release pharmaceuticals utilizing the Company's proprietary drug
delivery technologies. Except for licensing fees received for certain
products under development, the Company has not generated revenues from its
product development activities. The Company's product candidates are in
various stages of development, and the period necessary to achieve market
success for any individual product is uncertain and may be lengthy. The
Company has filed ANDAs for generic versions of Cardizem CD/registered
trademark/ and Dilacor XR/registered trademark/, both of which are once-a-day
versions of diltiazem hydrochloride, but the Company has not received FDA
approvals to market such product candidates. There can be no assurance that
the Company's product development efforts will be successfully completed,
that required regulatory approvals will be obtained, that products under
development or products submitted to the FDA will be approved by the FDA or
that any approved products can be manufactured at an acceptable cost with
appropriate quality or successfully marketed by the Company or its
collaborators. See "Business--Product Development."
NEED FOR ADDITIONAL CAPITAL. The Company anticipates that the net proceeds
of this offering, together with 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 flow and net
losses to continue at least through 1997 because it will use substantial
funds for its product development efforts, including formulation of and
bioequivalence studies for its product candidates and the establishment of
commercial-scale manufacturing operations. 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 FDA
approvals. Additional funding, whether obtained through public or private
debt or equity financings, or from collaborative arrangements, may not be
available when needed or may not be available on terms acceptable 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. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
PATENTS AND PROPRIETARY RIGHTS. Andrx believes that patent and trade
secret protection, particularly of its drug delivery technologies, is
important to its business and that its future will depend
6
<PAGE>
in part on its ability to obtain patents, maintain trade secret protection
and operate without infringing on the rights of others. Andrx has been issued
eight U.S. patents and has received two additional Notices of Allowance
relating to its controlled-release drug delivery technologies. In addition,
Andrx has filed seven additional U.S. patent applications and various foreign
patent applications relating to its drug delivery technologies. The Company
expects to apply for additional U.S. and foreign patents in the future. The
issuance of a patent is not conclusive as to its validity or as to the
enforceable scope of the claims of the patent. There is no assurance that the
Company's patents or any future patents will prevent other companies from
developing similar or functionally equivalent products or from successfully
challenging the validity of the Company's patents. Furthermore, there is no
assurance that (i) any of the Company's future processes or products will be
patentable; (ii) any pending or additional patents will be issued in any or
all appropriate jurisdictions; (iii) the Company's processes or products will
not infringe upon the patents of third parties; or (iv) the Company will have
the resources to defend against charges of patent infringement or protect its
own patent rights against third parties. The inability of the Company to
protect its patent rights or infringement by the Company of the patent or
proprietary rights of others could have a material adverse effect on the
Company's results of operations and financial position.
Andrx also relies on trade secrets and proprietary knowledge, which it
generally seeks to protect by confidentiality and non-disclosure agreements
with employees, consultants, licensees and pharmaceutical companies. There
can be no assurance, however, that these agreements will not be breached,
that the Company will have adequate remedies for any breach or that the
Company's trade secrets will not otherwise become known by competitors.
PATENT LITIGATION. There has been substantial litigation in the
pharmaceutical, biomedical and biotechnology industries with respect to the
manufacture, use and sale of new products that are the subject of patent
rights. Most of the brand name controlled-release products, of which the
Company is developing generic versions, are covered by one or more patents.
Under the Drug Price Competition and Patent Restoration Act of 1984 (the
"Waxman-Hatch amendments"), when a drug developer files an ANDA for a generic
drug, and the developer believes that an unexpired patent which has been
listed with the FDA as covering that brand name product will not be infringed
by the developer's product or is invalid or unenforceable, the developer must
so certify to the FDA. That certification must also be provided to the patent
holder, who may challenge the developer's certification of non-infringement,
invalidity or unenforceability by filing a suit for patent infringement. If a
suit is filed within 45 days of the patent holder's receipt of such
certification, the FDA can review and approve the ANDA, but is precluded from
granting final marketing approval of the product until a final judgment in
the action has been rendered or 30 months from the date the certification was
received, whichever is sooner. Should a patent holder commence a lawsuit with
respect to alleged patent infringement by the Company, the uncertainties
inherent in patent litigation make the outcome of such litigation difficult
to predict. To date, two such actions have been commenced against Andrx, and
it is anticipated that additional actions may be filed by other parties as
Andrx files additional ANDAs. The Company evaluates the probability of patent
infringement litigation with respect to its ANDA submissions on a case by
case basis and, accordingly, has provided $1.2 million for litigation costs
in connection with the two ANDAs submitted in late 1995. The delay in
obtaining FDA approval to market the Company's product candidates as a result
of litigation, as well as the expense of such litigation, whether or not the
Company is successful, could have a material adverse effect on the Company's
results of operations and financial position.
Andrx has developed and filed an ANDA for a generic product which the
Company believes is bioequivalent to the once-a-day controlled-release
formulation of diltiazem hydrochloride marketed under the brand name Cardizem
CD/registered trademark/ by Hoechst Marion Roussel, Inc. ("HMR"). In
connection therewith, Andrx certified to the FDA that its product does not
infringe upon any of the patents listed as covering that brand name product
and sent the required notices to the holders of each of those patents. In
January 1996, Carderm Capital, L.P., which licensed the patent to HMR, and
HMR (collectively, "Hoechst") commenced a lawsuit in the United States
District Court, Southern District of Florida (the "Hoechst Litigation"),
alleging that Andrx's product infringes upon one of the six patents listed as
covering Cardizem CD/registered trademark/. Andrx has also developed and
filed an ANDA for a generic product
7
<PAGE>
which the Company believes is bioequivalent to the once-a-day
controlled-release version of diltiazem hydrochloride marketed under the
brand name Dilacor XR/registered trademark/ by Rhone-Poulenc Rorer
Pharmaceuticals Inc. ("RPR"). In connection therewith, the Company certified
to the FDA that its product does not infringe upon the patent listed as
covering that brand name product and sent the required notices to the holder
of that patent and the holder of the NDA. In May 1996, Jagotec AG and Jago
AG, who licensed the patent to RPR, Rhone-Poulenc Rorer, Inc. and RPR
(collectively, "Rhone") commenced a lawsuit in the United States District
Court, Southern District of Florida (the "RPR Litigation"), alleging that the
Company's product infringes a patent listed as covering Dilacor XR/registered
trademark/. While the Company believes that its products do not infringe upon
the patents in question, the uncertainties inherent in patent litigation make
the outcome of such litigation difficult to predict. There can be no
assurance that the Company will prevail in either the Hoechst Litigation or
the RPR Litigation. An adverse outcome in either the Hoechst Litigation or
the RPR Litigation would have a material adverse effect on the Company's
business and financial position.
DEPENDENCE ON COLLABORATIVE PARTNERS. The Company is a 50% partner in a
joint venture with Watson and has entered into development and licensing
agreements with several major generic pharmaceutical companies to support the
commercialization of its generic controlled-release pharmaceuticals. The
Company shares the costs of the joint venture and, pursuant to the
development and licensing agreements, the licensee typically funds all of the
costs of developing the licensed product. The Company has no control over the
resources which its collaborative partners will devote to development of
licensed products, and there can be no assurance that the Company's
collaborative partners will pursue the commercialization of a licensed
product on a timely basis or that products to be developed pursuant to the
Company's collaborative arrangements will be approved for marketing by the
FDA. Further, even if licensed products are approved, Andrx will be dependent
upon its joint venture partner to manufacture and its licensees to
manufacture and market the products. Andrx is exploring, and intends to
continue to explore, additional collaborative and licensing opportunities.
There can be no assurance that the licensees can successfully market any
products or that the Company will be able to negotiate acceptable
collaborative arrangements in the future or that any current or future
collaborative arrangement will ultimately be successful. See
"Business--Collaborative Arrangements."
SUPERVISION OF DEVELOPMENT. The agreements with Watson governing the
ANCIRC joint venture require Dr. Chih-Ming J. Chen, the Company's Chief
Scientist, to personally supervise the development of all ANCIRC products and
to devote such time and effort as may be necessary to such activities until
at least five products have been successfully developed by ANCIRC. If Dr.
Chen fails to perform such supervisory services prior to ANCIRC developing
five products (other than by reason of his death or disability) Watson has
the option (i) to require the Company to repurchase Watson's interests in
ANCIRC and the Company for an amount equal to Watson's investments therein,
plus interest compounded at 15% per annum, or (ii) to assume the rights of
the Company to develop and market the products. Once ANCIRC has developed
three products, Watson is limited to the option set forth in clause (ii) of
the preceding sentence. If Watson were to successfully allege that Dr. Chen
was not performing supervisory services and were to demand that the Company
repurchase its investment, there can be no assurance that the Company would
have the financial resources to do so or that such demand would not have a
material adverse effect on the Company. In addition, the development and
licensing agreements entered into by the Company require Dr. Chen to
supervise the development of the products that are the subject of each of the
agreements. Dr. Chen's responsibilities under all the foregoing agreements
may effectively limit the number of products that the Company may be able to
add to its development program. See "Business--Product Development."
DEPENDENCE UPON MANAGEMENT AND KEY PERSONNEL. The Company's success for
the foreseeable future will be dependent upon the services of Dr. Chih-Ming
J. Chen, Alan P. Cohen and Dr. Elliot F. Hahn, the Company's Chief Scientist,
Chairman of the Board and President, respectively. Each of these individuals
is party to an employment agreement with the Company. The Company has secured
$4.0 million in key man life insurance covering Dr. Chen and $2.0 million in
key man life insurance covering each of Mr. Cohen and Dr. Hahn. The loss of
the services of any of these three officers would have a material adverse
effect on the Company and its prospects.
8
<PAGE>
The Company's success will also be dependent in large part on its ability
to attract and retain highly qualified scientific, technical and business
personnel experienced in the development, manufacture and marketing of
generic drugs. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract or retain a sufficient
number of such persons. See "Management."
LACK OF MANUFACTURING EXPERIENCE. The Company currently has a laboratory
and pilot manufacturing facility encompassing approximately 8,000 square
feet. The Company is in the process of constructing an approximately 25,000
square foot facility which will be used for manufacturing commercial
quantities of generic versions of Cardizem CD/registered trademark/ and
Dilacor XR/registered trademark/, for which ANDAs have already been filed.
The Company believes that such facility will be sufficient for these
products. The Company's facility has been inspected by the FDA with regard to
both ANDA submissions, and the FDA has advised the Company that it cannot
determine if the manufacturing site is in compliance with current Good
Manufacturing Practices ("cGMP") because the facility is not ready for
scale-up production. An additional inspection will be performed by the FDA to
assure successful process validation after ANDA approval and before
initiation of commercial distribution of these products. There can be no
assurance that the Company's facility will ultimately be found to be in
compliance with cGMP or other regulatory requirements. Failure to comply
could result in significant delays in the development, approval and
distribution of its planned products, as well as significant additional
expense to comply with cGMP or other regulatory requirements. The Company
currently has only a limited number of personnel experienced in the
commercial manufacture of pharmaceuticals. Accordingly, before the Company
commences manufacturing its product candidates in commercial quantities,
significant expenditures and additional personnel will be required. There can
be no assurance that the Company will be able to establish a successful
manufacturing operation. The Company will be dependent on other companies to
manufacture the ten product candidates currently undergoing bioequivalency
studies. See "Business--Collaborative Arrangements,"
"--Manufacturing" and "--Government Regulation."
MANAGEMENT OF EXPANDING OPERATIONS. The Company has experienced
significant expansion of its generic pharmaceutical distribution operations
which has required expansion, upgrading and improvement of the Company's
administrative, operational and management systems, controls and resources.
Management of the Company's growth, as well as commencement of manufacturing
and marketing of the Company's product candidates, will require continued
expansion and improvement of the Company's systems and controls and an
increase in the Company's manufacturing, marketing and sales operations.
There can be no assurance that the Company can successfully manage its
growth. The Company intends to market directly certain products it develops
as well as the products developed by the ANCIRC joint venture. The Company
has no experience with marketing its own products. There can be no assurance
that the Company can successfully market its products.
COMPETITION. The pharmaceutical industry is highly competitive and is
affected by new technologies, governmental regulations, health care
legislation, availability of financing and other factors. Many of the
Company's competitors have longer operating histories and greater financial,
marketing and other resources than the Company. The Company expects that it
will be subject to competition from numerous other entities that currently
operate, or intend to operate, in the pharmaceutical industry, including
companies that are engaged in the development of controlled-release
technologies and products and other manufacturers that may decide to
undertake in-house development of these products. The Company initially is
concentrating its development efforts on generic controlled-release
pharmaceuticals. Typically, selling prices of immediate-release drugs have
declined and profit margins have narrowed after generic equivalents of brand
name products are first introduced and the number of competitive products has
increased. Similarly, the maintenance of particular levels of profitability
for the Company's generic controlled-release products will depend, in large
part, on the Company's ability to introduce new products before its
competitors and on the intensity of competition. In its generic
pharmaceutical distribution business, the Company competes with a number of
large wholesalers and other distributors of generic pharmaceuticals. See
"Business--Competition."
9
<PAGE>
GOVERNMENT REGULATION. All pharmaceutical manufacturers doing business in
the U.S. and in foreign countries are subject to extensive federal, state,
local and foreign regulations. Drug manufacturers are required to obtain FDA
approval or authorization before marketing their product candidates. The FDA
approval process is costly and time consuming. No assurances can be given
that the Company's bioequivalence studies and other data will result in FDA
approval of ANDAs. ANDAs will be required for the Company's generic versions
of controlled-release drugs. No assurances can be given that any of the
Company's drugs will be suitable for, or approved as, ANDA filings. Certain
ANDA procedures for generic controlled-release drugs and other products are
presently the subject of petitions filed by brand name drug manufacturers,
which seek changes from the FDA in the approval process for generic drugs.
These requested changes include, among other things, tighter standards for
certain bioequivalence studies and disallowance of the use by a generic drug
manufacturer in its ANDA of proprietary data submitted by the original
manufacturer as part of an original new drug application. The Company is
unable to predict at this time whether the FDA will make any changes to its
ANDA procedures as a result of such petitions or the effect that such changes
may have on the Company. Any changes in FDA regulations which make ANDA
approvals more difficult may have a material adverse effect on the Company's
business. Patent certification requirements for generic controlled-release
drugs could also result in significant delays in obtaining FDA approval if
patent infringement litigation is instituted by the holder or holders of the
brand name patents. Delays in obtaining FDA approval of ANDAs can also result
from a marketing exclusivity period and/or an extension of patent terms
available for brand name drugs. If the Company's drugs are ineligible to use
abbreviated application procedures, as will be the case with
controlled-release versions of immediate-release drugs, the FDA approval
process may require time consuming and expensive clinical studies.
The FDA also regulates the development, manufacture, distribution,
labeling and promotion of prescription drugs, requires that certain records
be kept and reports be made, mandates registration of drug manufacturers and
listing of their products and has the authority to inspect manufacturing
facilities for compliance with cGMP standards. As a wholesale distributor of
generic pharmaceuticals manufactured by third parties, the Company is subject
to state licensure and other requirements pertaining to the wholesale
distribution of prescription drugs. Failure to comply with licensing and
other requirements could have a materially adverse effect on the Company
because substantially all the Company's revenues to date have been from its
generic pharmaceutical distribution operations. Other requirements exist for
controlled drugs, such as narcotics, which are regulated by the U.S. Drug
Enforcement Administration ("DEA"). Further, the FDA has the authority to
withdraw approvals of previously approved drugs for cause, to request recalls
of products, to debar companies and individuals from future ANDA submissions
and, through action in court, to seize products, institute criminal
prosecution or close manufacturing plants in response to violations. The DEA
has similar authority. Such requirements or FDA or DEA actions could
materially and adversely affect the Company's business.
The Company has filed ANDAs for two of its products, the generic versions
of Cardizem CD/registered trademark/ and Dilacor XR/registered trademark/.
There can be no assurance that the Company will receive approvals for these
two ANDAs or for any subsequent ANDAs or other product approval requests
filed with the FDA. Even if regulatory approvals are obtained, the Company
will be required to comply with post-approval requirements for the
manufacturing and marketing of its products. See "Business--Government
Regulation."
UNCERTAINTY OF AVAILABILITY OF HEALTH CARE REIMBURSEMENTS. The ability of
the Company to maintain profitability in its generic distribution business or
to commercialize its product candidates depends in part on the extent to
which reimbursement for the cost of such products will be available from
government health administration authorities, private health insurers and
other organizations. Third party payors are attempting to control costs by
limiting the level of reimbursement for medical products, including
pharmaceuticals, which may adversely effect the pricing of the Company's
product candidates. Moreover, health care reform has been, and may continue
to be, an area of national and state focus, which could result in the
adoption of measures which could adversely affect the pricing of
pharmaceuticals or the amount of reimbursement available from third party
payors. There can be no
10
<PAGE>
assurance that health care reimbursement laws or policies will not materially
adversely affect the Company's ability to sell its products profitably or
prevent the Company from realizing an appropriate return on its investment in
product development.
PRODUCT LIABILITY INSURANCE. The design, development and manufacture of
the Company's products involve an inherent risk of product liability claims.
The Company has obtained product liability insurance that covers
substantially all products marketed by the Company in its generic drug
distribution operations, as well as bioequivalence studies for
controlled-release product candidates. The Company believes that its product
liability insurance is adequate for its current operations, and will seek to
increase its coverage prior to the commercial introduction of its product
candidates. There can be no assurance that the coverage limits of the
Company's insurance will be sufficient to offset potential claims. Product
liability insurance is expensive and difficult to procure and may not be
available in the future on acceptable terms or in sufficient amounts, if
available at all. A successful claim against the Company in excess of its
insurance coverage could have a material adverse effect upon the Company's
results of operations and financial position.
CONCENTRATION OF COMMON STOCK OWNERSHIP. Upon completion of this offering,
the directors and executive officers of the Company and Watson will own
approximately 42% and 17% of the outstanding Common Stock, respectively.
There are no agreements between management and Watson with respect to voting
of their respective shares of Common Stock. However, both management and
Watson will have the ability to influence significantly the Company's affairs
and operations following completion of this offering and, voting together,
could elect the Board of Directors and otherwise control the Company. See
"Principal Shareholders."
DILUTION. This offering will result in an immediate and substantial
dilution to purchasers of approximately $9.10 per share in the net tangible
book value from the initial public offering price. See "Dilution."
LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to this offering, there has been no public market for the Common Stock, and
there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price for the Common Stock to be sold
in this offering will be determined by agreement between the Company and the
Underwriters and may bear no relationship to the price at which the Common
Stock will trade after completion of this offering. The market prices for
securities of companies engaged in pharmaceutical development activities
historically have been highly volatile. In addition, announcements of
technological innovations or new commercial products by the Company or its
competitors, delays in the development or approval of the Company's product
candidates, developments or disputes concerning patent or proprietary rights,
publicity regarding actual or potential medical results relating to products
under development by the Company or its competitors, regulatory developments
in both the U.S. and foreign countries, public concern as to the safety of
drug technologies and economic and other external factors, as well as
period-to-period fluctuations in financial results, may have a significant
impact on the market price of the Common Stock. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have 12,427,132 shares of Common Stock outstanding. Of these
shares, the 1,700,000 shares of Common Stock sold in this offering will be
freely tradeable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), except any such shares which may be acquired
by an "affiliate" of the Company. Of the currently outstanding 10,727,132
shares of Common Stock, the holders of 9,848,050 shares have agreed not to
offer, sell or otherwise dispose of such shares for 180 days after the date
of this Prospectus without the prior written consent of Oppenheimer & Co.,
Inc. After this period, 8,118,707 of the shares subject to this restriction
will be eligible for sale in the public market pursuant to Rule 144 under the
Securities Act, subject to the volume limitations and other restrictions
contained in Rule 144. The remaining 1,729,343 of such shares will become
eligible for sale subject to the restrictions of Rule 144 at varying times
from March 1997 to December 1997. Of the shares of Common Stock not subject
to the 180 day restriction on sale described above, 306,324 shares will be
eligible for sale subject
11
<PAGE>
to the restrictions of Rule 144 after completion of this offering, 502,926
shares of Common Stock will become so eligible 90 days after the date of this
Prospectus, and the balance of 69,832 shares will become available for public
sale under Rule 144 at varying times from December 1996 to August 1997.
As of the date of this Prospectus, options and warrants to purchase
1,872,616 shares of Common Stock are issued and outstanding. The Company has
agreed that 180 days after completion of this offering, it will register
under the Securities Act 605,428 shares of outstanding Common Stock and
602,912 shares of Common Stock underlying certain options and warrants. In
addition, the Company has granted to Watson certain demand and piggy-back
registration rights under the Securities Act exercisable commencing one year
after completion of this offering with respect to 2,091,796 shares of Common
Stock held by Watson and the 337,079 shares of Common Stock underlying
warrants issued to Watson (the "Watson Warrants"). Future sales of the shares
of Common Stock held by existing shareholders, or the perception that such
sales may occur, could have an adverse effect on the price of the Common
Stock. See "Certain Transactions" and "Shares Eligible for Future Sale."
ANTITAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS AND CERTAIN
PROVISIONS OF FLORIDA LAW. Certain provisions of the Company's Amended and
Restated Articles of Incorporation (the "Articles") and Bylaws may be deemed
to have antitakeover effects and may delay, defer or prevent a takeover
attempt of the Company.
In addition, Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations. The Florida Control Share Act generally
provides that shares acquired in a "control share acquisition" will not
possess any voting rights unless such voting rights are approved by a
majority of the corporation's disinterested shareholders. A "control share
acquisition" is an acquisition, directly or indirectly, by any person of
ownership of, or the power to direct the exercise of voting power with
respect to, issued and outstanding "control shares" of a publicly held
Florida corporation. "Control shares" are shares, which, except for the
Florida Control Share Act, would have voting power that, when added to all
other shares owned by a person or in respect to which such person may
exercise or direct the exercise of voting power, would entitle such person,
immediately after acquisition of such shares, directly or indirectly, alone
or as a part of a group, to exercise or direct the exercise of voting power
in the election of directors within any of the following ranges: (a) at least
20% but less than 33-1/3% of all voting power, (b) at least 33-1/3% but
less than a majority of all voting power; or (c) a majority or more of all
voting power. The Florida Affiliated Transactions Act generally requires
supermajority approval by disinterested shareholders of certain specified
transactions between a public corporation and holders of more than 10% of the
outstanding voting shares of the corporation (or their affiliates). See
"Description of Capital Stock."
NO DIVIDENDS. The Company has not paid any dividends on its Common Stock
and anticipates for the foreseeable future that all earnings, if any, will be
retained for the operation and expansion of the Company's business. See
"Dividend Policy."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 1,700,000
shares of Common Stock offered hereby are estimated to be approximately
$18,472,000 ($21,317,800 if the Underwriters' over-allotment option is
exercised in full), based on the assumed initial public offering price of
$12.00 per share and after deducting the estimated underwriting discount and
offering expenses payable by the Company.
The Company anticipates that approximately $8.0 million of the net
proceeds 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 approximately $5.0
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
balance of the net proceeds will be used for working capital and other
general corporate purposes.
The amounts and timing of the above expenditures may vary and will depend
on numerous factors, including, but not limited to, results of the Company's
research and development, timing of receipt of FDA product approvals, if any,
the rate of growth of the Company's generic drug distribution business, the
extent to which additional collaborative arrangements are entered into and
other factors. The Company believes that the net proceeds of this offering,
together with its existing capital resources, will be sufficient to enable it
to maintain its current and planned operations through the end of 1997.
Pending such uses, the Company intends to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and does not intend
to pay dividends for the foreseeable future. The Company intends to retain
earnings, if any, to finance the development and expansion of its business.
Payment of dividends in the future will depend, among other things, upon the
Company's ability to generate earnings, its need for capital and its overall
financial condition.
13
<PAGE>
DILUTION
As of March 31, 1996, the net tangible book value of the Company was
approximately $17,602,100 or $1.64 per share. After giving effect to the sale
of the 1,700,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $12.00 per share, and after deducting the estimated
underwriting discount and offering expenses), the pro forma net tangible book
value as of March 31, 1996 would have been $36,074,100 or $2.90 per share.
This represents an immediate increase in net tangible book value of $1.26 per
share to existing shareholders and an immediate dilution of $9.10 per share
to new investors. The following table illustrates this per share dilution:
ASSUMED INITIAL PUBLIC OFFERING PRICE ..................... $12.00
Net tangible book value per share at March 31, 1996 ..... $1.64
Increase attributable to new investors ................... 1.26
--------
Pro forma net tangible book value per share after the
offering ................................................. 2.90
---------
Dilution to new investors ................................. $ 9.10
=========
The following table shows the total number of shares of Common Stock
purchased from the Company, the total consideration and the average price per
share paid by existing shareholders and by investors who purchase shares of
Common Stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ---------------------- AVERAGE PRICE
NUMBER PERCENT DOLLAR PERCENT PER SHARE
------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders.. 10,727,132 86.3% $29,387,300 59.0% $ 2.74
New Investors ......... 1,700,000 13.7 20,400,000 41.0 $12.00
------------- ---------- -------------- ----------
Total ............... 12,427,132 100.0% $49,787,300 100.0%
============= ========== ============== ==========
</TABLE>
14
<PAGE>
CAPITALIZATION
The following table sets forth short-term borrowings and the
capitalization of the Company as of March 31, 1996, and as adjusted to give
effect to the sale of the 1,700,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per
share and after deducting the estimated underwriting discount and offering
expenses. This table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
the Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------
ACTUAL AS ADJUSTED
--------------- ---------------
<S> <C> <C>
Short-term borrowings(1) ......................................... $ 2,342,100 $ 2,342,100
=============== ===============
Shareholders' equity:
Preferred Stock, $.001 par value, 1,000,000 shares authorized,
no shares issued and outstanding .............................. -- --
Common Stock, $.001 par value, 25,000,000 shares authorized;
10,727,132 shares issued and outstanding; and 12,427,132 shares
issued and outstanding, as adjusted ........................... 10,700 12,400
Additional paid-in capital ...................................... 28,795,000 47,265,300
Accumulated deficit ............................................. (11,203,600) (11,203,600)
--------------- ---------------
Total shareholders' equity ..................................... 17,602,100 36,074,100
--------------- ---------------
Total capitalization ........................................... $ 17,602,100 $ 36,074,100
=============== ===============
<FN>
(1) See Note 5 to Notes to Consolidated Financial Statements.
</FN>
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company for the
period August 28, 1992 (inception) through December 31, 1992, the years ended
December 31, 1993, 1994 and 1995 and as of December 31, 1992, 1993, 1994 and
1995 are derived from the Company's consolidated financial statements and
have been audited by Arthur Andersen LLP, independent certified public
accountants. The statement of operations data for the three months ended
March 31, 1995 and 1996 and the selected balance sheet data as of March 31,
1996 are derived from unaudited interim consolidated financial statements
contained elsewhere herein. The unaudited interim consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the financial position and the results of operations for these periods.
Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996. This financial data should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto, the
unaudited interim consolidated financial statements and the other financial
information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 28, 1992 THREE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
THROUGH ------------------------------------------ --------------------------
DEC. 31, 1992 1993 1994 1995 1995 1996
-------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Distribution revenues, net ...... $ 243,200 $ 5,654,500 $25,915,500 $50,467,800 $10,900,700 $18,039,900
Research and development services
to joint venture ............... -- -- 375,300 2,528,700 524,500 878,000
Licensing revenues ............... -- 225,000 155,500 165,000 -- --
---------- ------------ ----------- ----------- ----------- -----------
Total revenues .................... 243,200 5,879,500 26,446,300 53,161,500 11,425,200 18,917,900
---------- ------------ ----------- ----------- ----------- -----------
Cost of revenues:
Distribution revenues ............ 219,000 5,257,900 21,362,400 41,780,900 9,080,700 15,048,800
Research and development services
to joint venture ............... -- -- 375,300 2,528,700 524,500 878,000
---------- ------------ ----------- ----------- ----------- -----------
Total cost of revenues ............ 219,000 5,257,900 21,737,700 44,309,600 9,605,200 15,926,800
---------- ------------ ----------- ----------- ----------- -----------
Gross profit ...................... 24,200 621,600 4,708,600 8,851,900 1,820,000 2,991,100
Selling, general and
administrative expenses ......... 169,700 1,706,300 5,389,800 8,647,200 1,748,900 2,754,100
Research and development expenses . -- 959,900 2,109,600 3,254,700 390,300 409,500
Equity in losses of joint venture . -- -- 315,800 1,839,700 275,600 544,500
---------- ------------ ----------- ----------- ----------- -----------
Loss from operations .............. (145,500) (2,044,600) (3,106,600) (4,889,700) (594,800) (717,000)
Interest income (expense), net ... 100 300 2,100 (297,300) (58,900) (5,400)
---------- ------------ ----------- ----------- ----------- -----------
Net loss .......................... $ (145,400) $ (2,044,300) $(3,104,500) $(5,187,000) $ (653,700) $ (722,400)
========== ============ =========== =========== =========== ===========
Net loss per share ................ $ (0.03) $ (0.26) $ (0.35) $ (0.55) $ (0.07) $ (0.07)
========== ============ =========== =========== =========== ===========
Weighted average shares of
Common Stock outstanding ......... 4,681,400 7,745,100 8,758,400 9,446,800 8,758,400 10,743,600
========== ============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------------- --------------
1992 1993 1994 1995 1996
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .. $ 131,300 $ 2,770,200 $ 3,845,800 $13,841,400 $11,488,000
Total assets ............... 695,000 6,837,100 16,006,000 36,148,700 33,894,200
Short-term borrowings ..... -- 68,100 2,635,100 6,101,000 2,342,100
Total shareholders' equity 373,800 3,926,700 8,097,100 18,324,500 17,602,100
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 FDA
approvals 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 for the development of up to eight controlled-release
drugs and has entered into development and licensing agreements with Mylan,
IVAX 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 MARCH 31, 1996 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Total revenues for the three months ended March 31, 1996 ("1996 First
Quarter") were approximately $18.9 million, an increase of approximately $7.5
million, or 66%, from revenues of approximately $11.4 million for the three
months ended March 31, 1995 ("1995 First Quarter"). Distribution revenues
were approximately $18.0 million in the 1996 First Quarter, an increase of
approximately $7.1 million, or 65%, from approximately $10.9 million in the
1995 First Quarter. The increase in distribution revenues resulted from an
increase in the number of customer accounts serviced by the Company from
approximately 5,500 as of March 31, 1995 to approximately 8,000 as of March
31, 1996 and the number of products offered from approximately 1,500 at March
31, 1995 to approximately 2,000 at March 31, 1996. Revenues generated by
research and development services to ANCIRC increased to approximately
$878,000 in the 1996 First Quarter from approximately $524,000 in the 1995
First Quarter. This increase resulted from an increase in the Company's
research and development efforts on ANCIRC products after the submission of
its ANDAs for the generic versions of Cardizem CD/registered trademark/ and
Dilacor XR/registered trademark/ in late 1995.
Gross profit on the distribution of generic pharmaceutical products was
16.6% as a percentage of distribution revenues in the 1996 First Quarter, as
compared to 16.7% in the 1995 First Quarter.
Selling, general and administrative expenses were approximately $2.8
million in the 1996 First Quarter, an increase of approximately $1.0 million,
or 57%, compared to approximately $1.8 million in the 1995 First Quarter.
This increase was attributable to an increase in selling activities to
support the increase in distribution revenues.
Research and development expenses were approximately $409,000 in the 1996
First Quarter, as compared to $390,000 in the 1995 First Quarter. Research
and development expenses exclude cost of sales for services rendered to
ANCIRC of approximately $878,000 in the 1996 First Quarter and approximately
$524,000 in 1995 First Quarter of which approximately $536,000 and $309,000
represent overhead allocations, respectively. Additionally, research and
development expenses in the 1996 First
17
<PAGE>
Quarter include a $150,000 provision for anticipated litigation costs in
connection with the Company's ANDA submitted in late 1995 for the generic
version of Cardizem CD/registered trademark/.
The Company's share of losses in ANCIRC was approximately $544,000 in the
1996 First Quarter as compared to approximately $276,000 in the 1995 First
Quarter. The increase in the ANCIRC losses of approximately $269,000 is the
result of the increase in the Company's research and development efforts on
the ANCIRC products following the Company's filing of ANDAs for the Company's
generic versions of Cardizem CD/registered trademark/ and Dilacor
XR/registered trademark/ in 1995.
Interest income (expense), net primarily consists of interest expense and
interest income. Interest expense was approximately $149,000 in the 1996
First Quarter as compared to approximately $109,000 in the 1995 First
Quarter. The increase was due to the increase in bank borrowings to fund the
working capital requirements for the Company's generic pharmaceutical
distribution operations. Interest income was approximately $143,000 in the
1996 First Quarter as compared to approximately $51,000 in the 1995 First
Quarter. The increase in interest income is the result of the net increase in
cash balances during 1995, primarily from the sale of shares of Common Stock
to Watson in August and December 1995 for net proceeds of approximately $13.6
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 March 31, 1996, the net
operating loss carry forward was approximately $10.6 million for financial
reporting purposes and approximately $8.5 million for federal tax purposes,
which, if not utilized, will expire beginning in 2008.
1995 AS COMPARED TO 1994
Total revenues in 1995 were approximately $53.2 million, an increase of
approximately $26.7 million, or 101%, from revenues of approximately $26.4
million in 1994. Distribution revenues were approximately $50.5 million in
1995, an increase of approximately $24.6 million, or 95%, from approximately
$25.9 million in 1994. The increase in distribution revenues resulted from an
increase in (i) the level of sales to existing customers, (ii) the number of
customer accounts serviced by the Company from approximately 5,000 as of
December 31, 1994 to approximately 6,750 as of December 31, 1995 and (iii)
the number of products offered from approximately 1,200 at the end of 1994 to
approximately 1,900 at the end of 1995. Revenues generated by research and
development services to ANCIRC increased to approximately $2.5 million in
1995 from approximately $375,000 in 1994. This increase resulted from a full
year of ANCIRC activities for 1995.
