As filed with the Securities and Exchange Commission on October 22, 1997
Registration Statement No. 333-17389
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
POST-EFFECTIVE 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)
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FLORIDA 2834 65-0366879
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
DR. ELLIOT F. HAHN, PRESIDENT
ANDRX CORPORATION
4001 SOUTHWEST 47TH AVENUE, SUITE 201
FORT LAUDERDALE, FLORIDA 33314
(954) 584-0300
-------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------------
COPIES OF COMMUNICATIONS TO:
DALE S. BERGMAN, P.A.
BROAD AND CASSEL
201 SOUTH BISCAYNE BOULEVARD
MIAMI CENTER, SUITE 3000
MIAMI, FLORIDA 33131
TELEPHONE: (305) 373-9400
TELECOPIER: (305) 373-9443
-------------------------
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: [X]
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. [ ]
-------------------------
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 COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1997
502,065 SHARES
ANDRX CORPORATION
COMMON STOCK
This Prospectus covers an aggregate of 502,065 shares of Common Stock,
par value $.001 per share (the "Common Stock"), of Andrx Corporation, a Florida
corporation ("Andrx" or the "Company"), on behalf of certain selling
shareholders (the "Selling Shareholders"). Of such 502,065 shares, (i) 274,434
shares were heretofore issued in private offerings consummated in December 1993,
January 1994 and May 1995, (ii) 207,799 shares are issuable pursuant to warrants
(the "Investor Warrants") issued in connection with the private offerings
consummated in December 1993 and January 1994, (iii) 9,916 shares are issuable
upon the exercise of an option granted to the placement agent of the December
1993 and January 1994 private offerings (the "Agent's Option") to purchase 9,916
shares of Common Stock and 9,916 Investor Warrants (the "Agent's Warrants"), and
(iv) the remaining 9,916 shares are issuable upon exercise of the Agent's
Warrants. The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Selling Shareholders." The
Company will receive proceeds only upon the exercise of the Investor Warrants,
the Agent's Option and the Agent's Warrants by the holders thereof. See "Use of
Proceeds."
The Selling Shareholders may sell the Common Stock offered hereby for
their own accounts in open market or block transactions or otherwise in
accordance with the rules of The Nasdaq National Market, or in private
transactions, at prices related to the prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions by selling shares
to or through broker-dealers, and such broker- dealers may receive compensation
in the form of discounts, concessions or commissions from the Selling
Shareholders or the purchasers of shares for whom such broker-dealers may act as
agent or to whom they sell as principal or both. Upon any sale of shares of
Common Stock offered hereby, the Selling Shareholders and participating
broker-dealers or selling agents may be deemed to be "underwriters" as that term
is defined in the Securities Act of 1933, as amended (the "Securities Act"), in
which event any discounts, concessions or commissions they receive, which are
not expected to exceed those customary in the types of transactions involved, or
any profit on resales of such Common Stock by them, may be deemed to be
underwriting commissions or discounts under the Securities Act. The Company has
been advised by the Selling Shareholders that there currently are no
underwriting arrangements with respect to the sale of the shares of Common
Stock. To the extent required, the specific shares of Common Stock to be sold,
names of the Selling Shareholders, purchase price, public offering price, names
of any such broker-dealer or selling agent and any applicable discount or
commission with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution."
The Common Stock is listed for quotation on The Nasdaq National Market
under the symbol "ADRX." On October 20, 1997, the last sale price of the Common
Stock as reported by The Nasdaq National Market was $39.125 per share. See
"Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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.
The date of this Prospectus is , 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can 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 the Regional Offices of the
Commission located in the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and at 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of those filings can be obtained from the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates and may also be obtained from the
website that the Commission maintains at http://www.sec.gov.
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<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 DOES NOT GIVE EFFECT TO 1,606,105 SHARES OF
COMMON STOCK ISSUABLE UPON THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS,
INCLUDING THE INVESTOR WARRANTS, THE AGENT'S OPTION AND THE AGENT'S WARRANTS.
THE COMPANY
Andrx is engaged in the formulation and commercialization of
controlled-release oral pharmaceuticals utilizing the Company's proprietary drug
delivery technologies. Management believes that 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 transferable and can be modified
to apply to a variety of pharmaceutical products. The Company believes 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 expected to increase
to approximately $50 billion in 2005 from approximately $5.8 billion in 1995.
The Company is applying its proprietary drug delivery technologies and
formulation skills, either directly or through collaborative arrangements with
joint venture partners and/or licensees, to (i) the development of bioequivalent
versions of selected high sales volume, controlled-release brand name
pharmaceuticals, (ii) the development of brand name controlled-release
formulations of existing immediate-release or controlled-release drugs where the
Company believes that the application of the Company's drug delivery
technologies may improve the efficacy or other characteristics of that product
and (iii) the formulation of controlled-release versions of existing drugs and
drugs under development for other pharmaceutical companies. The Company does not
presently intend to develop new chemical entities.
In late 1995, the Company submitted Abbreviated New Drug Applications
("ANDAs") to the U.S. Food and Drug Administration (the "FDA") covering
bioequivalent versions of Cardizem/registered trademark/ CD, which is marketed
by Hoechst Marion Roussel, Inc. ("HMR"), and Dilacor XR /trademark/, which, as
of July 1, 1997, is marketed by Watson Pharmaceuticals, Inc. ("Watson") and,
prior to that, was marketed by Rhone-Poulenc Rorer, Inc. ("RPR"). According to
data from IMS America, the brand name versions of the drugs covered by these
ANDAs had combined 1996 U.S. sales exceeding $850 million. In October 1997, the
Company received FDA approval of its ANDA for the bioequivalent version of
Dilacor XR /trademark/. The Company has commenced marketing its bioequivalent
version of Dilacor XR /trademark/ under the name Diltia XT /trademark/. Prior to
this, the only revenues which the Company generated from its product development
activities were licensing fees received for certain products under development
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<PAGE>
and services rendered to ANCIRC Pharmaceuticals, a joint venture between Andrx
and Watson ("ANCIRC"). In September 1997, the Company received tentative FDA
approval of its ANDA for its bioequivalent version of Cardizem/registered
trademark/ CD. FDA approval of the ANDA for the Company's bioequivalent version
of Cardizem/registered trademark/ CD is tentative because of the pending patent
infringement litigation (the "HMR Litigation") brought by HMR and Carderm
Capital L.P. (collectively, "HMRI"), the holders of the patents relating to
Cardizem/registered trademark/ CD, against Andrx following the Company's
submission of its ANDA to the FDA. As a result of the HMR Litigation, the FDA
may not grant final marketing approval of Andrx's product until after either the
lawsuit is resolved in Andrx's favor or July 3, 1998 (30 months after HMR
received Andrx's certification that its product does not infringe the patents
listed for Cardizem/registered trademark/ CD). In April 1997, ANCIRC submitted
to the FDA an ANDA for a third controlled-release product.
In addition to the three products for which ANDAs have been submitted,
the Company, either directly or with its collaborative partners, currently has
18 additional bioequivalent versions of controlled-release drugs under
development. Of these product candidates, 14 are in various phases of
bioequivalence studies and four are in various phases of formulation
development. The Company is continually evaluating other potential product
candidates. In selecting its ANDA product candidates, the Company focuses on
high sales volume pharmaceuticals for which marketing exclusivity or patent
rights have expired or are near expiration.
To expedite product development and reduce the Company's development
costs, the Company initially entered into collaborative arrangements with other
pharmaceutical companies. Andrx is a 50% partner in the joint venture ANCIRC
with Watson for the development of up to eight controlled-release generic
pharmaceutical products, one of which was submitted to the FDA in April 1997.
Andrx has also entered into development and licensing agreements with a number
of U.S. and foreign pharmaceutical companies, including Watson, for additional
controlled-release products. Watson owns approximately 18.5% of the Company's
outstanding Common Stock, and has warrants to acquire additional shares of
Common Stock.
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 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,
managed care institutions and third party payors, resolution of internal quality
control issues by the FDA over the last decade, and the increasing awareness and
acceptance of generic drugs by physicians, pharmacists and consumers.
The Company is applying its proprietary drug delivery technologies to
the development of brand name controlled-release formulations of existing
immediate-release and controlled-release drugs. In selecting its product
candidates, the Company focuses on high sales volume pharmaceuticals whose
marketing exclusivity or patent rights are near expiration. The Company believes
that the application of its drug delivery technologies will improve the efficacy
or other characteristics of these products, for example, by decreasing undesired
side effects or reducing the frequency of administration. The Company currently
has five product candidates under development.
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<PAGE>
The FDA approval process for the brand name controlled-release
pharmaceuticals which the Company is developing is expected to be longer and
more costly than that for generic versions of existing controlled-release
pharmaceuticals and will require the filing of a New Drug Application ("NDA")
with the FDA. However, the Company believes that the process will be shorter
than that typically associated with most new drugs because the Company's
development efforts involve chemical entities which have been previously
approved by the FDA in their existing formulations. The Company may receive
certain marketing exclusivity rights for a controlled-release product it
develops, upon FDA approval for the product.
The Company is also using its proprietary drug delivery technologies in
collaborative arrangements with various pharmaceutical companies to formulate
controlled-release versions of existing commercialized drugs and drugs under
development for these companies. In addition to 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 existing
products and new drug candidates.
In addition to developing controlled-release pharmaceuticals, the
Company markets and distributes generic drugs manufactured by third parties.