Gross profit on the distribution of generic pharmaceutical products was
17.2% as a percentage of distribution revenues in 1995, as compared to 17.6%
in 1994.
Selling, general and administrative expenses were approximately $8.6
million in 1995, an increase of approximately $3.3 million, or 60%, compared
to approximately $5.4 million in 1994. This increase was attributable to an
increase in selling activities to support the increase in distribution
revenues. During 1994, the Company incurred approximately $500,000 of
expenses related to an unconsummated initial public offering.
Research and development expenses increased to approximately $3.3 million
in 1995, an increase of approximately $1.1 million, or 54%, from
approximately $2.1 million in 1994. Research and development expenses include
the Company's continued research and development programs and the completion
of development and the filing of ANDAs for generic versions of Cardizem
CD/registered trademark/ and Dilacor XR/registered trademark/. Research and
development expenses also include a $1.2 million provision for anticipated
litigation costs in connection with the Company's ANDAs submitted in late
1995 for generic versions of Cardizem CD/registered trademark/ and Dilacor
XR/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
18
<PAGE>
its ANDA submissions on a case by case basis and, accordingly, will reserve
for anticipated legal expenses as it deems appropriate. Research and
development expenses exclude cost of sales of services rendered to ANCIRC of
approximately $2.5 million in 1995 and approximately $375,000 in 1994, of
which approximately $1.5 million and approximately $259,000 represent
overhead allocations, respectively.
The Company's share of losses in ANCIRC was approximately $1.8 million in
1995 as compared to approximately $316,000 in 1994. The increase in the
ANCIRC losses of approximately $1.5 million in 1995 is the result of a full
year of ANCIRC activities.
Interest income (expense), net primarily consists of interest expense and
interest income. Interest expense was approximately $636,000 in 1995 as
compared to approximately $104,000 in 1994. The increase was due to the
increase in bank borrowings to fund the working capital requirements for the
Company's generic pharmaceutical distribution operations. Interest income was
approximately $250,000 in 1995 as compared to approximately $122,000 in 1994.
The increase in interest income is the result of the net increase in cash
balances during 1995, primarily from the sale of shares of Common Stock to
Watson in August and December 1995 for net proceeds of approximately $13.6
million.
For 1994 and 1995, the Company was not required to provide for federal or
state income taxes due to its net losses. As of December 31, 1995, the net
operating loss carry forward was approximately $10.0 million for financial
reporting purposes and approximately $8.1 million for federal tax purposes,
which, if not utilized, will expire beginning in 2008.
1994 AS COMPARED TO 1993
Total revenues in 1994 were approximately $26.4 million, an increase of
approximately $20.6 million from revenues of approximately $5.9 million in
1993. Distribution revenues were approximately $25.9 million in 1994 as
compared to $5.7 million in 1993. During 1994, the Company increased the
number of products offered to its customers by approximately 500 and the
number of customer accounts increased from approximately 2,000 to
approximately 5,000. The ANCIRC joint venture commenced operations in July
1994 and generated approximately $375,000 of revenues for the Company from
research and development services during the year.
Gross profit on the distribution of generic pharmaceutical products was
17.6% as a percentage of distribution revenues in 1994 as compared to 7.0% in
1993. In 1993, the Company's first full year of distribution operations, the
Company did not have sufficient distribution volume to obtain allowances and
other favorable terms from its suppliers, which negatively impacted gross
profit.
Selling, general and administrative expenses were approximately $5.4
million in 1994, an increase of approximately $3.7 million, from
approximately $1.7 million in 1993. This increase was primarily attributable
to an increase in selling costs related to the increase in distribution
revenues, as well as approximately $500,000 in expenses related to an
unconsummated initial public offering.
Research and development expenses were approximately $2.1 million in 1994,
an increase of approximately $1.1 million, as compared to approximately $1.0
millon in 1993.
The Company's share of losses in ANCIRC was approximately $316,000 in
1994.
Interest income (expense), net was approximately $2,100 in 1994. This
amount includes approximately $104,000 of interest expense relating to
borrowings under the revolving line of credit which commenced in July 1994,
net of interest income of approximately $122,000. Interest income resulted
from the return on invested proceeds from a private placement in December
1993 and the sale of securities to Watson in July 1994.
For 1993 and 1994, the Company was not required to provide for federal or
state income taxes due to its net losses.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through private
placements of equity securities and, to a lesser extent, bank borrowings.
Through March 31, 1996, net proceeds from the sale of the Company's equity
securities was $27.9 million. At March 31, 1996, Andrx had $11.5 million of
cash equivalents and $13.1 million of working capital.
Net cash used in operating activities of $3.2 million in the 1995 First
Quarter was primarily the result of the increase in accounts receivables and
inventories, net of the increase in accounts payable, relating to the
expansion of the Company's distribution operations, as compared to net cash
provided by operating activities of $2.2 million in the 1996 First Quarter
primarily as a result of the decrease in inventories and the increase in
accounts payable.
Net cash used in investing activities was $292,000 and $825,000 in the
1995 and 1996 First Quarters, respectively, consisting exclusively of capital
expenditures.
Net cash provided by financing activities was $2.5 million in the 1995
First Quarter resulting from the increase in borrowing from the Company's
line of credit as compared to net cash used in financing activities of $3.8
million in the 1996 First Quarter which resulted from the pay down of
balances on the line of credit.
Net cash used in operating activities was $1.8 million, $5.6 million and
$7.4 million in 1993, 1994 and 1995, respectively. The increase in net cash
used in operating activities resulted from increases in research and
development spending relating to the Company's product development programs
and the increases in accounts receivable and inventories, net of increases in
accounts payable, relating to the continued expansion of the Company's
distribution operations and, in 1994 and 1995, also included contributions in
the ANCIRC joint venture. For 1996, the Company expects to contribute between
$2.5 million and $3.0 million to ANCIRC.
Net cash used in investing activities was $834,000, $3.0 million and $1.5
million in 1993, 1994 and 1995, respectively. Net cash used in investing
activities consisted primarily of capital expenditures. The capital
expenditures were primarily for the purchase of laboratory equipment for the
Company's research and development programs. In 1996, the Company expects to
make capital expenditures of approximately $5.0 million.
Net cash provided by financing activities was $5.3 million, $9.7 million
and $18.9 million in 1993, 1994 and 1995, respectively. Net cash provided by
financing activities in 1993 consisted exclusively of the net proceeds from
the issuance of Common Stock. Net cash provided by financing activities in
1994 included proceeds from the issuance of convertible preferred stock and
Common Stock in the amount of $7.2 million and net cash drawn under the
Company's revolving line of credit of $2.6 million. Net cash provided by
financing activities in 1995 consisted primarily of proceeds from the
issuance of Common Stock in the amount of $15.4 million and net cash drawn
under the Company's revolving line of credit of $3.5 million.
The Company had an outstanding short-term borrowing balance under its
revolving line of credit of $2.3 million as of March 31, 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 generic drug distribution
operations, are secured by all of the assets of those operations and are
subject to a borrowing base related to the value of those operations'
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, certain asset
transfers from the subsidiary, which conducts the Company's generic drug
distribution and operations. The loan is subject to a commitment fee of .5%
of the unused balance. In January 1996, the maximum amount available under
the revolving line of credit was increased from $8 million to $10 million and
the interest rate was decreased from the prime rate plus 2.0% to the prime
rate (8.25% as of May 15, 1996) plus 1.5%.
20
<PAGE>
The Company anticipates that the net proceeds of this offering, together
with 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 flow and net losses to continue at least
through 1997 because it will use substantial funds for its product
development efforts, including 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 relating to the Company's drug delivery
technologies (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
DilacorXR/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 FDA approvals. Additional
funding, whether obtained through public or private debt or equity
financings, 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.
ACCOUNTING STANDARDS NOT YET IMPLEMENTED
In October 1995, the Financial Accounting Standards Board issued Statement
on Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." Under the provision of SFAS No. 123, companies can
either measure the compensation cost of equity instruments issued under
employee compensation plans using a fair value based method, or can continue
to recognize compensation cost using the intrinsic value method under the
provisions of Accounting Principles Board Opinion ("APB") No. 25. However, if
the provisions of APB No. 25 are continued, pro forma disclosures of net
income or loss and earnings or loss per share must be presented in the
financial statements as if the fair value method had been applied. The
Company intends to continue to recognize compensation costs under the
provisions of APB No. 25, and upon adoption of SFAS No. 123 as of January 1,
1996, will provide the expanded disclosure required by SFAS No. 123.
21
<PAGE>
BUSINESS
OVERVIEW
Andrx is engaged in the formulation and commercialization of
controlled-release oral pharmaceuticals utilizing the Company's proprietary
drug delivery technologies. Pharmaceutical companies are increasingly
utilizing controlled-release drug delivery technologies to improve drug
therapy. Controlled-release pharmaceuticals are designed to reduce the
frequency of drug administration, improve efficacy, enhance patient
compliance and reduce side effects by releasing drug dosages at specific
times and in specific locations in the body.
The Company is applying its proprietary drug delivery technologies and
formulation skills initially to the development of generic versions of
selected high sales volume, controlled-release brand name pharmaceuticals,
for which marketing exclusivity or patent rights have expired or are near
expiration. In late 1995, the Company submitted ANDAs to the FDA covering
generic versions of Cardizem CD/registered trademark/ and Dilacor
XR/registered trademark/. According to data from IMS America, the brand name
versions of these drugs had combined 1995 U.S. sales in excess of $870
million. The Company currently has 12 additional generic controlled-release
products under development, the brand name versions of which had combined
1995 U.S. sales in excess of $3 billion. Of these product candidates, ten are
in various phases of bioequivalence studies and two are in formulation
development.
To expedite product development and reduce the Company's development
costs, the Company has entered into collaborative arrangements with major
generic pharmaceutical companies. Andrx is a 50% partner in the ANCIRC joint
venture with Watson for the development of up to eight controlled-release
generic drugs and has entered into development and licensing agreements with
Mylan, IVAX and Watson for four additional controlled-release products.
Watson owns approximately 19.5% of the Common Stock before this offering.
Andrx believes that the drug delivery technologies it uses for the
development of generic controlled-release pharmaceuticals will also have
application to the development of brand name controlled-release
pharmaceuticals. To commercialize this opportunity, Andrx plans to work with
brand name pharmaceutical companies in two basic ways: (i) by developing
controlled-release formulations of existing immediate-release drugs and (ii)
by applying its drug delivery technologies to the formulation of new drugs
under development by these pharmaceutical companies. In addition to the
potential for improving drug efficacy, the Company believes that its drug
delivery technologies will provide pharmaceutical companies with the
opportunity to enhance the commercial value of their new drug product
candidates. In April 1996, the Company entered into its first collaboration
for the development of a brand name controlled-release pharmaceutical through
its agreement with Sepracor. Pursuant to this agreement, Andrx is using one
of its controlled-release drug delivery technologies to formulate a
once-a-day version of terfenadine carboxylate, an antihistamine being
developed by Sepracor. A twice-a-day version of this drug is the subject of
an NDA under review by the FDA.
In addition to developing controlled-release pharmaceuticals, the Company
markets and distributes generic drugs manufactured by third parties. These
operations, which commenced in late 1992, generated 1995 revenues of $50.5
million. To date, substantially all of the Company's revenues have been
generated by its distribution operations. The Company currently offers over
2,000 products to approximately 8,000 customers, consisting primarily of
independent pharmacies, regional pharmacy chains which do not maintain their
own central warehousing facilities and pharmacy buying groups. These
operations provide Andrx with an ability to directly observe and participate
in developments and trends in the generic pharmaceutical industry. The
Company plans to use its distribution operations to assist in the marketing
of generic controlled-release products developed by the Company and its
collaborative partners.
NEED FOR CONTROLLED-RELEASE DRUG DELIVERY TECHNOLOGY
To date, most orally administered prescription pharmaceutical products
have been available only in immediate-release formulations. These
formulations, although efficacious, may at times result in
22
<PAGE>
unwanted side effects due to high initial drug concentrations in the blood
and may be inconvenient to patients requiring multiple drug administrations
each day. Over the last decade, new controlled-release drug delivery
technologies have been developed to eliminate or reduce certain disadvantages
of immediate-release drugs. Controlled-release drug delivery technologies
generally provide more consistent and appropriate drug levels in the
bloodstream than immediate-release dosage forms, and may improve drug
efficacy and reduce side effects by releasing drug dosages at specific times
and in specific locations in the body. These technologies also allow for the
development of "patient-friendly" dosage forms which reduce the frequency of
drug administration, thereby offering improved patient compliance.
Controlled-release pharmaceuticals can be especially beneficial for certain
patient populations, such as the elderly, who often require several
medications with differing dosing regimens.
The market for advanced drug delivery systems is large and is growing
rapidly. Based on published data, the market for orally-administered drugs
that utilize sustained and controlled-release drug delivery systems is
projected to increase to approximately $15 billion in 2000 from approximately
$4 billion in 1993.
GENERIC PHARMACEUTICAL MARKET
Generic pharmaceuticals are therapeutic equivalents of brand name drugs
for which patents or marketing exclusivity rights have expired. According to
data from IMS America, the sales of generic pharmaceuticals exceeded $6.3
billion in 1994 and have grown at an average rate of 32% since 1992. The
market for generic drugs has grown in recent years due to a number of
factors, including the expiration of patents on a number of brand name drugs
with significant revenues, the availability of an abbreviated testing and
approval process, the ability of the pharmacist to substitute generic drugs
for brand name drugs and increased acceptance of the quality of these drugs.
In addition, reimbursement trends affecting the pharmaceutical industry,
including large volume purchasers, preferred provider organizations and
health maintenance organizations, are increasing the demand for lower cost
pharmaceuticals.
ANDRX'S PROPRIETARY DRUG DELIVERY TECHNOLOGIES
Andrx is developing and applying multiple drug delivery technologies to
control the release characteristics of a variety of orally-administered
drugs. To date, the Company has developed six distinct drug delivery
technologies that are patented or for which patent applications have been
filed. These controlled-release technologies were designed specifically for a
drug that was being formulated. The Company believes that its technologies
are relatively flexible and can be modified to apply to a variety of
pharmaceutical products.
The Company's drug delivery technologies utilize a variety of polymers and
other materials to encapsulate or entrap the active drug compound and to
release the drug at varying rates at predetermined locations in the
gastrointestinal tract. In developing an appropriate drug delivery technology
for a particular drug candidate, Andrx considers such factors as: (i) the
desired release rates of the drug; (ii) the physico-chemical properties of
the drug; (iii) the physiology of the gastrointestinal tract and the manner
in which the drug will be absorbed during passage through the
gastrointestinal tract; and (iv) the effect of food on the absorption rate
and transit time of the drug.
23
<PAGE>
The following summarizes the Company's drug delivery technologies.
<TABLE>
<CAPTION>
DRUG DELIVERY TECHNOLOGY DESCRIPTION
------------------------ -----------
<S> <C>
PELLETIZED PULSATILE PPDS is designed for use with products that require a pulsed release of the drug. This technology
DELIVERY SYSTEM ("PPDS") uses pellets that are coated with specific polymers and agents to control the release rate
of the microencapsulated drug. By varying the proportion and composition of the polymer mixtures,
the release rate of the drug may be specifically controlled. PPDS technology is employed
in the Company's generic version of Cardizem CD/registered trademark/.
SOLUBILITY MODULATING SMHS is designed for products utilizing a hydrogel-based dosage system that provides for
HYDROGEL SYSTEM ("SMHS") sustained release without the need to use special coatings or structures which add to the
cost of manufacture. This technology avoids the "initial burst effect" commonly observed
with other sustained-release hydrogel formulations. SMHS technology is employed in the Company's
generic version of Dilacor XR/registered trademark/.
SINGLE COMPOSITION SCOT utilizes various osmotic modulating agents as well as polymer coatings to provide a
OSMOTIC TABLET SYSTEM ("SCOT") zero-order release of a drug (a constant rate of release). SCOT technology is being employed
in the development of the Company's generic versions of Procardia XL/registered trademark/,
Glucotrol XL/registered trademark/ and Efidac/24/registered trademark/.
DELAYED PULSATILE DPHS is designed for use with hydrogel matrix products that are characterized by an initial
HYDROGEL SYSTEM ("DPHS") zero-order release of drug followed by a rapid release. This release profile is achieved
by the blending of selected hydrogel polymers to achieve a delayed pulse. DPHS technology
is being employed in the development of the Company's generic version of Adalat CC/registered
trademark/.
PELTAB SYSTEM ("PELTAB") Peltab utilizes polymer-coated drug pellets or drug crystals which are manufactured into
tablets. In order to provide a controlled release, a water insoluble polymer is used to coat
discrete drug pellets or drug crystals which then can resist the action of fluids in the
gastrointestinal tract. This technology incorporates a strong polymer coating enabling the
coated pellets to be compressed into tablets without significant breakage. Peltab technology
is being employed in the development of the Company's generic version of K-Dur/registered
trademark/.
PORTAB SYSTEM ("PORTAB") Portab is designed for controlled-release dosage forms which utilize an osmotic core typically
containing a water soluble drug. The core includes a water swellable component and a continuous
polymer coating. The purpose of the swelling agent is to expand the core and thereby create
microporous channels through which the drug is released. None of the Company's current product
candidates employ Portab technology.
</TABLE>
The Company has obtained eight U.S. patents and has received two Notices
of Allowance relating to its drug delivery technologies. Andrx has also filed
seven additional U.S. patent applications and various foreign patent
applications relating to its drug delivery technologies. Andrx is applying
several other proprietary controlled-release drug delivery technologies in
its product development programs and continues to develop new technologies
for which it may seek patent protection.
24
<PAGE>
PRODUCT DEVELOPMENT
GENERIC CONTROLLED-RELEASE PHARMACEUTICALS
The Company's product development strategy has been to apply its
proprietary drug delivery technologies and formulation skills initially to
the development of generic versions of selected high sales volume,
controlled-release brand name pharmaceuticals, for which marketing
exclusivity or patent rights have expired or are near expiration. In late
1995, the Company submitted ANDAs covering generic versions of Cardizem
CD/registered trademark/ and Dilacor XR/registered trademark/. The brand name
versions of these drugs had combined 1995 U.S. sales in excess of $870
million. The Company is currently developing 12 additional generic versions
of brand name controlled-release drugs which had combined 1995 U.S. sales in
excess of $3 billion. Of these products, ten are in various phases of
bioequivalence studies and two are in various phases of formulation
development.
The following table sets forth certain information with respect to the
Company's product candidates.
<TABLE>
<CAPTION>
ANDRX DRUG
APPROXIMATE 1995 DELIVERY COLLABORATIVE ARRANGEMENTS(3)
U.S. SALES TECHNOLOGY ------------------------------
DEVELOPMENT STATUS/BRAND NAME ($ IN MILLIONS)(1) EMPLOYED(2) U.S. INTERNATIONAL
- ----------------------------- ------------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
ANDA FILED:
Cardizem CD/registered trademark/ $ 759 PPDS -- YSP
Dilacor XR/registered trademark/ 113 SMHS -- Purzer
BIOEQUIVALENCE STUDIES:
Procardia XL/registered trademark/ 1,101 SCOT ANCIRC ANCIRC
Trental/registered trademark/ 194 Proprietary ANCIRC ANCIRC
Adalat CC/registered trademark/ 187 DPHS ANCIRC ANCIRC
K-Dur/registered trademark/ 140 Peltab IVAX YSP
Seldane D/registered trademark/ 139 Proprietary Mylan YSP
Oruvail/registered trademark/ 133 Proprietary ANCIRC ANCIRC
Verelan/registered trademark/ 126 Proprietary Watson --
Glucotrol XL/registered trademark/ 78 SCOT ANCIRC ANCIRC
Efidac/24/registered trademark/ 10 SCOT ANCIRC ANCIRC
Sudafed/registered trademark/ 12-hour 8 Proprietary Watson --
FORMULATION:
Prilosec/registered trademark/ 1,191 Proprietary -- --
Tiazac/registered trademark/ n/a(4) Proprietary -- --
<FN>
-------------------------
(1) Represents aggregate sales for all dosage strengths. Source: IMS America.
(2) Proprietary means that Andrx is applying a drug delivery technology other
than the six drug delivery technologies described above.
(3) For a description of these collaborative arrangements, see "--Collaborative
Arrangements."
(4) Tiazac/registered trademark/ received FDA approval in September 1995 and
was launched in January 1996. Accordingly, 1995 sales data are not applicable.
</FN>
</TABLE>
25
<PAGE>
PRODUCT DESCRIPTIONS
CARDIZEM CD/registered trademark/ is a once-a-day controlled-release
formulation of diltiazem hydrochloride, a calcium channel blocking agent,
indicated for hypertension and for the management of chronic stable angina.
Cardizem CD/registered trademark/ is marketed by HMR.
DILACOR XR/registered trademark/ is a once-a-day controlled-release
version of diltiazem hydrochloride, a calcium channel blocking agent
indicated for hypertension and for the management of chronic stable angina.
Dilacor XR/registered trademark/ is marketed by RPR.
PROCARDIA XL/registered trademark/ is a once-a-day controlled-release
version of nifedipine, a calcium channel blocking agent indicated for
hypertension, vasospastic angina and chronic stable angina. Procardia
XL/registered trademark/ is marketed by the Pratt Pharmaceuticals division of
Pfizer, Inc.
TRENTAL/registered trademark/ is a controlled-release tablet form of
pentoxifylline which is administered three times daily and is indicated for
use in patients with chronic occlusion of arteries of the limbs. It acts to
improve the flow properties of blood by decreasing its viscosity. The patent
on Trental/registered trademark/, which is marketed by HMR, will expire in
April 1997.
ADALAT CC/registered trademark/ is a once-a-day controlled-release
formulation of nifedipine, a calcium channel blocking agent indicated for
hypertension. Adalat CC/registered trademark/ is marketed by Miles, Inc.
K-DUR/registered trademark/ is a controlled-release form of potassium
chloride indicated as an electrolyte replenisher. K-Dur/registered trademark/
is marketed by Key Pharmaceuticals, Inc.
SELDANE D/registered trademark/ is a twice-a-day controlled-release
antihistamine and decongestant, which combines an immediate-release
formulation of terfenadine with a controlled-release formulation of
pseudoephedrine hydrochloride. Seldane D/registered trademark/ is marketed by
HMR.
ORUVAIL/registered trademark/ is a once-a-day controlled-release version
of ketoprofen. The product is indicated for the management of the signs and
symptoms of rheumatoid arthritis and osteoarthritis. Marketing exclusivity
for Oruvail/registered trademark/, which is marketed by Wyeth-Ayerst
Laboratories, a division of American Home Products Corporation, will expire
in September 1996.
VERELAN/registered trademark/ is a once-a-day controlled-release version
of verapamil hydrochloride, a calcium channel blocking agent indicated for
the prophylactic management of hypertension. Verelan is marketed by Lederle
Laboratories and Wyeth-Ayerst Laboratories, divisions of American Home
Products Corporation.
GLUCOTROL XL/registered trademark/ is a once-a-day controlled-release
formulation of glipizide, a blood-glucose lowering agent indicated as an
adjunct to diet for the control of hyperglycemia in diabetes patients.
Marketing exclusivity for Glucotrol XL/registered trademark/, which is
marketed by the Pratt Pharmaceuticals division of Pfizer, Inc., will expire
in April 1997.
EFIDAC/24/registered trademark/ is a once-a-day controlled-release
formulation of pseudoephedrine hydrochloride. Efidac/24/registered
trademark/, which is marketed by Ciba-Geigy Corporation, is an
over-the-counter product indicated for the temporary relief of nasal
congestion.
SUDAFED/registered trademark/ 12-HOUR, a twice-a-day controlled-release
formulation of pseudoephedrine hydrochloride, is an over-the-counter product
indicated for the temporary relief of nasal congestion. Sudafed/registered
trademark/ 12-hour is marketed by Warner Wellcome Consumer Health Care.
PRILOSEC/registered trademark/ is a once-a-day controlled-release
formulation of omeprazole. This product inhibits gastric acid secretion and
is indicated for the treatment of duodenal ulcers and gastrointestinal reflux
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<PAGE>
disease. The patent on Prilosec/registered trademark/, which is marketed by
the Astra/Merck Group of Merck and Co., Inc., will expire in April 2001.
TIAZAC/registered trademark/ is a once-a-day controlled-release
formulation of diltiazem hydrochloride indicated for hypertension. Marketing
exclusivity for Tiazac/registered trademark/, which is marketed by Forest
Laboratories, Inc., will expire in September 1998.
GENERIC PHARMACEUTICAL DEVELOPMENT PROCESS
When developing generic pharmaceuticals, the Company is required to prove
that the generic product candidate will exhibit IN VIVO release
characteristics equivalent to those of the brand name pharmaceutical. For a
controlled-release pharmaceutical, the drug delivery technology utilized to
replicate the release rates of the brand name pharmaceutical must do so
without infringing any issued patents. The process by which generic
controlled-release products are developed for manufacture and sale in the
U.S. may be categorized into three basic stages: (i) formulation development;
(ii) bioequivalence studies; and (iii) an ANDA filing with the FDA.
During formulation development, the Company attempts to develop its own
version of the brand name drug. In creating a formulation, the Company
utilizes or adapts its drug delivery technologies to the product candidate or
develops a new drug delivery technology for that product candidate. The
Company's formulation is then evaluated in IN VITRO dissolution studies to
determine whether human bioequivalence studies should be conducted.
Once a suitable formulation has been developed, human bioequivalence
studies are conducted which compare the Company's formulation to the brand
name drug. Because bioequivalence studies can be relatively expensive to
perform, the Company often conducts a preliminary bioequivalence study in
which it manufactures a small batch of its product for testing in a limited
number of human subjects (typically six to eight). If the formulation yields
a blood level profile comparable to the brand name drug, full-scale
bioequivalence studies may be performed, which require the manufacture of at
least 100,000 dosage units and usually involves 24 or more human subjects.
These studies are conducted to determine the plasma concentrations of the
drug in human subjects under fasted and fed conditions as well as under
multiple dose administration. If successful, the studies will demonstrate
that the rate and extent of absorption of the generic version is equivalent
to that of the brand name drug. If the studies demonstrate that the blood
level profiles of the Company's product are not comparable to the brand name
drug, the Company will either modify its formulation or alter the drug
delivery technology employed.
After the Company's formulation has been shown to be bioequivalent to the
brand name drug, an ANDA is prepared for submission to the FDA. This ANDA
includes the results of the bioequivalence studies and other data such as IN
VITRO specifications for the Company's formulation, stability data,
analytical data, methods validation and manufacturing procedures and
controls. See ''--Government Regulation."
BRAND NAME CONTROLLED-RELEASE PHARMACEUTICALS
Andrx believes that the drug delivery technologies it uses for the
development of generic controlled-release pharmaceuticals will also have
application to the development of brand name controlled-release
pharmaceuticals. To commercialize this opportunity, Andrx plans to work with
brand name pharmaceutical companies in two basic ways: (i) by developing
controlled-release formulations of existing immediate-release drugs and (ii)
by applying its drug delivery technologies to the formulation of new drugs
under development by these pharmaceutical companies. The first category
provides a way for drug manufacturers to either increase or preserve the
value of their existing immediate-release drugs. By developing a
controlled-release drug formulation, the pharmaceutical manufacturer has the
potential to improve drug efficacy and reduce the cost of therapy by
simplifying drug administration
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<PAGE>
regimens. Additionally, by developing a controlled-release formulation of an
immediate-release drug, the pharmaceutical manufacturer may be able to
receive several additional years of marketing exclusivity before generic
equivalents may be approved. The second category is of significant importance
to pharmaceutical manufacturers because drug candidates often require easy
administration (e.g., one or two doses per day instead of four to six) to
become commercially acceptable or to develop brand loyalty by patients and
physicians. Furthermore, many new drug candidates, such as proteins and
peptides, that are developed by pharmaceutical and biotechnology companies,
are expected to require advanced drug delivery technologies in order for
these drugs to be administered in oral form instead of by injection.
SEPRACOR.--In April 1996, the Company entered into its first collaboration
for the development of a brand name controlled-release pharmaceutical through
its agreement with Sepracor. Pursuant to this agreement Andrx is using one of
its controlled-release drug delivery technologies to formulate a once-a-day
version of terfenadine carboxylate, an antihistamine. A twice-a-day version
of the drug is being developed by Sepracor and has been licensed to HMR,
which has submitted an NDA for the product. Under the development agreement
with Sepracor, the Company is responsible for developing a formulation of the
product and transferring such technology to Sepracor who will be responsible
for obtaining FDA approvals for the product and the manufacturing and
marketing of the product. The Company will receive certain fees under the
development agreement and will be entitled to receive royalties from the sale
or license of the product.
COLLABORATIVE ARRANGEMENTS
To expedite product development and reduce the Company's development
costs, the Company has entered into collaborative arrangements with major
generic pharmaceutical companies. The Company is a 50% partner in the ANCIRC
joint venture with Watson for the development of up to eight
controlled-release generic drugs and has entered into development and
licensing agreements with Mylan, IVAX and Watson for four additional
controlled-release products.
ANCIRC JOINT VENTURE
In July 1994, the Company entered into a joint venture with Circa
Pharmaceuticals, Inc. ("Circa") for the development of up to six generic
controlled-release products. In July 1995, Circa was acquired by Watson.
Since it acquired Circa, Watson has expanded its relationship with Andrx to
include up to eight generic controlled-release products (the "ANCIRC
Products") and has made equity investments in the Company (including Common
Stock purchased from certain principal shareholders) in the aggregate of
approximately $21.6 million. Watson owns approximately 19.5% of the Common
Stock before the offering. See "Certain Transactions--Transactions with
Watson" and "Principal Shareholders."
In July 1994, the Company and Watson identified six product candidates for
development by ANCIRC. Until three products have been successfully developed,
the Company and Watson will agree on a substitute product candidate for any
product candidate which is not successfully developed. Once three products
are successfully developed, the parties will not be required to agree upon
more than two additional substitute product candidates. In October 1995, the
agreement with Watson was amended to provide that the Company and Watson will
agree on two additional product candidates to be developed by ANCIRC. The
Company has agreed that Dr. Chih-Ming J. Chen, its Chief Scientist, will
personally supervise the development of all of the ANCIRC Products until at
least five products have been successfully developed. Dr. Chen is also
required to supervise the development of the products that are subject to the
development and licensing agreements referred to below. See "Risk
Factors--Dependence on Collaborative Partners."
ANCIRC is a 50/50 joint venture between the Company and Watson with both
the capital contributions and net income or losses allocated equally between
the Company and Watson. Each of
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<PAGE>
the Company and Watson has designated three representatives who together
constitute the management committee of ANCIRC. This management committee is
responsible for reviewing each partner's progress on the various projects on
which they are working, preparing budgets for each quarter, issuing capital
calls to each of the Company and Watson when necessary, approving
expenditures and resolving any disputes which may arise between the partners.
The Company has made investments in ANCIRC totaling $2.2 million through
March 31, 1996. The Company is responsible for contributing 50% of any
addition capital contributions required by ANCIRC, subject to a limitation on
each party's capital contribution to an additional $3.35 million from April
1, 1996 through July 1997. Capital contributions are utilized by ANCIRC to
pay for services rendered by the Company and Watson to ANCIRC.
Under its research and development services agreement with ANCIRC, the
Company is responsible for the development of formulations for each of the
ANCIRC Products. When the Company has developed a formulation which the
Company and Watson believe is promising, Watson is responsible, under its
manufacturing and regulatory approval agreement with ANCIRC, for the
manufacture of such quantities of the ANCIRC Product as may be necessary for
ANCIRC to conduct bioequivalence studies required for an ANDA submission. If
such studies are successful, Watson is also responsible for obtaining the
necessary regulatory approvals for that ANCIRC Product and to manufacture
that product in commercial quantities. Following regulatory approval, Andrx
is responsible for marketing the ANCIRC Product throughout the U.S. pursuant
to a distribution and marketing agreement with ANCIRC. The costs of
developing, manufacturing and marketing the ANCIRC Products are charged to
ANCIRC on an agreed-upon basis at least quarterly and ANCIRC then pays or
reimburses both the Company and Watson for their respective services.
DEVELOPMENT AND LICENSING AGREEMENTS
The Company has entered into development and licensing agreements covering
generic pharmaceuticals with three U.S. and two foreign pharmaceutical
companies. Pursuant to such agreements, the licensees typically will fund the
cost of product development and will pay the Company royalties in exchange
for a license to manufacture and market the products for a specified period
in a specified territory. Management believes that such arrangements offer a
variety of benefits, including providing an additional source of funding for
product development and affording the Company the ability to have certain of
its generic controlled-release products sold through the distribution
networks of these major pharmaceutical companies. The Company may terminate a
development and licensing agreement if the licensee fails to market the
licensed product, in which case all rights revert to the Company. In
addition, the Company has entered into an agreement with Sepracor to
formulate a once-a-day version of a new drug being developed by Sepracor. See
"--Product Development--Brand Name Controlled-Release
Pharmaceuticals."