These operations have generated substantially all of the Company's revenues to
date. The Company's customer base consists primarily of independent pharmacies,
regional pharmacy chains which do not maintain their own central warehousing
facilities and pharmacy buying groups. The Company currently utilizes operating
profit from its generic pharmaceutical distribution operations to absorb
corporate overhead and offset a portion of the Company's research and
development expenses. 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, 1992. The Company's executive offices are located at 4001 Southwest
47th Avenue, Fort 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.
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<PAGE>
THE OFFERING
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Common Stock offered....................... 502,065 shares, of which 274,434 shares are presently
outstanding, 207,799 shares are issuable upon the
exercise of the Investor Warrants, 9,916 shares are
issuable upon exercise of the Agent's Option and 9,916
shares are issuable upon exercise of the Agent's
Warrants.
Common Stock to be outstanding after the
offering................................... 14,993,439 shares(1)
Use of proceeds............................ The Company will not receive any proceeds from the
sale of the shares of Common Stock by the Selling
Shareholders. The Company will only receive proceeds
upon the exercise of the Investor Warrants, the Agent's
Option and the Agent's Warrants by the holders thereof,
which proceeds, if any, will be used for working capital
requirements and other general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol.............. ADRX
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(1) Assumes the Investor Warrants, the Agent's Option and the Agent's Warrants
are exercised in full.
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<PAGE>
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<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ----------------------
1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------
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STATEMENT OF OPERATIONS DATA:
Revenues:
Distribution revenues, net ................... $ 5,655 $ 25,916 $ 50,468 $ 86,721 $ 37,776 $ 63,221
Research and development services
to joint venture ........................... -- 375 2,529 2,206 1,555 691
Licensing revenues ........................... 225 155 165 50 -- --
-------- -------- -------- -------- -------- --------
Total revenues ................................. 5,880 26,446 53,162 88,977 39,331 63,912
-------- -------- -------- -------- -------- --------
Cost of revenues:
Distribution ................................. 5,258 21,362 41,781 72,400 31,498 53,546
Research and development services
to joint venture ........................... -- 375 2,529 2,206 1,555 691
-------- -------- -------- -------- -------- --------
Total cost of revenues ......................... 5,258 21,737 44,310 74,606 33,053 54,237
-------- -------- -------- -------- -------- --------
Gross profit ................................... 622 4,709 8,852 14,371 6,278 9,675
Selling, general and administrative
expenses ..................................... 1,706 5,390 8,647 13,178 5,840 8,754
Research and development expenses .............. 960 2,110 3,255 3,655 1,325 3,730
Manufacturing overhead ......................... -- -- -- -- -- 472
Equity in losses of joint venture .............. -- 316 1,840 2,011 1,031 764
-------- -------- -------- -------- -------- --------
Loss from operations ........................... (2,044) (3,107) (4,890) (4,473) (1,918) (4,045)
Other income (expense), net .................... 2 (297) 445 33 381
-------- -------- -------- -------- -------- --------
Net loss ....................................... $ (2,044) $ (3,105) $ (5,187) $ (4,028) $ (1,885) $ (3,664)
======== ======== ======== ======== ======== ========
Net loss per share ............................. $ (0.26) $ (0.35) $ (0.55) $ (0.33) $ (0.17) $ (0.27)
======== ======== ======== ======== ======== ========
Weighted average shares of
Common Stock outstanding ..................... 7,745 8,758 9,447 12,148 10,953 13,641
======== ======== ======== ======== ======== ========
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JUNE 30, 1997
-------------
BALANCE SHEET DATA:
Cash, cash equivalents and
investments available for sale............... $41,995
Total assets................................... 93,428
Short-term borrowings.......................... 8,727
Total shareholders' equity..................... 63,088
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<PAGE>
FORWARD-LOOKING STATEMENTS
Andrx cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially from
any forward-looking statements which may be deemed to have been made in this
Prospectus or which are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this Prospectus that are not statements of
historical fact may be deemed to be forward- looking statements. Without
limiting the generality of the foregoing, words such as "may", "will", "expect",
"believe", "anticipate", "intend", "would", "could", "estimate", or "continue"
or the negative other variations thereof or comparable terminology are intended
to identify forward-looking statements. Factors which may affect the Company's
results include, but are not limited to, the risks discussed in "Risk Factors"
below, as well as elsewhere herein and in the Company's filings with the
Commission.
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.
HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS
The Company has not generated any earnings to date and incurred net
losses of approximately $3.1 million, $5.2 million and $4.0 million during 1994,
1995 and 1996, respectively, and $1.9 million and $3.7 million during the six
months ended June 30, 1996 and June 30, 1997, respectively. As of June 30, 1997,
the Company had an accumulated deficit of approximately $18.2 million. The
Company expects negative cash flow and net losses to continue at least through
1997. To date, substantially all of the Company's revenues have been generated
from the distribution of generic pharmaceuticals manufactured by third parties.
In October 1997, the Company received FDA approval of its ANDA for and commenced
commercial marketing of the bioequivalent version of Dilacor XR /trademark/ and,
in September 1997, received tentative FDA approval of its ANDA for the
bioequivalent version of Cardizem/registered trademark/ CD. None of the other
controlled-release products being developed by the Company have been approved by
the FDA for marketing. There can be no assurance that these products will
generate substantial revenues or profits. To achieve profitable operations,
Andrx must expand its pharmaceutical distribution operations to cover its
operating overhead or successfully develop, manufacture and market
pharmaceuticals utilizing its proprietary drug delivery technologies, either
alone or through collaborative arrangements with joint venture partners and/or
licensees. 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; LACK OF COMMERCIALIZED PRODUCTS
The Company is focusing its product formulation efforts on the
development of controlled-release pharmaceuticals utilizing the Company's
proprietary drug delivery technologies. 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 submitted ANDAs to the FDA for bioequivalent versions of Cardizem/registered
trademark/ CD and Dilacor XR /trademark/, both of which are once-a-day versions
of diltiazem hydrochloride, and, through its ANCIRC joint venture, has also
submitted an ANDA to the FDA for another controlled-release product. In October
1997, the Company received FDA approval of its ANDA for the bioequivalent
version of Dilacor XR /trademark/. The Company has commenced marketing its
bioequivalent version of Dilacor XR /trademark/ under the name Diltia XT
/trademark/. Prior to this, the only revenues which the Company generated from
its product development activities were licensing fees received for certain
products under development and services rendered to ANCIRC. In September 1997,
the Company received tentative FDA approval of its ANDA for the bioequivalent
version of Cardizem/registered trademark/ CD. FDA approval of the ANDA for the
Company's bioequivalent version of Cardizem/registered trademark/ CD is
considered tentative because the FDA may not grant final approval of the
Company's ANDA until after either the HMR Litigation is resolved in Andrx's
favor or July 3, 1998 (30 months after HMRI received Andrx's certification that
its product does not infringe the patents listed for
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<PAGE>
Cardizem/registered trademark/ CD). FDA approval to market the third product
candidate for which ANCIRC has submitted an ANDA has not yet been received.
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, that the Company will be successful in its patent
litigation, or that 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."
DEPENDENCE ON PATENTS AND TRADE SECRETS
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 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 eleven U.S. patents relating to its controlled-release drug delivery
technologies. In addition, Andrx has filed six 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. See "Business--Patents and
Proprietary Rights."
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 bioequivalent
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 abbreviated application 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
tentatively approve the abbreviated application, but is precluded from making
the marketing approval effective until a judgment in the action has been
rendered or 30 months from the date the certification was received by the patent
holder, 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. One of
these actions has been dismissed without prejudice. The other action is the HMR
Litigation which relates to the Company's ANDA for its bioequivalent version of
Cardizem/registered trademark/ CD. While the Company has received tentative
approval of its ANDA for the bioequivalent version of Cardizem/registered
trademark/ CD, the HMR Litigation has the effect of delaying FDA final approval
of the ANDA until after either the HMR Litigation is resolved in Andrx's favor
or July 3, 1998 (30 months after HMRI received Andrx's certification that its
product does
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<PAGE>
not infringe the patents listed for Cardizem/registered trademark/ CD). It is
anticipated that additional actions may be filed as Andrx or its collaborative
partner files additional abbreviated applications. The Company evaluates the
probability of patent infringement litigation with respect to its abbreviated
application submissions on a case by case basis and, accordingly, has provided
for its estimated costs relating to existing litigation. The delay in obtaining
FDA approval to market the Company's product candidates as a result of
litigation, the expense of such litigation whether or not the Company is
successful, or an adverse outcome in such litigation could have a material
adverse effect on the Company's results of operations, financial condition and
business. See "Business--Patents and Proprietary Rights" and "--Government
Regulation."
DEPENDENCE ON COLLABORATIVE PARTNERS
The Company is a 50% partner in a joint venture with Watson. 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's results of operations,
financial condition and business. 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 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
pharmaceuticals. The loss of the services of any of the three officers mentioned
above, or the inability to attract or retain qualified personnel would have a
material adverse effect on the Company's results of operations, financial
condition and business. See "Management."
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<PAGE>
LACK OF MANUFACTURING EXPERIENCE
The Company has an approximately 35,000 square foot commercial
manufacturing facility. This facility is being used to manufacture Andrx's
bioequivalent version of Dilacor XR /trademark/, for which FDA approval was
received in October 1997 and the facility will be used for the manufacture of
Cardizem/registered trademark/ CD. Although this facility is expected to be
sufficient for these products, it will not be suitable for the manufacture of
all of the additional products which the Company intends to develop and
manufacture. The FDA has inspected the facility with regard to the Company's
versions of Dilacor XR /trademark/ and Cardizem/registered trademark/ CD, and
has advised the Company that the manufacturing site is in compliance with
current Good Manufacturing Practices ("cGMP"). The Company's facility will be
subject to periodic inspections by the FDA on an ongoing basis and there can be
no assurance that the facility will continue to be found to be in compliance
with cGMP or other regulatory requirements. Failure to comply with such
requirements could result in significant delays in the development, approval and
distribution of the Company's planned products, and require the Company to incur
significant additional expense to comply with cGMP or other regulatory
requirements. There can be no assurance that the Company will be able to
successfully manufacture its products on a commercial scale. Further, the
Company will be dependent on other companies to manufacture certain of the
product candidates currently undergoing bioequivalency studies. See
"Business--Collaborative Arrangements," "--Manufacturing" and "-- Government
Regulation."