IVAX. In June 1993, the Company entered into a development and licensing
agreement with IVAX for a generic version of K-Dur/registered trademark/ to
be marketed in the U.S. Under this agreement, the Company is responsible for
developing a formulation, and IVAX is responsible for performing the
bioequivalence studies, preparing the ANDA and manufacturing and marketing
the product. The development and licensing agreement grants IVAX the right to
market the product for a period of five years from receipt of ANDA approval
(which period may be extended for an additional five years at the sole
discretion of IVAX). The Company has received certain fees and milestone
payments under the development and licensing agreement and will be entitled
to receive royalties from the sale of the licensed product.
WATSON. In September and December 1993, the Company entered into two
development and licensing agreements with Watson for generic versions of
Verelan/registered trademark/ and Sudafed/registered trademark/ 12-hour to be
marketed in the U.S. and Canada. Under these agreements, the Company is
responsible for the development of the licensed products and the transfer of
the technology to Watson which, together with the Company's assistance, is
responsible for the scale-up batches for pilot and bioequivalence studies,
preparing the regulatory applications and manufacturing and marketing the
licensed products. Each
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<PAGE>
development and licensing agreement is for a term equal to the life of the
licensed product. The Company received certain milestone payments under the
development and licensing agreement for the generic version of
Verelan/registered trademark/. If this agreement is terminated other than due
to a decision to terminate, or a breach of the agreement, by Watson, these
milestone payments and any product development costs paid to the Company are
refundable to Watson if the Company successfully commercializes such product
within three years from the date the development and license agreement is
terminated. The development and licensing agreement for the generic version
of Sudafed/registered trademark/ 12-hour does not provide for milestone
payments, although the Company will be entitled to receive a share of profits
from the sale of this product.
MYLAN. In November 1993, the Company entered into a development and
licensing agreement with Mylan for a generic version of Seldane D/registered
trademark/ to be marketed in the U.S., Canada and Mexico. Under this
agreement, the Company is responsible for the development of the licensed
product and the transfer of such technology to Mylan which, together with the
Company's assistance, is responsible for scale-up batches for pilot and
bioequivalence studies, preparing regulatory applications and manufacturing
and marketing the licensed product. The development and licensing agreement
grants Mylan the right to market the product for a period of five years from
receipt of ANDA approval (which period may be extended for an additional five
years at the sole discretion of Mylan). The Company has received certain fees
and milestone payments under this agreement and will be entitled to receive
royalties from the sale of the licensed products.
YSP. In July 1993, the Company entered into a development and licensing
agreement with a Taiwanese pharmaceutical manufacturer, Yung Shin
Pharmaceutical Ind., Co., Ltd. ("YSP") for generic versions of Cardizem
CD/registered trademark/, Seldane D/registered trademark/ and
K-Dur/registered trademark/ to be marketed in Taiwan, China and Southeast
Asia (except Japan and Korea). Under this agreement, the Company is
responsible for the development of the licensed products, including scale-up
batches for pilot and bioequivalence studies, and the transfer of such
technology to YSP which, together with the Company's assistance, is
responsible for preparing the necessary regulatory applications in the
licensed territories and manufacturing and marketing the licensed products.
The development and licensing agreement grants YSP the right to market the
product for a period of ten years from receipt of the first government
approval in the covered territories to market each product (which period may
be extended for an additional five years at the sole discretion of YSP). The
Company has received certain fees and milestone payments under this agreement
and will be entitled to receive royalties from the sale of the licensed
products.
PURZER. In January 1994, the Company entered into a development and
licensing agreement with a second Taiwanese pharmaceutical manufacturer,
Purzer Pharmaceutical Co., Ltd. ("Purzer") for a generic version of Dilacor
XR/registered trademark/ and three over-the-counter products to be marketed
in Russia and Asia, except Japan. This agreement is similar to the agreement
with YSP.
GENERIC PHARMACEUTICAL DISTRIBUTION OPERATIONS
In addition to its controlled-release drug development activities, Andrx
markets and distributes generic pharmaceuticals manufactured by third
parties. The Company purchases generic pharmaceuticals directly from
manufacturers and wholesalers and markets them through its in-house
telemarketing staff primarily to independent pharmacies, regional pharmacy
chains which do not maintain their own central warehousing facilities and
pharmacy buying groups. The Company currently has a telemarketing staff of
approximately 45 persons, supplemented by three sales executives who are
responsible for national accounts.
The Company currently utilizes gross profit from its generic
pharmaceutical distribution operations to offset a portion of the Company's
overall administrative costs. These operations also provide Andrx with an
ability to directly observe and participate in developments and trends in the
generic pharmaceutical industry. The Company plans to use its distribution
operations to assist in the marketing of generic controlled-release products
developed by the Company and its collaborative partners.
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<PAGE>
The following table sets forth distribution revenues and gross profit of
the Company's generic pharmaceutical distribution operations for 1993, 1994,
1995 and the three months ended March 31, 1996 and the approximate number of
customer accounts and products offered at the end of each such year and
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1993 1994 1995 MARCH 31, 1996
------------- -------------- -------------- -------------------
<S> <C> <C> <C> <C>
Distribution revenues $5,654,500 $25,915,500 $50,467,800 $18,039,900
Gross profit .......... $ 396,600 $ 4,553,100 $ 8,686,900 $ 2,991,100
Customer accounts(1) . 2,000 5,000 6,750 8,000
Products offered(2) .. 700 1,200 1,900 2,000
<FN>
(1) Each pharmacy or other location to which the Company sends an order is
defined by the Company as a single customer account.
(2) Each dosage strength of a particular pharmaceutical is defined by the
Company as a different product.
</FN>
</TABLE>
The Company currently offers over 2,000 products, concentrating on
high-volume generic prescription drugs in capsule or tablet form. These
products typically provide higher gross margins, are subject to more rapid
inventory turnover and require less warehouse space than liquids, creams and
many over-the-counter products. By focusing on these products, the Company
believes that it is able to control inventory investments, minimize overhead
and operate in an efficient and cost-effective manner.
The Company purchases its generic products for resale from a number of
major pharmaceutical manufacturers and wholesalers. The Company believes that
it is not dependent upon any particular supplier and that alternative sources
of supply for most of its products are available if required.
Based on industry sources, there are approximately 23,000 independent
pharmacies nationwide. The Company offers this customer group competitive
pricing, quality products and responsive customer service. The Company
believes these are the critical elements to competing effectively in this
market. The Company plans to expand its generic pharmaceutical distribution
operations by further increasing its customer base to include larger regional
and national pharmacy chains.
MANUFACTURING
The Company currently has a laboratory and pilot manufacturing facility
encompassing approximately 8,000 square feet. The Company is in the process
of constructing an approximately 25,000 square foot facility which will be
used for manufacturing commercial quantities of the Company's generic
versions of Cardizem CD/registered trademark/ and Dilacor XR/registered
trademark/, for which ANDAs have already been filed. The Company has recently
hired a Vice President of Manufacturing Operations and a plant manager to
oversee construction of the Company's manufacturing facility. The Company
currently has only a limited number of other personnel experienced in the
commercial manufacture of pharmaceuticals. Accordingly, before the Company
commences manufacturing its product candidates in commercial quantities,
significant expenditures and additional personnel will be required.
The Company will be dependent on Watson to manufacture the products
subject to the ANCIRC joint venture and on other companies with which it has
development and licensing agreements to manufacture other products. See
"--Collaborative Arrangements."
COMPETITION
The pharmaceutical industry is highly competitive and is affected by new
technologies, governmental regulations, health care legislation, availability
of financing and other factors. Many of the Company's competitors have longer
operating histories and greater financial, marketing and other resources than
the Company.
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The Company expects that it will be subject to competition from numerous
other entities that currently operate, or intend to operate, in the
pharmaceutical industry. These include companies that are engaged in the
development of controlled-release technologies and products, as well as other
pharmaceutical manufacturers that may decide to undertake in-house
development of these products. The Company is initially concentrating its
efforts on generic controlled-release pharmaceuticals. Typically, selling
prices of immediate-release generic drugs have declined and profit margins
have narrowed after generic equivalents of brand name products are first
introduced and the number of competitive products has increased. Similarly,
the maintenance of particular levels of profitability for the Company's
generic controlled-release products will depend, in large part, on the
Company's ability to introduce new products before its competitors and on the
intensity of competition with respect to existing products.
In its generic pharmaceutical distribution business, the Company competes
with a number of large wholesalers and other distributors of generic
pharmaceuticals, many of which have substantially greater financial,
marketing and other resources than the Company.
PATENTS AND PROPRIETARY RIGHTS
Andrx believes that patent and trade secret protection, particularly of
its drug delivery and formulation technologies, is important to its business
and that its future will depend in part on its ability to obtain patents,
maintain trade secret protection and operate without infringing the
proprietary rights of others.
Andrx has been issued eight U.S. patents and has received two additional
Notices of Allowance relating to its controlled-release drug delivery
technologies. In addition, Andrx has filed seven additional U.S. patent
applications and various foreign patent applications relating to its drug
delivery technologies. The Company expects to apply for additional U.S. and
foreign patents in the future. The issuance of a patent is not conclusive as
to its validity or as to the enforceable scope of the claims of the patent.
There is no assurance that the Company's patents or any future patents will
prevent other companies from developing similar or functionally equivalent
products or from successfully challenging the validity of Company's patents.
Furthermore, there is no assurance that (i) any of the Company's future
processes or products will be patentable; (ii) any pending or additional
patents will be issued in any or all appropriate jurisdictions; (iii) the
Company's processes or products will not infringe upon the patents of third
parties; or (iv) the Company will have the resources to defend against
charges of infringement by or protect its own patent rights against third
parties. The inability of the Company to protect its patent rights or
infringement by the Company of the patent or proprietary rights of others
could have a material adverse effect on the Company's results of operations
and financial position.
Andrx also relies on trade secrets and proprietary knowledge, which it
generally seeks to protect by confidentiality and non-disclosure agreements
with employees, consultants, licensees and pharmaceutical companies. There
can be no assurance, however, that these agreements will not be breached,
that the Company will have adequate remedies for any breach or that the
Company's trade secrets will not otherwise become known by competitors.
There has been substantial litigation in the pharmaceutical, biomedical
and biotechnology industries with respect to the manufacture, use and sale of
new products that are the subject of conflicting patent rights. Most of the
brand name controlled-release products of which the Company is developing
generic versions are covered by one or more patents. Under the Waxman-Hatch
amendments, when a drug developer files an ANDA for a generic drug, and the
developer believes that an unexpired patent which has been listed with the
FDA as covering that brand name product will not be infringed by the
developer's product or is invalid or unenforceable, the developer must so
certify to the FDA. That certification must also be provided to the patent
holder, who may challenge the developer's certification of non-infringement,
invalidity or unenforceability by filing a suit for patent infringement. If a
suit is filed within 45 days of the patent holder's receipt of such
certification, the FDA can review and approve the ANDA, but is precluded from
granting final marketing approval of the product until a final judgment in
the action has been rendered or 30 months from the date the
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<PAGE>
certification was received, whichever is sooner. Should a patent holder
commence a lawsuit with respect to alleged patent infringement by the
Company, the uncertainties inherent in patent litigation make the outcome of
such litigation difficult to predict. To date, two such actions have been
commenced against Andrx, and it is anticipated that additional actions will
be filed as Andrx files additional ANDAs. The Company evaluates the
probability of patent infringement litigation with respect to its ANDA
submissions on a case by case basis and, accordingly, has provided $1.2
million for litigation costs in connection with the two ANDAs submitted in
late 1995. The delay in obtaining FDA approval to market the Company's
product candidates as a result of litigation, as well as the expense of such
litigation, whether or not the Company is successful could have a material
adverse effect on the Company's results of operations and financial position.
Andrx has developed and filed an ANDA for a generic product which the
Company believes is bioequivalent to the once-a-day controlled-release
formulation of diltiazem hydrochloride marketed by HMR under the brand name
Cardizem CD/registered trademark/. In connection therewith, Andrx certified
to the FDA that its product does not infringe upon any of the patents listed
as covering that brand name product and sent the required notices to the
holders of each of those patents. In January 1996, Hoechst commenced the
Hoechst Litigation, alleging that Andrx's product infringes upon one of the
six patents listed as covering Cardizem CD/registered trademark/. Andrx has
also developed and filed an ANDA for a generic product which the Company
believes is bioequivalent to the once-a-day controlled-release version of
diltiazem hydrochloride marketed under the brand name Dilacor XR/registered
trademark/ by RPR. In connection therewith, Andrx certified to the FDA that
its product does not infringe upon the patent listed as covering that brand
name product and sent the required notices to the holder of that patent and
the holder of the NDA. In May 1996, Rhone commenced the RPR Litigation in the
United States District Court, Southern District of Florida, alleging that
Andrx's product infringes a patent listed as covering Dilacor XR/registered
trademark/. While the Company believes that its products do not infringe upon
the patents in question, the uncertainties inherent in patent litigation make
the outcome of such litigation difficult to predict. There can be no
assurance that the Company will prevail in either the Hoechst Litigation or
the RPR Litigation. An adverse outcome in either the Hoechst Litigation or
the RPR Litigation would have a material adverse effect on the Company's
business and financial position.
GOVERNMENT REGULATION
All pharmaceutical manufacturers are subject to extensive regulation by
the federal government, principally the FDA, and, to a lesser extent, by
state and local governments. The Federal Food, Drug and Cosmetic Act (the
"FDCA") and other federal statutes and regulations govern or influence the
development, testing, manufacture, safety, labeling, storage, recordkeeping,
approval, advertising, promotion, sale and distribution of prescription
pharmaceutical products. Pharmaceutical manufacturers are also subject to
certain recordkeeping and reporting requirements, establishment registration
and product listing and FDA inspections.
The Waxman-Hatch amendments to the FDCA established abbreviated
application procedures for obtaining FDA approval for generic versions of
brand name prescription drugs (the "Listed Drugs") that are off-patent or
whose marketing exclusivity has expired. Approval to manufacture and market
generic drugs is obtained by filing ANDAs. As a substitute for clinical
studies, the FDA requires data demonstrating that the ANDA drug formulation
is bioequivalent to a previously approved Listed Drugs, among other
requirements.
The advantage of the ANDA approval mechanism is that an ANDA applicant is
not required to conduct preclinical and clinical studies to demonstrate that
the product is safe and effective for its intended use. The Company has filed
two ANDAs with the FDA for generic versions of Cardizem CD/registered
trademark/ and Dilacor XR/registered trademark/ (both diltiazem
hydrochloride, a prescription drug indicated for hypertension), and intends
to file additional ANDAs to obtain approval to market its other generic
controlled-release products. No assurances exist that ANDAs will be suitable
or available for the Company's products, or that the Company's proposed
products will receive FDA approval on a timely basis, if at all.
Patent certification requirements for generic controlled-release drugs
could also result in significant delays in obtaining FDA approvals. First,
where patents covering the Listed Drugs are alleged to be
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<PAGE>
invalid, unenforceable or not infringed, patent infringement litigation may
be instituted by the holder or holders of the brand name drug patents against
the Company. Second, the first company to file an ANDA for a given drug which
is successful in certifying that an unexpired patent covering the reference
brand name drug is invalid, unenforceable, or will not be infringed by its
product, can be awarded 180 days of market exclusivity during which the FDA
may not approve any other ANDAs for that drug. A successful certification
results if the patent owner (who must be notified of the certification) does
not commence an infringement action within 45 days of having been so
notified, or, having brought a timely infringement action, receives an
adverse final court decision.
While the Waxman-Hatch amendments codify the ANDA mechanism for generic
drugs, it also fosters pharmaceutical innovation through incentives that
include market exclusivity and patent term extension. First, the Waxman-Hatch
amendments provide two distinct market exclusivity provisions which either
preclude the submission or delay the approval of an abbreviated drug
application. A five-year marketing exclusivity period is provided for new
chemical compounds, and a three-year marketing exclusivity period is provided
for applications containing new clinical investigations essential to an
approval, such as new indications or new delivery technologies. The
three-year marketing exclusivity period would be applicable to the
development of a novel drug delivery system. The marketing exclusivity
provisions apply equally to patented and non-patented drug products.
Second, the Waxman-Hatch amendments provide for patent term extensions to
compensate for patent protection lost due to time taken in conducting FDA
required clinical studies or during FDA review of data submissions. Patent
term extension may not exceed five additional years nor may the total period
of patent protection following FDA marketing approval be extended beyond 14
years. In addition, by virtue of the Uruguay Round Agreements Act of 1994
that ratified the General Agreement on Tariffs and Trade ("GATT"), certain
brand name drug patent terms have been extended to 20 years from the date of
filing of the pertinent patent application (which can be longer than the
former 17-year patent term). This can further delay ANDA effective dates.
Patent term extensions may delay the ability of the Company to use its
proprietary technology, in the future, to market new extended release
products, file section 505(b)(2) NDAs referencing approved products (see
below), and file ANDAs based on listed drugs when those approved products or
listed drugs have acquired patent term extensions.
With respect to any drug with active ingredients not previously approved
by the FDA, a prospective manufacturer must submit a full NDA, including
complete reports of preclinical, clinical and other studies to prove that
product's safety and efficacy for its intended use. An NDA may also need to
be submitted for a drug with a previously approved active ingredient if,
among other things, the drug will be used to treat an indication for which
the drug was not previously approved, if the method of delivery is changed or
if the abbreviated procedure discussed above is otherwise not available. A
manufacturer intending to conduct clinical trials for a new drug compound as
part of an NDA is required first to submit investigational new drug
applications to the FDA containing information relating to preclinical and
planned clinical studies. The full NDA process is expensive and time
consuming. Controlled or extended-release versions of approved
immediate-release drugs will require the filing of an NDA. The FDA will not
accept ANDAs when the delivery system or duration of drug availability differ
significantly from the listed drug. However, the FDCA provides for NDA
submissions that may rely in whole or in part on publicly available clinical
data on safety and efficacy under section 505(b)(2) of the FDCA. The Company
may be able to rely on existing publicly available safety and efficacy data
in filing NDAs for extended-release products when such data exists for an
approved immediate-release version of the same chemical entity. However,
there is no guarantee that the FDA will accept such applications under
section 505(b)(2), or that such existing data will be publicly available or
useful. Further, utilizing the section 505(b)(2) application process is
uncertain, because neither the Company nor the FDA have had significant
experience with it. Additionally, under the Prescription Drug User Fee Act of
1992, all NDAs require the payment of a substantial fee upon filing, and
other fees must be paid annually after approval. No assurances exist that, if
approval of an NDA is required, such approval can be obtained in a timely
manner, if at all.
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<PAGE>
Manufacturers of marketed drugs must conform to the FDA's cGMP standards
or risk sanctions such as the suspension of manufacturing or the seizure of
drug products and the refusal to approve additional marketing applications.
The FDA conducts periodic inspections to implement these rules. The Company's
commercial manufacturing facility is currently under construction. The
Company's manufacturing facility has been inspected by the FDA with regard to
both ANDA submissions and the FDA has advised the Company that it cannot
determine if the manufacturing site is in compliance with cGMP because the
facility is not ready for scale-up production. An additional inspection will
be performed by the FDA to assure successful process validation after ANDA
approval and before initiation of commercial distribution of these products.
There can be no assurance that the Company's facility will be found to be in
compliance with cGMP or other regulatory requirements. Failure to comply
could result in significant delays in the development and testing of the
Company's planned products, as well as increased costs.
Noncompliance with applicable requirements can also result in total or
partial injunctions against production and/or distribution, refusal of the
government to enter into supply contracts or to approve NDAs or ANDAs,
criminal prosecution and product recalls. The FDA also has the authority to
revoke for cause drug approvals previously granted.
Under the Generic Drug Enforcement Act, ANDA applicants (including
officers, directors and employees) who are convicted of a crime involving
dishonest or fraudulent activity (even outside the FDA regulatory context)
are subject to debarment. Debarment is disqualification from submitting or
participating in the submission of future ANDAs for a period of years or
permanently. The Generic Drug Enforcement Act also authorizes the FDA to
refuse to accept ANDAs from any company which employs or uses the services of
a debarred individual.
Products marketed outside the United States which are manufactured in the
United States are subject to certain FDA regulations, as well as regulations
by the country in which the products are to be sold.
The Prescription Drug Marketing Act ("PDMA"), which amends various
sections of the FDCA, requires, among other things, state licensing of
wholesale distributors of prescription drugs under federal guidelines that
include minimum standards for storage, handling and recordkeeping. It also
requires certain wholesale distributors, including the Company, to provide to
each wholesale distributor a statement identifying each sale of the drug
before the sale to such wholesale distributor, among other requirements. It
also sets forth civil and criminal penalties for violations of these and
other provisions. Various sections of the PDMA are still being implemented by
the FDA and the states. Nevertheless, failure to comply with the wholesale
distribution provisions and other requirements of the PDMA could have a
materially adverse effect on the Company.
The Company is governed by federal, state and local laws of general
applicability, such as laws regulating working conditions and environmental
protection. The Company is also licensed by, registered with, and subject to
periodic inspection and regulation by, the DEA and Florida state agencies,
pursuant to federal and state legislation relating to drugs and narcotics.
Certain drugs that the Company may develop in the future may be subject to
regulations under the Controlled Substances Act and related statutes.
PRODUCT LIABILITY INSURANCE
The design, development and manufacture of the Company's products involve
an inherent risk of product liability claims. The Company has obtained
product liability insurance that covers substantially all products marketed
by the Company in its generic drug distribution operations, as well as
bioequivalence studies for controlled-release products candidates. The
Company believes that its product liability insurance is adequate for its
current operations, and will seek to increase its coverage prior to the
commercial introduction of its product candidates. There can be no assurance
that the coverage limits of the Company's insurance will be sufficient to
offset potential claims. Product liability insurance is expensive and
difficult to procure and may not be available in the future on acceptable
35
<PAGE>
terms or in sufficient amounts, if available at all. A successful claim
against the Company in excess of its insurance coverage could have a material
adverse effect upon the Company's results of operations and financial
condition.
FACILITIES
The Company occupies an approximately 48,000 square foot facility in Fort
Lauderdale, Florida, which houses the Company's executive offices,
telemarketing, warehousing and shipping facilities, a laboratory and pilot
manufacturing plant and a commercial-scale manufacturing facility under
construction. The facility is occupied pursuant to leases expiring between
August 1998 and March 31, 2003 at a total annual rent of approximately
$343,000. Each of the leases afford the Company two five-year renewal
options, and require the Company to pay certain increases in common area
costs. The Company is presently constructing a 25,000 square foot facility
for the manufacture of the generic versions of Cardizem CD/registered
trademark/ and Dilacor XR/registered trademark/. The Company has an option on
approximately 15,000 square feet of adjacent space, which option it
anticipates exercising during the next 12 months.
The Company has entered into a lease for approximately 6,000 square feet
of office space in Davie, Florida to house its telemarketing staff. Such
space will be occupied pursuant to a lease expiring in May 1997, at an annual
rent of $74,000, including common area maintenance costs and real estate
taxes, and affords the Company two six-month renewal options. The Company
anticipates relocating its telemarketing staff to this space in May 1996.
The Company believes that the foregoing facilities will be adequate for
its needs in the foreseeable future.
EMPLOYEES
As of March 31, 1996, the Company had 163 employees, of whom 11 were
involved in corporate administration and 108 in the Company's distribution
operations. The remaining 44 employees were involved in research and
pharmaceutical development, including 25 scientists, 15 of whom hold Ph.D.,
masters or medical degrees.
LEGAL PROCEEDINGS
On May 17, 1996, an employee of the Company resigned from his position
and, in connection therewith, claimed that he was entitled to receive,
pursuant to the terms of his employment arrangement with the Company, a
royalty equal to 1% of gross revenues from certain products under development
by the Company. The Company is reviewing this claim and plans to contest it.
If an action is commenced, there can be no assurance that it would not be
adversely decided to the Company or, if adversely decided, that such action
would not have an adverse effect on the Company's results of operations and
financial position.
SCIENTIFIC ADVISORY BOARD
The Company has established a scientific advisory board ("SAB") which is
comprised of certain members of the medical, health care, pharmaceutical and
scientific communities. The Company generally consults with members of the
SAB from time to time on an individual basis to obtain their ideas, insights,
input and other assistance in helping the Company achieve its goals. Members
of the SAB, who have agreed to serve in such capacity for a three-year
period, receive options to purchase 3,000 shares of Common Stock under the
Stock Incentive Plan. Such options are granted at fair market value on the
date of grant, vest over a three-year period and generally expire five years
from the date of the grant. Certain members of the SAB may, from time to
time, render consulting services to the Company for which they may be
separately compensated.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alan P. Cohen(1) 41 Chairman of the Board and Chief Executive Officer
Elliot F. Hahn, Ph.D.(1) 51 President and Director
Chih-Ming J. Chen, Ph.D.(1) 44 Vice President, Chief Scientist and Director
Scott Lodin 40 Vice President, General Counsel and Secretary
Angelo C. Malahias 34 Vice President and Chief Financial Officer
Randy Glover 53 Vice President of Manufacturing Operations
Rep. Elaine Bloom(2) 58 Director
Paul M. Donofrio(3) 37 Director
Irwin C. Gerson(3) 66 Director
Elliott Levine(2) 59 Director
Michael Schwartz, Ph.D.(3) 65 Director
Melvin Sharoky, M.D.(1) 45 Director
<FN>
- ----------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
</FN>
</TABLE>
ALAN P. COHEN is Chairman of the Board, Chief Executive Officer and a
director of Andrx, which he founded in August 1992. He holds several degrees
from the University of Florida and is a registered pharmacist. In 1984, Mr.
Cohen founded Best Generics, Inc., a generic drug distribution firm ("Best"),
which was sold to IVAX in 1988. Mr. Cohen served as President of Best from
April 1989 until June 1990. Alan P. Cohen and certain members of his family
control Corner Drugstore, a privately-held retail drugstore chain, which also
is a shareholder and customer of the Company. Corner Drugstore filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in December 1994.
See "Certain Transactions--Transactions with Corner Drugstore." In
addition, see "Certain Transactions--Transactions with PSG" with
respect to losses incurred by the Company in connection with a loan to and
certain receivables from Pharmacy Services Group, Inc. ("PSG"), a pharmacy
benefits management and mail order marketing company which was controlled by
a former principal shareholder of the Company, Corner Drugstore and a
non-affiliated third party.
DR. ELLIOT F. HAHN has been President and a director of Andrx since
February 1993. From June 1990 to February 1993, Dr. Hahn was employed as Vice
President, Scientific Affairs of IVAX, where he was involved in the
evaluation and international licensing of product opportunities and was
responsible for maintaining the intellectual property of IVAX. From 1988 to
1993, Dr. Hahn also served as the Vice President of Research of Baker Norton
Pharmaceuticals, a subsidiary of IVAX. Prior to that, he was an Associate
Professor at The Rockefeller University from 1977 to 1988. From 1972 until
1977, Dr. Hahn was an Assistant Professor at Albert Einstein College of
Medicine and a member of the Institute for Steroid Research at Montefiore
Hospital in New York City. Since 1988, he has been an adjunct Associate
Professor at the University of Miami School of Medicine. Dr. Hahn holds a
B.S. degree from City College of New York and a Ph.D. degree in chemistry
from Cornell University.
DR. CHIH-MING J. CHEN has served as the Company's Vice President, Chief
Scientist and a director since November 1992. In January 1992, Dr. Chen
formed his own company, ASAN Labs, Inc., which was acquired by the Company in
November 1992. Dr. Chen served as the Director of Product Development at IVAX
from 1988 to 1992, where he was the leader of a research team which
specialized
37
<PAGE>
in the development of drug formulations, including several controlled-release
products. After graduating with a Ph.D. degree in pharmaceutics from Ohio
State University in 1981, Dr. Chen worked at Bristol-Myers and Berlex Labs.
SCOTT LODIN joined Andrx in January 1994 and is its Vice President,
General Counsel and Secretary. From 1983 until joining Andrx, Mr. Lodin was
an attorney with Hughes, Hubbard & Reed and a predecessor firm in Miami,
Florida, where he practiced primarily in the areas of corporate and
commercial law.
ANGELO C. MALAHIAS joined Andrx as its Vice President and Chief Financial
Officer in January 1996. From January 1995 to January 1996, Mr. Malahias was
Vice President and Chief Financial Officer of Circa, where he also served as
Corporate Controller from July 1994 to January 1995. From 1983 to July 1994
he was employed by KPMG Peat Marwick LLP. Mr. Malahias is a certified public
accountant.
RANDY GLOVER joined Andrx in March 1996 as Vice President of Manufacturing
Operations, with responsibilities for all aspects of manufacturing. From 1991
to 1996, he was Vice President of Manufacturing at IVAX with responsibility
for seven generic pharmaceutical manufacturing plants. From 1982 to 1991, Mr.
Glover held senior manufacturing management positions with Key
Pharmaceuticals, Inc. and Schering-Plough in Florida and Puerto Rico and was
employed by the FDA from 1965 to 1981.
REPRESENTATIVE ELAINE BLOOM, a director of Andrx since October 1993, is
the former Speaker Pro-Tempore of the Florida House of Representatives, of
which she has been a member from 1974 to 1978 and since 1986. She currently
chairs the Joint Legislative Management Committee and serves on the Health
Care, Aging and Human Services and Government Operations Committees.
PAUL M. DONOFRIO, a director of Andrx since November 1995, has been a Vice
President, Investment Banking, at Dillon Read & Co. since December 1994,
specializing in health care. Mr. Donofrio served in the same capacity with
Kidder, Peabody & Co. from 1990 to 1994.
IRWIN C. GERSON, a director of Andrx since November 1993, has been the
Chairman of the Lowe McAdams Healthcare division of the Interpublic Group
(formerly William Douglas McAdams, Inc.), a health care marketing,
communications and public relations company, since 1987. Mr. Gerson is a
member of the board of trustees of academic institutions, including Long
Island University, Albany College of Pharmacy and is Chairman of the Council
of Overseers of the Arnold and Marie Schwartz College of Pharmacy. Mr. Gerson
is also a director of Cytoclonal Pharmaceutics, Inc., a biotechnology
company.
ELLIOT LEVINE, a director of Andrx since January 1994, has been Executive
Vice President and Chief Financial Officer of Cheyenne Software, a developer
and marketer of proprietary network software products, since September 1989.
From February 1988 to September 1989, Mr. Levine was president of VTX
Electronics, a distributor of electronic networking products, and, from March
1986 to February 1988, he was a Managing Director of Ladenburg, Thalmann &
Co. Inc., an investment banking firm.
DR. MICHAEL SCHWARTZ, a director of Andrx since November 1993, is
currently the Dean of the College of Pharmacy and Professor at the University
of Florida, a position he has held since 1978.
DR. MELVIN SHAROKY, a director of Andrx since November 1995, has been the
President and a director of Watson since July 1995 and the President and
Chief Executive Officer of Circa since February 1993. From June 1988 to
January, 1993, Dr. Sharoky was employed in various other executive capacities
at Circa.
The Company's Articles provide that the Board of Directors be divided into
three classes. Each class of directors consist of three directors who serve
for a one-, two-or three-year period or until their successors are elected
and qualified. Thereafter, directors will serve staggered three-year terms.
38
<PAGE>
Accordingly, Dr. Chih-Ming J. Chen, Irwin C. Gerson and Dr. Michael Schwartz
will hold office until the annual meeting of shareholders to be held in 1997.
Dr. Elliot F. Hahn, Elaine Bloom and Elliot Levine will hold office until the
1998 annual meeting and Alan P. Cohen, Paul M. Donofrio and Dr. Melvin
Sharoky will hold office until the 1999 annual meeting.
DIRECTOR COMPENSATION
Non-employee directors do not receive cash compensation for their services
although they receive stock options under the Stock Incentive Plan.
Commencing June 1, 1996, non-employee directors of the Company will each be
granted an option to purchase 7,000 shares of Common Stock on June 1 of each
year. June 1996 grants to existing non-employee directors will be adjusted
based on prior options granted to give effect to prior periods of service.
Each person who becomes a non-employee director after June 1, 1996 will be
granted an option on the date such person becomes a director (the
"Appointment Date") to purchase that number of shares equal to 7,000
multiplied by a fraction, the numerator of which is the number of full months
between the Appointment Date and the following June 1, and the denominator of
which is twelve. These options become exercisable in ten equal monthly
installments (unless such director's term commences after June 1, in which
case the options shall vest equally over the number of full months they serve
as a director until the following June 1), beginning the first day of the
month following the date of grant, provided the optionee has continuously
served as a non-employee director. All options granted to employee directors
are granted at fair market value on the date of the grant and expire ten
years from the date of the grant. The following sets forth information with
respect to options previously granted and to be granted on June 1, 1996 to
non-employee directors under the Stock Incentive Plan.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF OPTIONEE SHARES EXERCISE PRICE EXPIRATION DATE
- ---------------- --------- -------------- ---------------
<S> <C> <C> <C>
Elaine Bloom ............ 2,500 $3.00 May 12, 2003
9,000 $6.50 August 7, 2004
5,875 (1) May 31, 2006
Paul M. Donofrio ........ 2,500 $11.00 November 11, 2005
5,750 (1) May 31, 2006
Irwin C. Gerson ......... 2,500 $3.00 May 12, 2003
9,000 $6.50 August 7, 2004
5,875 (1) May 31, 2006
Elliot Levine ........... 2,500 $8.00 January 23, 2004
9,000 $6.50 August 7, 2004
4,000 (1) May 31, 2006
Michael Schwartz, Ph.D. 2,500 $3.00 May 12, 2003
9,000 $6.50 August 7, 2004
5,875 (1) May 31, 2006
Melvin Sharoky, M.D. ... 2,500 $11.00 November 11, 2005
5,750 (1) May 31, 2006
<FN>
(1) The exercise price of the options to be granted on June 1, 1996 will be
the initial public offering price of shares sold in this offering.