MANAGEMENT OF EXPANDING OPERATIONS
The Company has experienced significant growth of its operations,
necessitating expansion, upgrading and improvement of the Company's
administrative, operational and management systems, controls and resources.
Additional growth is anticipated during the initial stages of the Company's
commercial manufacturing operations and its marketing and sales efforts for its
own products and the products developed by the ANCIRC joint venture. The Company
has limited experience in managing growth and no experience in marketing its own
or ANCIRC's products. A failure to manage growth effectively or to develop a
successful marketing approach would have a material adverse effect on the
Company's results of operations, financial condition and business. See
"Business--Generic Pharmaceutical Distribution Operations" and "--Marketing".
COMPETITION
The pharmaceutical industry is highly competitive and is affected by new
technologies, new developments with respect to existing technologies and
products, governmental regulations, health care legislation, availability of
financing and other factors. Many of the Company's competitors have longer
operating histories and greater financial, research and development, 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 drug delivery 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."
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 before
marketing their new drug product candidates. The FDA approval process is costly
and time consuming. No assurances can be given that the Company's bioequivalence
or clinical studies and other data will result in FDA approval to market its new
drug products. The Company believes that the FDA's abbreviated application
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<PAGE>
procedures will apply to the Company's bioequivalent versions of
controlled-release drugs. No assurances can be given that any of the Company's
bioequivalent versions of controlled-release drugs will be suitable for, or
approved as part of, abbreviated applications. Certain abbreviated application
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 abbreviated application 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
abbreviated application procedures as a result of such petitions or the effect
that such changes may have on the Company. Any changes in FDA regulations or
policies may make abbreviated application approvals more difficult and, thus,
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 abbreviated applications can also result
from a marketing exclusivity period and/or an extension of patent terms. If the
Company's drugs are ineligible to use abbreviated application procedures, as
will be the case with controlled-release formulations, the FDA approval process
may require time consuming and expensive clinical studies and NDA filings.
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 (the
"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 abbreviated application 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 results of operations, financial condition and business.
The Company has submitted ANDAs to the FDA for two of its products, the
versions of Cardizem/registered trademark/ CD and Dilacor XR /trademark/ and
ANCIRC has submitted an ANDA for one additional controlled-release product. The
Company has received FDA approval of its ANDA for its bioequivalent versions of
Dilacor XR /trademark/ and tentative FDA approval of its ANDA for its
bioequivalent version of Cardizem/registered trademark/ CD. This approval is
tentative because of the HMR Litigation. There can be no assurance that final
approval of the ANDA for the bioequivalent version of Cardizem/registered
trademark/ CD will be received, that approval of the third ANDA submitted to the
FDA, approval of any subsequent ANDAs, or other product approval requests
submitted to the FDA will be received, or that such approvals will be made
effective. 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--Patent Litigation" and "--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 assurance
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<PAGE>
that health care reimbursement laws or policies will not have a material adverse
effect on the Company's ability to sell its products profitably or prevent the
Company from realizing an appropriate return on its investment in product
development.
RISK OF PRODUCT LIABILITY CLAIMS
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, bioequivalence and
other studies for its controlled-release product candidates and the products it
intends to commercialize. The Company believes that its product liability
insurance is adequate for its current operations, but may 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. See
"Business--Product Liability Insurance."
CONCENTRATION OF COMMON STOCK OWNERSHIP
The directors and executive officers of the Company and Watson currently
own approximately 20.1% and 18.5% of the outstanding Common Stock, respectively.
However, Watson entered into a standstill agreement with the Company pursuant to
which it agreed, among other matters, not to acquire more than a 25% equity
interest in the Company or engage in certain transactions with the Company
(including a merger), prior to June 13, 2000, without the prior approval of the
Company's Board of Directors. See "Certain Transactions--Transactions with
Watson." There are no agreements between management and Watson with respect to
voting of their respective shares of Common Stock. However, each of 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."
POSSIBLE VOLATILITY OF STOCK PRICE
The market prices for securities of companies engaged in pharmaceutical
development activities historically have been highly volatile. From June 14,
1996 (the date the Common Stock commenced trading) through October 20, 1997, the
Common Stock has traded at prices ranging from $11.00 to $47.00, as reported by
The Nasdaq National Market. 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.
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Common Stock that are subject to restrictions
on their resale, or the perception that such sales may occur, could have an
adverse effect on the price of the Common Stock. The Company has 14,765,808
shares of Common Stock outstanding. Of these shares, 8,687,691 shares are deemed
to be "restricted securities" as such term is defined under Rule 144 promulgated
pursuant to the Securities Act. Of such restricted shares, 7,197,320 shares are
presently eligible for sale in the public market pursuant to Rule 144, subject
to the volume limitations and other restrictions contained therein. The
remaining 1,353,125 restricted shares will become eligible for sale subject to
the restrictions of Rule 144 by June 1998, substantially all of which shares are
subject to certain demand and piggy-back registration rights which may permit
their earlier public sale. Notwithstanding the foregoing, the holder of 730,000
of such restricted shares has agreed not to sell or transfer or otherwise
dispose of such shares prior to June 1998 without the prior consent of the
Company. Future sales of the shares of Common Stock held by existing
shareholders,
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<PAGE>
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 Securities."
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."
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<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Selling Shareholders." The
Company will receive proceeds only upon the exercise of the Investor Warrants,
the Agent's Option and the Agent's Warrants by the holders thereof.
If all of the Investor Warrants are exercised (each Investor Warrant
entitling the holder thereof to purchase one share of Common Stock at $7.25 per
share), the proceeds generated therefrom will be approximately $1,507,000. If
the Agent's Option is exercised in its entirety (the Agent's Option entitling
the holder thereof to purchase 9,916 shares of Common Stock and 9,916 Investor
Warrants at a price of $8.90 for each share of Common Stock), the proceeds
generated therefrom will be approximately $88,000. If all of the Agent's
Warrants are exercised (each Agent's Warrant entitling the holder thereof to
purchase one share of Common Stock at an exercise price of $7.25 per share), the
proceeds generated therefrom will be approximately $72,000. There can be no
assurance as to when, if ever, any or all of such securities will be exercised.
Proceeds, if any, received from the exercise of the Investor Warrants,
the Agent's Option and the Agent's Warrants will be used for working capital
requirements and other general corporate purposes.
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, its
overall financial condition and restrictions that may be imposed in connection
with the Company's future financing arrangements on the payment of dividends.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been listed for trading on The Nasdaq
National Market under the symbol "ADRX" since June 14, 1996. The following table
sets forth, for the calendar quarters indicated, the range of high and low sale
prices per share of Common Stock as reported by The Nasdaq National Market:
HIGH LOW
------ ------
1996
- ----
Second Quarter (commencing June 14, 1996)............. $17.50 $12.00
Third Quarter......................................... 15.50 11.00
Fourth Quarter........................................ 17.63 12.75
1997
- ----
First Quarter......................................... $26.75 $15.25
Second Quarter........................................ 38.75 20.50
Third Quarter......................................... 45.63 31.75
Fourth Quarter (through October 20, 1997)............. 47.00 38.50
On October 20, 1997, the last sale price of the Common Stock as reported
by The Nasdaq National Market was $39.125 per share.
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<PAGE>
CAPITALIZATION
The following table sets forth short-term borrowings and the
capitalization of the Company as of June 30, 1997. 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>
JUNE 30, 1997
-------------
(IN THOUSANDS)
<S> <C>
Short-term borrowings(1)............................................... $ 8,727
========
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; 14,673,100 shares issued and
outstanding.......................................................... 15
Additional paid-in capital............................................. 81,267
Accumulated deficit.................................................... (18,173)
Unrealized loss on investments available for sale...................... (21)
--------
Total shareholders' equity............................................. 63,088
--------
Total capitalization................................................... $ 63,088
========
</TABLE>
- -------------------------
(1) See Note 5 of Notes to Consolidated Financial Statements.