</FN>
</TABLE>
INDEMNIFICATION AGREEMENTS
The Company has entered into an indemnification agreement with each of its
directors and executive officers. Each indemnification agreement provides
that the Company will indemnify such person against certain liabilities
(including settlements) and expenses actually and reasonably incurred by him
or her in connection with any threatened or pending legal action, proceeding
or investigation (other than actions brought by or in the right of the
Company) to which he or she is, or is threatened to
39
<PAGE>
be, made a party by reason of his or her status as a director, officer or
agent of the Company, provided that such director or executive officer acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any
criminal proceedings, had no reasonable cause to believe his or her conduct
was unlawful. With respect to any action brought by or in the right of the
Company, a director or executive officer will also be indemnified, to the
extent not prohibited by applicable law, against expenses and amounts paid in
settlement, and certain liabilities if so determined by a court of competent
jurisdiction, actually and reasonably incurred by him or her in connection
with such action if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
1995 received by the Chief Executive Officer (the "CEO") and such other
executive officers whose annual salary and bonus exceeded $100,000 for 1995
(collectively with the CEO, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- --------------
OTHER ANNUAL SECURITIES
FISCAL SALARY BONUS COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS (#)(1)
- --------------------------- ------ ------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Alan P. Cohen 1995 124,250 -- 10,601(2) --
Chairman of the Board and CEO
Elliot F. Hahn, Ph.D. 1995 124,250 -- 13,371(2) --
President
Chih-Ming J. Chen, Ph.D. 1995 124,250 108,500(3) 14,909(2) --
Vice President and Chief Scientist
Scott Lodin 1995 111,817 -- -- 10,000
Vice President and General Counsel
<FN>
(1) Represents options to purchase Common Stock granted to the Named
Executive Officer under the Stock Incentive Plan.
(2) Represents an automobile allowance, premiums for a $1 million life
insurance policy, the beneficiary of which is designated by the Named
Executive Officer and the premiums for a disability policy (other than
for Mr. Cohen), the beneficiary of which is designated by the Named
Executive Officer.
(3) Represents compensation to Dr. Chen arising from the forgiveness of an
interest-bearing loan made by the Company to Dr. Chen. See "Certain
Transactions--Transactions with Dr. Chen."
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The Company is party to an employment agreement with each of Mr. Cohen,
Dr. Hahn and Dr. Chen. Under the employment agreements, Mr. Cohen, Dr. Hahn
and Dr. Chen are also entitled to such bonuses and increases as may be
awarded by the Board of Directors. The employment agreements, which expire in
February 1998, currently provide for a base salary of $145,000. Each
agreement includes confidentiality and non-competition provisions.
The Company has an agreement with Mr. Lodin which provides that in the
event Mr. Lodin's employment is terminated by the Company without cause prior
to December 31, 1998, options to purchase 30,000 shares of Common Stock at an
exercise price of $8.00 granted to Mr. Lodin will immediately vest to the
extent not previously vested, and Mr. Lodin will receive a lump-sum payment
equal to 100% of his then annual compensation. Mr. Lodin is also party to a
confidentiality agreement with Andrx.
40
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during 1995 to any of the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR)
NUMBER OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR OPTION TERM($)(1)
UNDERLYING OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5% 10%
- ---- -------------------- -------------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Scott Lodin...... 10,000 4.75 7.25 2006 45,600 115,500
<FN>
- ----------
(1) Based upon the exercise price, which was equal to the fair market value
on the date of grant, and annual appreciation at the rate stated on such
price through the expiration date of the options. Amounts represent
hypothetical gains that could be achieved for the options if exercised at
the end of the term. the assumed 5% and 10% rates of stock price
appreciation are provided in accordance with the rules of the Securities
and Exchange Commission (the "Commission") and do not represent the
Company's estimate or projection of the future stock price. Actual gains,
if any, are contingent upon the continued employment of the Named
Executive Officer through the expiration date, as well as being dependent
upon the general performance of the Common Stock. The potential
realizable values have not taken into account amounts required to be paid
for federal income taxes.
</FN>
</TABLE>
STOCK OPTIONS HELD AT END OF FISCAL 1995
The following table indicates the total number and value of exercisable
and unexercisable stock options held by each of the Named Executive Officers
as of December 31, 1995. No options were exercised by any of the Named
Executive Officers during 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END(#) OPTIONS AT FISCAL YEAR-END($)
-------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
- ---- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Chih-Ming J. Chen, Ph.D... 200,000 -- 900,000 --
Scott Lodin .............. 20,000 20,000 60,000 67,500
<FN>
(1) Based on a fair market value of $11.00 per share at December 31, 1995.
</FN>
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no compensation committee interlocks and insider participation
in executive compensation decisions during 1995.
STOCK INCENTIVE PLAN
The Company adopted the Stock Incentive Plan in February 1993 and amended
the Stock Incentive Plan in December 1993, August 1995 and April 1996 to
increase the number of shares reserved for issuance thereunder. Under the
Company's Stock Incentive Plan, 1,250,000 shares of Common Stock are
currently reserved for issuance upon exercise of options, stock appreciation
rights, restricted stock awards, deferred stock awards and performance unit
awards. The Stock Incentive Plan is designed to serve as an incentive for
retaining qualified and competent employees, directors and consultants.
The Compensation Committee of the Company's Board of Directors administers
and interprets the Stock Incentive Plan and is authorized to grant options
and other awards thereunder to all eligible
41
<PAGE>
employees of and consultants to the Company, including officers and directors
(whether or not employees) of the Company. The Stock Incentive Plan provides
for the granting of both "incentive stock options" (as defined in Section 422
of the Internal Revenue Code of 1986, as amended) and non-statutory stock
options. Options can be granted under the Stock Incentive Plan on such terms
and at such prices as determined by the Compensation Committee, except for
the per share exercise price of incentive stock options which will not be
less than the fair market value of the Common Stock on the date of grant and,
in the case of an incentive stock option granted to a 10% shareholder, the
per share exercise price will be not less than 110% of such fair market
value. The aggregate fair market value of the shares covered by incentive
stock options granted under the Stock Incentive Plan that become exercisable
by a grantee for the first time in any calendar year is subject to a $100,000
limit, calculated at the time of grant.
Options granted under the Stock Incentive Plan will be exercisable after
the period or periods specified in the option agreement. Options granted
under the Stock Incentive Plan are not exercisable after the expiration of
ten years from the date of grant and are not transferable other than by will
or by the laws of descent and distribution.
In addition to stock options, the Stock Incentive Plan provides for awards
of stock appreciation rights, restricted stock, deferred stock and
performance units. The Stock Incentive Plan also authorizes the Company to
make loans to recipients of stock options or restricted stock awards to
enable them to exercise their options or purchase their stock and to make
payments to participants to offset the amount of federal, state, local and
other taxes payable with respect to receipt of an award.
As of the date of this Prospectus, the Company has outstanding options
under the Stock Incentive Plan to purchase an aggregate of 932,625 shares of
Common Stock at exercise prices ranging from $3.00 to the initial public
offering price per share of shares of Common Stock sold in this offering, all
of which are non-statutory stock options.
42
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DR. CHEN
In November 1992, the Company entered into an agreement with Dr. Chih-Ming
J. Chen and ASAN Labs, Inc., his wholly-owned company ("ASAN"), pursuant to
which the Company acquired equipment from ASAN and certain patent rights and
"know how" owned by Dr. Chen. Dr. Chen assigned to the Company a portion of a
royalty payable to him pursuant to a separate agreement in principle he had
entered into with a pharmaceutical manufacturer. In consideration for the
foregoing, the Company issued to Dr. Chen 1,737,450 shares of Common Stock.
The terms of the transaction were determined by negotiation between Dr. Chen
and the Company. ASAN's and Dr. Chen's cost for the equipment, patent rights
and "know how" purchased by the Company was approximately $100,000. In
February 1993, the Company also made a non-interest bearing advance of
$50,000 to Dr. Chen with no specified maturity date and at such time the
agreement in principle between Dr. Chen and the pharmaceutical manufacturer
was terminated. In consideration for his agreeing to terminate this
agreement, the Company entered into a new royalty agreement (the "February
1993 Agreement") with Dr. Chen which provided for payment to Dr. Chen of
royalties on two generic pharmaceuticals under development, the generic
version of Cardizem CD/registered trademark/ and the generic version of
Seldane D/registered trademark/. In March 1994, the Company and Dr. Chen
entered into an amendment (the "March 1994 Agreement") to the February 1993
Agreement to reduce the amount of royalties relating to these products to be
paid to Dr. Chen. Under the terms of the March 1994 Agreement, Dr. Chen will
receive 3.33% of the net revenues received by the Company from sales of these
products, less, in the case of the generic version of Seldane D/registered
trademark/, the Company's investment in this product. Under the terms of the
March 1994 Agreement, the Company also (i) paid Dr. Chen $50,000; (ii)
canceled his obligation to repay the $50,000 advance; and (iii) agreed to
recommend to the Compensation Committee that Dr. Chen be paid a bonus upon
each of the filing of an ANDA relating to the Company's generic version of
Cardizem CD/registered trademark/ and FDA approval of the ANDA. In August
1994, the bonus arrangement was modified to provide Dr. Chen with a $100,000
loan and to grant to Dr. Chen ten-year options under the Stock Incentive Plan
to purchase 200,000 shares of Common Stock, which options are fully vested.
These options were granted at an exercise price of $6.50 per share,
representing the fair market value on the date of grant. In March 1996,
following the filing of an ANDA relating to the Company's generic version of
Dilacor XR/registered trademark/, the Compensation Committee of the Board of
Directors agreed to forgive Dr. Chen's indebtedness to the Company.
TRANSACTIONS WITH CORNER DRUGSTORE
Alan P. Cohen and certain members of his family control Corner Drugstore,
a privately-held retail drugstore chain, which also is a shareholder and
customer of the Company. Sales to Corner Drugstore and its affiliates, which
are made on an arm's length basis accounted for less than 12%, 3% and 1% of
the Company's revenues during the years ended December 31, 1993, 1994 and
1995, respectively. Corner Drugstore filed for reorganization under Chapter
11 of the U.S. Bankruptcy Code in December 1994, at which time the Company
was owed approximately $410,000 by Corner Drugstore for products sold to it
by the Company. This receivable was not collected and was written off by the
Company.
TRANSACTIONS WITH DR. HAHN
In February 1993, Dr. Elliot F. Hahn joined the Company and in connection
therewith purchased 1,633,500 shares of the Common Stock for aggregate
consideration of $150,000. The Company recognized approximately $325,000 in
compensation expense in connection with Dr. Hahn's purchase of the shares of
Common Stock.
TRANSACTIONS WITH WATSON
In July 1994, the Company and Circa, which was subsequently acquired by
Watson, established the ANCIRC joint venture. The terms of the ANCIRC joint
venture are described in
43
<PAGE>
"Business--Collaborative Arrangements--ANCIRC Joint Venture," except that when
established, ANCIRC was owned 60% by Andrx and 40% by Watson. In connection with
the establishment of ANCIRC, the Company sold to Watson, for aggregate
consideration of $6.0 million, (i) 33,708 shares of Preferred Stock, which in
accordance with its terms, converted into 674,160 shares of Common Stock on
April 30, 1995 and (ii) the Watson Warrants to purchase 337,079 shares of Common
Stock exercisable through July 1999 at a price equal to the lesser of $8.90 or
the offering price per share of shares sold in an initial public offering.
In August 1995, Watson purchased an additional 90,909 shares of Common
Stock from the Company at a price of $11.00 per share and Watson was granted
a two-month option to purchase no less than 818,182 nor more than 1,454,545
shares of Common Stock from the Company, Mr. Cohen, trusts for the benefit of
Dr. Hahn's children (the "Trusts") and Dr. Chen at a price of $11.00 per
share (with no more than 181,818 shares being sold by selling shareholders.
Watson exercised such option in October 1995 and in December 1995 purchased
1,144,903 shares from the Company, 63,636 shares from Mr. Cohen, 54,546
shares from the Trusts, and 63,636 shares from Dr. Chen. In connection with
the exercise of the option by Watson, the ANCIRC joint venture agreement was
amended to provide that the Company and Watson would agree on two additional
product candidates to be developed by ANCIRC, and to restructure the
respective interests of the Company and Watson in ANCIRC so that ANCIRC
became a 50/50 joint venture. The Company has also granted Watson certain
demand and piggy-back registration rights under the Securities Act,
exercisable commencing one year after completion of this offering, with
respect to the shares of Common Stock held by Watson and the shares
underlying the Watson Warrants. See "Shares Eligible for Future Sale."
TRANSACTIONS WITH PSG
In September 1994, the Company entered into an agreement to loan $250,000
to PSG, a pharmacy benefits management and mail order marketing company. PSG
was a customer of the Company's generic pharmaceutical distribution
operations and was controlled by a former principal shareholder of the
Company, Corner Drugstore and a non-affiliated third party. In addition, each
of Alan P. Cohen and Dr. Elliot F. Hahn owned less than 1% of PSG's
outstanding stock. Although a portion of the loan was originally advanced in
conjunction with a proposed joint venture involving PSG, the Company and a
third entity, the Company decided not to proceed with that venture and the
loan commitment was restructured. As restructured, the Company advanced
$200,000, restructured $50,000 of the total of $102,000 accounts receivable
due from PSG to be included as part of the loan, received options to acquire
83,333 shares of PSG stock at an exercise price of $3.00 per share, and was
entitled to receive interest at the prime rate plus 1% quarterly, with the
full principal balance due on September 30, 1997. In December 1994, Andrx
renegotiated its note with PSG to provide for, among other things, the
issuance of stock options to acquire up to an additional 40,000 shares of
PSG's stock at an exercise price of $2.50 per share. In consideration for
such additional options, the Company agreed to not declare a default under
the note or to accelerate the note as a result of PSG's failure to fulfill
certain requirements of the original note. During 1995, management of the
Company determined that the outstanding accounts receivable balance of
$52,000 due from PSG and the note receivable for $250,000 were uncollectible,
and the Company wrote off these balances.
APPROVAL OF AFFILIATED TRANSACTIONS
No further transactions between the Company and its executive officers,
directors, principal shareholders or their affiliates are contemplated. The
Company has adopted a policy that any transactions between the Company and
its executive officers, directors, principal shareholders or their affiliates
take place on an arms-length basis and require the approval of a majority of
the independent directors of the Company.
44
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of the date of this Prospectus
and as adjusted after this offering, by (i) each of the shareholders of the
Company owning more than 5% of the outstanding shares of Common Stock; (ii)
each director of the Company; (iii) each of the Named Executive Officers; and
(iv) all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
NUMBERS OF SHARES ------------------------
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
- ---------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Alan P. Cohen(3) .................... 1,865,214 17.4% 15.0%
Elliot F. Hahn, Ph.D.(4) ............ 1,592,654 14.8 12.8
Chih-Ming J. Chen, Ph.D.(5) ......... 1,873,814 17.1 14.8
Scott Lodin(6) ...................... 25,000 * *
Elaine Bloom(7) ..................... 12,676 * *
Paul M. Donofrio(8) ................. 16,483 * *
Irwin C. Gerson(9) .................. 12,676 * *
Elliot Levine(10) ................... 28,540 * *
Michael Schwartz, Ph.D.(11) ......... 12,676 * *
Melvin Sharoky, M.D.(12) ............ 3,650 * *
All directors and executive officers
as a group (12 persons)(13) ....... 5,380,883 48.9 42.3
5% OR GREATER HOLDERS
Watson Pharmaceuticals, Inc.(14)
311 Bonnie Circle
Corona, CA 91720 .................... 2,428,869 22.0 19.0
Louis Rosenwein(15)
Two World Trade Center, 73rd Floor
New York, NY 10048 .................. 670,940 6.3 5.4
<FN>
- ----------
* less than 1%
(1) Except as indicated, the address of each person named in the table is c/o
Andrx, 4001 Southwest 47th Avenue, Ft. Lauderdale, Florida 33314.
(2) Except as otherwise indicated, the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
listed, which include shares of Common Stock that such persons have the
right to acquire a beneficial interest in within 60 days.
(3) Includes 200,000 shares of Common Stock held jointly by Mr. Cohen and his
spouse, 247,500 shares in trust for the benefit of Mr. Cohen's children,
with his father as trustee, and 62,500 shares of Common Stock owned by a
general partnership of which Mr. Cohen is a general partner.
(4) Includes 790,004 shares of Common Stock held in trust for the benefit of
Dr. Hahn's children, with his spouse as trustee, and 62,500 shares of
Common Stock owned by a general partnership, of which Dr. Hahn is a
general partner.
(5) Includes 200,000 shares of Common Stock held by Dr. Chen's spouse,
200,000 shares of Common Stock held in trust for Dr. Chen's child, with
his spouse as trustee, and 200,000 shares of Common Stock issuable upon
the exercise of stock options.
(6) Includes 22,500 shares of Common Stock issuable upon the exercise of
stock options.
(7) Represents 12,676 shares of Common Stock issuable upon the exercise of
stock options.
(8) Includes 3,650 shares of Common Stock issuable upon the exercise of stock
options.
45
<PAGE>
(9) Represents 12,676 shares of Common Stock issuable upon the exercise of
stock options.
(10) Represents (i) 10,620 shares of Common Stock held jointly with Mr.
Levine's spouse; (ii) 5,620 shares of Common Stock issuable upon the
exercise of warrants held jointly with Mr. Levine's spouse; and (iii)
12,300 shares of Common Stock issuable upon the exercise of stock
options.
(11) Represents 12,676 shares of Common Stock issuable upon exercise of stock
options.
(12) Represents 3,650 shares of Common Stock issuable upon exercise of stock
options. Does not include shares of Common Stock beneficially owned by
Watson, in which shares Dr. Sharoky, the President and a director of
Watson, disclaims beneficial ownership.
(13) Includes (i) the shares of Common Stock described in notes (3) through
(6), and (ii) 285,748 shares of Common Stock issuable upon the exercise
of the stock options and warrants described in notes (5) through (12).
(14) Includes 337,079 shares of Common Stock issuable upon the exercise of
the Watson Warrants.
(15) Includes (i) 20,000 shares of Common Stock held in trust for the benefit
of Mr. Rosenwein's children, and (ii) 3,875 shares of Common Stock
issuable upon the exercise of stock options.
</FN>
</TABLE>
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of the Company will
consist of (i) 25,000,000 shares of Common Stock, par value $.001 per share,
12,427,132 shares of which will be outstanding (assuming no exercise of
options and warrants) and (ii) 1,000,000 shares of Preferred Stock, par value
$.001 per share (the "Preferred Stock"), none of which will be outstanding.
As of the date of this Prospectus, there were 284 holders of record of the
Common Stock.
COMMON STOCK
Subject to the rights of the holders of any Preferred Stock that may be
outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of
Directors out of funds legally available therefor, and, in the event of
liquidation, to share pro rata in any distribution of the Company's assets
after payment or providing for the payment of liabilities and the liquidation
preference of any outstanding Preferred Stock. Each holder of Common Stock is
entitled to one vote for each share held of record on the applicable record
date on all matters presented to a vote of shareholders, including the
election of directors. Holders of Common Stock have no cumulative voting
rights or preemptive rights to purchase or subscribe for any stock or other
securities, and there are no conversion rights or redemption or sinking fund
provisions with respect to such stock. All outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby will be when issued, fully
paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue 1,000,000
shares of Preferred Stock in one or more series and to fix, by resolution,
conditional, full, limited or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, if
any, and the qualifications, limitations or restrictions thereof, if any,
including the number of shares in such series (which the Board may increase
or decrease as permitted by Florida law), liquidation preferences, dividend
rates, conversion or exchange rights, redemption provisions of the shares
constituting any series and such other special rights and protective
provisions with respect to any class or series as the Board may deem
advisable without any further vote or action by the shareholders. Any shares
of Preferred Stock so issued would have priority over the Common Stock with
respect to dividend or liquidation rights or both and could have voting and
other rights of shareholders. The Company has no present plans to issue
shares of Preferred Stock.
CERTAIN FLORIDA LEGISLATION
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in a "control share acquisition" will not possess any voting
rights unless such voting rights are approved by a majority of the
corporation's disinterested shareholders. A "control share acquisition" is an
acquisition, directly or indirectly, by any person of ownership of, or the
power to direct the exercise of voting power with respect to, issued and
outstanding "control shares" of a publicly held Florida corporation. "Control
shares" are shares, which, except for the Florida Control Share Act, would
have voting power that, when added to all other shares owned by a person or
in respect to which such person may exercise or direct the exercise of voting
power, would entitle such person, immediately after acquisition of such
shares, directly or indirectly, alone or as a part of a group, to exercise or
direct the exercise of voting power in the election of directors within any
of the following ranges: (i) at least 20% but less than 33-1/3% of all
voting power; (ii) at least 33-1/3% but less than a majority of all voting
power; or (iii) a majority or more of all voting power. The Florida
Affiliated Transactions Act generally requires supermajority approval by
disinterested shareholders of certain specified transactions between a public
corporation and holders of more than 10% of the outstanding voting shares of
the corporation (or their affiliates). Florida law and the Company's Articles
and Bylaws also authorize the Company to indemnify the Company's directors,
officers, employees and agents. In addition, the Company's Articles and
Florida law presently limit the
47
<PAGE>
personal liability of corporate directors for monetary damages, except where
the directors (i) breach their fiduciary duties, and (ii) such breach
constitutes or includes certain violations of criminal law, a transaction
from which the directors derived an improper personal benefit, certain
unlawful distributions or certain other reckless, wanton or willful acts or
misconduct.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
Certain provisions of the Articles and Bylaws of the Company summarized in
the following paragraphs will become operative upon the closing of this
offering and may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt, including attempts that
might result in a premium being paid over the market price for the shares
held by shareholders. The following provisions may not be amended in the
Company's Articles or Bylaws without the affirmative vote of the holders of
two-thirds of the outstanding shares of Common Stock.
CLASSIFIED BOARD OF DIRECTORS. The Articles and Bylaws provide for the
Board of Directors to be divided into three classes serving staggered terms.
As a result, approximately one-third of the Board of Directors will be
elected each year. The Articles and Bylaws also provide that directors may
only be removed for cause and only upon the affirmative vote of the holders
of at least two-thirds of the outstanding shares of capital stock entitled to
vote. These provisions, when coupled with the provision of the Articles and
Bylaws authorizing only the Board of Directors to fill vacant directorships
or increase the size of the Board, may deter a shareholder from removing
incumbent directors and simultaneously gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.
SPECIAL MEETING OF SHAREHOLDERS, PROHIBITION OF ACTION BY UNANIMOUS
CONSENT. The Articles and Bylaws prohibit the taking of shareholder action by
written consent without a meeting and provide that special meetings of
shareholders of the Company be called only by a majority of the Board of
Directors, the Company's Chief Executive Officer or holders of not less than
one-third of the Company's outstanding voting stock.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for
election as directors at an annual or special meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Company not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made
to shareholders, notice by the shareholder, to be timely, must be received no
later than the close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made, whichever is first. The Bylaws also specify certain requirements as
to the content and form of a shareholder's notice. These provisions may
preclude shareholders from bringing matters before the shareholders at an
annual or special meeting or from making nominations for directors at an
annual or special meeting.
AMENDMENT OF BYLAWS. Except for the provisions identified above requiring
a two-thirds vote of the outstanding shares to alter, amend or repeal, the
Bylaws may only be altered, amended or repealed by the Board or the
affirmative vote of the holders of at least a majority of the outstanding
shares of capital stock of the Company.
TRANSFER AGENT
The transfer agent for the Company is American Stock Transfer & Trust
Company, New York, New York.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 12,427,132 shares
of Common Stock outstanding. Of these shares, the 1,700,000 shares of Common
Stock sold in this offering will be freely tradeable without restriction
under the Securities Act, except for any such shares which may be acquired by
an "affiliate" of the Company as that term is defined in Rule 144 under the
Securities Act (an "Affiliate"), which shares generally may be sold publicly
without registration under the Securities Act only in compliance with Rule
144.
In general, under Rule 144 as currently in effect, if a period of at least
two years has elapsed since the later of the date the "restricted shares" (as
that phrase is defined in Rule 144) were acquired from the Company and the
date they were acquired from an Affiliate, then the holder of such restricted
shares (including an Affiliate) is entitled to sell a number of shares within
any three-month period that does not exceed the greater of 1% of the then
outstanding shares of the Common Stock (approximately 124,000 shares
immediately after this offering) or the average weekly reported volume of
trading of the Common Stock on the Nasdaq National Market during the four
calendar weeks preceding such sale. The holder may only sell such shares
through unsolicited brokers' transactions or directly to market makers. Sales
under Rule 144 are also subject to certain requirements pertaining to the
manner of such sales, notices of such sales and the availability of current
public information concerning the Company. Affiliates may sell shares not
constituting restricted shares in accordance with the foregoing volume
limitations and other requirements but without regard to the two-year holding
period.
Under Rule 144(k), if a period of at least three years has elapsed between
the later of the date restricted shares were acquired from the Company and
the date they were acquired from an Affiliate, as applicable, a holder of
such restricted shares who is not an Affiliate at the time of the sale and
has not been an Affiliate for at least three months prior to the sale would
be entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above. The Commission has proposed
reducing the holding periods under Rule 144 and Rule 144(k) to one year and
two years, respectively. There can be no assurance as to when, if ever, such
proposal will be adopted by the Commission.
The Company's executive officers and directors, Watson and certain
stockholders who collectively own an aggregate of approximately 9,848,050
shares of Common Stock have agreed that they will not directly or indirectly,
sell, offer, contract to sell, make a short sale, pledge or otherwise dispose
of any shares of Common Stock (or any securities convertible into or
exchangeable or exercisable for any other rights to purchase or acquire
Common Stock other than shares of Common Stock issuable upon exercise of
outstanding options) owned by them, for a period of 180 days after the date
of this Prospectus, without the prior written consent of Oppenheimer & Co.,
Inc., subject to certain limited exceptions.
After the 180 day period, 8,118,707 of the shares subject to the sale
restriction will be eligible for sale in the public market pursuant to Rule
144 under the Securities Act, subject to the volume limitations and other
restrictions contained in Rule 144. The remaining 1,729,343 of such shares
will become eligible for sale subject to the restrictions of Rule 144 at
varying times from March 1997 to August 1997. Of the shares of Common Stock
not subject to the 180 day restriction on sale described above, 306,324
shares will be eligible for sale subject to the restrictions of Rule 144
after the completion of this offering, 502,926 shares of Common Stock will be
so eligible 90 days after the date of this Prospectus and the balance of
69,832 shares will be available for public sale under Rule 144 at varying
times from December 1996 to August 1997.
The Company has agreed that 180 days after completion of this offering, it
will register under the Securities Act 605,428 shares of outstanding Common
Stock and 602,912 shares of Common Stock underlying certain options and
warrants. In addition, the Company has granted to Watson certain demand and
piggy-back registration rights under the Securities Act, exercisable
commencing one year after completion of this offering, with respect to the
2,091,790 shares of Common Stock held by Watson and the 337,079 shares of
Common Stock underlying the Watson Warrants.
49
<PAGE>
Prior to this offering, there has been no market for the Common Stock of
the Company. The Company can make no predictions as to the effect, if any,
that sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of significant
amounts of the Common Stock in the public market, or the perception that such
sales may occur, could adversely affect prevailing market prices.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of the Underwriters, for whom Oppenheimer & Co., Inc. and Gruntal & Co.,
Incorporated are acting as Representatives, has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite the name of each Underwriter below.
NUMBER OF
NAME SHARES
- ---- --------------
Oppenheimer & Co., Inc. .........
Gruntal & Co., Incorporated ....
--------------
Total ......................... 1,700,000
==============
The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such price
less a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Representatives. The Underwriters are
obligated to take and pay for all of the shares of Common Stock offered
hereby (other than those covered by the over-allotment option described
below) if any are taken.
The Company has granted to the Underwriters an option, exercisable for up
to 30 days after the date of this Prospectus, to purchase up to an aggregate
of 255,000 additional shares of Common Stock to cover over-allotments, if
any. If the Underwriters exercise such option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof that the number of shares to be purchased by each
of them bears to the 1,700,000 shares of Common Stock offered hereby. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered hereby.
The Company has agreed to indemnify the Representatives of the
Underwriters and the several Underwriters against certain liabilities,
including, without limitation, liabilities under the Securities Act, and to
contribute to certain payments that the Underwriters may be required to make
in respect thereof.
The Company's executive officers and directors, Watson and certain
stockholders who collectively own an aggregate of approximately 8,350,798
shares of Common Stock have agreed that they will not directly or indirectly,
sell, offer, contract to sell, make a short sale, pledge or otherwise dispose
of any shares of Common Stock (or any securities convertible into or
exchangeable or exercisable for any other rights to purchase or acquire
Common Stock other than shares of Common Stock issuable upon exercise of
outstanding options) owned by them, for a period of 180 days after the date
of this Prospectus, without the prior written consent of Oppenheimer & Co.,
Inc., subject to certain limited exceptions. The Company has also agreed not
to issue, sell or register with the Commission, or
51
<PAGE>
otherwise dispose of, directly or indirectly, any equity securities of the
Company (or any securities convertible into or exercisable or exchangeable
for equity securities of the Company) for a period of 180 days after the date
of this Prospectus, without the prior written consent of Oppenheimer & Co.,
Inc., subject to certain limited exceptions.
In December 1995, the Company paid Gruntal & Co., Incorporated fees of
$75,000 for services in connection with the performance of certain investment
banking services. In connection with a private placement in December 1993,
Gruntal received an option from the Company, exercisable through December
1998, to purchase for an aggregate purchase price of $447,000, 50,242 shares
of Common Stock and warrants, also exercisable through December, 1998, to
purchase 50,242 shares of Common Stock at a price of $7.25 per share.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales in excess of 5% of the shares offered hereby to any
account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined by negotiations between the Company and the Representatives. Among
the factors considered in determining the initial public offering price were
prevailing market and economic conditions, revenues and earnings of the
Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's
management and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Broad and Cassel, a partnership including
professional associations, Miami, Florida. Certain legal matters relating to
this offering will be passed upon for the Underwriters by Fulbright &
Jaworski L.L.P., New York, New York.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent certified public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the
Common Stock being offered in this offering. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
and schedules thereto, certain portions of which are omitted as permitted by
the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to any such contract,
agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description
of the matter involved, and each such statement shall be deemed qualified in
its entirety by reference to the Registration Statement and to the financial
statements, schedules and exhibits filed as a part thereof.
52
<PAGE>
Upon completion of this offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith, will file reports and
other information with the Commission. The Registration Statement, the
exhibits and schedules forming a part thereof and the reports and other
information filed by the Company with the Commission in accordance with the
Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material or any part thereof may also be
obtained by mail from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
53
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF ANDRX CORPORATION AND SUBSIDIARIES:
Report of Independent Certified Public Accountants ................................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995
and March 31, 1996 (unaudited) .................................................. F-3
Consolidated Statements of Operations
for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996 (unaudited) .................. F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1996 (unaudited) ........................... F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996 (unaudited) .................. F-6
Notes to Consolidated Financial Statements ........................................ F-7
FINANCIAL STATEMENTS OF ANCIRC:
Report of Independent Certified Public Accountants ................................ F-20
Balance Sheets as of December 31, 1994 and 1995
and March 31, 1996 (unaudited) .................................................. F-21
Statements of Operations
for the period from inception (July 8, 1994) to December 31, 1994,
the year ended December 31, 1995 and the cumulative period from inception
(July 8, 1994) to December 31, 1995 and the three months ended
March 31, 1995 and 1996 and the cumulative period from inception (July 8, 1994)
to March 31, 1996 (unaudited) ................................................... F-22
Statements of Partners' Deficit
for the period from inception (July 8, 1994) to December 31, 1994
and the year ended December 31, 1995 and the three months
ended March 31, 1996 (unaudited) ................................................ F-23
Statements of Cash Flows
for the period from inception (July 8, 1994) to December 31, 1994,
the year ended December 31, 1995 and the cumulative period from inception
(July 8, 1994) to December 31, 1995 and the three months ended
March 31, 1995 and 1996 and the cumulative period from inception (July 8, 1994)
to March 31, 1996 (unaudited) ................................................... F-24
Notes to Financial Statements ..................................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
Andrx Corporation:
We have audited the accompanying consolidated balance sheets of Andrx
Corporation and subsidiaries (a Florida corporation) as of December 31, 1994
and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Andrx Corporation and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
February 20, 1996.
F-2
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ MARCH 31,
1994 1995 1996
-------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .............................. $ 3,845,800 $ 13,841,400 $ 11,488,000
Accounts receivable, net of allowances of $552,400,
$574,200, and $662,000 (unaudited) as of December 31,
1994, 1995 and March 31, 1996, respectively .......... 4,345,600 8,263,400 8,306,000
Due from joint venture ................................. 363,700 488,500 458,100
Inventories ............................................ 3,593,000 9,502,000 9,017,300
Prepaid and other current assets ....................... 129,200 130,500 101,700
-------------- --------------- ---------------
Total current assets .................................. 12,277,300 32,225,800 29,371,100
Property and equipment, net ............................. 3,207,600 3,831,100 4,452,900
Note receivable-related party ........................... 250,000 -- --
Note receivable-employee ................................ 100,000 -- --
Other assets ............................................ 171,100 91,800 70,200
-------------- --------------- ---------------
Total assets .......................................... $16,006,000 $ 36,148,700 $ 33,894,200
============== =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ....................................... $ 4,867,900 $ 9,860,000 $ 11,978,100
Accrued liabilities .................................... 286,700 1,724,200 1,928,700
Bank loan .............................................. 2,551,000 6,077,500 2,328,500
Notes payable .......................................... 84,100 23,500 13,600
Commitment to joint venture ............................ 4,200 139,000 43,200
Unearned revenue ....................................... 115,000 -- --
-------------- --------------- ---------------
Total current liabilities ............................. 7,908,900 17,824,200 16,292,100
-------------- --------------- ---------------
Commitments and contingencies (Notes 9 and 14) .........
Shareholders' equity
Convertible preferred stock; $0.001 par value,
1,000,000 shares authorized; 33,700 and no shares
issued and outstanding as of December 31, 1994 and
1995, respectively ................................... -- -- --
Common stock; $0.001 par value, 25,000,000 shares
authorized; 8,553,600, 10,727,100 and 10,727,100
(unaudited) shares issued and outstanding as of
December 31, 1994, 1995 and March 31, 1996,
respectively ......................................... 8,500 10,700 10,700
Additional paid-in capital ............................. 13,382,800 28,795,000 28,795,000
Accumulated deficit .................................... (5,294,200) (10,481,200) (11,203,600)
-------------- --------------- ---------------
Total shareholders' equity ............................ 8,097,100 18,324,500 17,602,100
-------------- --------------- ---------------
Total liabilities and shareholders' equity ........... $16,006,000 $ 36,148,700 $ 33,894,200
============== =============== ===============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
--------------- --------------- ---------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Distribution revenues, net ........... $ 5,654,500 $25,915,500 $50,467,800 $10,900,700 $18,039,900
Research and development services to
joint venture ...................... -- 375,300 2,528,700 524,500 878,000
Licensing revenues ................... 225,000 155,500 165,000 -- --
--------------- --------------- --------------- -------------- --------------
Total revenues ...................... 5,879,500 26,446,300 53,161,500 11,425,200 18,917,900
--------------- --------------- --------------- -------------- --------------
Cost of revenues
Distribution revenues ................ 5,257,900 21,362,400 41,780,900 9,080,700 15,048,800
Research and development services to
joint venture ...................... -- 375,300 2,528,700 524,500 878,000
--------------- --------------- --------------- -------------- --------------
Total cost of revenues .............. 5,257,900 21,737,700 44,309,600 9,605,200 15,926,800
--------------- --------------- --------------- -------------- --------------
Gross profit .......................... 621,600 4,708,600 8,851,900 1,820,000 2,991,100
--------------- --------------- --------------- -------------- --------------
Operating expenses
Selling, general and administrative . 1,706,300 5,389,800 8,647,200 1,748,900 2,754,100
Research and development ............. 959,900 2,109,600 3,254,700 390,300 409,500
Equity in losses of joint venture ... -- 315,800 1,839,700 275,600 544,500
------------- --------------- --------------- -------------- --------------
Total operating expenses ............ 2,666,200 7,815,200 13,741,600 2,414,800 3,708,100
--------------- --------------- --------------- -------------- --------------
Loss from operations .................. (2,044,600) (3,106,600) (4,889,700) (594,800) (717,000)
--------------- --------------- --------------- -------------- --------------
Interest expense ...................... -- (104,300) (636,200) (109,500) (148,900)
--------------- --------------- --------------- -------------- --------------
Interest income ....................... 300 121,800 249,800 50,600 143,500
--------------- --------------- --------------- -------------- --------------
Other income (expense), net ........... -- (15,400) 89,100 -- --
--------------- --------------- --------------- -------------- --------------
Net loss .............................. $(2,044,300) $(3,104,500) $(5,187,000) $ (653,700) $ (722,400)
=============== =============== =============== ============== ==============
Net loss per share .................... $ (0.26) $ (0.35) $ (0.55) $ (0.07) $ (0.07)
=============== =============== =============== ============== ==============
Weighted average shares of common
stock outstanding ................... 7,745,100 8,758,400 9,446,800 8,758,400 10,743,600
=============== =============== =============== ============== ==============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
--------------------- ---------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- --------- ----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 ............... -- $ -- 5,791,500 $ 5,800 $ 513,400 $ (145,400) $ 373,800
Shares of common stock issued in
connection with employment of the
Company's President and a former
employee ............................. -- -- 1,708,500 1,700 495,000 -- 496,700
Shares of common stock issued in
connection with private placements ... -- -- 899,500 900 5,086,200 -- 5,087,100
Shares of common stock issued
as payment for services .............. -- -- 1,900 -- 13,400 -- 13,400
Net loss ............................... -- -- -- -- -- (2,044,300) (2,044,300)
----------- --------- ----------- -------- ----------- ------------ ------------
Balance, December 31, 1993 ............. -- -- 8,401,400 8,400 6,108,000 (2,189,700) 3,926,700
Shares of common stock issued
in connection with private placement . -- -- 147,200 100 1,242,300 -- 1,242,400
Shares of convertible preferred
stock issued in connection with
private placement .................... 33,700 -- -- -- 6,000,000 -- 6,000,000
Shares of common stock issued as
payment for services ................. -- -- 5,000 -- 32,500 -- 32,500
Net loss ............................... -- -- -- -- -- (3,104,500) (3,104,500)
----------- --------- ----------- -------- ----------- ------------ ------------
Balance, December 31, 1994 ............. 33,700 -- 8,553,600 8,500 13,382,800 (5,294,200) 8,097,100
Shares of common stock issued in
connection with private placements ... -- -- 1,338,800 1,300 14,622,600 -- 14,623,900
Shares of common stock issued in
connection with conversion of shares
of convertible preferred stock ....... (33,700) -- 674,200 700 (700) -- --
Shares of common stock issued in
connection with exercise of warrants -- -- 154,500 200 772,300 -- 772,500
Shares of common stock issued in
connection with exercise of
stock options ........................ -- -- 6,000 -- 18,000 -- 18,000
Net loss ............................... -- -- -- -- -- (5,187,000) (5,187,000)
----------- --------- ----------- -------- ----------- ------------ ------------
Balance, December 31, 1995 ............. -- -- 10,727,100 10,700 28,795,000 (10,481,200) 18,324,500
Net loss, three months ended March 31,
1996 (unaudited) ..................... -- -- -- -- -- (722,400) (722,400)
$
Balance, March 31, 1996 (unaudited) ... -- -- 10,727,100 $10,700 $28,795,000 $(11,203,600) $17,602,100
=========== ========= =========== ======== =========== ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss ............................................. $(2,044,300) $(3,104,500) $ (5,187,000) $ (653,700) $ (722,400)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization ................... 51,700 406,000 901,600 152,000 203,000
Provisions for losses on accounts receivable and
note receivable--related party, net .............. 124,000 485,600 271,800 25,300 87,800
Equity in losses of joint venture .................. -- 315,800 1,839,700 275,600 544,500
Contributions to joint venture ..................... -- (300,000) (1,200,000) -- (705,500)
Issuance of shares of common stock for payment
of services ...................................... 338,400 32,500 -- -- --
Cancellation of note receivable--employee .......... -- -- 100,000 -- --
Increase in accounts receivable .................... (1,750,300) (3,034,300) (3,939,600) (953,300) (130,400)
(Increase) decrease in due from joint venture ...... -- (375,300) (629,700) (149,200) 95,600
(Increase) decrease in inventories ................. (1,025,400) (2,313,000) (5,909,000) (1,744,900) 484,700
(Increase) decrease in prepaid and other
current assets ................................... (2,900) (105,000) (1,300) 53,100 28,800
(Increase) decrease in other assets ................ (24,800) (137,300) 79,300 30,700 21,600
Increase (decrease) in accounts payable and
accrued liabilities .............................. 2,402,000 2,520,900 6,429,600 (253,900) 2,322,600
Increase (decrease) in unearned revenue ............ 95,500 19,500 (115,000) -- --
Increase (decrease) in due to related party ........ 50,000 (50,000) -- -- --
------------ ------------ ------------- ------------ -------------
Net cash provided by (used in) operating
activities ...................................... (1,786,100) (5,639,100) (7,359,600) (3,218,300) 2,230,300
------------ ------------ ------------- ------------ -------------
Cash flows from investing activities
Purchase of property and equipment ................... (734,000) (2,721,000) (1,525,100) (291,800) (824,800)
Purchase of equipment, patents and rights from a
related party ...................................... (100,000) -- -- -- --
Disbursement of note receivable--related party ....... -- (200,000) -- -- --
Disbursement of note receivable--employee ............ -- (100,000) -- -- --
------------ ------------ ------------- ------------ -------------
Net cash used in investing activities ............. (834,000) (3,021,000) (1,525,100) (291,800) (824,800)
------------ ------------ ------------- ------------ -------------
Cash flows from financing activities
Proceeds from issuance of shares of common stock ..... 5,259,000 1,242,400 14,623,900 -- --
Proceeds from issuance of shares of convertible
preferred stock .................................... -- 6,000,000 -- -- --
Proceeds from exercise of warrants ................... -- -- 772,500 -- --
Proceeds from exercise of stock options .............. -- -- 18,000 -- --
Net borrowings (payments) under bank loan ............ -- 2,551,000 3,526,500 2,535,500 (3,749,000)
Proceeds from notes payable .......................... -- 36,100 30,100 -- --
Payment on notes payable ............................. -- (93,800) (90,700) (30,200) (9,900)
------------ ------------ ------------- ------------ -------------
Net cash provided by (used in) financing activities 5,259,000 9,735,700 18,880,300 2,505,300 (3,758,900)
------------ ------------ ------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents .. 2,638,900 1,075,600 9,995,600 (1,004,800) (2,353,400)
Cash and cash equivalents, beginning of period ........ 131,300 2,770,200 3,845,800 3,845,800 13,841,400
------------ ------------ ------------- ------------ -------------
Cash and cash equivalents, end of period .............. $ 2,770,200 $ 3,845,800 $ 13,841,400 $ 2,841,000 $ 11,488,000
============ ============ ============= ============ =============
Supplemental disclosure of cash paid during the period
for
Interest ......................................... $ -- $ 104,300 $ 636,200 $ 109,500 $ 148,900
============ ============ ============= ============ =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(1) GENERAL
Andrx Corporation and subsidiaries ("Andrx" or the "Company") was
organized in August 1992, and in November 1992, commenced marketing and
distributing generic pharmaceutical products manufactured by third parties.
In February 1993, the Company began to engage in the development of
controlled-release pharmaceutical products utilizing its proprietary drug
delivery technologies. During 1995, the Company submitted Abbreviated New
Drug Applications ("ANDA") to the United States Food and Drug Administration
("FDA") for two generic controlled-release pharmaceutical products.
The Company is subject to the risks and uncertainties associated with a
generic pharmaceutical 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 generic
pharmaceutical companies, including compliance with government regulations
and the possibility of patent infringement litigation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Andrx and its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less when acquired are considered cash equivalents.
INVENTORIES
Inventories, which consist solely of generic pharmaceutical products held
for distribution, are stated at the lower of cost (first-in, first-out) or
market. Cost is based on purchase price, net of vendor discounts, rebates and
allowances.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation for laboratory
equipment and furniture and fixtures is provided using the straight-line
method over an estimated life of three to five years. Leasehold improvements
are amortized on a straight-line basis over the shorter of the estimated life
of the asset or the term of the lease. The Company will provide depreciation
for manufacturing equipment once it is placed into service.
Costs of major additions for maintenance and repairs which do not extend
the life of the assets are expensed as incurred. Upon sale, disposition, or
retirement of property and equipment, the cost and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss
is credited or charged to income.
REVENUE RECOGNITION
Distribution revenues and the related cost of revenues are recognized at
the time a product is shipped. Cost of distribution revenues is based on the
purchase price of the product, net of vendor
F-7
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
discounts, rebates and allowances. Research and development services to joint
venture and the related cost of revenues are recognized at the time the
services are rendered (see Note 8). Licensing revenue is recognized when
earned in accordance with the terms of the underlying agreements (see Note
7).
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist of costs related to products
being developed internally as well as costs related to products subject to
licensing agreements. Research and development costs are expensed as
incurred.
INCOME TAXES
The Company, at its inception, adopted the provisions of the Financial
Accounting Standards Board ("FASB") Statement on Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109
requires, among other things, recognition of future tax benefits measured at
enacted rates attributable to the deductible temporary differences between
the financial statement and income tax bases of assets and liabilities and to
tax net operating loss carryforwards to the extent that the realization of
said benefits is "more likely than not".
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". Under the provisions of SFAS No. 123, companies can either
measure the compensation cost of equity instruments issued under employee
compensation plans using a fair value based method, or can continue to
recognize compensation cost using the intrinsic value method under the
provisions of Accounting Principles Board Opinion ("APB") No. 25. However, if
the provision of APB No. 25 are continued, pro forma disclosures of net
income or loss and earnings or loss per share must be presented in the
financial statements as if the fair value method had been applied. The
Company intends to continue to recognize compensation costs under the
provisions of APB No. 25, and upon adoption of SFAS No. 123 as of January 1,
1996, will provide the expanded disclosure required by SFAS No. 123.
STOCK SPLIT
The accompanying consolidated financial statements have been restated to
give retroactive effect to a 57,915-for-one stock split, effected February
12, 1993.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of shares of
common stock outstanding.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued at prices below the assumed public
offering price during the 12-month period prior to a proposed public offering
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 and the estimated initial public offering price). Accordingly,
the weighted average number of shares of common stock outstanding for all the
years presented have been adjusted to reflect the impact of such additional
common and common equivalent shares issued below the assumed initial public
offering price.
F-8
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1995 and 1994, the carrying amount of cash and cash
equivalents, accounts receivable, due from joint venture, prepaid and other
current assets, notes receivable, accounts payable, accrued liabilities, bank
loan, notes payable and commitment to joint venture approximates fair value
due to the short maturity of these instruments.
CONCENTRATION OF CREDIT RISK
Accounts receivable are principally due from independent pharmacies,
regional pharmacy chains which do not maintain their own warehousing
facilities and pharmacy buying groups. Credit is extended based on an
evaluation of the customer's financial condition and collateral is not
required. The Company performs periodic credit evaluations of its customers
and maintains allowances for potential credit losses. The Company has no
significant off-balance sheet concentration of credit risk.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements as of March 31,
1996 and for the three months ended March 31, 1995 and 1996 have been
prepared on the same basis as the audited consolidated financial statements
included herein. In the opinion of management, such unaudited interim
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the results for
such periods. The operating results for the three months ended March 31, 1996
are not necessarily indicative of the operating results to be expected for
the full fiscal year or for any future period.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
F-9
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment .......... $1,802,200 $ 2,540,900 $ 3,310,300
Manufacturing equipment ...... 968,900 1,425,600 1,418,700
Furniture and fixtures ........ 437,300 529,000 589,300
Leasehold improvements ........ 460,400 584,200 586,200
------------- -------------- --------------
3,668,800 5,079,700 5,904,500
Less: accumulated depreciation
and amortization ........ (461,200) (1,248,600) (1,451,600)
------------- -------------- --------------
Property and equipment, net .. $3,207,600 $ 3,831,100 $ 4,452,900
============= ============== ==============
</TABLE>
(4) INCOME TAXES
For the years ended December 31, 1993, 1994 and 1995, 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, 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 December 31, 1995, for
financial reporting purposes and federal income tax purposes, the Company has
net operating loss carryforwards of approximately $10,000,000 and $8,100,000,
respectively, which if not utilized, will expire beginning in 2008. Net
operating loss carryforwards are subject to review and possible adjustments
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%.
(5) BANK LOAN
During 1994, Anda Generics, Inc. ("Generics"), the Company's wholly owned
subsidiary engaged in the distribution of generic pharmaceutical products,
entered into an agreement with a bank which provided a line of credit for
advances up to $4,000,000. The advances are subject to certain limitations
relating to the borrowing base related to the value of the accounts
receivable and inventories of Generics. The loan is guaranteed by the
Company. In 1995, the maximum amount available under the revolving line of
credit was increased to $8,000,000 all of which was available as of December
31, 1995 based on the underlying collateral. The agreement requires
compliance with certain covenants including the maintenance of minimum
working capital and net worth levels. The loan bore interest at the prime
rate (8.25% as of December 31, 1995) plus 2.0% and is subject to an unused
commitment fee of .5% on the unused balance.
In January 1996, the maximum amount available under the revolving line of
credit was increased to $10,000,000 and the interest rate was decreased to
the prime rate plus 1.5%.
(6) NOTES PAYABLE
As of December 31, 1994, the Company had a note payable outstanding to a
vendor in the amount of $55,800. The note bore interest at 8.0% and was due
in eight installments of principal and interest through October 1995. As of
December 31, 1994, the note was included in notes payable in the accompanying
consolidated balance sheet. The note was paid in 1995.
F-10
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(7) LICENSING AGREEMENTS
In June 1993, the Company entered into a development and licensing
agreement with Zenith Laboratories, Inc., now a wholly-owned subsidiary of
IVAX Corporation ("IVAX"), for a controlled-release product to be marketed in
the United States. Under the development and licensing agreement, the Company
is responsible for developing a formulation, and IVAX is responsible for
performing the bioequivalence studies, preparing the ANDA and manufacturing
and marketing the product. The development and licensing agreement grants
IVAX the right to market the product for a period of five years from receipt
of ANDA approval (which period may be extended for an additional five years
at the sole discretion of IVAX). The Company has received certain fees and
milestone payments under this development and licensing agreement and will be
entitled to receive royalties from the sale of the licensed product.
In September and December 1993, the Company entered into two development
and licensing agreements with Circa Pharmaceutical, Inc., now a wholly-owned
subsidiary of Watson Pharmaceuticals, Inc. ("Watson") for two generic
controlled release products to be marketed in the United States and Canada.
Under the development and licensing agreements, the Company is responsible
for development of the licensed products and the transfer of the technology
to Watson which, together with the Company's assistance, is responsible for
the scale-up of batches for pilot and bioequivalence studies, preparing the
ANDA and manufacturing and marketing the licensed products. The terms of each
development and licensing agreement is for the life of the licensed product.
The Company received certain milestone payments for one of the generic
controlled-release products. If this agreement is terminated other than due
to a decision to terminate, or a breach of the agreement by Watson, these
milestone payments and any product development costs paid to the Company are
refundable to Watson if the Company successfully commercializes such product
within three years from the date the development and license agreement is
terminated. The Company believes that it has performed its responsibilities
related to the milestone payments received. The Company will be entitled to
receive royalties from the sale of one generic controlled-release product.
The development and licensing agreement for the other generic
controlled-release product does not provide for milestone payments although
the Company will be entitled to receive a share of net profits from the sale
of this product.
In November 1993, the Company entered into a development and licensing
agreement with Mylan Laboratories, Inc. ("Mylan") for a generic
controlled-release product to be marketed in the United States, Canada and
Mexico. Under the development and licensing agreement, the Company is
responsible for development of the licensed product and the transfer of the
technology to Mylan which, together with the Company's assistance, is
responsible for the scale-up of batches for pilot and bioequivalence studies,
preparing the ANDA and manufacturing and marketing the licensed products. The
development and licensing agreement grants Mylan the right to market the
product for a period of five years from receipt of ANDA approval (which
period may be extended for an additional five years at the sole discretion of
Mylan). The Company has received certain fees and milestone payments under
the development and licensing agreement and will be entitled to receive
royalties from the sale of the licensed products.
In July 1993, the Company entered into a development and licensing
agreement with a Taiwanese pharmaceutical manufacturer, Yung Shin
Pharmaceuticals, Ind., Co. Ltd. ("YSP") for generic versions of three
controlled-release products to be marketed in Taiwan, China and Southeast
Asia excluding Japan and Korea. Under the development and licensing
agreement, the Company is responsible for development of the licensed
products, including scale-up of batches for pilot and bioequivalence studies
and the transfer of the technology to YSP which, together with the Company's
assistance, is responsible for preparing the necessary regulatory
applications and manufacturing and marketing the licensed products. The
development and licensing agreement grants YSP the right to market the
product for a
F-11
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(7) LICENSING AGREEMENTS--(CONTINUED)
period of ten years from receipt of the first government approval in the
covered territories to market each product (which period may be extended for
an additional five years at the sole discretion of YSP). The Company has
received certain fees and milestone payments under the development and
licensing agreement and will be entitled to receive royalties from the sale
of the licensed products.
In January 1994, the Company entered into a development and licensing
agreement with a second Taiwanese pharmaceutical manufacturer, Purzer
Pharmaceutical Co., Ltd. ("Purzer") for a generic controlled-release product
and three over-the-counter products to be marketed in Russia and Asia,
excluding Japan. This development and licensing agreement is similar to that
with YSP.
As a result of milestone payments in connection with these licensing
agreements, Andrx received $320,500, $175,000, and $50,000 during the years
ended December 31, 1993, 1994 and 1995, respectively, and $225,000, $155,500
and $165,000, respectively, was recognized as licensing revenue.
(8) JOINT VENTURE
In July 1994, the Company and Watson (collectively, the "Partners"),
formed a joint venture to develop, manufacture and market generic
controlled-release pharmaceutical products (the "joint venture" or "ANCIRC").
Watson also acquired an equity interest in the Company in exchange for a
payment of $6,000,000. In addition, Watson may acquire a further equity
interest by exercise of certain warrants (see Note 11). Andrx
Pharmaceuticals, Inc. ("Pharmaceuticals"), a wholly owned subsidiary of the
Company, will perform the research and development formulations for the joint
venture products and the Company will also market and distribute any of
ANCIRC's products upon regulatory approval. Watson will provide the
regulatory support for the joint venture products and manufacture any of
ANCIRC's products upon regulatory approval. Capital contributions and
ANCIRC's net income or losses are to be allocated in proportion to the
respective Partners' interest in the joint venture. Such interests were
originally 60% to Andrx and 40% to Watson. On October 30, 1995, in connection
with Watson's purchase of shares of common stock of Andrx (see Note 11), the
Partners amended the joint venture agreement to modify each Partner's
respective interest to 50%. Under the terms of the amendment to the joint
venture agreement, Watson was not required to contribute additional capital
to ANCIRC to equalize the partners' capital accounts as of the amendment
date. The Partners' capital accounts will be equalized in future periods out
of net cash flow or upon liquidation, to the extent funds are available.
ANCIRC is managed by and under the direction of a management committee which
is comprised of six members. Three members are appointed by each Partner.
Based on the equal representation of the management committee and the
Company's inability to unilaterally control the joint venture, the Company
utilizes the equity method to account for this joint venture.
The agreements governing the ANCIRC joint venture require Dr. Chih-Ming J.
Chen, the Company's vice president and chief scientist, to supervise the
development of all ANCIRC products until at least five products have been
successfully developed by ANCIRC. If Dr. Chen fails to perform supervisory
services (other than by reason of his death or disability), Watson has the
option to (i) require the Company to repurchase Watson's interests in ANCIRC
and the Company for an amount equal to Watson's investments therein, plus
interest, or (ii) to assume the rights of the Company to develop and market
the products. Once ANCIRC has developed three products, Watson is limited to
the option set forth in (ii) of the preceding sentence.
F-12
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(7) JOINT VENTURE--(CONTINUED)
Condensed balance sheet and statement of operations information for ANCIRC
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash .......................... $ 500,600 $ 84,900 $ 16,000
Equipment, net ................ -- -- 29,800
--------- ----------- -----------
Total assets .................. $ 500,600 $ 84,900 $ 45,800
========= =========== ===========
Current liabilities ........... $ 527,000 $ 1,285,200 $ 1,034,800
========= =========== ===========
Partners' deficit ............. (26,400) (1,200,300) (989,000)
--------- ----------- -----------
Total liabilities and Partners'
deficit .................... $ 500,600 $ 84,900 $ 45,800
========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(JULY 8, 1994) TO YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31,
------------------------ ----------------- ------------------
1995 1996
---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Research and development
expenses ............. $ 527,100 $ 3,183,700 $ 461,600 $ 1,090,300
========= =========== ========= ===========
Net loss ............... $(526,400) $(3,173,900) $(459,300) $(1,089,000)
========= =========== ========= ===========
</TABLE>
During the period from ANCIRC's inception (July 8, 1994) to December 31,
1994, and the year ended December 31, 1995, Pharmaceuticals rendered research
and development services to ANCIRC of $375,300 and $2,528,700, respectively.
These services were provided at cost which includes research and development
overhead allocation of $258,800 and $1,504,700, respectively. As of December
31, 1994 and 1995, the Company was due $375,300 and $1,005,000, respectively,
from ANCIRC for research and development services rendered. In the December
31, 1994 and 1995 consolidated balance sheets, such amounts due from joint
venture have been offset by $11,600 and $516,500, respectively, representing
the amount that Andrx is required to fund to the joint venture in order to
receive the full amount due from the joint venture. In February 1996, the
Partners were required to make capital contributions to ANCIRC to fund their
respective capital accounts. The proceeds of these contributions were
utilized by ANCIRC to pay each Partner's outstanding balance for services
rendered through December 31, 1995. Andrx's capital contribution to ANCIRC
was $705,500 and ANCIRC paid the Company $1,005,000.
(9) COMMITMENTS
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its chairman of
the board, president, and vice president and chief scientist. These
employment agreements include confidentiality and non-competition provisions
and expire in February 1998.
The following schedule summarizes the future minimum payments under the
Company's employment agreements as of December 31, 1995:
F-13
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(9) COMMITMENTS--(CONTINUED)
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1996............... $ 585,200
1997............... 595,200
1998............... 91,700
----------
$1,272,100
==========
</TABLE>
In January 1996, the Company entered into an employment agreement with its
vice president and chief financial officer which provides for an annual
salary of $120,000. As part of this agreement, the Company granted the
officer options to purchase 40,000 shares of the Company's common stock.
These options vest over a five year period. In the event the officer is
terminated without cause before January 2001, or there is a change in control
at the Company, the officer may be entitled to a lump sum payment and
possible acceleration in the vesting of all or a portion of these options.
This officer is subject to a confidentiality agreement.
PURCHASE COMMITMENTS
The Company has entered into an agreement to purchase certain
controlled-release manufacturing equipment with a future commitment of
$1,164,700.
OPERATING LEASES
The Company leases offices and office equipment under operating leases.
The following schedule summarizes future minimum lease payments required
under non-cancelable operating leases with terms greater than one year as of
December 31, 1995:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
1996 ........ $ 362,100
1997 ........ 352,500
1998 ........ 308,900
1999 ........ 224,800
2000 ........ 217,200
Thereafter... 669,500
----------
$2,135,000
==========
</TABLE>
Rent expense amounted to $55,300, $195,900 and $209,800 for the years
ended December 31, 1993, 1994 and 1995, respectively.
(10) RELATED PARTY TRANSACTIONS
In February 1993, the Company entered into a royalty agreement (the
"February 1993 Agreement") with Dr. Chih-Ming J. Chen, the Company's vice
president and chief scientist. The terms of the February 1993 Agreement
provide for the payment of royalties to Dr. Chen upon the sale of generic
products which utilize controlled-release delivery technologies for which the
patents on such technologies were formerly held by Dr. Chen. Such patents
were transferred to the Company in 1993. These products are not currently
being sold or marketed. One of the ANDAs submitted to the FDA in 1995 by the
Company relates to a generic controlled-release pharmaceutical product
contemplated in the February 1993 Agreement.
F-14
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(10) RELATED PARTY TRANSACTIONS--(CONTINUED)
In March 1994, the Company and Dr. Chen entered into an amendment to the
February 1993 Agreement (the "March 1994 Amendment") to change the amount of
the royalties due to Dr. Chen upon the sale of certain products. Under the
terms of the March 1994 Amendment, the Company paid Dr. Chen $50,000 and
canceled his obligation to repay a $50,000 advance made to him during 1993.
Accordingly, for the year ended December 31, 1993, the Company recorded
$100,000 of compensation expense in the accompanying consolidated statement
of operation. In August 1994, Dr. Chen received a $100,000 loan and options
to purchase 200,000 shares of the Company's common stock vesting at certain
time frames based upon the ANDAs for such products. The loan bore interest at
6% and the principal together with the unpaid accrued interest on the loan
was due in October 1997. In 1996, the board of directors cancelled Dr. Chen's
obligation to repay the $100,000 loan and the related accrued interest as a
bonus for the submission of one of the ANDAs in 1995. Accordingly, for the
year ended December 31, 1995, the Company recorded $107,000 of compensation
expense in the accompanying consolidated statement of operations. As of
December 31, 1995, all of these options granted to Dr. Chen had vested. These
options have an exercise price of $6.50 per share, representing the fair
market value on the date of grant as determined by the board of directors.
In September 1994, the Company entered into an agreement to loan $250,000
to Pharmacy Services Group, Inc. ("PSG"), a pharmacy benefits management and
mail order marketing company. PSG was a customer of the Company's
distribution operations and was controlled by a former principal shareholder
of the Company. In addition, the Company's chairman of the board and
president each owned less than 1% of PSG's outstanding shares of common
stock. Although a portion of the loan was originally advanced in conjunction
with a proposed joint venture involving PSG, the Company and a third entity,
the Company decided not to proceed with that venture and the loan commitment
was restructured. As restructured, the Company advanced $200,000,
restructured $50,000 of the total $102,000 accounts receivable due from PSG
to be included as part of the loan, received options to acquire 83,333 shares
of PSG common stock at an exercise price of $3.00 per share, and was entitled
to receive interest at the prime rate plus 1% quarterly, with the full
principal balance due on September 30, 1997. In December 1994, Andrx
renegotiated its note with PSG to provide for, among other things, the
issuance of stock options to acquire up to an additional 40,000 shares of
PSG's stock at an exercise price of $2.50 per share. In consideration for such
additional options, the Company agreed to not declare a default under the
note or to accelerate the note as a result of PSG's failure to fulfill
certain requirements of the original note. During 1995, the management of the
Company determined that the outstanding accounts receivable balance of
$52,000 due from PSG and note receivable of $250,000 were uncollectible, and
the Company wrote off these balances due from PSG.
For the years ended December 31, 1993, 1994 and 1995, approximately
$732,500, $851,200 and $578,900, respectively, of distribution revenues were
generated from related parties, which are owned in part by the Company's
chairman of the board. As of December 31, 1994, accounts receivable, net
included $529,600 due from related parties. In November 1994, one of these
related parties filed for Chapter 11 bankruptcy protection. As of December
31, 1994, the account receivable due from this related party was $410,000. As
of December 31, 1994, the management of the Company had established
allowances against this account receivable of $253,000. During 1995,
management provided an additional allowance of $157,000 and wrote off the
entire balance.
(11) SHAREHOLDERS' EQUITY
In February 1993, the Company's president and a former employee purchased
1,708,500 shares of common stock in exchange for $166,700 in cash. The
issuance of these shares of common stock was at a value below the estimated
fair market value at the time of issuance. Accordingly, for the year ended
F-15
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(11) SHAREHOLDERS' EQUITY--(CONTINUED)
December 31, 1993, the Company recorded $330,000 of compensation expense in
the accompanying consolidated statement of operations.
In May 1993, the Company sold 171,158 units ("May Units") in a private
transaction for an aggregate consideration of $1,027,000 (or $6.00 per unit).
Each May Unit consisted of two shares of common stock and one warrant
entitling the holder to purchase an additional share of common stock at an
exercise price of $5.00 per share any time through May 1995. At December 31,
1994, all such warrants were outstanding. In May 1995, 154,500 of such
warrants were exercised and the Company issued 154,500 shares of common stock
at $5.00 per share for a total consideration of $772,500. The remaining
16,658 warrants expired unexercised.
In September 1993, the Company sold an aggregate of 202,000 shares of its
common stock for $7.00 per share in a private transaction for an aggregate
consideration of $1,401,000, net of commission and expenses.
In December 1993 and January 1994, the Company sold an aggregate of 44.70
units (the "Placement Units") to various investors. As of December 31, 1993,
the Company had sold 31.60 of these units for an aggregate consideration of
$2,659,100, net of commissions and expenses. Each Placement Unit was sold at
$100,000 and consisted of 11,240 shares of common stock and 11,240 warrants
(the "Placement Warrants"). Each Placement Warrant entitles the holder
thereof to purchase one share of common stock through December 1998, at a
price of $7.25. At December 31, 1995, all such warrants remain outstanding.
The Company also granted Gruntal & Co., Incorporated, the placement agent,
the option (the "Agent's Option") to purchase 4.47 Placement Units at a price
of $100,000 per Placement Unit at any time through December 1998.
The Company is party to a registration rights agreement with investors in
the Placement Units. Under the terms of this agreement, the Company has
agreed that, 180 days after the consummation of an initial public offering
("IPO"), it will use its best efforts to register, under the Securities Act
of 1933, the shares of common stock included in the Placement Units and
issuable upon exercise of the Placement Warrants. The Company has also agreed
to include the shares of common stock underlying the Agent's Option in such
registration statement. Expenses incurred in connection with such
registration shall be, subject to limited exceptions, borne by the Company.
In July 1994, the Company amended its Certificate of Incorporation and the
Company's shareholders and board of directors adopted resolutions to increase
the number of common shares authorized from 22,500,000 to 25,000,000 and
authorized 1,000,000 shares of preferred stock, $.001 par value.
In July 1994, the Company issued 33,700 shares of its convertible
preferred stock and a warrant to acquire up to 337,100 shares of the
Company's common stock to Watson for an aggregate consideration of
$6,000,000. The preferred shares automatically converted into 674,200 shares
of common on April 30, 1995. Watson has certain registration rights related
to the common stock and warrants. The warrant is exercisable in whole or in
part until July 8, 1999. The exercise price is the lesser of $8.90 or the
public offering price of common stock offered in the IPO of the Company. This
issuance was associated with a joint venture agreement between the Company
and Watson. See Note 8 for further discussion of the joint venture.