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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, 1995 and 1996 and as of December 31, 1992, 1993, 1994,
1995 and 1996 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 six months ended June 30,
1996 and 1997 and the selected balance sheet data as of June 30, 1997 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 six months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. 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
(INCEPTION)
THROUGH SIX MONTHS ENDED
DEC. 31, 1992 YEAR ENDED DECEMBER 31, JUNE 30,
------------- ------------------------------------------- ------------------
1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Distribution revenues, net.... $ 243 $ 5,655 $25,916 $50,468 $86,721 $37,776 $63,221
Research and development services
to joint venture............. -- -- 375 2,529 2,206 1,555 691
Licensing revenues............ -- 225 155 165 50 -- --
------ ------- ------- ------- ------- ------- -------
Total revenues.................. 243 5,880 26,446 53,162 88,977 39,331 63,912
------ ------- ------- ------- ------- ------- -------
Cost of revenues:
Distribution ................. 219 5,258 21,362 41,781 72,400 31,498 53,546
Research and development services
to joint venture............. -- -- 375 2,529 2,206 1,555 691
------ ------- ------- ------- ------- ------- -------
Total cost of revenues.......... 219 5,258 21,737 44,310 74,606 33,053 54,237
------ ------- ------- ------- ------- ------- -------
Gross profit.................... 24 622 4,709 8,852 14,371 6,278 9,675
Selling, general and
administrative expenses....... 170 1,706 5,390 8,647 13,178 5,840 8,754
Research and development expenses -- 960 2,110 3,255 3,655 1,325 3,730
Manufacturing overhead.......... -- -- -- -- -- -- 472
Equity in losses of joint venture -- -- 316 1,840 2,011 1,031 764
------ ------- ------- ------- ------- ------- -------
Loss from operations............ (146) (2,044) (3,107) (4,890) (4,473) (1,918) (4,045)
Interest income (expense), net.. -- -- 2 (297) 445 33 381
------ ------- ------- ------- ------- ------- -------
Net loss........................ $ (146) $(2,044) $(3,105) $(5,187) $(4,028) $(1,885) $(3,664)
====== ======= ======= ======= ======= ======= =======
Net loss per share.............. $(0.03) $ (0.26) $ (0.35) $ (0.55) $ (0.33) $ (0.17) $ (0.27)
====== ======= ======= ======= ======= ======= =======
Weighted average shares of
Common Stock outstanding...... 4,681 7,745 8,758 9,447 12,148 10,953 13,641
====== ======= ======= ======= ======= ======= =======
DECEMBER 31, JUNE 30,
------------------------------------------------------- --------
BALANCE SHEET DATA: 1992 1993 1994 1995 1996 1997
------ ------- ------- ------- ------- --------
(IN THOUSANDS)
Cash, cash equivalents and
investments available for sale.. $ 131 $ 2,770 $ 3,846 $13,841 $30,320 $41,995
Total assets...................... 695 6,837 16,006 36,149 66,636 93,428
Short-term borrowings............. -- 68 2,635 6,101 6,563 8,727
Total shareholders' equity........ 374 3,927 8,097 18,325 42,762 63,088
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL INFORMATION CONTAINED IN THE SELECTED CONSOLIDATED FINANCIAL DATA,
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, AND THE OTHER
FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
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 versions of controlled-release pharmaceuticals utilizing its proprietary
drug delivery technologies. During 1996, the Company commenced efforts with
respect to the development of brand name controlled-release formulations. To
date, the distribution operations have generated substantially all of the
Company's revenues. In October 1997, the Company received FDA approval of its
ANDA for and commenced marketing its first product, a bioequivalent version of
Dilacor XR /trademark/, under the name Diltia XT /trademark/. No assurance can
be given that this produce can be successfully marketed or will generate
meaningful revenues. 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.
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, which services are
rendered at cost, resulting in no gross profit. The Company is also a party to
development and licensing agreements for additional controlled-release
formulations.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
TOTAL REVENUES. Total revenues for the six months ended June 30, 1997
("1997 Period") were $63.9 million, an increase of $24.6 million or 62.5%, as
compared to total revenues of $39.3 million for the six months ended June 30,
1996 ("1996 Period"). The distribution of pharmaceutical products generated
revenues of $63.2 million in the 1997 Period, an increase of $25.4 million or
67.4%, as compared to $37.8 million in the 1996 Period. The increase in
distribution revenues reflects the Company's greater penetration of the generic
pharmaceutical distribution market. Revenues generated by research and
development services to ANCIRC decreased to $691,000 in the 1997 Period, as
compared to $1.6 million in the 1996 Period. This reflects a decrease in the
amount of research and development services provided by Andrx to ANCIRC.
GROSS PROFIT. Gross profit on the distribution of pharmaceutical
products was $9.7 million in the 1997 Period, an increase of 54.1% as compared
to $6.3 million in the 1996 Period. Gross profit on the distribution of
pharmaceutical products as a percentage of distribution revenues decreased from
16.6% in the 1996 Period to 15.3% in the 1997 Period as a result of continuing
competition and pricing pressures within the generic pharmaceutical
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<PAGE>
industry. The Company expects that such factors will continue to reduce the
Company's gross profit percentage in future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of total revenues decreased to 13.7% for
the 1997 Period, as compared to 14.8% for the 1996 Period. Selling, general and
administrative expenses increased to $8.8 million in the 1997 Period as compared
to $5.8 million in the 1996 Period primarily due to an increase in selling
activities to support the increase in distribution revenues, and includes costs
related to the establishment of an infrastructure for the launch of the
Company's first product.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $3.7 million in the 1997 Period, as compared to $1.3 million in the
1996 Period. The increase in research and development expenses of 181.5%
reflects the expansion of development activities in both the Company's ANDA and
NDA programs. Research and development expenses exclude cost of revenues for
services rendered to ANCIRC of $691,000 in the 1997 Period and $1.6 million in
the 1996 Period.
MANUFACTURING OVERHEAD. In the 1997 Period, the Company incurred
$472,000 of unabsorbed manufacturing overhead related to the Company's
commencement of commercial-scale manufacturing operations in preparation for the
launch of the Company's first product. In the future, as the Company increases
its production of salable products, these costs will be absorbed into inventory.
EQUITY IN LOSSES OF JOINT VENTURE. The Company's equity in losses of
ANCIRC was $764,000 in the 1997 Period as compared to $1.0 million in the 1996
Period. ANCIRC's losses decreased to $1.5 million in the 1997 Period as compared
to $2.1 million in the 1996 Period, primarily due to a decrease in the services
rendered by the Company to ANCIRC.
INTEREST INCOME (EXPENSE). Interest income (expense), net primarily
consists of interest income and interest expense. Interest income was $723,000
in the 1997 Period as compared to $315,000 in the 1996 Period. The increase in
interest income is the result of the higher level of cash, cash equivalents and
investments available for sale during the 1997 Period as compared to the 1996
Period. In June 1996, the Company completed its initial public offering ("IPO")
generating net proceeds of $27.4 million. In June 1997, the Company sold shares
of Common Stock to Watson and a large west coast investment management firm
generating net proceeds of $21.3 million. Interest expense was $341,000 in the
1997 Period as compared to $282,000 in the 1996 Period. The increase was
primarily the result of a higher average level of borrowings during the 1997
Period as compared to the 1996 Period. Such higher level of borrowings was
required to finance the growth of the distribution operations.
INCOME TAXES. For the 1997 Period and 1996 Period, the Company was not
required to provide for federal or state income taxes due to its net losses.
1996 AS COMPARED TO 1995
TOTAL REVENUES. Total revenues in 1996 were $89.0 million, an increase
of $35.8 million or 67.4%, as compared to total revenues of $53.2 million in
1995. Distribution revenues were $86.7 million in 1996 an increase of $36.3
million or 71.8%, as compared to $50.5 million in 1995. The increase in
distribution revenues reflects the Company's greater penetration of the generic
distribution market. Revenues generated by research and development services to
ANCIRC were $2.2 million in 1996 as compared to $2.5 million in 1995.
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GROSS PROFIT. Gross profit on the distribution of generic pharmaceutical
products was $14.3 million in 1996, as compared to $8.7 million in 1995. Gross
profit as a percentage of distribution revenues decreased from 17.2% in 1995 to
16.5% in 1996 as the result of continuing competition and pricing pressures
within the generic industry. The Company expects that these factors will
continue to reduce the Company's gross profit percentage in future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $13.2 million in 1996, an increase of $4.5 million
or 52.4%, as compared to $8.6 million in 1995. This increase was primarily
attributable to an increase in selling activities to support the increase in
distribution revenues. Selling, general and administrative expenses were 14.8%
of total revenues in 1996 as compared to 16.3% in 1995.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
were $3.7 million in 1996, as compared to $3.3 million in 1995. Research and
development expenses in 1996 include the operating expenses related to the
Company's efforts to establish a commercial- scale manufacturing facility
including the manufacturing scale-up to commercial size batches. Research and
development expenses in 1996 and 1995 include provisions for anticipated
litigation costs in connection with the ANDAs filed in 1995 for the Company's
versions of Cardizem/registered trademark/ CD and Dilacor XR /trademark/.
Litigation with respect to Dilacor XR /trademark/ was settled in December 1996.
The filing of an ANDA for a bioequivalent version of a brand name pharmaceutical
may result in litigation alleging infringement of patents covering the brand
name pharmaceutical. Even though the Company believes that its drug delivery
technologies do not infringe on any patent rights held by others, the Company
evaluates the probability of patent infringement litigation with respect to its
ANDA submissions on a case by case basis and, accordingly, will reserve for
anticipated legal expenses as it deems appropriate. Research and development
expenses exclude the cost of revenues related to the services rendered to ANCIRC
of $2.2 million in 1996 and $2.5 million in 1995.
EQUITY IN LOSSES OF JOINT VENTURE. The Company's equity in losses of the
joint venture was $2.0 million in 1996 as compared to $1.8 million in 1995. The
Company's share of ANCIRC's losses was decreased from 60% to 50% effective
October 30, 1995 in connection with an amendment to the ANCIRC agreement.
ANCIRC's losses increased to $4.0 million in 1996 as compared to $3.2 million in
1995 due to the increase in the research and development services rendered by
Watson to ANCIRC during 1996.
INTEREST INCOME (EXPENSE). Interest income (expense), net primarily
consists of interest income and interest expense. Interest income was $1.2
million in 1996 as compared to $250,000 in 1995. The increase in interest income
is the result of the net increase in cash, cash equivalents and investments
available for sale during 1996 and late 1995, primarily from the sale of shares
of the Company's Common Stock. In June 1996, the Company completed its IPO
generating net proceeds of $27.4 million. In August and December 1995, the
Company sold shares of common stock to Watson for net proceeds of $13.6 million.