The Company issued 1,900 and 5,000 shares of common stock valued at
$13,400 and $32,500, respectively, to vendors, for the years ended December
31, 1993 and 1994, respectively. The fair value of such shares has been
included as a component of selling, general, and administrative expenses in
the accompanying consolidated statements of operations.
F-16
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(11) SHAREHOLDERS' EQUITY--(CONTINUED)
In May 1995, the Company issued an aggregate of 103,000 shares of its
common stock at $10.00 per share in a private transaction for aggregate
consideration of $1,030,000.
In August 1995, the Company issued 90,900 shares of common stock in a
private placement transaction with Watson at $11.00 per share for an
aggregate consideration of $1,000,000. Additionally, in December 1995, the
Company issued 1,144,900 shares of common stock in a private transaction with
Watson at $11.00 per share for an aggregate consideration of $12,593,900. The
1,144,900 shares issued also provide Watson with price antidilution
protection in the event of private placements before the consummation of an
IPO. Watson also has certain registration rights related to the 1,235,800
shares of common stock purchased from the Company in 1995. In conjunction
with these transactions, the Company and Watson amended the terms of the
joint venture agreement. See Note 8 for further discussion of the amendment
to the joint venture.
(12) STOCK INCENTIVE PLAN
In February 1993, the Company adopted a stock incentive plan (the "Plan")
under which the board of directors or its compensation committee is
authorized to grant stock options, stock appreciation rights, restricted
stock, deferred stock, performance units, loans and tax offset payments or
any combination thereof, to employees, consultants or advisors of the
Company. The Plan as amended, permitted the issuance of 1,000,000 shares of
the Company's common stock. The exercise price at which any stock option may
be awarded is to be determined by the board of directors. Options granted
under the Plan must be exercised within ten years of grant, unless a shorter
period is designated at the time of grant. No options can be awarded under
the Plan after February 26, 2003.
In May 1993, each of the directors were issued options to purchase 2,500
shares of the Company's common stock in accordance with the Plan. The Plan
was amended in November 1994 to provide that each outside director is to
receive options to purchase 2,500 shares of the Company's common stock in his
or her first year as a director which vest immediately. In each of the next
two years in which such person serves as a director, he or she is to receive
options to purchase 4,500 shares of the Company's common stock which vest six
months after the commencement of the director's term. Options issued to
outside directors have a ten year term.
In 1996, the board of directors approved an increase in the number of
shares available for grant in the Plan to 1,250,000. In addition, commencing
in 1996, non-employee directors of the Company will each be granted an option
on June 1 of each year to purchase 7,000 shares of the Company's common
stock.
F-17
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(12) STOCK INCENTIVE PLAN--(CONTINUED)
A summary of the Plan's activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICE
UNDER OPTION PER SHARE
----------------- --------------
<S> <C> <C>
Outstanding, January 1, 1993 ......... -- --
Options granted ...................... 265,375 $ 3.00 -$7.50
Options forfeited .................... (34,000) 5.00 -7.50
-------
Outstanding, December 31, 1993 ...... 231,375 3.00 -7.00
Options granted ...................... 405,000 6.50 -9.00
-------
Outstanding, December 31, 1994 ...... 636,375 3.00 -9.00
Options granted ...................... 210,250 7.25 -11.00
Options exercised .................... (6,000) 3.00
Options forfeited .................... (44,500) 3.00 -8.00
-------
Outstanding, December 31, 1995 ...... 796,125 3.00 -11.00
Options granted (unaudited) .......... 120,500 11.00
Options forfeited (unaudited) ....... (61,000) 3.00 -11.00
======= ============
Outstanding, March 31, 1996
(unaudited) ....................... 855,625 3.00 -11.00
======= ============
</TABLE>
(13) 401(K) PLAN
In February 1995, the Company adopted a 401(k) retirement plan covering
substantially all employees. Monthly contributions to the retirement plan are
made by the Company based upon the employee contributions to the plan. During
the year ended December 31, 1995, the Company contributed $58,200 to the
retirement plan.
(14) LITIGATION
In January 1996, Hoechst Marion Roussel, Inc. and Carderm Capital, L.P.
(collectively, "Hoechst"), filed suit against the Company claiming patent
infringement as a result of one of the Company's ANDA filings with the FDA.
The Company has responded to this claim by denying infringement, raising
various other defenses and by filing certain counterclaims against Hoechst.
While the Company believes its generic product does not infringe upon any of
the patents held in connection with the branded product and it has
meritorious defenses against this suit, the ultimate resolution of this
matter is not currently known and may delay or prevent the Company from
obtaining an approval to market from the FDA related to this ANDA. Claims of
this nature may be made by other pharmaceutical companies in connection with
the Company's filing of other ANDAs with the FDA. The Company evaluates the
probability of patent infringement litigation with respect to each of its
ANDA submissions on a case by case basis. Accordingly, as of December 31,
1995, the Company has provided $1,200,000 for estimated litigation costs
associated with the two ANDAs submitted in 1995. Although the Company
believes it has adequately provided for these matters based on the current
available information, the Company may incur additional litigation costs in
future years which may be material to the Company's results of operations and
financial position.
F-18
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995--(CONTINUED)
(15) SUBSEQUENT EVENTS (UNAUDITED)
In May 1996, Rhone-Poulenec Rorer, Inc., and Jagotec AG (collectively
"RPR"), commenced a lawsuit against the Company claiming patent infringement
as a result of one of the Company's ANDA filings with the FDA. The Company
has responded to this claim by denying infringement and raising various other
defenses. While the Company believes its generic product does not infringe
upon the patent held in connection with the branded product and that it has
meritorious defenses against this suit, the ultimate resolution of this
matter is not currently known and may delay or prevent the Company from
obtaining an approval to market from the FDA related to this ANDA. See Note
14.
In May 1996, an employee of the Company resigned from his position and, in
connection therewith, claimed that he was entitled to receive, pursuant to
the terms of his employment arrangement with the Company, a royalty equal to
1% of the gross revenues from certain products under development by the
Company. The Company is reviewing the former employee's claim and intends to
contest it.
F-19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
ANCIRC:
We have audited the accompanying balance sheets of ANCIRC (a New York
general partnership in the development stage) as of December 31, 1994 and
1995, and the related statements of operations, partners' deficit and cash
flows for the period from inception (July 8, 1994) to December 31, 1994, for
the year ended December 31, 1995 and for the cumulative period from inception
(July 8, 1994) to December 31, 1995. These financial statements are the
responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ANCIRC as of December 31,
1994 and 1995, and the results of its operations and its cash flows for the
period from inception (July 8, 1994) to December 31, 1994, for the year ended
December 31, 1995 and for the cumulative period from inception (July 8, 1994)
to December 31, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 19, 1996.
F-20
<PAGE>
ANCIRC
(A DEVELOPMENT STAGE PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- -------------
1994 1995 1996
----------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ................ $500,600 $ 84,927 $ 15,988
----------- -------------- -------------
Total current assets ................... 500,600 84,927 15,988
Equipment, net ............................ -- -- 29,820
----------- -------------- -------------
Total assets ........................... $500,600 $ 84,927 $ 45,808
=========== ============== =============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Due to joint venture partners ............ $526,980 $ 1,275,830 $1,026,514
Accounts payable ......................... -- 9,415 8,256
----------- -------------- -------------
Total current liabilities .............. 526,980 1,285,245 1,034,770
----------- -------------- -------------
Partners' deficit
SR Six, Inc. ............................. (15,828) (655,505) (494,481)
Circasub, Inc. ........................... (10,552) (544,813) (494,481)
----------- -------------- -------------
Total partners' deficit ................ (26,380) (1,200,318) (988,962)
----------- -------------- -------------
Total liabilities and partners' deficit $500,600 $ 84,927 $ 45,808
=========== ============== =============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-21
<PAGE>
ANCIRC
(A DEVELOPMENT STAGE PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
CUMULATIVE PERIOD FROM
PERIOD FROM PERIOD FROM INCEPTION
INCEPTION INCEPTION THREE MONTHS ENDED (JULY 8, 1994) TO
(JULY 8, 1994) TO YEAR ENDED (JULY 8, 1994) TO MARCH 31, MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------- -----------------
1994 1995 1995 1995 1996 1996
---------------- ------------ --------------- --------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Research and development
expenses
Purchased research and
development services ...... $ 422,189 $ 2,825,305 $ 3,247,494 $ 436,834 $ 1,036,288 $ 4,283,782
Operating supplies ............ 83,813 310,638 394,451 -- 49,587 444,038
Other ......................... 21,140 47,824 68,964 24,808 4,411 73,375
--------- ----------- ----------- --------- ----------- -----------
Total research and
development expenses ...... 527,142 3,183,767 3,710,909 461,642 1,090,286 4,801,195
--------- ----------- ----------- --------- ----------- -----------
Loss from operations ........... (527,142) (3,183,767) (3,710,909) (461,642) (1,090,286) (4,801,195)
Interest income ................ 762 9,829 10,591 2,323 1,324 11,915
--------- ----------- ----------- --------- ----------- -----------
Net loss ....................... $(526,380) $(3,173,938) $(3,700,318) $(459,319) $(1,088,962) $(4,789,280)
========= =========== =========== ========= =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-22
<PAGE>
ANCIRC
(A DEVELOPMENT STAGE PARTNERSHIP)
STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
SR SIX, INC. CIRCASUB, INC. TOTAL
--------------- --------------- --------------
<S> <C> <C> <C>
Initial contributions by joint venture partners ....... $ 300,000 $ 200,000 $ 500,000
Net loss ............................................... (315,828) (210,552) (526,380)
--------------- --------------- --------------
Balance, December 31, 1994 ............................. (15,828) (10,552) (26,380)
Additional contribution by joint venture partners ..... 1,200,000 800,000 2,000,000
Net loss ............................................... (1,839,677) (1,334,261) (3,173,938)
--------------- --------------- --------------
Balance, December 31, 1995 ............................. (655,505) (544,813) (1,200,318)
Additional contributions by joint venture
partners (unaudited) ................................. 705,505 594,813 1,300,318
Net loss, three months ended March 31, 1996 (unaudited) (544,481) (544,481) (1,088,962)
--------------- --------------- --------------
Balance, March 31, 1996 (unaudited) .................... $ (494,481) $ (494,481) $ (988,962)
=============== =============== ==============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-23
<PAGE>
ANCIRC
(A DEVELOPMENT STAGE PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM PERIOD FROM INCEPTION
INCEPTION INCEPTION THREE MONTHS ENDED (JULY 8, 1994) TO
(JULY 8, 1994) TO YEAR ENDED (JULY 8, 1994) TO MARCH 31, MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------- -----------------
1994 1995 1995 1995 1996 1996
---------------- ------------ --------------- --------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss ..................... $(526,380) $(3,173,938) $(3,700,318) $(459,319) $(1,088,962) $(4,789,280)
Depreciation ................... -- 1,570 1,570
Increase (decrease) in due
to joint venture partners .... 526,980 748,850 1,275,830 149,250 (249,316) 1,026,514
Increase (decrease) in accounts
payable ...................... -- 9,415 9,415 4,808 (1,159) 8,256
--------- ----------- ----------- --------- ----------- -----------
Cash provided by (used in)
operating activities ....... 600 (2,415,673) (2,415,073) (305,261) (1,337,867) (3,752,940)
--------- ----------- ----------- --------- ----------- -----------
Cash flows from investing
activities
Purchase of equipment ........ -- -- -- -- (31,390) (31,390)
--------- ----------- ----------- --------- ----------- -----------
Cash used in investing
activities................... -- -- -- -- (31,390) (31,390)
Cash flows from financing
activities
Proceeds from contributions by
joint venture partners ..... 500,000 2,000,000 2,500,000 -- 1,300,318 3,800,318
--------- ----------- ----------- --------- ----------- -----------
Cash provided by financing
activities ................. 500,000 2,000,000 2,500,000 -- 1,300,318 3,800,318
--------- ----------- ----------- --------- ----------- -----------
Net increase (decrease)
in cash and cash equivalents .. 500,600 (415,673) 84,927 (305,261) (68,939) 15,988
Cash and cash equivalents,
beginning of period ........... -- 500,600 -- 500,600 84,927 --
--------- ----------- ----------- --------- ----------- -----------
Cash and cash equivalents,
end of period ................. $ 500,600 $ 84,927 $ 84,927 $ 195,339 $ 15,988 $ 15,988
========= =========== =========== ========= =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-24
<PAGE>
ANCIRC
(A DEVELOPMENT STAGE PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(1) GENERAL
ANCIRC (a joint venture) was formed on July 8, 1994 by SR Six, Inc., a
wholly owned subsidiary of Andrx Corporation (the "Andrx Partner") and
Circasub, Inc., now a wholly owned subsidiary of Watson Pharmaceuticals, Inc.
(the "Watson Partner"). Under the terms of the joint venture agreement (the
"Agreement") as amended on October 30, 1995 (the "Amendment Date"), the
purpose of ANCIRC is to develop, manufacture and market controlled-release
pharmaceutical products. The Andrx Partner will perform the research and
develop formulations for the products and market and distribute any of
ANCIRC's products upon regulatory approval. The Watson Partner will perform
the manufacturing of the products and provide the regulatory support for
ANCIRC's products. To date, the sole activity of ANCIRC has been research and
development. As of December 31, 1995, no products have been submitted for
regulatory approval.
The partnership interests for the period from inception to the Amendment
Date were 60% and 40% for the Andrx Partner and the Watson Partner,
respectively. Effective as of the Amendment Date, the partnership interests
are 50% for both the Andrx Partner and the Watson Partner.
ANCIRC is managed by and under the direction of a management committee
which is composed of six members. Three members are appointed by each of the
joint venture partners. The management committee oversees the operations of
ANCIRC and is responsible for making all major decisions.
MANAGEMENT'S PLANS
As of December 31, 1995, since inception (July 8, 1994), ANCIRC has
incurred net losses of $3,700,318. Management anticipates incurring
additional losses in the near term as the focus of ANCIRC's business is
research and development. The joint venture partners are committed to funding
the future operations.
The likelihood of the success of ANCIRC must be considered in light of the
problems, expenses, complications and delays frequently encountered in
connection with the development of new business ventures. These business
risks include dependence on a limited number of key personnel and market
acceptance of ANCIRC's products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less when acquired are considered cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts payable and
due to joint venture partners approximate fair value.
PURCHASED RESEARCH AND DEVELOPMENT SERVICES
Purchased research and development services consist of ANCIRC's research
costs, performed and incurred by the joint venture partners, and billed to
ANCIRC. Purchased research and development services are expensed as incurred.
F-25
<PAGE>
ANCIRC
(A DEVELOPMENT STAGE PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements as of March 31, 1996 and for
the three months ended March 31, 1995 and 1996 have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited interim financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the results for such periods. The operating results for the
three months ended March 31, 1996 are not necessarily indicative of the
operating results to be expected for the full fiscal year or for any future
period.
(3) RELATED PARTY TRANSACTIONS
Expenses reported by ANCIRC primarily represent expenses incurred by the
joint venture partners in research and development related to ANCIRC's
products. As of December 31, 1994 and 1995, ANCIRC had amounts due to the
Andrx Partner of $375,276 and $1,004,986, respectively, and amounts due to
the Watson Partner of $151,704 and $270,844, respectively. Such amounts are
included in "Due to joint venture partners" in the accompanying balance
sheets.
(4) INCOME TAXES
ANCIRC is organized as a partnership. Accordingly, taxable income or loss
is reported in the tax returns of the individual partners.
(5) PARTNERS' DEFICIT
In December 1994, the Andrx Partner and the Watson Partner contributed
$300,000 and $200,000, respectively, to fund the operations of ANCIRC. In
1995, the Andrx Partner and the Watson Partner contributed $1,200,000 and
$800,000, respectively, to fund continuing operations. The 1994 and 1995
contributions were based on the original interest of each partner. As
discussed in Note (1), as of the Amendment Date, the interest of the Andrx
Partner and the Watson Partner were changed to 50%. Under the terms of the
Agreement, the Watson Partner was not required to contribute additional
capital to ANCIRC to equalize the capital accounts as of the Amendment Date.
The Partners' capital accounts will be equalized in future periods out of net
cash flow or upon liquidation, to the extent funds are available.
F-26
<PAGE>
GLATT GPCG-5 FOR PILOT
BATCH MANUFACTURING
AUTOMATIC DISSOLUTION
APPARATUS FOR
QUALITY CONTROL
<PAGE>
=============================================================================
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR SINCE THE DATES AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
-----------------
TABLE OF CONTENTS
PAGE
---------
Prospectus Summary ............................... 3
Risk Factors ..................................... 6
Use of Proceeds .................................. 13
Dividend Policy .................................. 13
Dilution ......................................... 14
Capitalization ................................... 15
Selected Consolidated Financial Data ............. 16
Management's Discussion and Analysis of
Financial Condition and Results of Operations ... 17
Business ......................................... 22
Management ....................................... 37
Certain Transactions ............................. 43
Principal Shareholders ........................... 45
Description of Capital Stock ..................... 47
Shares Eligible for Future Sale .................. 49
Underwriting ..................................... 51
Legal Matters .................................... 52
Experts .......................................... 52
Additional Information ........................... 52
Index to Financial Statements .................... F-1
-----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=============================================================================
1,700,000 SHARES
[ANDRX CORPORATION LOGO]
COMMON STOCK
----------
PROSPECTUS
----------
OPPENHEIMER & CO., INC.
GRUNTAL & CO., INCORPORATED
, 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
Securities and Exchange Commission registration fee .................. $ 8,764
NASD filing fee ...................................................... 3,042
Nasdaq listing fee ................................................... 49,205
Printing and engraving expenses ...................................... 75,000
Accounting fees and expenses ......................................... 100,000
Legal fees and expenses .............................................. 175,000
Fees and expenses (including legal fees) for qualifications under
the state securities laws........................................... 15,000
Transfer Agent's fees and expenses ................................... 10,000
Miscellaneous ........................................................ 63,989
--------
TOTAL ............................................................... $500,000
========
All amounts except the Securities and Exchange Commission registration
fee, the NASD filing fee and the Nasdaq listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 607.0850 of the Florida
Business Corporation Act to indemnify its directors and officers to the
extent provided for in such statute. The Registrant's Amended and Restated
Articles of Incorporation and Bylaws provide that the Registrant may insure,
shall indemnify and shall advance expenses on behalf of its officers and
directors to the fullest extent not prohibited by law. The Company is also a
party to indemnification agreements with each of its directors and officers.
The form of Underwriting Agreement filed as Exhibit 1.1 hereto provides for
the indemnification of the Registrant and its directors and officers against
certain liabilities, including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. In May 1993, the Company sold 171,158 units (the "May Units") to 24
persons in a private transaction for aggregate consideration of approximately
$1.0 million or $6.00 per Unit. Each of the purchasers was an individual or
institution whom the Company believed was an "accredited investor" within the
meaning of Rule 501(a) of Regulation D under the Securities Act. Each May
Unit consisted of two shares of Common Stock and one warrant entitling the
holder thereof to purchase an additional share of Common Stock at an exercise
price of $5.00 per share at any time through May 1995. A total of 154,500
shares of Common Stock were issued upon exercise of these warrants prior to
their expiration.
2. In September 1993, the Company sold an aggregate of 202,000 shares of
Common Stock to 39 persons in a private transaction for aggregate
consideration of approximately $1.4 million or $7.00 per share.
3. In September 1993, the Company issued an aggregate of 1,221 shares of
Common Stock to a pharmaceutical consulting firm and 700 shares of Common
Stock to a law firm in exchange for services rendered having an aggregate
value of approximately $13,000.
4. In December 1993 and January 1994, the Company sold an aggregate of
44.70 Units (the "Placement Units") to 84 persons in a private transaction
(the "December Placement") for an aggregate offering price of approximately
$4.5 million or $100,000 per Placement Unit. Each Placement Unit
II-1
<PAGE>
consisted of 11,240 shares of Common Stock and 11,240 warrants (the
"Placement Warrants"). Each Placement Warrant entitles the holder thereof to
purchase one share of Common Stock through December 1998, at a price of $7.25
per share.
5. In July 1994, the Company sold to Circa Pharmaceuticals, Inc. which is
presently a wholly-owned subsidiary of Watson Pharmaceuticals, Inc.
("Watson"), for aggregate consideration of $6.0 million, (i) 33,708 shares of
Convertible Preferred Stock, which in accordance with its terms, converted
into 674,160 shares of Common Stock on April 30, 1995, and (ii) a warrant to
purchase 337,079 shares of Common Stock exercisable through July 1999 at a
price equal to the lesser of $8.90 per share or the offering price per share
of shares sold in this offering.
6. In August 1994, the Company issued 5,000 shares of Common Stock to a
researcher who transferred his technology and certain patent rights to the
Company, pursuant to a Technology Transfer and Consulting Agreement.
7. In April 1995, the Company issued 6,000 shares of Common Stock to an
individual for $18,000 upon exercise of certain stock options which he had
received in connection with consulting services he rendered to the Company.
8. In May 1995, the Company sold an aggregate of 103,000 shares of Common
Stock to approximately 6 persons in a private transaction, for an aggregate
consideration of approximately $1.0 million or $10.00 per share.
9. In August 1995, the Company sold 90,909 shares of Common Stock to
Watson at a price of $11.00 per share and granted Watson a two-month option
to purchase no less than 818,182 nor more than 1,454,545 additional shares of
Common Stock from the Company at a price of $11.00 per share. In December
1995, the Company sold 1,144,903 shares to Watson.
All of the above-referenced securities were exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement(1)
3.1 Form of Registrant's Amended and Restated Articles of Incorporation(2)
3.2 Form of Registrant's Amended and Restated Bylaws(2)
4.1 Specimen Common Stock Certificate(2)
5.1 Opinion of Broad and Cassel(1)
10.1 Form of Stock Incentive Plan, as amended(2)*
10.2 Employment Agreement between the Registrant and Alan P. Cohen, as amended(2)*
10.3 Employment Agreement between the Registrant and Elliot F. Hahn, as amended(2)*
10.4 Employment Agreement between the Registrant and Chih-Ming J. Chen, as amended(2)*
10.5 Severance Agreement between the Registrant and Scott Lodin (2)*
10.6 Royalty Agreement between the Registrant and Chih-Ming J. Chen, as amended(2)*
10.7 Form of Indemnification Agreement between the Registrant and its officers and directors(2)*
10.8 Development and License Agreement dated as of June 28, 1993 by and between Zenith Laboratories,
Inc. and the Registrant(2)(3)
10.9 Technical Transfer Agreement dated as of July 30, 1993 by and between Yung Shin Pharmaceutical
Ind. Co. Ltd. and the Registrant(2)(3)
10.10 Development and License Agreement dated as of September 22, 1993 by and between Circa Pharmaceuticals,
Inc. and the Registrant(2)(3)
II-2
<PAGE>
EXHIBIT DESCRIPTION
- ----------------------------------------------------------------------------------------------------------
10.11 Development and License Agreement dated as of November 10, 1993 by and between Mylan Pharmaceuticals
Inc. and the Registrant(2)(3)
10.12 Development and License Agreement dated as of December 7, 1993 by and between Circa Pharmaceuticals,
Inc. and the Registrant(2)(3)
10.13 Development and License Agreement dated as of January 17, 1994 by and between Purzer Pharmaceutical
Co., Ltd. and the Registrant(2)(3)
10.14 Lease Agreement relating to premises located at 4001 S.W. 47th Avenue, Ft. Lauderdale, Florida(2)
10.15 Lease Agreement relating to premises located at 4011 S.W. 47th Avenue, Ft. Lauderdale, Florida(2)
10.16 Lease Agreement relating to premises located at 3436 University Drive, Davie, Florida(2)
10.17 Loan and Security Agreement by and between Congress Financial Corporation (Florida) and the Registrant,
as amended(2)
10.18 ANCIRC General Partnership Agreement between Circa Pharmaceuticals, Inc. and the Registrant, as
amended(2)
10.19 Research and Development Services Agreement dated as of July 8, 1994 by and between ANCIRC and
the Registrant, as amended(2)
10.20 Manufacturing and Regulatory Approval Agreement dated as of July 8, 1994 by and between Circa
Pharmaceuticals, Inc. and ANCIRC, as amended(2)
10.21 Distribution and Marketing Agreement dated as of July 8, 1994 between ANCIRC and the Registrant,
as amended(2)
10.22 Patent and Know How License Agreement dated as of July 8, 1994 between ANCIRC and the Registrant,
as amended(2)
10.23 Patent and Know How License Agreement dated as of July 8, 1994 between Circa Pharmaceuticals, Inc.
and ANCIRC, as amended(2)
10.24 Securities Purchase Agreement dated as of July 8, 1994 between the Registrant and Circa Pharmaceuticals,
Inc.(2)
10.25 Securities Purchase Agreement dated as of August 17, 1995 between the Registrant and Watson
Pharmaceuticals, Inc.(2)
10.26 Securities Purchase Agreement dated October 30, 1995 between Circa Pharmaceuticals, Inc. and the
Registrant(2)
10.27 Development Agreement between Sepracor, Inc. and the Registrant(2)(3)
11.1 Net loss per share computation(1)
21.1 Subsidiaries of the Registrant(2)
23.1 Consent of Broad and Cassel (included in its opinion filed as Exhibit 5.1)(1)
23.2 Consent of Arthur Andersen LLP(1)
24.1 Powers of Attorney (included on the signature page of this Registration Statement)(1)
</TABLE>
* Management Compensation Plan or Arrangement
(1) Filed herewith.
(2) Previously filed.
(3) A request for confidential treatment pursuant to Rule 406 under the
Securities Act has been made for certain portions of this Exhibit.
II-3
<PAGE>
(b) Financial Statement Schedules:
The following supplemental schedules can be found on the indicated pages
of this Registration Statement.
Report of Independent Certified Public Accountants. ... S-1
Schedule II Valuation and Qualifying Accounts ......... S-3
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Ft. Lauderdale, State of Florida, on May 22, 1996.
ANDRX CORPORATION
By: /s/ ALAN P. COHEN
Alan P. Cohen, Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Alan P.
Cohen and Elliot F. Hahn, or any one of them, as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution for him or her and in his or her name, place and stead in any
and all capacities to execute in the name of each such person who is then an
officer or director of the Registrant any and all amendments (including
post-effective amendments) to this Registration Statement, and any
registration statement relating to the offering hereunder pursuant to Rule
462 under the Securities Act of 1933, as amended, and to file the same with
all exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents and each of them full power and authority to do and perform each and
every act and thing required or necessary to be done in and about the
premises as fully as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
/s/ ALAN P. COHEN Chairman of the Board, Chief May 22, 1996
Alan P. Cohen Executive Officer and Director
(principal executive officer)
/s/ ELLIOT F. HAHN, Ph.D. President and Director May 22, 1996
Elliot F. Hahn, Ph.D.
/s/ CHIH-MING J. CHEN, Ph.D. Vice President and Director May 22, 1996
Chih-Ming J. Chen, Ph.D.
/s/ ANGELO C. MALAHIAS Vice President and Chief Financial May 22, 1996
Angelo C. Malahias Officer (principal financial and
accounting officer)
* Director May 22, 1996
Elaine Bloom
* Director May 22, 1996
Paul M. Donofrio
* Director May 22, 1996
Irwin C. Gerson
II-5
<PAGE>
SIGNATURES TITLE DATE
- ---------------------------------------------------------------------------------------
* Director May 22, 1996
Elliot Levine
* Director May 22, 1996
Michael Schwartz, Ph.D.
* Director May 22, 1996
Melvin Sharoky, M.D.
* By: /s/ ELLIOT F. HAHN
Elliot F. Hahn, Ph.D.
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders of
Andrx Corporation
We have audited in accordance with generally accepted auditing standards,
the financial statements as of December 31, 1994 and 1995 and for each of the
three years in the period ended December 31, 1995 included in this
registration statement, and have issued our report thereon dated February 20,
1996. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
February 20, 1996.
S-1
<PAGE>
SCHEDULE II
ANDRX CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993,
allowance for doubtful $ $
accounts ..................... -- $124,000 -- $124,000
======== ======== ========= ========
Year ended December 31, 1994,
allowance for doubtful
accounts ..................... $124,000 $485,600 $ (57,200) $552,400
======== ======== ========= ========
Year ended December 31, 1995,
allowance for doubtful
accounts ..................... $552,400 $546,600 $(524,800) $574,200
======== ======== ========= ========
</TABLE>
S-2
<PAGE>
FILE NO. 333-03614
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -----------------------------------------------------------------------------
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------------------
ANDRX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement
5.1 Opinion of Broad and Cassel
11.1 Net loss per share computation
23.1 Consent of Broad and Cassel (included in its opinion filed as Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (included on the signature page of this Registration Statement)
</TABLE>
1,700,00 Shares
ANDRX CORPORATION
Common Stock
UNDERWRITING AGREEMENT
______________ __, 1996
Oppenheimer & Co., Inc.
Gruntal & Co., Incorporated
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named on
Schedule I attached hereto.
Ladies and Gentlemen:
Andrx Corporation, a Florida corporation (the "Company"),
proposes, subject to the terms and conditions contained herein, to sell to you
and the other underwriters named on Schedule I to this Agreement (the
"Underwriters"), for whom you are acting as Representatives (the
"Representatives"), an aggregate of 1,700,000 shares (the "Firm Shares") of the
Company's Common Stock, par value $.001 per share (the "Common Stock"). The
respective amounts of the Firm Shares to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto. In
addition, the Company proposes to grant to the Underwriters an option to
purchase up to an additional 255,000 shares (the "Option Shares") of Common
Stock for the purpose of covering over-allotments in connection with the sale of
the Firm Shares. The Firm Shares and the Option Shares are together called the
"Shares."
1. SALE AND PURCHASE OF THE SHARES. On the basis of
the representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company agrees to sell to the Underwriters, and
each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at $____ per share (the "Initial
Price"), the number of Firm Shares set forth opposite the name of
such Underwriter on Schedule I to this Agreement.
(b) The Company grants to the several Underwriters an
option to purchase, severally and not jointly, all or any part of
the Option Shares at the
<PAGE>
Initial Price. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage (adjusted by the
Representatives to eliminate fractions) of the total number of
Option Shares to be purchased by the Underwriters as such
Underwriter is purchasing of the Firm Shares. Such option may be
exercised only to cover over-allotments in the sales of the Firm
Shares by the Underwriters and may be exercised in whole or in part
at any time on or before 12:00 noon, New York City time, on the
business day before the Firm Shares Closing Date (as defined
below), and on one or more occasions thereafter within 30 days
after the date of this Agreement, in each case upon written,
facsimile or telegraphic notice, or oral or telephonic notice
confirmed by written, facsimile or telegraphic notice, by the
Representatives to the Company no later than 12:00 noon, New York
City time, on the business day before the Firm Shares Closing Date
or at least two business days before the Option Shares Closing Date
(as defined below), as the case may be, setting forth the number of
Option Shares to be purchased and the time and date (if other than
the Firm Shares Closing Date) of such purchase.
2. DELIVERY AND PAYMENT. Delivery by the Company of the
Firm Shares to the Representatives for the respective accounts of the
Underwriters, and payment of the purchase price by certified or official bank
check or checks payable in New York Clearing House (next day) funds to the
Company, shall take place at the offices of Oppenheimer & Co., Inc., at
Oppenheimer Tower, World Financial Center, New York, New York 10281, at 10:00
a.m., New York City time, on the [third] [fourth] business day following the
date of this Agreement, or at such time on such other date, not later than 10
business days after the date of this Agreement, as shall be agreed upon by the
Company and the Representatives (such time and date of delivery and payment are
called the "Firm Shares Closing Date").
In the event the option with respect to the Option Shares
is exercised in whole or in part on one or more occasions, delivery by the
Company of the Option Shares to the Representatives for the respective accounts
of the Underwriters and payment of the purchase price by certified or official
bank check or checks payable in New York Clearing House (next day) funds to the
Company shall take place at the offices of Oppenheimer & Co., Inc. specified
above, at the time and on the date (which may be the same date as, but in no
event shall be earlier than, the Firm Shares Closing Date) specified in the
notice referred to in Section 1(b) (such time and date of delivery and payment
are called the "Option Shares Closing Date"). The Firm Shares Closing Date and
the Option Shares Closing Date are called, individually, a "Closing Date" and,
together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in
such names and shall be in such denominations as the Representatives shall
request at least two full business days before the Firm Shares Closing Date or,
in the case of Option Shares, on the day of notice of exercise of the option as
described in Section l(b) and shall be made available to the Representatives for
checking and packaging, at such place as is designated by the Representatives,
at least 24 hours prior to the Firm Shares Closing Date (or the Option Shares
Closing Date in the case of the Option Shares).
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3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC
OFFERING.The Company has prepared in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the published
rules and regulations thereunder (the "Rules") adopted by the Securities and
Exchange Commission (the "Commission") a Registration Statement (as hereinafter
defined) on Form S-1 (No. 333- 03614), including a preliminary prospectus
relating to the Shares, and has filed with the Commission the Registration
Statement and such amendments thereof as may have been required to the date of
this Agreement. Copies of such Registration Statement (including all amendments
thereof) and of the related preliminary prospectus have previously been
delivered by the Company to you as the representatives of the Underwriters. The
term "preliminary prospectus" means any preliminary prospectus (as described in
Rule 430 of the Rules) included at any time as a part of the Registration
Statement and any preliminary prospectus filed by the Company with the consent
of the Representatives pursuant to Rule 424(a) of the Rules. The Registration
Statement as amended at the time and on the date it becomes effective (the
"Effective Date"), including all exhibits and information, if any, deemed to be
part of the Registration Statement pursuant to Rule 424(b), Rule 434 and Rule
430A of the Rules, is called the "Registration Statement." The term "Prospectus"
means the prospectus in the form first used to confirm sales of the Shares
(whether such prospectus was included in the Registration Statement at the time
of effectiveness or was subsequently filed with the Commission pursuant to Rule
424(b) of the Rules) or if the Company relies on Rule 434 under the Securities
Act, the "Term Sheet" relating to the Shares, together with the preliminary
prospectus that such Term Sheet supplements. "Term Sheet" means any term sheet
that satisfies the requirements of Rule 434 under the Securities Act.
The Company understands that the Underwriters propose to
make a public offering of the Shares, as set forth in and pursuant to the
Prospectus, as soon after the Effective Date and the date of this Agreement as
the Representatives deem advisable. The Company hereby confirms that the
Underwriters and dealers have been authorized to distribute or cause to be
distributed each preliminary prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company
furnishes amendments or supplements thereto to the Underwriters).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Underwriter as follows:
(a) On the Effective Date the Registration Statement
complied, and on the date of the Prospectus, on the date any
post-effective amendment to the Registration Statement shall become
effective, on the date any supplement or amendment to the
Prospectus is filed with the Commission and on each Closing Date,
the Registration Statement and the Prospectus (and any amendment
thereof or supplement thereto) will comply, in all material
respects, with the applicable provisions of the Securities Act and
the Rules and the Company's Registration Statement on Form 8-A
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), will be effective and will comply in all material
respects with the Exchange Act and the rules and regulations of the
Commission thereunder; the Registration Statement did
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<PAGE>
not, as of the Effective Date, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading; and on the other dates referred to above neither
the Registration Statement nor the Prospectus, nor any amendment
thereof or supplement thereto, will contain any untrue statement of
a material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. No order preventing or suspending the use of any
preliminary prospectus has been issued by the Commission or any
state of the United States or other United States or foreign
regulatory body. When each related preliminary prospectus was filed
with the Commission (whether filed as part of the Registration
Statement or any amendment thereto or pursuant to Rule 424(a) of
the Rules) and when any amendment thereof or supplement thereto was
filed with the Commission, such preliminary prospectus or amendment
thereof or supplement thereto complied in all material respects
with the applicable provisions of the Securities Act and the Rules
and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Notwithstanding the foregoing, the Company makes no representation
or warranty as to the paragraph with respect to stabilization on
the inside front cover page of the Prospectus and the statements
contained in the first, second and sixth paragraphs under the
caption "Underwriting" in the Prospectus. The Company acknowledges
that the statements referred to in the previous sentence constitute
the only information furnished in writing by the Representatives on
behalf of the several Underwriters specifically for inclusion in
the Registration Statement, any preliminary prospectus or the
Prospectus.
(b) The consolidated financial statements of the Company
(including all notes and schedules thereto) and the financial
statements of the ANCIRC joint venture ("ANCIRC")(including the
notes thereto) included in the Registration Statement and
Prospectus present fairly the financial position, the statements of
operations, shareholders' equity, or partners' deficit and cash
flows and the other information purported to be shown therein of
the Company and its subsidiaries, Anda Generics, Inc., Andrx
Pharmaceuticals, Inc. Quala Med, Inc. and SR Six, Inc. (the
"Subsidiaries") and ANCIRC, at the respective dates and for the
respective periods to which they apply; and such financial
statements (including all notes and schedules thereto) have been
prepared in conformity with generally accepted accounting
principles, consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of the
results for such periods have been made. The other financial and
statistical information and data set forth in the Registration
Statement and the Prospectus is accurately presented and, to the
extent such information and data is derived from the financial
statements and books and records of the Company and the
Subsidiaries or
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<PAGE>
ANCIRC, is prepared on a basis consistent with such financial
statements and books and records.
(c) Arthur Andersen LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are and, during
the periods covered by their reports, were independent public
accountants with respect to the Company and ANCIRC as required by
the Securities Act and the Rules.
(d) Each of the Company and the Subsidiaries has been duly
incorporated and is a validly existing corporation in good standing
under the laws of the jurisdictions in which each is incorporated.
Other than the Subsidiaries or as described in the Prospectus, the
Company has no subsidiaries and does not control, directly or
indirectly, any corporation, partnership, joint venture,
association or other business organization. Each of the Company and
the Subsidiaries is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or
location of its assets or properties (owned, leased or licensed) or
the nature of its business makes such qualification necessary,
except for such jurisdictions where the failure to so qualify would
not have a material adverse effect on the assets or properties,
business, results of operations or condition (financial or
otherwise) of the Company and the Subsidiaries taken as a whole (a
"Material Adverse Effect"). Except as disclosed in the Registration
Statement and the Prospectus, neither the Company nor any of the
Subsidiaries own, leases or licenses any material asset or property
or conducts any material business outside the United States of
America. Each of the Company and the Subsidiaries has all requisite
corporate power and authority, and all necessary authorizations,
approvals, consents, orders, licenses, certificates and permits of
and from all governmental or regulatory bodies or any other person
or entity, to own, lease and license its assets and properties and
conduct its businesses as now being conducted and as described in
the Registration Statement and the Prospectus except for such
authorizations, approvals, consents, orders, licenses, certificates
and permits the failure to so obtain would not have a Material
Adverse Effect; no such authorization, approval, consent, order,
license, certificate or permit contains a materially burdensome
restriction other than as disclosed in the Registration Statement
and the Prospectus; and the Company has all such corporate power
and authority, and such authorizations, approvals, consents,
orders, licenses, certificates and permits to enter into, deliver
and perform this Agreement and to issue and sell the Shares (except
as may be required under the Securities Act and state and foreign
Blue sky laws).
(e) The Company and the Subsidiaries own or possess
adequate and enforceable rights to use all patents, trademarks,
trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know- how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar
rights and proprietary knowledge (collectively, "Intangibles")
necessary
-5-
<PAGE>
for or incidental to the conduct of their business as described in
the Registration Statement and the Prospectus. Except as disclosed
in the Registration Statement and the Prospectus, neither the
Company nor any of the Subsidiaries has received any notice of, and
to their best knowledge is not aware of, any infringement of or
conflict with asserted rights of others with respect to any
Intangibles which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material
Adverse Effect and neither the Company nor any of the Subsidiaries
knows of any reasonable basis therefor. Except as disclosed in the
Registration Statement and the Prospectus, no Intangibles of the
Company or the Subsidiaries are in dispute or are in any conflict
with the right of any other person or entity and the Company and
the Subsidiaries (A) have or will have the right (subject to
applicable agreements, which agreements provide for use to the
extent necessary and desirable for the conduct of its business as
currently conducted and as proposed to be conducted) to use, free
and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects, restrictions or equities of any kind
whatsoever all licenses and rights to the Intangibles used in the
conduct of their business as now conducted or proposed to be
conducted without infringing upon or otherwise acting adversely to
the right or claimed right of any other person and (B) are not or
will not become, as the case may be, obligated or in any way liable
for any payment by way of royalties, fees or otherwise to any owner
or licensee of, or other claimant to, any Intangibles with respect
to the use thereof or in connection with the conduct of their
business or otherwise, except for any such payments, claims, uses,
liens, charges, encumbrances, pledges, security interests, defects,
restrictions and equities which would not have a Material Adverse
Effect.
(f) The Company does not own any real property. Each of
the Company and each of the Subsidiaries has good and marketable
title to each of the items of personal property which are reflected
in the financial statements referred to in Section 4(b) or are
referred to in the Registration Statement and the Prospectus as
being owned by it and valid and enforceable leasehold interests in
each of the items of real and personal property which are referred
to in the Registration Statement and the Prospectus as being leased
by it, in each case free and clear of all liens, encumbrances,
claims, security interests and defects, other than those described
in the Registration Statement and the Prospectus and those which do
not and will not have a Material Adverse Effect.
(g) Except as described in the Registration Statement and
the Prospectus there is no litigation or governmental or other
proceeding or investigation before any court or before or by any
public body or board pending or, to the Company's best knowledge,
threatened (and the Company does not know of any reasonable basis
therefor) against, or involving the assets, properties or business
of, the Company or any of the Subsidiaries which could have a
Material Adverse Effect.
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<PAGE>
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, except as described therein, (i) there has not been any
material adverse change in the assets or properties, business,
results of operations, prospects or condition (financial or
otherwise) of the Company or any of the Subsidiaries, whether or
not arising from transactions in the ordinary course of business;
(ii) neither the Company nor any of the Subsidiaries has sustained
any material loss or interference with its assets, businesses or
properties (whether owned, leased or licensed) from fire,
explosion, earthquake, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree; (iii)
the inventories reflected in the consolidated financial statements
of the Company and the Subsidiaries filed with and as part of the
Registration Statement and the Prospectus are currently and readily
merchantable in all material respects, containing no material
amount of slow moving, obsolete or damaged goods which have not
been written down in conformity with generally accepted accounting
principles applied on a basis consistent with prior periods; and
(iv) the accounts receivables, net of allowances, reflected in the
consolidated financial statements of the Company and the
Subsidiaries filed with and as a part of the Registration Statement
and the Prospectus are, except to the extent heretofore collected,
fully collectible and subject to no material counterclaims or
set-offs; and since the date of the latest balance sheet included
in the Registration Statement and the Prospectus, except as
reflected therein, neither the Company nor any of the Subsidiaries
has (1) issued any securities (other than the grant of stock
options and Shares issued upon exercise of stock options or
warrants described in the Registration Statement and Prospectus) or
incurred any liability or obligation, direct or contingent, for
borrowed money, except such liabilities or obligations incurred in
the ordinary course of business, (2) entered into any transaction
not in the ordinary course of business or (3) declared or paid any
dividend or made any distribution on any shares of its stock or
redeemed, purchased or otherwise acquired or agreed to redeem,
purchase or otherwise acquire any shares of its stock.
(i) There is no document or contract of a character
required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed as required. Each
agreement listed in the Exhibits to the Registration Statement is
in full force and effect and is valid and enforceable by and
against the Company or the Subsidiaries, as the case may be, in
accordance with its terms, assuming the due authorization,
execution and delivery thereof by each of the other parties
thereto. Neither the Company, any of the Subsidiaries nor to the
best of the Company's knowledge, any other party is in default in
the observance or performance of any term or obligation to be
performed by it under any such agreement, and no event has occurred
which with notice or lapse of time or both would constitute such a
default, in any such case which default or event would have a
Material Adverse Effect. No default exists, and no event has
occurred which with notice or lapse of time or both would
constitute a default, in the due performance and observance of any
term,
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<PAGE>
covenant or condition, by the Company or any of the Subsidiaries of
any other agreement or instrument to which the Company or any of
the Subsidiaries is a party or by which it or its properties or
business may be bound or affected which default or event would have
a Material Adverse Effect.
(j) Neither the Company nor any of the Subsidiaries is in
violation of any term or provision of its charter or by-laws, in
each case amended to the date hereof, or of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation, where
the consequences of such violation would have a Material Adverse
Effect. Except as described in the Registration Statement or
Prospectus, neither the Company nor any of the Subsidiaries intend
to amend its charter or by-laws.
(k) Neither the execution, delivery and performance of
this Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation,
the issuance and sale by the Company of the Shares) will give rise
to a right to terminate or accelerate the due date of any payment
due under, or conflict with or result in the breach of any term or
provision of, or constitute a default (or an event which with
notice or lapse of time or both would constitute a default) under,
or require any consent or waiver under, or result in the execution
or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or any of the Subsidiaries
pursuant to the terms of, any indenture, mortgage, deed of trust or
other material agreement or instrument to which the Company or any
of the Subsidiaries is a party or by which it or any of its
material properties or businesses is bound, or any material
franchise, license, permit, judgment, decree, order, statute, rule
or regulation applicable to the Company or any of the Subsidiaries
or violate any provision of the charter or by-laws of the Company
any of or the Subsidiaries, except for such consents or waivers
which have already been obtained and are in full force and effect.
No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body
is required for the issue and sale of the Shares or the
consummation of the other transactions contemplated by this
Agreement, except the registration under the Securities Act of the
Shares, and such consents, approvals, authorizations, registrations
or qualifications as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters.
(l) The authorized, issued and outstanding capital stock
of the Company and the capital stock reserved or committed for
issuance is as set forth under the captions "Capitalization" and
"Description of Capital Stock" in the Prospectus. All of the
outstanding shares of Common Stock have been duly and validly
issued and are fully paid and nonassessable and none of them was
issued in violation of any preemptive or other similar right or any
Federal or state securities laws. The Shares, when issued and sold
pursuant to this Agreement, will be duly and validly issued, fully
paid and nonassessable and none of them will be issued in violation
of any preemptive or other similar
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<PAGE>
right or any Federal or state securities laws. Except as disclosed
in the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the issuance
of, and there is no commitment, plan or arrangement to issue, any
share of stock of the Company or any security convertible into, or
exercisable or exchangeable for, such stock. The Common Stock, the
Shares and each other authorized class of capital stock of the
Company and all warrants and securities convertible into classes of
capital stock of the Company, conform in all material respects to
all statements in relation thereto contained in the Registration
Statement and the Prospectus. The Company has a sufficient number
of authorized but unissued shares of Common Stock to enable the
Company to issue, without further shareholder action, all the
Shares to be sold by the Company.
(m) As of the date hereof, and as of each Closing Date,
all of the outstanding shares of capital stock of each of the
Subsidiaries is duly and validly authorized and issued, is fully
paid and non-assessable and is owned by the Company free and clear
of all liens, encumbrances, equities or claims and there is no
outstanding option, warrant or other right calling for the issuance
of, and there is no commitment, plan or arrangement to issue any
share of capital stock any of the Subsidiaries or any security
convertible or exchangeable or exercisable for capital stock of any
of the Subsidiaries, except as otherwise described in the
Registration Statement and Prospectus.
(n) ANCIRC, an unincorporated joint venture that is owned
50% by the Company and 50% by Circa Pharmaceuticals, Inc., has not
sustained since December 31, 1995, any loss or interference with
its business, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
which loss or interference would have a material adverse effect on
ANCIRC; since the respective dates as of which information is given
in the Registration Statement and the Prospectus there has not been
any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general
affairs, management, research and development activities,
regulatory filings or other business operations of ANCIRC,
otherwise than as set forth or contemplated in the Prospectus; the
Company owns a 50% equity interest in ANCIRC free and clear of all
liens, equities or claims, ANCIRC has good and marketable title in
fee simple to all personal property owned by it free and clear of
all liens, encumbrances and defects except such as are described or
contemplated by the Registration Statement or the Prospectus or as
are not material individually or in the aggregate; ANCIRC has all
necessary power and authority, and all government authorizations,
permits and approvals, required to conduct its business as
described in the Registration Statement and in the Prospectus
except for such government authorizations, permits and approvals
that the failure to obtain would not have a Material Adverse
Effect; and except as described in the Prospectus there are no
outstanding options, warrants or other rights calling for the
issuance of, and there are no commitments, plans or arrangements to
issue, any other equity interest in ANCIRC.
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<PAGE>
(o) Except as disclosed in the Prospectus, no holder of
any security of the Company has the right to have any security
owned by such holder included in the Registration Statement or to
demand registration of any security owned by such holder during the
period ending 180 days after the date of this Agreement. The
provisions of all registration rights agreements described in the
Prospectus have been fully complied with or waived and the sale of
the Shares pursuant to this Agreement will not conflict with any
such registration rights, except such as have been fully complied
with or waived. Shareholders of the Company holding at least an
aggregate of 10,000,000 shares of the Common Stock, including all
shareholders owning 5% or more of the Common Stock and each
director and executive officer of the Company, have delivered to
the Representatives their enforceable written agreements that they
will not, for a period of 180 days after the date of this
Agreement, offer for sale, sell, distribute, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, or
exercise any registration rights with respect to, any shares of
Common Stock (or any securities convertible into, exercisable for,
or exchangeable for any shares of Common Stock) owned by them,
without the prior written consent of Oppenheimer & Co., Inc. on
behalf of the several Underwriters.
(p) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution, delivery
and performance of this Agreement and the issuance and sale of the
Shares by the Company. This Agreement has been duly and validly
authorized, executed and delivered by the Company and constitutes
and will constitute a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its
respective terms, except (i) as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles and (ii) to the
extent that rights to indemnity or contribution under this
Agreement may be limited by Federal and state securities laws or
the public policy underlying such laws.
(q) Neither the Company nor any of the Subsidiaries is
involved in any labor dispute nor, to the best knowledge of the
Company, is any such dispute threatened, which dispute could have a
Material Adverse Effect. Except as set forth in the Registration
Statement and Prospectus, neither the Company nor any of the
Subsidiaries has violated any applicable safety or similar law
applicable to its business nor any Federal or state law relating to
discrimination in the hiring, promotion or pay of employees, nor
any applicable Federal or state wages and hours law, nor any
provisions of the Employee Retirement Income Security Act or the
rules and regulations promulgated thereunder, the violation of any
of which could have a Material Adverse Effect.
(r) No transaction has occurred between or among the
Company or any of the Subsidiaries and any of their officers or
directors or any affiliate
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<PAGE>
or affiliates of any such officer or director that is required to
be described in and is not described in the Registration Statement
and the Prospectus.
(s) Neither the Company nor any of the Subsidiaries have
taken, nor will any of them take, directly or indirectly, any
action designed to or which might reasonably be expected to cause
or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of any
of the Shares.
(t) Neither the Company nor any of the Subsidiaries have
ever been denied a license, permit or authorization material to the
operation of their respective businesses, and the operating
practices and procedures of the Company and each of the
Subsidiaries are in material compliance with all applicable
Federal, state and local laws, rules and regulations.
(u) Except for matters which, individually or in the
aggregate, could not have a Material Adverse Effect, (i) each of
the Company and the Subsidiaries has obtained all permits, licenses
and other authorizations which are required under the Environmental
Laws (as defined below), (ii) each of the Company and the
Subsidiaries is in full compliance with all terms and conditions of
all permits, licenses and authorizations required under the
Environmental Laws, (iii) each of the Company and the Subsidiaries
is in full compliance with all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws or
contained in any regulation, code, plan, consent or other order,
decree, judgment, notice of violation or other notice, or demand
letter issued, entered, promulgated or approved thereunder
(collectively, the "Environmental Requirements"), (iv) no officer
of the Company or any of the Subsidiaries is aware of nor has he or
she received (A) notice (written or oral) from a governmental
authority, citizens group, employee or otherwise that alleges that
the Company is not in full compliance with one or more
Environmental Requirements, or (B) notice (written or oral)
respecting the Company of any past, present or future events,
conditions, circumstances, activities, practices, incidents,
actions or plans that may interfere with or prevent continued
compliance with all Environmental Requirements, or that may give
rise to any common law or other legal liability or otherwise form
the basis of any claim, action, suit proceeding, hearing or
investigation (each, an "Action"), based on or related to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge,
release or threatened release, of any chemical, pollutant,
contaminant, or hazardous or toxic material or waste or petroleum
or petroleum products into ambient air, surface water, ground water
or land, and (v) there is no Action relating to any Environmental
Requirement pending or, to the best knowledge of the Company
threatened against or affecting (A) the Company or any of the
Subsidiaries or their respective properties, or (B) any person or
entity whose liability for such Action has or may have been
retained or assumed either contractually or by
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operation of law by the Company or any of the Subsidiaries.
"Environmental Laws" shall mean Federal, state and local laws
relating to pollution or protection of human health or the
environment, including, without limitation, laws (including the
common law) relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants or
hazardous or toxic materials or wastes or petroleum or petroleum
products into ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
chemicals, pollutants, contaminants or hazardous or toxic materials
or wastes or petroleum or petroleum products.
(v) (i) Except as described in the Registration Statement
or the Prospectus, there is no action, suit, investigation or
proceeding pending or to the knowledge of the Company threatened
before or by any Federal or state court, commission, regulatory
body, administrative agency or other governmental body, domestic or
foreign, including, without limitation, the Commission, the Food
and Drug Administration (the "FDA"), the Drug Enforcement
Administration (the "DEA") or the Department of Justice (the
"DOJ"), or arbitrator to which the Company or any of the
Subsidiaries is or may become a party or of which any property of
the Company or any of the Subsidiaries is subject or affected that
(A) might affect the consummation of the transactions contemplated
under this Agreement, including the issuance or validity of the
Shares, (B) might have a Material Adverse Effect, (C) is required
to be disclosed in the Registration Statement or the Prospectus or
(D) relates to a material violation of the Federal Food, Drug, and
Cosmetic Act (the "FDC") (and each state's equivalent of said act),
the Federal Controlled Substances Act (and each state's equivalent
of such act) (collectively, the "CSA"), or any regulations
promulgated thereunder which violations might have a Material
Adverse Effect. All pending legal or governmental proceedings to
which the Company or any of the Subsidiaries is a party or of which
any of their respective properties are subject or affected which
are not described in the Prospectus, including ordinary routine
litigation incidental to the business, would not have a Material
Adverse Effect.
(ii) The Company has not received any notice, or
warning letter from the FDA, the DEA or the DOJ, that any product
ever manufactured or marketed by the Company or any of the
Subsidiaries is, or is alleged to be, an unapproved, adulterated or
misbranded drug or controlled substance including, without
limitation, (1) an order or request from the FDA, the DEA or the
DOJ or other authorized governmental or regulatory body that the
Company or any of the Subsidiaries recall or withdraw from the
market or cease to market any product sold or manufactured by the
Company, other than product recalls of products marketed by Anda
Generics which have had no Material Adverse Effect or (2) a lawsuit
filed by the United States with respect to any product sold or
manufactured by the Company or against the Company or any of the
Subsidiaries or any of their respective officers, directors or
employees alleging that any other Company's products is an
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unapproved, adulterated or misbranded drug or controlled substance,
or (3) an order from the FDA debarring the Company or any of its
Subsidiaries or any of their respective officers, directors or
employees from submitting or participating in the submission of
abbreviated new drug applications (the "ANDAs").
(iii) Except as disclosed in the Registration
Statement and Prospectus, the Company has not been served with any
complaint or received any other notice of lawsuits, arbitrations,
legal or administrative or regulatory proceedings, charges,
complaints or investigations by any state regulatory agency against
or pending against or relating to any Permits (as hereinafter
defined). There have not been any drug application withdrawals,
product recalls or similar actions by the Company. All pre-clinical
and clinical studies conducted by or on behalf of the Company as
well as all manufacturing, labeling, and distribution of materials
related to all drug development activities, have been conducted in
compliance in all material respects with applicable FDA and DEA
rules and regulations, including but not limited to the FDA's good
laboratory practice and good manufacturing practice requirements.
Neither the Company nor any of the Subsidiaries, nor any of their
respective officers, directors or employees have been debarred by
the FDA from submitting or participating in the submission of
ANDAs. The FDA has not refused to file any ANDA submitted by the
Company.
(iv) The Company is not aware that any of the
products sold or being developed by the Company are unsafe or
inefficacious.
(w) (i) The Company and each of the Subsidiaries have such
licenses, permits and other approvals or authorizations of and from
governmental or regulatory authorities ("Permits") as are
materially necessary under applicable law to own their respective
properties and to conduct their respective businesses in the manner
now being conducted and as described in the Registration Statement
and the Prospectus, including, but not limited to state drug
wholesale distributor registrations, licenses or permits and
letters of reference to drug master files established by other
companies, except such Permits which individually or in the
aggregate could not have a Material Adverse Effect; and the Company
and each of the Subsidiaries have fulfilled and performed all of
their respective obligations with respect to such Permits, and no
event has occurred which allows, or after notice or lapse of time
or both would allow, revocation or termination thereof or result in
any other material impairment of the rights of the holder of any
such Permits except such Permits which individually or in the
aggregate could not have a Material Adverse Effect. Neither the
Company nor any of the Subsidiaries has ever been denied a Permit
of the type referred to in this Section 4(x).
(ii) All necessary new drug applications (the
"NDAs"), ANDAs, investigational new drug applications (the "INDs"),
premarket approval applications and amendments and/or supplements
thereto, as required by the FDC Act, the regulations of the FDA
adopted thereunder, and any policies
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issued by the FDA in connection with such INDs, NDAs, or ANDAs,
premarket approval applications and amendments and/or supplements
thereto, have been filed with the FDA for the Company's proposed
generic controlled release versions of Cardizem CD and Dilacor XR.
(x) Each of the Company and the Subsidiaries has timely
filed all Federal, state, local and foreign tax returns which are
required to be filed through the date hereof, or has received
extensions thereof, and has paid all taxes shown on such returns
and all assessments received by it to the extent that the same are
material and have become due. Neither the Company nor any
subsidiary has any knowledge, nor any reasonable grounds to know,
of any tax deficiencies which would have a Material Adverse Effect;
each of the Company and the Subsidiaries has paid all taxes which
have become due, whether pursuant to any assessment, or otherwise,
and there is no further liability (whether or not disclosed on such
returns) or assessment for any such tax, and no interest or
penalties accrued or accruing with respect thereto, except as may
be set forth or adequately reserved for in the consolidated
financial statements included in the Registration Statement and the
Prospectus; the amounts currently set up as provisions for taxes or
otherwise by the Company and the Subsidiaries on their books and
records are sufficient for the payment of all their unpaid federal,
foreign, state, county and local taxes accrued through the dates as
of which they speak, and for which the Company and the Subsidiaries
may be liable in their own right, or as a transferee of the assets
of, or as successor to any other corporation, association,
partnership, joint venture or other entity.
(y) The Company and each of the Subsidiaries are insured
by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are customary in the
businesses in which they are engaged; and neither the Company nor
any of the Subsidiaries has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost
that would not have a Material Adverse Effect.
(z) The books, records and accounts of the Company and
ANCIRC, respectively, accurately and fairly reflect, in reasonable
detail, the transactions in, and dispositions of, the assets of,
and the results of operations of, the Company or ANCIRC, as the
case may be. The Company, each of the Subsidiaries and ANCIRC
maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (A) transactions are executed in
accordance with management's general or specific authorizations;
(B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (C)
access to assets is permitted only in accordance with management's
general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at
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reasonable intervals and appropriate action is taken with respect
to any differences.
(aa) The Shares have been duly authorized for quotation on
the Nasdaq National Market.
(bb) The Company is not an "Investment Company" within the
meaning of the Investment Company Act of 1940.
(cc) Neither the Company nor any of the Subsidiaries nor,
to the Company's knowledge, any employee or agent of the Company or
any of the Subsidiaries have made any payment of funds of the
Company or any of the Subsidiaries or received or retained any
funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be
disclosed in the Registration Statement and Prospectus.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters under this Agreement are several and not joint.
The respective obligations of the Underwriters to purchase the Shares are
subject to each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a) of this Agreement.
(b) No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall have been or shall
be in effect and no order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for
such purpose shall be pending before or threatened by the
Commission, and any requests for additional information on the part
of the Commission (to be included in the Registration Statement or
the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Representatives.
(c) The representations and warranties of the Company
contained in this Agreement and in the certificates delivered
pursuant to Section 5(d) shall be true and correct when made and on
and as of each Closing Date as if made on such date, and the
Company shall have performed all covenants and agreements and
satisfied all the conditions contained in this Agreement required
to be performed or satisfied by it at or before such Closing Date.
(d) The Representatives shall have received on each
Closing Date a certificate, addressed to the Representatives and
dated such Closing Date, of the chief executive officer and the
chief financial officer of the Company to the effect that the
signers of such certificate have carefully examined the
Registration Statement, the Prospectus and this Agreement and that
the representations and warranties of the Company in this Agreement
are true and correct on and as of such Closing Date with the same
effect as if made on such Closing Date and the Company has
performed all covenants and
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<PAGE>
agreements and satisfied all conditions contained in this Agreement
required to be performed or satisfied by it at or prior to such
Closing Date.
(e) The Representatives shall have received at the time
this Agreement is executed and on each Closing Date a signed letter
from Arthur Andersen LLP addressed to the Representatives and
dated, respectively, the date of this Agreement and each such
Closing Date, in form and substance reasonably satisfactory to the
Representatives, confirming that they are independent accountants
with respect to each of the Company and ANCIRC within the meaning
of the Securities Act and the Rules, that the response to Item 10
of the Registration Statement is correct insofar as it relates to
them and stating in effect that:
(i) in their opinion the consolidated financial
statements and the consolidated financial statement
schedule of the Company and the financial statements of
ANCIRC included in the Registration Statement and the
Prospectus audited and reported on by them comply as to
form in all material respects with the applicable
accounting requirements of the Securities Act and the
Rules;
(ii) on the basis of a reading of the amounts
included in the Registration Statement and the Prospectus
under the headings "Summary Consolidated Financial
Information" and "Selected Consolidated Financial Data,"
carrying out certain procedures, including a reading of
the latest available interim consolidated financial
statements of the Company and the Subsidiaries and interim
financial statements of ANCIRC (but not an examination in
accordance with generally accepted auditing standards)
which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter, a
reading of the minutes of the meetings of the shareholders
and directors of the Company and the Subsidiaries and
ANCIRC, and inquiries of certain officials of the Company
and the Subsidiaries and meetings of partners or other
similar meetings of ANCIRC who have responsibility for
financial and accounting matters of the Company and the
Subsidiaries and ANCIRC as to transactions and events
subsequent to the date of the latest audited financial
statements, except as disclosed in the Registration
Statement and the Prospectus, nothing came to their
attention which caused them to believe that (A) the
amounts in "Summary Consolidated Financial Information"
and "Selected Consolidated Financial Data" included in the
Registration Statement and the Prospectus do not agree
with the corresponding amounts in the audited and
unaudited consolidated financial statements from which
such amounts were derived; (B) the unaudited consolidated
financial statements of the Company and the Subsidiaries
and the unaudited financial statements of ANCIRC included
in the Registration Statement and the Prospectus do not
comply as to form in all materials respects with the
applicable accounting requirements of the Securities Act
and the Rules or are not
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fairly presented in conformity with generally accepted
accounting principles applied on a basis consistent with
that of the audited consolidated financial statements
included in the Registration Statement and the Prospectus;
and (C) during the period from April 1, 1996 to a
specified date not more than five days prior to the date
of such letter there was any change in the consolidated
capital stock or consolidated debt of the Company and its
Subsidiaries, or any decrease in the consolidated current
assets or consolidated total assets or consolidated
stockholders' equity of the Company and its Subsidiaries,
each as compared with the amounts shown in the balance
sheet as of March 31, 1996, included in the Registration
Statement or any decrease from April 1, 1996 to the
specified date, on a proportional basis with the fiscal
quarter ended March 31, 1996, in total revenue or gross
profit or any increase in loss from operations, net loss
or net loss per share, except in all instances for
changes, decreases or increases which the Registration
Statement and the Prospectus disclose have occurred or may
occur and except for such other changes, decreases or
increases which you shall in your sole discretion accept;
and
(iii) they have performed certain other procedures
as a result of which they determined that certain
information of an accounting, financial or statistical
nature (which is limited to accounting, financial or
statistical information derived from the general
accounting records of the Company) set forth in the
Registration Statement and the Prospectus and specified by
the Representatives agrees with the accounting records of
the Company and the Subsidiaries and ANCIRC.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at
the date of the letter.
(f) The Representatives shall have received on each
Closing Date from Broad and Cassel, counsel for the Company, an
opinion, addressed to the Representatives and dated such Closing
Date, and stating in effect that:
(i) The Company is duly incorporated and is
validly existing in good standing under the laws of the
State of Florida. To the best of such counsel's knowledge,
the Company has no subsidiaries other than the
Subsidiaries and ANCIRC, and, except as disclosed in the
Prospectus and the Registration Statement, does not
control, directly or indirectly, any corporation,
partnership, joint venture, association or other business
organization. The Company is duly qualified and in good
standing as a foreign corporation in each jurisdiction in
which, to the best of such counsel's knowledge, the
character or location of its assets or properties (owned,
leased or licensed) or the nature of its businesses makes
such qualification necessary, except for such
jurisdictions where the failure to so qualify would not,
independently or collectively, have a Material Adverse
Effect.
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<PAGE>
(ii) Each of the Subsidiaries is duly incorporated
and validly existing in good standing under the laws of
the State of Florida, and is duly qualified and in good
standing in each jurisdiction in which, to such counsel's
knowledge, the character or location of its assets or
properties (owned, leased or licensed) or the nature of
its business makes such qualification necessary, except
for such jurisdictions where the failure to so qualify
would not, independently or collectively, have a material
adverse effect on its assets, properties, business,
results of operations, prospects or condition (financial
or otherwise); and each of the Subsidiaries has all
requisite corporate power and authority to conduct its
business as now being conducted and as described in the
Registration Statement and Prospectus;
(iii) Each of the Company and the Subsidiaries has
all requisite corporate power and authority to own, lease
and license its assets and properties and conduct its
business as now being conducted and as described in the
Registration Statement and the Prospectus; and the Company
has all requisite corporate power and authority and all
necessary authorizations, approvals, consents, orders,
licenses, certificates and permits to enter into, deliver
and perform this Agreement and to issue and sell the
Shares other than those required under the Securities Act
and state and foreign Blue Sky laws and those which, if
not obtained, would not have a Material Adverse Effect;
(iv) The Company has authorized and issued capital
stock as described in the Registration Statement and the
Prospectus; the certificates evidencing the Shares are in
due and proper legal form and have been duly authorized
for issuance by the Company; all of the outstanding shares
of Common Stock of the Company reflected in the
Registration Statement and Prospectus have been duly and
validly authorized and have been duly and validly issued
and are fully paid and nonassessable and none of them was
issued in violation of any statutory preemptive or other
similar statutory right. The Shares when issued and sold
pursuant to this Agreement will be duly and validly
issued, outstanding, fully paid and nonassessable and none
of them will have been issued in violation of any
statutory preemptive or other similar statutory right. The
provisions of all registration rights, described in the
Prospectus or otherwise, have been complied with or waived
and the sale of the Shares pursuant to this Agreement will
not conflict with any such registration rights. To the
best of such counsel's knowledge, except as disclosed in
the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the
issuance of, and no commitment, plan or arrangement to
issue, any share of stock of the Company or any security
convertible into, exercisable for, or exchangeable for
stock of the Company. The Common Stock and the Shares
conform in all material respects to the descriptions
thereof contained in the Registration Statement and the
Prospectus. The Company has a sufficient number of
authorized but
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unissued shares of Common Stock to enable the Company to
issue, without further shareholder action, all the Shares
to be sold by the Company.