Interest expense was $765,000 in 1996 as compared to $636,000 in 1995. Although
the interest rate on the Company's bank borrowings decreased effective January
1996 and October 1996, interest expense increased in 1996 as compared to 1995,
due to the higher average level of borrowings during 1996. Such higher level of
borrowings was required to finance the growth of the distribution operations.
INCOME TAX PROVISION. For 1996 and 1995, the Company was not required to
provide for federal or state income taxes due to its net losses. As of December
31, 1996, the net
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operating loss carryforward was $13 million for financial reporting purposes and
$10 million for federal income tax purposes, which if not utilized will begin to
expire in 2008.
1995 AS COMPARED TO 1994
TOTAL REVENUES. Total revenues in 1995 were $53.2 million, an increase
of $26.7 million, or 101.0%, as compared to total revenues of $26.4 million in
1994. Distribution revenues were $50.5 million in 1995, an increase of $24.6
million, or 94.7%, from $25.9 million in 1994. The increase in distribution
revenues reflects the Company's greater penetration of the generic distribution
market. 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. Gross profit on the distribution of generic pharmaceutical
products was $8.7 million in 1995, as compared to $4.6 million in 1994. Gross
profit as a percentage of distribution revenues decreased from 17.6% in 1994 to
17.2% in 1995 as a result of continuing competition and pricing pressures within
the generic industry. The Company expects that these factors will continue to
reduce the Company's gross profit percentage in future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $8.6 million in 1995, an increase of $3.2 million
or 60.4%, compared to $5.4 million in 1994. This increase was attributable to an
increase in selling activities to support the increase in distribution revenues.
Selling, general and administrative expenses were 16.3% of total revenues in
1995, as compared to 20.4% in 1994. During 1994, the Company incurred
approximately $500,000 of expenses related to an unconsummated initial public
offering.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $3.3 million in 1995, an increase of $1.2 million or 54.3%, from
$2.1 million in 1994. Research and development expenses in 1995 include a
provision for anticipated litigation costs in connection with the Company's
ANDAs submitted in late 1995 for versions of Cardizem/registered trademark/ CD
and Dilacor XR /trademark/. Research and development expenses exclude cost of
sales of services rendered to ANCIRC of $2.5 million in 1995 and $375,000 in
1994.
EQUITY IN LOSSES OF JOINT VENTURE. The Company's share of losses in
ANCIRC was $1.8 million in 1995 as compared to $316,000 in 1994. ANCIRC losses
increased to $3.2 million in 1995 as compared to $526,000 in 1994. The increase
in the ANCIRC losses of $1.5 million in 1995 is the result of a full year of
product development activities on ANCIRC products.
INTEREST INCOME (EXPENSE). Interest income (expense), net primarily
consists of interest income and interest expense. Interest income was $250,000
in 1995 as compared to $122,000 in 1994. The increase in interest income is the
result of the net increase in cash and cash equivalents during 1995, primarily
from the sale of shares of Common Stock to Watson in August and December 1995.
Interest expense was $636,000 in 1995 as compared to $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.
INCOME TAX PROVISION. For 1994 and 1995, the Company was not required to
provide for federal or state income taxes due to its net losses.
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LIQUIDITY AND CAPITAL RESOURCES
Prior to June 1996, the Company had financed its operations primarily
through private placements of equity securities which generated proceeds of
$27.9 million and, to a lesser extent, through bank borrowings. In June 1996,
the Company consummated its IPO which generated net proceeds of $27.4 million.
In June 1997, the Company sold 730,000 shares of Common Stock to an
institutional investor and 150,000 shares of Common Stock to Watson in two
private placement transactions. The purchase price for the shares of Common
Stock was $25.50 per share and Andrx generated net proceeds of $21.3 million
from the private placements. In a contemporaneous transaction, certain of the
Company's founders also sold 450,000 shares of Common Stock on the same terms
and conditions. See "Certain Transactions--Transactions with Watson." As of June
30, 1997, Andrx had $42.0 million in cash, cash equivalents and investments
available for sale and $48.9 million of working capital.
Net cash used in operating activities was $9.3 million and $353,000 in
the 1997 Period and the 1996 Period, respectively. Net cash used in operating
activities in the 1997 Period and 1996 Period was primarily attributed to
research and development expenses and increases in accounts receivable and
inventories, offset by increases in accounts payable and accrued liabilities.
Net cash used in investing activities was $12.5 million and $16.8
million in the 1997 Period and 1996 Period, respectively. In the 1997 Period,
the Company invested $5.2 million in capital expenditures as compared to $2.3
million in the 1996 Period. The capital expenditures in the 1997 Period were
primarily for the procurement of manufacturing equipment and construction of the
Company's commercial-scale manufacturing facility. In the 1997 Period and the
1996 Period, the Company invested $7.3 million and $14.5 million, respectively,
in short- term investment grade interest bearing securities.
Net cash provided by financing activities was $26.2 million for both the
1997 Period and the 1996 Period. Net cash provided by financing activities in
the 1997 Period consisted primarily of net proceeds of $21.3 million from the
private placements in June 1997 and also included the net proceeds of $2.7
million from the exercise of stock options and warrants and $2.3 million net
cash drawn under the Company's line of credit. Net cash provided by financing
activities in the 1996 Period consisted primarily of the net proceeds of $27.4
million from the Company's IPO in June 1996, offset by repayments of $1.7
million on the Company's line of credit.
The Company had an outstanding short-term borrowing balance under its
distribution subsidiary's revolving line of credit of $8.7 million as of June
30, 1997 as compared to $6.5 million as of December 31, 1996. Borrowings under
the line of credit are only available for financing the Company's distribution
operations, are secured by all of the assets of that operation and are subject
to a borrowing base related to the value of that operation's accounts receivable
and inventories. The line of credit agreement requires compliance by the Company
with certain covenants including the maintenance of minimum working capital and
net worth levels by the distribution subsidiary. In October 1996, the Company
amended the line of credit agreement whereby, amongst other things, the interest
rate was decreased from the prime rate (8.5% as of June 30, 1997) plus 1.5% to
the prime rate plus 1.0%, and the unused commitment fee was reduced from .5% to
.25%, and under certain circumstances, permitted the payment of dividends,
repayments and advances from the Company's distribution subsidiary to Andrx and
its other subsidiaries. In July 1997, the Company used a portion of the net
proceeds from the June 1997 private placements to reduce the revolving line of
credit balance by $8.0 million.
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In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with HMRI related to the HMR Litigation. In the Stipulation,
Andrx agreed that if the HMR Litigation is not concluded by the date the FDA
grants final approval of the Company's ANDA for the bioequivalent version of
Cardizem/registered trademark/ CD, Andrx will not commence the commercial sale
of the product in the United States until a final and unappealable judgment is
issued. The Stipulation provides that upon receiving final FDA approval of its
ANDA, Andrx will begin to receive interim payments from HMRI of $10.0 million
quarterly which, absent certain defaults by Andrx, are nonrefundable. These
payments will continue until the HMR Litigation is concluded or other events
occur. The payments will increase retroactively if Andrx prevails in the HMR
Litigation, with a lump sum payment representing an agreed amount of profits
that Andrx would have earned had it begun to sell its product upon receiving
final FDA approval of its ANDA. The Stipulation also provides Andrx with the
option of licensing HMRI's patents at certain times. See "Business--Patents and
Proprietary Rights."
The Company anticipates that its existing capital resources will be
sufficient to enable it to maintain its current and planned operations through
the end of 1998. The Company expects negative cash flow and net losses to
continue at least through 1997 and into 1998 because it will use substantial
funds for its product development efforts, including the formulation of and
bioequivalence studies for its generic controlled-release product candidates in
the Company's ANDA program and the expanded development efforts for brand name
controlled-release products in the Company's NDA program. After 1998, 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 financing, or from collaborative arrangements, may not be
available when required 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 February 1997, the Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"). SFAS No. 128 supersedes APB No. 15, "Earnings Per Share," and
specifies the computation, presentation and disclosure requirements for earnings
or loss per share ("EPS") for entities with publicly held common stock or
potential common stock. SFAS No. 128 replaces presentation of primary EPS with a
presentation of basic EPS and fully diluted EPS with diluted EPS. The provisions
of SFAS No. 128 require dual presentation of basic and diluted EPS on the face
of the statement of operations for all entities with complex capital structures.
Furthermore, the provisions of SFAS No. 128 require basic EPS and diluted EPS be
presented for both income (loss) from continuing operations and net income
(loss) on the face of the statement of operations. It also requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. The provisions of
SFAS No. 128 are effective for financial statements for both interim and annual
periods ending after December 15, 1997. After adoption, all prior period EPS
data presented shall be restated to conform with the provisions of SFAS No. 128.
The Company will adopt the provision of SFAS No. 128, as required. Due to the
Company's history of net losses, the restatement provisions of SFAS No. 128 will
not impact the Company's prior periods' losses per share.
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BUSINESS
OVERVIEW
Andrx is engaged in the formulation and commercialization of
controlled-release oral pharmaceuticals utilizing the Company's proprietary drug
delivery technologies. Management believes that 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 that do not possess
controlled-release drug delivery technology expertise will 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 expected to increase
to approximately $50 billion in 2005 from approximately $5.8 billion in 1995.
The Company is applying its proprietary drug delivery technologies and
formulation skills either directly or through collaborative arrangements with
joint venture partners and/or licensees, to (i) the development of bioequivalent
versions of selected high sales volume, controlled-release brand name
pharmaceuticals, (ii) the development of brand name controlled-release
formulations of existing immediate-release or controlled-release drugs where the
Company believes that the application of the Company's drug delivery
technologies may improve the efficacy or other characteristics of that product
and (iii) the formulation of controlled-release versions of existing drugs and
drugs under development for other pharmaceutical companies. The Company does not
presently intend to develop new chemical entities.
In late 1995, the Company submitted ANDAs to the FDA covering
bioequivalent versions of Cardizem/registered trademark/ CD, which is marketed
by HMR, and Dilacor XR /trademark/, which is marketed by Watson. According to
data from IMS America, the brand name versions of these drugs had combined 1996
U.S. sales exceeding $850 million. In October 1997, the Company received FDA
approval of its ANDA for the bioequivalent version of Dilacor XR /trademark/.
The Company has commenced marketing its bioequivalent version of Dilacor XR
/trademark/ under the name Diltia XT /trademark/. Prior to this, the only
revenues which the Company generated from its product development activities
were licensing fees received for certain products under development and services
rendered to ANCIRC. In September 1997, the Company received tentative FDA
approval of its ANDA for the bioequivalent version of Cardizem/registered
trademark/ CD. As a result of the HMR Litigation, the FDA may not grant final
approval of the Company's ANDA for Cardizem/registered trademark/ CD until after
either the HMR Litigation is resolved in Andrx's favor or July 3, 1998 (30
months after HMRI received Andrx's certification that its product does not
infringe the patents listed for Cardizem/registered trademark/ CD). In April
1997, an ANDA for a third controlled-release product was submitted to the FDA by
ANCIRC.
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In addition to the three products for which ANDAs have been submitted,
the Company, either directly or with its collaborative partners, currently has
18 additional generic controlled- release drugs under development. Of these
product candidates, 14 are in various phases of bioequivalence studies and four
are in various phases of formulation development. The Company is continually
evaluating other potential product candidates. In selecting its ANDA product
candidates, the Company focuses on high sales volume pharmaceuticals for which
marketing exclusively or patent rights have expired or are near expiration.
To expedite product development and reduce the Company's development
costs, the Company initially entered into collaborative arrangements with other
pharmaceutical companies. Andrx is a 50% partner in ANCIRC with Watson for the
development of up to eight controlled- release generic pharmaceuticals, one of
which is the subject of the April 1997 ANDA submission. Andrx has also entered
into development and licensing agreements with a number of U.S. and foreign
pharmaceutical companies, including Watson, for additional controlled- release
products. Watson owns approximately 18.5% of the Company's outstanding Common
Stock and has warrants to acquire additional shares of Common Stock.
The Company is applying its proprietary drug delivery technologies to
the development name controlled-release formulations of existing
immediate-release and controlled-release drugs. In selecting its product
candidates, the Company focuses on high sales volume pharmaceuticals whose
marketing exclusivity or patent rights are near expiration. The Company believes
that the application of its drug delivery technologies will improve the efficacy
or other characteristics of these products, for example, by decreasing undesired
side effects or reducing the frequency of administration. The Company currently
has five product candidates under development.
The FDA approval process for the brand name controlled-release
pharmaceuticals which the Company is developing is expected to be lengthier and
more costly than that for generic versions of existing controlled-release
pharmaceuticals and will require the filing of an NDA with the FDA. However, the
Company believes that the process will be shorter than that typically associated
with most new drugs because the Company's development efforts involve chemical
entities which have been previously approved by the FDA in their existing
formulations. The Company may receive certain marketing exclusivity rights for a
controlled- release product it develops if it is the first to receive FDA
approval for the product.
The Company is also using its proprietary drug delivery technologies, in
collaborative arrangements with other pharmaceutical companies, to formulate
controlled-release versions of existing commercialized drugs and new drugs under
development. In addition to 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 existing products and new
drug candidates.
In addition to developing controlled-release pharmaceuticals, the
Company markets and distributes generic drugs manufactured by third parties.
These operations have generated substantially all of the Company's revenues to
date. The Company's customer base consists primarily of independent pharmacies,
regional pharmacy chains which do not maintain their own central warehousing
facilities and pharmacy buying groups. The Company currently utilizes operating
profit from its generic pharmaceutical distribution operations to offset the
Company's overall administrative costs and absorb a portion of the research
costs related to the Company's development efforts on controlled-release
products. 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
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marketing of the 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 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 Company believes 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 expected to increase to approximately $56 billion in 2005
from approximately $5.8 billion in 1995.
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 a rate of 32% since 1992. The Company believes
that 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 in most states and increased acceptance of the quality of these
drugs as a result of the resolution of internal quality control issues by the
FDA over the last decade. 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
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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.
The following summarizes the Company's drug delivery technologies.
DRUG DELIVERY TECHNOLOGY DESCRIPTION
------------------------ -----------
PELLETIZED PULSATILE PPDS is designed for use with
DELIVERY SYSTEM ("PPDS") products that require a pulsed release of
the drug. This technology 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 bioequivalent
version of Cardizem /registered trademark/
CD.
SINGLE COMPOSITION OSMOTIC SCOT utilizes various osmotic modulating
TABLET SYSTEM ("SCOT") agents as well as polymer coatings to
provide a zero-order release of a drug (a
constant rate of release). SCOT technology
is being employed in four generic and five
brand name controlled-release
pharmaceuticals under development by the
Company.
SOLUBILITY MODULATING SMHS is designed for products utilizing a
HYDROGEL SYSTEM ("SMHS") hydrogel-based dosage system that provides
for 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 bioequivalent
version of Dilacor XR /trademark/.
DELAYED PULSATILE DPHS is designed for use with hydrogel
HYDROGEL SYSTEM ("DPHS") matrix products that are characterized by an
initial 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
one generic controlled-release
pharmaceutical under development by the
Company.
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 one generic controlled-release
pharmaceutical under development by the
Company.
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DRUG DELIVERY TECHNOLOGY DESCRIPTION
------------------------ -----------
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 soluble component
and a continuous polymer coating. The
purpose of the soluble 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.
The Company has been issued eleven U.S. patents and has filed six
additional U.S. patent applications and various foreign patent applications
relating to its drug delivery technologies. The Company 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.
PRODUCT DEVELOPMENT
BIOEQUIVALENT CONTROLLED-RELEASE PHARMACEUTICALS
The Company is applying its proprietary drug delivery technologies and
formulation skills 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 bioequivalent versions of
Cardizem/registered trademark/ CD and Dilacor XR /trademark/. According to data
from IMS America, the brand name versions of these drugs had combined 1996 U.S.
sales in excess of $850 million. In October 1997, the Company received FDA
approval of its ANDA for the bioequivalent version of Dilacor XR /trademark/.
The Company has commenced marketing the bioequivalent version of Dilacor XR
/trademark/ under the name Diltia XT /trademark/. In September 1997, the Company
received tentative FDA approval its ANDA for the bioequivalent version of
Cardizem/registered trademark/ CD. As a result of the HMR Litigation, the FDA
may not grant final approval of the Company's ANDA for Cardizem/registered
trademark/ CD until after either the HMR Litigation is resolved in Andrx's favor
or July 3, 1998 (30 months after HMRI received Andrx's certification that its
product does not infringe the patents listed for Cardizem/registered trademark/
CD). In April 1997, an ANDA with respect to a third product was submitted to the
FDA by ANCIRC.
In addition to the products for which ANDAs have been submitted, the
Company, either directly or with its collaborative partners, currently has 18
additional versions of brand name controlled-release drugs under development. Of
these product candidates, 14 are in various phases of bioequivalence studies and
four are in various phases of formulation development. The Company is
continually evaluating other potential product candidates.
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 unexpired 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.
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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 involve 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
The Company is applying its proprietary drug delivery technologies to
the development of brand name controlled-release formulations of existing
immediate-release and controlled- release drugs. In selecting its product
candidates, the Company focuses on high sales volume pharmaceuticals whose
marketing exclusivity or patent rights are near expiration. The Company believes
that the application of its drug delivery technologies will improve the efficacy
or other characteristics of these products, for example, by decreasing undesired
side effects or reducing the frequency of administration. The Company currently
has five product candidates under development.
The FDA approval process for the brand name controlled-release
pharmaceuticals which the Company is developing is expected to be lengthier and
more costly than that for generic versions of existing controlled-release
pharmaceuticals and will require the filing of an NDA with the FDA. In
conjunction therewith, the Company will be required to perform preclinical,
clinical and laboratory studies to prove a product's efficacy. The Company may
seek to collaborate with pharmaceutical companies and other organizations in
these development efforts. However, the Company believes that the FDA approval
process will be shorter than that typically associated with most new drugs
because the Company's development efforts involve chemical entities which have
been previously approved by the FDA in their existing formulations. The Company
may receive certain marketing exclusivity rights for a controlled- release
product it develops if it is first to receive FDA approval for the product. See
"--Government Regulation."
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The Company is also using its proprietary drug delivery technologies to
formulate controlled-release versions of existing commercialized drugs and drugs
under development by other pharmaceutical companies. In addition to 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 candidates.
The Company is party to an agreement with Sepracor, Inc. ("Sepracor")
for the development of a brand name controlled-release pharmaceutical. Pursuant
to this agreement Andrx is using one of its controlled-release drug delivery
technologies to formulate a once-a-day version of an antihistamine. 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.
In September 1997, the Company entered into an agreement with an
affiliate of Bayer Corporation (the "Bayer Affiliate") to assist it in its
development of a new product. The agreement provides that Andrx's drug delivery
technologies will be combined with existing technologies to develop an
over-the-counter product.