(v) All of the outstanding shares of capital stock
of each of the Subsidiaries are duly and validly
authorized and issued, are fully paid and non-assessable
and, except as otherwise described in the Registration
Statement and Prospectus, are owned by the Company and, to
the best knowledge of counsel, there is no outstanding
option, warrant or other right calling for the issuance
of, and there is no commitment, plan or arrangement to
issue any share of capital stock of any of the
Subsidiaries or any security convertible or exchangeable
or exercisable or capital stock of any of the
Subsidiaries, except as otherwise described in the
Registration Statement and Prospectus;
(vi) The Company has all requisite corporate power
and authority to execute and deliver this Agreement and to
perform its obligations under this Agreement. All
necessary corporate action has been duly and validly taken
by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of
the Shares by the Company. This Agreement has been duly
and validly authorized, executed and delivered by the
Company, and this Agreement constitutes the legal, valid
and binding obligation of the Company enforceable against
the Company in accordance with its terms except (A) as
such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles and
(B) to the extent that rights to indemnity or contribution
under this Agreement may be limited by federal or state
securities laws or the public policy underlying such laws.
(vii) Neither the execution, delivery and
performance of this Agreement by the Company nor the
consummation of any of the transactions contemplated
hereby (including, without limitation, the issuance and
sale by the Company of the Shares) will give rise to a
right to terminate or accelerate the due date of any
payment due under, or conflict with or result in the
breach of any term or provision of, or constitute a
default (or any event which with notice or lapse of time,
or both, would constitute a default) under, or require
consent or waiver under, or result in the execution or
imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or any of the
Subsidiaries pursuant to the terms of any indenture,
mortgage, deed of trust, note or other material agreement
or instrument of which such counsel is aware and to which
the Company or any subsidiary is a party or by which any
of them or any of their properties or businesses is bound,
or any material franchise, license, permit, judgment,
decree, order, statute, rule or regulation of which such
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counsel is aware or violate any provision of the charter
or by-laws of the Company or any Subsidiary.
(viii) The Common Stock, including the Shares, has
been approved for quotation on the Nasdaq National Market
subject to official notice of listing of the Shares.
(ix) To the best of such counsel's knowledge, no
default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a
default, in the due performance and observance of any
term, covenant or condition by the Company or any of the
Subsidiaries of any indenture, mortgage, deed of trust,
note or any other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which
it or any of its assets or properties or businesses may be
bound or affected, where the consequences of such default
would have a Material Adverse Effect.
(x) To the best of such counsel's knowledge,
neither the Company nor any of the Subsidiaries is in
violation of any term or provision of its charter or
by-laws.
(xi) No consent, approval, authorization or order
of any court or governmental agency or body is required
for the performance of this Agreement by the Company or
the consummation of the transactions contemplated hereby,
except such as have been obtained under the Securities Act
and such as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution
of the Shares by the several Underwriters (as to which
such counsel need express no opinion) and such as may be
required under the rules of the National Association of
Securities Dealers, Inc. with respect to the underwriting
arrangements reflected in this Agreement (as to which such
counsel need express no opinion).
(xii) Except as described in the Registration
Statement and the Prospectus, to the best of such
counsel's knowledge, there is no litigation or
governmental or other proceeding or investigation, before
any court or before or by any public body or board pending
or threatened against, or involving the assets, properties
or businesses of, the Company or any of the Subsidiaries
which would have a Material Adverse Effect.
(xiii) All contracts and other documents,
statutes, legal or governmental proceedings required to be
filed as exhibits to, or described in, the Registration
Statement have been so filed with the Commission or are
fairly described in the Registration Statement, as the
case may be.
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(xiv) Except as described in the Registration
Statement and Prospectus, to the best of such counsel's
knowledge, none of the Company's subsidiaries is currently
prohibited, directly or indirectly, from paying any
dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such
subsidiary from the Company or from transferring any of
such subsidiary's property or assets to the Company or any
other subsidiary of the Company.
(xv) The Registration Statement, all preliminary
prospectuses and the Prospectus and each amendment or
supplement thereto (except for the financial statements
and schedules and other financial and accounting data
included therein, as to which such counsel need expresses
no opinion) comply as to form in all material respects
with the requirements of the Securities Act and the Rules.
(xvi) The Registration Statement has become
effective under the Securities Act and, to the best of
such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been
instituted or are threatened, pending or contemplated; and
any required filing of the Prospectus, pursuant to Rule
424(b) of the Rules has been made in accordance with the
provisions thereof.
(xvii) The registration of the Common Stock under
Section 12(g) of the Exchange Act has become effective.
(xviii) The Company is not an "Investment Company"
within the meaning of the Investment Company Act of 1940.
To the extent deemed advisable by such counsel, they may
rely as to matters of fact on certificates of responsible officers of the
Company and public officials and on the opinions of other counsel reasonably
satisfactory to the Representatives as to matters which are governed by laws
other than the laws of the State of Florida and the Federal laws of the United
States; provided that such counsel shall state that in their opinion they know
of no reason why the Underwriters and they are not justified in relying on such
other opinions. Copies of such certificates and other opinions shall be
furnished to the Representatives and counsel for the Underwriters.
In addition, such counsel shall state that such counsel
has participated in conferences with officers and other representatives of the
Company, representatives of the Representatives and representatives of the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel is not passing upon and does
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except as
specified in the foregoing opinion), on the basis of the foregoing, no facts
have come to the attention of such counsel that have caused such
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counsel to believe that the Registration Statement at the time it became
effective (except with respect to the financial statements and notes and
schedules thereto and other financial data, as to which such counsel need
express no belief) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus as amended or
supplemented (except with respect to the financial statements and notes
schedules thereto and other financial data, as to which such counsel need
express no belief) on the date thereof contained or at any Closing Date contains
any untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(g) The Representatives shall have received on each Closing Date
from Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., special
regulatory counsel for the Company, an opinion, addressed to the Representatives
and dated such Closing Date, in form and substance satisfactory to Fulbright &
Jaworski L.L.P., counsel to the Underwriters and stating in effect that:
(i) The statements under the captions "Risk
Factors--Patent Litigation", "Risk Factors--Government Regulation"
and "Business--Government Regulation," (collectively the
"Regulatory Portion") in the Registration Statement and the
Prospectus, to the extent that they reflect matters of law,
summaries of law or regulations, or regulatory status, are correct
in all material respects, subject to the qualifications set forth
therein;
(ii) Nothing has come to the attention of such
counsel that would lead such counsel to believe that the Regulatory
Portion, (a) at the time the Registration Statement became
effective, included an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or (b) as
of the date of the Prospectus and as of the Closing Date or the
Option Closing Date, as the case may be, includes an untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iii) Nothing has come to the attention of such
counsel that would lead such counsel to believe that any of the
representations and warranties of the Company contained in Sections
4(v) or 4(w) of this Agreement are not true and correct; and
(iv) The Company's ANDAs with respect to the
generic versions of Cardizem CD and Dilacor XR are in proper form
and have been properly filed with the FDA and accepted for filing
by the FDA.
In rendering such opinion, such counsel may rely as to
factual matters upon certificates or written statements from officers of the
Company or upon certifi- cates of public officials.
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(h) The Representatives shall have received on each Closing Date
from Hedman, Gibson and Costigan, P.C., patent counsel for the Company an
opinion, addressed to the Representatives and dated such Closing Date, in form
and substance satisfactory to Fulbright & Jaworski L.L.P., counsel to the
Underwriters and stating in effect that:
(i) The statements under the captions "Risk
Factors--Patent Litigation", "Risk Factors--Hoechst
Litigation", "Risk Factors--Patents and Proprietary
Rights" and "Business--Patents and Proprietary Rights," in
the Registration Statement and the Prospectus, to the
extent that they reflect matters of law, summaries of law
or regulations, or patent status, are correct in all
material respects, subject to the qualifications set forth
therein; and such counsel do not know of any statutes,
legal and governmental proceedings, contracts and other
documents relating to the Company's patents and patent
applications required to be described in the Prospectus
that are not described as required;
(ii) The Company's patent applications prepared by
such counsel have been properly prepared and filed on
behalf of the Company and, to the best of such counsel's
knowledge, the Company's other patent applications have
been properly prepared and filed on behalf of the Company;
except as set forth in the Prospectus, each of the patents
issued therefrom and the applications are held by the
Company and to the best of such counsel's knowledge, no
other entity or individual has any right or claim in any
of the Company's patents, patent applications or any
patent to be issued therefrom by virtue of any contract,
license or other agreement known to such counsel, such
counsel has no knowledge that the Company lacks or will be
unable to obtain any rights or licenses to use all
patents, patent rights and Intangibles necessary to
conduct the business now or proposed to be conducted by
the Company as described in the Prospectus, and such
counsel is unaware of any facts which form a basis for a
finding of unenforceability or invalidity of any of the
patents, patent rights or other Intangibles owned by,
licensed to or used by the Company;
(iii) To the best of such counsel's knowledge, the
Company owns or possesses sufficient or adequate rights to
use all material patents necessary for the conduct of its
business as described in the Prospectus;
(iv) Except as set forth in the Prospectus, to the best of
such counsel's knowledge, (A) the Company has conducted
its business without infringement of any patents, patent
rights or other Intangibles of others and (B) the Company
has not received any notice of any claim of infringement
or violation of or conflict with rights or claims of
others with respect to any patents, patent rights or other
Intangibles owned by, licensed to or used by the Company;
and such counsel is not
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aware of any research or licensing agreements, royalty
arrangements, patents, patent rights or Intellectual
Property of others which are infringed by the Company's
products or processes;
(v) Except as set forth in the Prospectus, to the
best of such counsel's knowledge, there is not pending or
threatened any action, suit or proceeding to which the
Company is a party, before or by any court or governmental
agency or body, relating to patents or patent rights or
patent applications;
(vi) Nothing has come to the attention of such
counsel which leads such counsel to believe that any of
the claims in U.S. Patent Nos. 5,260,068, 5,260,069,
5,397,574, 5,419,917, 5,458,887, 5,458,888 and 5,472,708,
which are owned by the Company, are invalid over any
issued patents known to such counsel;
(vii) The Company and the Subsidiaries are listed
in the records of the United States Patent and Trademark
Office as the holder of record of each of the patents
listed opposite its name on Schedule II to this Agreement
(the "Patents") and each of the patent applications listed
on such Schedule II (the "Applications") and to such
counsel's knowledge, the Company and the Subsidiaries, as
the case may be, are listed in the records of the
appropriate foreign office as the sole holder of record of
each of the foreign Patents and foreign Applications
listed on said Schedule II. Such counsel knows of no
claims of third parties to any ownership interest or lien
with respect to any of the Patents of Applications. To
such counsel's knowledge, none of the Applications has
been rejected; and
(viii) Nothing has come to the attention of such
counsel that would lead such counsel to believe that any
of the representations and warranties of the Company
contained in Section 4(e) of this Agreement are not true
and correct; and
(ix) Such counsel have reviewed the Registration
Statement and Prospectus, and any further amendments or
supplements thereto made by the Company prior to the
Closing Date, and insofar as they concern patents or
patent rights, or other Intangibles or patent
applications, such counsel have no reason to believe that
either any part of the Registration Statement, when such
part became effective, contained an untrue statement of a
material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus and any
amendment or supplement thereto, as of the date thereof,
on the date of filing thereof with the Commission, and at
the Closing Date, included an untrue statement of a
material fact or omitted to state a material fact
necessary to make the statements therein, in the light of
the circumstances under which they were made, not
misleading.
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(i) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and their counsel and
the Underwriters shall have received from Fulbright & Jaworski L.L.P. a
favorable opinion, addressed to the Representatives and dated such Closing Date,
with respect to the Shares, the Registration Statement and the Prospectus, and
such other related matters, as the Representatives may reasonably request, and
the Company shall have furnished to Fulbright & Jaworski L.L.P. such documents
as they may reasonably request for the purpose of enabling them to pass upon
such matters. In rendering their opinion, such counsel may rely upon the opinion
of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. referred to above
as to all matters of Florida law.
(j) The Company shall have in place on the Closing Date an
insurance policy which covers the Company as well as its directors and officers,
covering potential liabilities under the Securities Act and the Exchange Act
providing coverage of no less that $5,000,000 and a term of no less than one
year from the date of this Agreement.
(k) The Shares to be purchased on Closing Date by the Underwriters
shall have been approved for quotation on the Nasdaq National Market.
(l) Shareholders owning an aggregate of at least 10,000,000 shares,
including all shareholders owning 5% or more of the Common Stock and all
directors and officers of the Company, shall have agreed in writing, in form and
substance satisfactory to the Representatives, that such person or entity will
not, for a period 180 days after the date of this Agreement directly or
indirectly, except with prior written consent of Oppenheimer & Co., Inc. offer,
sell, grant any option to purchase, or otherwise dispose (or announce any offer,
sale, grant of an option to purchase or other disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable or exercisable
for, such shares of Common Stock.
(m) The Representatives shall have been furnished with such
additional documents and certificates as the Representatives or counsel for the
Underwriters may reasonably request related to this Agreement and the
transactions contemplated hereby.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to the Representatives and to counsel for the Underwriters, in each
case in their reasonable judgment. The Company shall furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents in such number as the Representatives shall reasonably request.
6. COVENANTS OF THE COMPANY. The Company covenants and
agrees as follows:
(a) The Company shall prepare the Prospectus in a form
approved by the Representatives and file such Prospectus pursuant
to Rule 424(b) or Rule 434 under the Securities Act within the time
period required thereby following the execution and delivery of
this Agreement, or, if applicable, such
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earlier time as may be required by Rule 430A(a)(3) under the
Securities Act, and shall promptly advise the Representatives (i)
when any amendment to the Registration Statement shall have become
effective, (ii) of any request by the Commission for any amendment
of the Registration Statement or the Prospectus or for any
additional information, (iii) of the prevention or suspension of
the use of any preliminary prospectus or the Prospectus or of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (iv) of the
receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose. The Company shall not file any amendment of the
Registration Statement or supplement to the Prospectus unless the
Company has furnished the Representatives a copy for their review
prior to filing and shall not file any such proposed amendment or
supplement to which the Representatives reasonably object. The
Company shall use its best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Securities Act and the
Rules, any event occurs as a result of which the Prospectus as then
amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make
the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to
amend or supplement the Prospectus to comply with the Securities
Act or the Rules, the Company promptly shall prepare and file with
the Commission, subject to the second sentence of Section 6(a), an
amendment or supplement which shall correct such statement or
omission or an amendment which shall effect such compliance.
(c) The Company shall make generally available to its
security holders and to the Representatives as soon as practicable,
but not later than 45 days after the end of the 12-month period
beginning at the end of the fiscal quarter of the Company during
which the Effective Date occurs (or 90 days if such 12-month period
coincides with the Company's fiscal year), an earnings statement
(which need not be audited) of the Company, covering such 12-month
period, which shall satisfy the provisions of Section 11(a) of the
Securities Act or Rule 158 of the Rules.
(d) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including all exhibits thereto and
amendments thereof) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and all
amendments thereof and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Securities Act or the
Rules, as many copies of any preliminary prospectus and the
Prospectus and
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any amendments thereof and supplements thereto as the
Representatives may reasonably request.
(e) The Company shall cooperate with the Representatives
and their counsel in endeavoring to qualify the Shares for offer
and sale under the laws of such jurisdictions as the
Representatives may designate and shall maintain such
qualifications in effect so long as required for the distribution
of the Shares; provided, however, that the Company shall not be
required in connection therewith, as a condition thereof, to
qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction or subject itself to
taxation as doing business in any jurisdiction.
(f) For a period of five years after the date of this
Agreement, the Company shall supply to the Representatives, and to
each other Underwriter who may so request in writing, copies of
such financial statements and other periodic and special reports as
the Company may from time to time distribute generally to the
holders of any class of its capital stock and to furnish to the
Representatives a copy of each annual or other report it shall be
required to file with the Commission (including the Report on Form
SR required by Rule 463 of the Rules).
(g) Without the prior written consent of Oppenheimer &
Co., Inc., for a period of 180 days after the date of this
Agreement, the Company shall not issue, sell or register with the
Commission (other than on Form S-8 or on any successor form), or
otherwise dispose of, directly or indirectly, any equity securities
of the Company (or any securities convertible into or exercisable
or exchangeable for equity securities of the Company), except for
the issuance of the Shares pursuant to the Registration Statement
and the issuance of shares pursuant to the Company's existing stock
option plan. In the event that during this period, (i) any shares
are issued pursuant to the Company's existing stock option plan or
(ii) any registration is effected on Form S-8 or on any successor
form, the Company shall obtain the written agreement of such
grantee or purchaser or holder of such registered securities that,
for a period of 180 days after the date of this Agreement, such
person will not, without the prior written consent of Oppenheimer &
Co, Inc., offer for sale, sell, distribute, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, or
exercise any registration rights with respect to, any shares of
Common Stock (or any securities convertible into, exercisable for,
or exchangeable for any shares of Common Stock) owned by such
person.
(h) On or before the Firm Shares Closing Date, the Company
shall make all filings required under applicable securities laws
and by the Nasdaq National Market (including any required
registration under the Exchange Act) in order to permit the
consummation of the transactions contemplated hereby.
(i) The Company shall apply the net proceeds of the sale
of the Shares issued and to be sold by it as set forth in the
Prospectus. The Company shall take such steps as shall be necessary
to ensure that for a
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period of three years from the Effective Date the Company will not
become an "investment company" within the meaning of such term
under the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder.
(j) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated
hereby are consummated or this Agreement is terminated, all costs
and expenses incident to the public offering of the Shares and the
performance of the obligations of the Company under this Agreement
including those relating to: (i) the preparation, printing, filing
and distribution of the Registration Statement including all
exhibits thereto, each preliminary prospectus, the Prospectus, all
amendments and supplements to the Registration Statement and the
Prospectus, and the printing, filing and distribution of this
Agreement; (ii) the preparation and delivery of certificates for
the Shares to the Underwriters; (iii) the registration or
qualification of the Shares for offer and sale under the securities
or Blue Sky laws of the various jurisdictions referred to in
Section 6(e), including the fees and disbursements of counsel for
the Underwriters in connection with such registration and
qualification and the preparation, printing, distribution and
shipment of preliminary and supplementary Blue Sky memoranda; (iv)
the furnishing (including costs of shipping and mailing) to the
Representatives and to the Underwriters of copies of each
preliminary prospectus, the Prospectus and all amendments or
supplements to the Prospectus, and of the several documents
required by this Section to be so furnished, as may be reasonably
requested for use in connection with the offering and sale of the
Shares by the Underwriters or by dealers to whom Shares may be
sold; (v) the filing fees of the National Association of Securities
Dealers, Inc. in connection with its review of the terms of the
public offering; (vi) the furnishing (including costs of shipping
and mailing) to the Representatives and to the Underwriters of
copies of all reports and information required by Section 6(t);
(vi) inclusion of the Shares for quotation on the Nasdaq National
Market; and (viii) all transfer taxes, if any, with respect to the
sale and delivery of the Shares by the Company to the Underwriters.
Subject to the provisions of Section 9, the Underwriters agree to
pay, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses
incident to the performance of the obligations of the Underwriters
under this Agreement not payable by the Company pursuant to the
preceding sentence, including, without limitation, the fees and
disbursements of counsel for the Underwriters.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all losses, claims, damages and liabilities, joint or
several (including any reasonable investigation, legal and other expenses
incurred in connection with, and any
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<PAGE>
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto, or in any Blue Sky application or other document executed by the
Company filed in any state or other jurisdiction to quantify any or all of the
Shares under the securities laws thereof (any such application document or
information being hereinafter referred to as a "Blue Sky Application") or arise
out of or are based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any breach of the representations an warranties
set forth in Section 4 hereof; provided, however, that such indemnity shall not
inure to the benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or liabilities arising
from the sale of the Shares to any person by such Underwriter if such untrue
statement or omission or alleged untrue statement or omission was made in such
preliminary prospectus, the Registration Statement or the Prospectus, or such
amendment or supplement, or any Blue Sky Application in reliance upon and in
conformity with information furnished in writing to the Company by the
Representatives on behalf of any Underwriter specifically for use therein. In
addition to its other obligations under this Section 7(a), the Company agrees
that, as an interim measure during the pending of any claim, action, suit,
investigation, inquiry or other proceeding referred to in this Section 7(a), it
will reimburse the Underwriters on a monthly basis for all reasonable legal fees
or other out-of-pocket expenses reasonably incurred in connection with
investigating or defending any such claim, action, suit, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return it to the Company. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, each director of the Company, and each officer
of the Company who signs the Registration Statement, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only insofar as
such losses, claims, damages or liabilities arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which was
made in any preliminary prospectus, the Registration Statement or the
Prospectus, or any amendment thereof or supplement thereto, with respect to
stabilization on the inside front cover page of the Prospectus and the
statements contained in the first, second, sixth and seventh paragraphs under
the caption "Underwriting" in the Prospectus; provided, however, that the
obligation of the Company (including any controlling person, director or officer
thereof) shall be limited to the net proceeds received by the Company from such
Underwriter.
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(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such action,
suit or proceeding, enclosing a copy of all papers served. No indemnification
provided for in Section 7(a) or 7(b) shall be available to any party who shall
fail to give notice as provided in this Section 7(c) if the party to whom notice
was not given was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice but the omission
so to notify such indemnifying party of any such action, suit or proceeding
shall not relieve it from any liability that it may have to any indemnified
party for contribution or otherwise than under this Section. In case any such
action, suit or proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying parties,
(ii) the indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the indemnified party
in the conduct of the defense of such action (in which case the indemnifying
parties shall not have the right to direct the defense of such action on behalf
of the indemnified party) or (iii) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a reasonable time
after notice of the commencement thereof, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action, suit,
proceeding or claim effected without its written consent.
8. CONTRIBUTION. In order to provide for just and
equitable contribution in circumstances in which the indemnification provided
for in Section 7(a) is due in accordance with its terms but for any reason is
held to be unavailable from the Company, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting any contribution received by the
Company from persons other than the Underwriters, such as persons who control
the Company within the meaning of the Securities Act, officers of the Company
who signed the Registration Statement and directors of the Company, who may also
be liable for contribution) to which the Company and one or more of the
Underwriters may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other
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from the offering of the Shares or, if such allocation is not permitted by
applicable law in such proportion as is appropriate to reflect not only the
relative benefits referred to above but also the relative fault of the Company
on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company shall be deemed to be in the same
proportion as (x) the total proceeds from the offering (net of underwriting
discounts but before deducting expenses) received by the Company, as set forth
in the table on the cover page of the Prospectus, bear to (y) the total price to
the public of the offering as set forth in the table on the cover page of the
Prospectus, and the relative benefits received by each Underwriter shall be
deemed to be in the same proportion as (x) the underwriting discounts received
by the Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to (y) the total price to the public of the offering as set
forth in the table on the cover page of the Prospectus. The relative fault of
the Company or the Underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
related to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 8, (i) in no case shall any
Underwriter (except as may be provided in the Agreement Among Underwriters) be
liable or responsible for any amount in excess of the underwriting discount
applicable to the Shares purchased by such Underwriter hereunder, and (ii) the
Company shall be liable and responsible for any amount in excess of such
underwriting discount; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of the Section 15 of the Securities Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) in the immediately preceding sentence of this Section 8. Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent. The Underwriters'
obligations to contribute pursuant to
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this Section 8 are several in proportion to their respective underwriting
commitments and not joint.
9. TERMINATION. This Agreement may be terminated
with respect to the Shares to be purchased on a Closing Date by the
Representatives by notifying the Company at any time
(a) in the absolute discretion of the Representatives at
or before any Closing Date: (i) if on or prior to such date, any
domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Representatives will in the
future materially disrupt, the securities markets; (ii) if there
has occurred any new outbreak or material escalation of hostilities
or other calamity or crisis the effect of which on the financial
markets of the United States is such as to make it, in the judgment
of the Representatives, inadvisable to proceed with the offering;
(iii) if there shall be such a material adverse change in general
financial, political or economic conditions or the effect of
international conditions on the financial markets in the United
States is such as to make it, in the judgment of the
Representatives, inadvisable or impracticable to market the Shares;
(iv) if trading in the Shares has been suspended by the Commission
or trading generally on the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. or the Nasdaq National Market has
been suspended or limited, or minimum or maximum ranges for prices
for securities shall have been fixed, or maximum ranges for prices
for securities have been required, by said exchanges or by order of
the Commission, the National Association of Securities Dealers,
Inc., or any other governmental or regulatory authority; or (v) if
a banking moratorium has been declared by any state or Federal
authority, or
(b) at or before any Closing Date, that any of the
conditions specified in Section 5 shall not have been fulfilled
when and as required by this Agreement.
If this Agreement is terminated pursuant to any of its
provisions, the Company shall not be under any liability to any Underwriter, and
no Underwriter shall be under any liability to the Company, except that (A) if
this Agreement is terminated by the Representatives or the Underwriters because
of any failure, refusal or inability on the part of the Company to comply with
the terms or to fulfill any of the conditions of this Agreement, the Company
will reimburse the Underwriters for all out-of-pocket expenses (including the
reasonable fees and disbursements of their counsel) incurred by them in
connection with the proposed purchase and sale of the Shares or in contemplation
of performing their obligations hereunder and (B) no Underwriter who shall have
failed or refused to purchase the Shares agreed to be purchased by it under this
Agreement, without some reason sufficient hereunder to justify cancellation or
termination of its obligations under this Agreement, shall be relieved of
liability to the Company or to the other Underwriters for damages occasioned by
its failure or refusal.
10. SUBSTITUTION OF UNDERWRITERS. If one or more of
the Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination
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of this Agreement under Section 9) to purchase on any Closing Date the Shares
agreed to be purchased on such Closing Date by such Underwriter or Underwriters,
the Representatives may find one or more substitute underwriters to purchase
such Shares or make such other arrangements as the Representatives may deem
advisable or one or more of the remaining Underwriters may agree to purchase
such Shares in such proportions as may be approved by the Representatives, in
each case upon the terms set forth in this Agreement. If no such arrangements
have been made by the close of business on the business day following such
Closing Date,
(a) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall not exceed 10%
of the Shares that all the Underwriters are obligated to purchase
on such Closing Date, then each of the nondefaulting Underwriters
shall be obligated to purchase such Shares on the terms herein set
forth in proportion to their respective obligations hereunder;
provided, that in no event shall the maximum number of Shares that
any Underwriter has agreed to purchase pursuant to Section 1 be
increased pursuant to this Section 10 by more than one-ninth of
such number of Shares without the written consent of such
Underwriter, or
(b) if the number of Shares to be purchased by the
defaulting Underwriters on such Closing Date shall exceed 10% of
the Shares that all the Underwriters are obligated to purchase on
such Closing Date, then the Company shall be entitled to an
additional business day within which it may, but is not obligated
to, find one or more substitute underwriters reasonably
satisfactory to the Representatives to purchase such Shares upon
the terms set forth in this Agreement.
In any such case, either the Representatives or the
Company shall have the right to postpone the applicable Closing Date for a
period of not more than five business days in order that necessary changes and
arrangements (including any necessary amendments or supplements to the
Registration Statement or Prospectus) may be effected by the Representatives and
the Company. If the number of Shares to be purchased on such Closing Date by
such defaulting Underwriter or Underwriters shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, and none of
the nondefaulting Underwriters or the Company shall make arrangements pursuant
to this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and without liability
on the part of the Company, except in both cases as provided in Sections 6(c),
7, 8 and 9. The provisions of this Section shall not in any way affect the
liability of any defaulting Underwriter to the Company or the nondefaulting
Underwriters arising out of such default. A substitute underwriter hereunder
shall become an Underwriter for all purposes of this Agreement.
11. MISCELLANEOUS. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and of the Underwriters set forth in or made pursuant to this
Agreement shall remain in full force
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and effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of the officers, directors or controlling
persons referred to in Sections 7 and 8 hereof, and shall survive delivery of
and payment for the Shares. The provisions of Sections 6(j), 7, 8 and 9 shall
survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters and the Company and their respective heirs, executors,
administrators, successors and assigns, and, to the extent expressed herein, for
the benefit of persons controlling any of the Underwriters, or the Company, and
directors and officers of the Company, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in
writing and mailed or delivered or by telephone or telegraph if subsequently
confirmed in writing, (a) if to the Representatives, c/o Oppenheimer & Co.,
Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281
Attention: Syndicate Department, (b) if to the Company, to its agent for service
as such agent's address appears on the cover page of the Registration Statement.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflict of laws.
This Agreement (including the Schedules and Exhibits
hereto) constitutes the full and entire understanding and agreement between the
parties with regard to the subjects hereof and supersedes all other agreements
relating to the subject matter hereof.
This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
-34-
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
ANDRX CORPORATION
By
------------------------------------
Alan P. Cohen, Chairman, Chief
Executive Officer and Director
Confirmed:
OPPENHEIMER & CO., INC.
GRUNTAL & CO., INCORPORATED
Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.
By: OPPENHEIMER & CO., INC.
By
-----------------------------
Title:
-35-
<PAGE>
SCHEDULE I
NUMBER OF
FIRM SHARES TO
NAME BE PURCHASED
---- --------------
Oppenheimer & Co., Inc.
Gruntal & Co., Incorporated
---------------
Total
-36-
<PAGE>
SCHEDULE II
(Patents)
-37-
BROAD AND CASSEL
ATTORNEYS AT LAW
201 SOUTH BISCAYNE BOULEVARD
MIAMI CENTER, SUITE 3000
MIAMI, FLORIDA 33131
(305) 373-9400
May 22, 1996
Andrx Corporation
4001 Southwest 47th Avenue
Suite 201
Ft. Lauderdale, Florida 33314
RE: ANDRX CORPORATION (THE "COMPANY")
REGISTRATION STATEMENT ON FORM S-1
SEC FILE NO: 333-3614
Ladies and Gentlemen:
You have requested our opinion with respect to the shares of the
Company's common stock, $.001 par value per share (the "Common Stock"), included
in the Company's registration statement on Form S-1, SEC File No. 333-03614 as
amended by Amendment No. 1 (the Registration Statement, along with Amendment No.
1 is referred to as the "Registration Statement"), which has been filed with the
U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended (the "Securities Act").
As counsel to the Company, we have examined the original or certified
copies of such records of the Company, and such agreements, certificates of
public officials, certificates of officers or representatives of the Company and
others, and such other documents as we deem relevant and necessary for the
opinions expressed in this letter. In such examination, we have assumed the
genuineness of all signatures on original documents, and the conformity to
original documents of all copies submitted to us as conformed or photostatic
copies. As to various questions of fact material to such opinions, we have
relied upon statements or certificates of officials and representatives of the
Company and others.
Based on, and subject to the foregoing, we are of the opinion that,
when the shares of Common Stock are issued and delivered in accordance with the
terms of the Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement, the shares of Common Stock will be duly and validly issued, fully
paid and non-assessable.
In rendering this opinion, we advise you that members of this Firm are
members of the Bar of the State of Florida, and we express no opinion herein
concerning the applicability or effect of any laws of any other jurisdiction,
except the securities laws of the United States of America referred to herein.
<PAGE>
Andrx Corporation
May 22, 1996
Page 2
This opinion has been prepared and is to be construed in accordance
with the Report on Standards for Florida Opinions, dated April 8, 1991, issued
by the Business Law Section of The Florida Bar (the "Report"). The Report is
incorporated by reference into this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the use of our name under "Legal
Matters" in the Prospectus constituting part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Securities
Act, or the rules and regulations promulgated thereunder.
Sincerely yours,
/s/ BROAD AND CASSEL
EXHIBIT 11.1
ANDRX CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
--------------- --------------- --------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss ................................ $(2,044,300) $(3,104,500) $(5,187,000) $ (653,700) $ (722,400)
=============== =============== =============== ============= =============
Actual weighted average shares
of common stock outstanding ........... 7,535,500 8,548,800 9,297,900 8,548,800 10,727,100
Impact of shares issued within
12 months of initial public offering,
after application of the treasury
method ................................ 103,000 103,000 92,000 103,000 --
Impact of warrants exercised within
12 months of initial public offering,
after application of the treasury
method ................................ 90,100 90,100 40,400 90,100 --
Impact of options granted within
12 months of initial public offering,
after application of the treasury
method ................................ 16,500 16,500 16,500 16,500 16,500
--------------- --------------- --------------- ------------- -------------
Weighted average shares of
common stock outstanding .............. 7,745,100 8,758,400 9,446,800 8,758,400 10,743,600
=============== =============== =============== ============= =============
Net loss per share ...................... $ (0.26) $ (0.35) $ (0.55) $ (0.07) $ (0.07)
=============== =============== =============== ============= =============
</TABLE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports (and to all references to our firm) included in or made a part
of this registration statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 22, 1996.