From time to time the Company also considers licensing or other
agreements to obtain rights to patents or technology which the Company believes
may have commercial value. In 1994, the Company entered into an agreement with
The UAB Research Foundation to license technology relating to the use of an
orally administered drug to be used in the treatment of cancer. In December
1996, that technology was sub-licensed to ASTA Medica, AG ("ASTA Medica"), a
subsidiary of Degussa, AG, which will be responsible for all product development
costs and will manufacture and market any products utilizing the technology. The
Company will receive a royalty from ASTA Medica on the sale of any products
utilizing the technology and the Company will be responsible for certain royalty
payments related thereto. The development of this and similar technologies is a
different and significantly more expensive process than the development of
products using the Company's controlled-release technologies. Therefore, in
order to facilitate development of these projects, the Company plans, in most
cases, to enter into collaborative arrangements with pharmaceutical companies
and others, such as the one entered into with ASTA Medica, to undertake these
development efforts.
COLLABORATIVE ARRANGEMENTS
To expedite product development and reduce the Company's development
costs, the Company has entered into collaborative arrangements with other
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 a
number of U.S. and foreign pharmaceutical companies, including Watson, for
additional generic 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")
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and has made equity investments in the Company (including Common Stock purchased
from certain principal shareholders) in the aggregate of approximately $36.9
million. Watson owns approximately 18.5% of the Company's outstanding Common
Stock and has warrants to acquire additional shares of Common Stock. 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. Those
product candidates were subsequently identified by the parties. 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.
ANCIRC is a 50/50 joint venture between the Company and Watson with both
the capital contributions and dividends or distributions and net income or
losses allocated equally between the Company and Watson. The Company and Watson
have each 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 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 $4.7 million through June 30, 1997. The Company is
responsible for contributing 50% of any additional capital contributions
required by ANCIRC. 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 U.S. and foreign pharmaceutical companies
for additional generic controlled-release pharmaceutical products. 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
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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.
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
offers this customer group competitive pricing, quality products and responsive
customer service, which the Company believes are the critical elements to
competing effectively in this market. The Company currently has a telemarketing
staff of approximately 100 persons, supplemented by seven sales executives who
are responsible for national accounts.
The Company currently utilizes operating profit from its generic
pharmaceutical distribution operations to absorb corporate overhead and offset a
portion of the Company's research and development expenses. 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 expand its generic pharmaceutical distribution operations by further
increasing its customer base to include larger regional and national pharmacy
chains. The Company also 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 concentrates 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.
The Company is developing a software designed to enhance its
distribution operations, by allowing for on-line communication between Andrx and
its customers. Such software may have additional applications, such as allowing
on-line communication with health care providers, including doctors and managed
care organizations. There can be no assurance that such software, when fully
developed, can be successfully commercialized.
MANUFACTURING
The Company has an approximately 35,000 square foot commercial
manufacturing facility. This facility is being used to manufacture the Company's
bioequivalent version of Dilacor XR /trademark/. In addition, assuming final FDA
approval of the Company's ANDA is received and the HMR Litigation is resolved in
Andrx's favor, the facility will be used for the manufacture of Andrx's
bioequivalent version of Cardizem/registered trademark/ CD The Company believes
that
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such facility will be sufficient for these products. However, the Company's
existing manufacturing facility will not be suitable for the manufacture of all
of the additional products which the Company intends to develop and manufacture.
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."
MARKETING
The Company plans to utilize its existing distribution operations' sales
and marketing personnel for marketing the controlled-release products being
developed by the Company and ANCIRC. In many instances, the Company's existing
distribution customers will be targeted for the products developed by the
Company. The Company may contract with outside marketing organizations to both
train Andrx personnel for the marketing of the Company's products and to 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, research and development, marketing
and other resources than the Company.
The Company is 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. To date, the
Company has concentrated a large portion of 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.
The Company is focusing an increasing portion of its efforts on
developing new products which the Company believes will have their efficacy or
other characteristics improved through the application of the Company's drug
delivery technologies. Other pharmaceutical companies have more experience and
greater financial, research and development, clinical, marketing and other
resources than the Company in this area.
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
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on its ability to obtain patents, maintain trade secret protection and operate
without infringing the proprietary rights of others.
Andrx has been issued eleven U.S. patents relating to its drug delivery
technologies. In addition, Andrx has filed six 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 abbreviated application 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 abbreviated application, but
is precluded from making the final marketing approval of the product effective
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. As described below, to date, two such actions
have been commenced against Andrx (one of which has been dismissed without
prejudice), and it is anticipated that additional actions will be filed as Andrx
or its collaborative partners files additional abbreviated applications. The
Company evaluates the probability of patent infringement litigation with respect
to its abbreviated application submissions on a case-by-case basis and,
accordingly, for the years ended December 31, 1996 and 1995, the Company
provided for its 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, the expense of such litigation, whether or
not the Company is successful, or an adverse outcome in such litigation could
have a material adverse effect on the Company's results of operations, financial
condition and business.
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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/registered trademark/ CD. In connection therewith, Andrx certified to
the FDA that its product did 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, HMRI commenced the HMR Litigation in the
United States District Court, Southern District of Florida alleging that Andrx's
product infringes upon one of the six patents listed as covering
Cardizem/registered trademark/ CD. While the Company believes that this product
does not infringe upon the patents in question, the uncertainties inherent in
patent litigation make the outcome of such litigation difficult to predict. In
September 1997, the Company entered into the Stipulation with HMRI wherein Andrx
agreed that if the HMR Litigation is not concluded by the date the FDA grants
final approval of the Company's ANDA for the bioequivalent version of
Cardizem/registered trademark/ CD, Andrx will not commence the commercial sale
of the product in the United States until a final and unappealable judgment is
issued. The Stipulation provides that upon FDA final approval of its product,
Andrx will begin to receive interim payments from HMRI of $10.0 million per
quarter, which absent certain defaults by Andrx, are non-refundable. These
payments will continue until the HMR Litigation is concluded or other events
occur. The payments will increase retroactively if Andrx prevails in the HMR
Litigation, with a lump sum payment representing an agreed amount of profits
that Andrx would have earned had it begun to sell its product upon receiving
final FDA approval of its ANDA. The Stipulation also provides ANDRX with the
option of licensing HMRI's patents at certain times. There can be no assurance
that the Company will prevail in the HMR Litigation and an adverse outcome in
the HMR Litigation could have a material adverse effect on the Company's results
of operations, financial condition and business.
The Company 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
/trademark/. In connection therewith, the Company certified to the FDA that its
product did 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 AC and Jago AG, who licensed the patent
to RPR, 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 the patent listed as covering
Dilacor XR /trademark/. In December 1996, the parties entered into a Settlement
Agreement whereby Rhone agreed to dismiss the RPR Litigation, without prejudice.
An order of dismissal was entered by the judge in January 1997.
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 different versions of
brand name prescription drugs (the "Listed Drugs") that are off-patent and whose
marketing exclusivity has expired. Approval to manufacture and market generic
drugs based on bioequivalence to the Listed Drug is obtained
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by filing an ANDA. Other versions of the listed drug, which may not be
bioequivalent because they are controlled release formulations, may be approved
for marketing either through the ANDA process, pursuant to an approved petition
that concludes that clinical data other than bioequivalence are not required, or
through the process described in Section 505(b)(2) of the FDCA under which
clinical data on the listed drug to which the applicant does have right of
reference may be cited when relevant to the product approval.
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. 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. Applications under Section 505(b)(2), in contrast, may be required
to reference or include additional data to support the safety and effectiveness
of the product notwithstanding differences from exact bioequivalence and/or
dosage delivery form. The Company has filed two ANDAs with the FDA for versions
of Cardizem/registered trademark/ CD and Dilacor XR /trademark/ (both diltiazem
hydrochloride, a prescription drug indicated for hypertension), has, through
ANCIRC, submitted an ANDA for a third product, and intends to file additional
ANDAs or Section 505(b)(2) applications to obtain approval to market its other
generic controlled-release products. In September 1997, the Company received
tentative FDA approval of its ANDA for the bioequivalent version of
Cardizem/registered trademark/ CD. In October 1997, the Company received FDA
approval of its ANDA for the bioequivalent version of Dilacor XR /trademark/. No
assurances exist that ANDAs will be suitable or available for the products
developed by the Company, directly or in collaborative arrangements, or that the
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 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 or Section 505(b)(2) application 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 or Section 505(b)(2) applications for that drug,
notwithstanding that the basis for the first infringement actions may differ
substantially from that applicable to any litigation on a subsequently filed
application. 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 abbreviated application
mechanism for generic drugs, they also foster 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
application. A five-year marketing exclusivity period is provided for new
chemical compounds not previously approved by the FDA as active ingredients, and
a three-year marketing exclusivity period is provided for applications
containing new clinical investigations (other than bioavailability studies)
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.
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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, and in the
future, to market new extended release products, file Section 505(b)(2)
applications 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, including certain bioequivalence studies,
for a new drug compound as part of an NDA or Section 505(b)(2) application 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
or Section 505(b)(2) application. The FDA will not accept ANDAs when, for
example, 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 clinical data on safety and
effectiveness to which the applicant does not have a right of reference and
which was not performed by that applicant under Section 505(b)(2) of the FDCA.
The Company may be able to rely in whole or in part on existing publicly
available safety and efficacy data in its filings for extended-release products
when such data exist 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 has
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.
Manufacturers of marketed drugs must conform to the FDA's cGMP 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
manufacturing facility has been inspected by the FDA with regard to the ANDA
submissions for versions of Cardizem/registered trademark/ CD and Dilacor XR
/trademark/ and the FDA advised the Company that the manufacturing site was in
compliance with cGMP. The Company's facility will be subject to periodic
inspections by the FDA on an ongoing basis and 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 approval and distribution of the Company's planned products, as
well as significant additional expense to comply with cGMP or the regulatory
requirements.
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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 export 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. PDMA requires wholesale
prescription drug distributors, such as the Company, to provide certain
customers with a list, in advance of a particular sale, of each prior sale,
purchase or trade of the same drug. PDMA also establishes other requirements for
wholesale distributors, including without limitation, registration with the
state or Federal government and other record-keeping 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 Drug Enforcement Administration of
the Department of Justice (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, bioequivalence and
other studies for controlled-release product candidates and the products the
Company intends to commercialize. The Company believes that its product
liability insurance is adequate for its current operations, but may 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 condition.
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<PAGE>
FACILITIES
The Company leases approximately 96,000 square feet in a facility in
Fort Lauderdale, Florida, which houses the Company's executive offices,
warehousing and shipping facilities, a laboratory and pilot manufacturing plant
and a commercial-scale manufacturing facility. The buildings are occupied
pursuant to leases expiring March 31, 2003 at a current total annual rent of
approximately $700,000. Each of the leases afford the Company five five-year
renewal options, and require the Company to pay certain increases in common area
costs.
The Company also leases approximately 18,500 square feet of office space
in Davie, Florida which house its non-warehouse distribution staff. Such space
is occupied pursuant to a lease expiring in May 1998, at an annual rent of
$220,000, including common area maintenance costs and real estate taxes, and
affords the Company one six-month renewal option. Additionally, the Company
leases approximately 4,000 square feet in both Boca Raton, Florida and in Tampa,
Florida. Such leases are occupied pursuant to leases expiring in April 1998
(with a one- year renewal option) and November 1997 (with two one-year renewal
options), respectively, at current annual rents of approximately $50,000 and
$60,000, respectively.
The Company believes that the foregoing facilities plus additional space
available to it in the area will be adequate for its needs in the foreseeable
future.
EMPLOYEES
As of September 30, 1997, the Company had 365 employees, of whom 22 were
involved in corporate administration and 252 were involved in the Company's
distribution operations. The remaining 91 employees were involved in research,
pharmaceutical development and manufacturing, including over 40 scientists, 27
of whom hold Ph.D., masters or medical degrees.
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 have agreed to serve in such capacity for a three-year period. Certain
members of the SAB may, from time to time, render consulting services to the
Company for which they may be separately compensated.
LEGAL PROCEEDINGS
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 gross revenues from certain products under development by the Company. In May
1997, a complaint was filed against the Company seeking a declaratory judgment
as to whether the former employee is entitled to a 1% royalty with respect to
Andrx's versions of Cardizem/registered trademark/ CD and Dilacor XR
/trademark/. The Company intends to contest this claim.
Other than the HMR Litigation (see "--Patents and Proprietary Rights")
and the above described litigation, the Company is not party to a legal
proceeding wherein an adverse outcome would have a material adverse effect on
the Company's results of operations, financial condition or business.
-39-
<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) 43 Chairman of the Board and Chief Executive
Officer
Elliot F. Hahn, Ph.D.(1) 53 President and Director
Chih-Ming J. Chen, Ph.D.(1) 46 Vice President, Chief Scientist and Director
Scott Lodin 41 Vice President, General Counsel and
Secretary
Angelo C. Malahias 36 Vice President and Chief Financial Officer
Randy Glover 55 Vice President of Manufacturing Operations
Rep. Elaine Bloom(2) 60 Director
Irwin C. Gerson(3) 67 Director
Elliot Levine(2) 61 Director
Michael A. Schwartz, Ph.D.(3) 67 Director
Melvin Sharoky, M.D.(1) 46 Director
</TABLE>
- -------------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
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
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<PAGE>
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 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.
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, was Executive
Vice President and Chief Financial Officer of Cheyenne Software, a developer and
marketer of proprietary network software products, from September 1989 through
November 1996. From February 1988 to September 1989, Mr. Levine was president of
VTX Electronics, a distributor of electronic
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<PAGE>
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 A. SCHWARTZ, a director of Andrx since November 1993, is
currently Dean Emeritus and a Professor at the College of Pharmacy at the
University of Florida having served as Dean of that college from April 1978
through May 1996.
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 is divided
into three classes and directors serve staggered three-year terms. Dr. Elliot F.
Hahn, Elaine Bloom and Elliot Levine will hold office until the annual meeting
of shareholders to be held in 1988, Alan P. Cohen and Dr. Melvin Sharoky will
hold office until the 1999 annual meeting and Dr. Chih- Ming J. Chen, Irwin C.
Gerson and Dr. Michael A. Schwartz will hold office until the 2000 annual
meeting.
DIRECTOR COMPENSATION
Non-employee directors do not receive cash compensation for their
services, although they are each granted stock options under the Stock Incentive
Plan to purchase 7,000 shares of Common Stock on June 1 of each year. The
initial 7,000 share annual grants, which were made to existing non-employee
directors on June 1, 1996, were adjusted based on prior options granted to give
effect to prior periods of service. Each new non-employee director 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 granted 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> <C>
Elaine Bloom.................... 2,500 $3.00 May 12, 2003
9,000 6.50 August 7, 2004
5,875 12.00 May 31, 2006
7,000 23.00 May 31, 2007
Irwin C. Gerson................. 2,500 3.00 May 12, 2003
9,000 6.50 August 7, 2004
5,875 12.00 May 31, 2006
7,000 23.00 May 31, 2007
-42-
<PAGE>
NUMBER OF
NAME OF OPTIONEE SHARES EXERCISE PRICE EXPIRATION DATE
- ---------------- ---------- -------------- ---------------
Elliot Levine................... 2,500 8.00 January 23, 2004
9,000 6.50 August 7, 2004
4,000 12.00 May 31, 2006
7,000 23.00 May 31, 2007
Michael Schwartz, Ph.D.......... 2,500 3.00 May 12, 2003
9,000 6.50 August 7, 2004
5,875 12.00 May 31, 2006
7,000 23.00 May 31, 2007
Melvin Sharoky, M.D............. 2,500 11.00 November 11, 2005
5,750 12.00 May 31, 2006
7,000 23.00 May 31, 2007
</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 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 and 1996 received by the Chief Executive Officer (the "CEO") and the four
most highly compensated other executive officers whose annual salary and bonus
exceeded $100,000 for 1996 (collectively with the CEO, the "Named Executive
Officers").
-43-
<PAGE>
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#)(1)
- --------------------------- ------ ------ ----- ------------ -------------
<S> <C> <C> <C> <C> <C>
Alan P. Cohen 1996 $141,900 $50,000 $18,000(2) --
Chairman of the Board and CEO 1995 124,250 -- 10,601(2) --
Elliot F. Hahn, Ph.D. 1996 141,900 45,000 19,900(2) --
President 1995 124,250 -- 13,371(2) --
Chih-Ming J. Chen, Ph.D. 1996 141,900 45,000 19,400(2) --
Vice President and Chief Scientist 1995 124,250 108,500(3) 14,909(2) --
Scott Lodin 1996 137,500 25,000 3,500(4) 7,500
Vice President, General Counsel 1995 111,817 -- -- 10,000
and Secretary
Randy Glover 1996 107,700 37,500 -- 50,000
Vice President of Manufacturing
Operations(5)
</TABLE>
- ---------------
(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), certain medical expense reimbursements 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."
(4) Represents reimbursement for medical insurance.
(5) Mr. Glover joined the Company as Vice President of Manufacturing Operations
in March 1996.
EMPLOYMENT AND SEVERANCE 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 $200,000. Each agreement includes
confidentiality and non-competition provisions.
The Company is also party to an employment agreement with Mr. Malahias, its
Vice President and Chief Financial Officer, which expires in February 2001. Mr.
Malahias currently receives a base salary of $132,000 per year. The agreement
provides that if Mr. Malahias' employment is terminated by the Company without
cause, Mr. Malahias may receive a lump sum payment up to $90,000. Other amounts
are payable in the event Mr. Malahias' employment is terminated pursuant to a
change of control of the Company. The agreement also includes provisions
regarding confidentiality and non-solicitation.
The Company has an agreement with Mr. Lodin which provides that in the event
Mr. Lodin's employment is terminated by the Company without cause prior to
December 31, 1998. Mr. Lodin will receive a lump-sum payment equal to 100% of
his then annual compensation. Mr. Lodin is also party to a confidentiality
agreement with Andrx.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during Fiscal 1996 to any of the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
NUMBER OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR OPTION TERMS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ---------------
GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%(1)
-------------- -------------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Scott Lodin......... 7,500 2.0% $11.00 April 3, 2006 $134,384 $213,984
Randy Glover........ 50,000 13.2 11.00 March 10, 2006 737,053 974,359
</TABLE>
- --------------
(1) Based upon the exercise price, which was equal to the fair market value on
the date of grant, and annual appreciation at the assumed rates stated on
such price through the expiration date of the options. Amounts shown
represent hypothetical gains that could be achieved for the options if
exercised at the end of the term. These amounts have been determined on
the basis of assumed rates of appreciation mandated by 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.
STOCK OPTIONS HELD AT END OF FISCAL 1996
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, 1996. No options were exercised by any of the Named Executive
Officers during Fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
----------- ------------- -------------- ----------------
<S> <C> <C>
Chih-Ming J. Chen, Ph.D. 200,000 -- $1,925,000 --
Scott Lodin............... 22,500 25,000 $ 184,688 $186,250
Randy Glover.............. -- 50,000 -- $256,250
</TABLE>
- ---------------
(1) Based on a fair market value of $16.125 per share at December 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no compensation committee interlocks and insider
participation in executive compensation decisions during 1996.
-45-
<PAGE>
STOCK INCENTIVE PLAN
Under the Company's 1993 Stock Incentive Plan, as amended, 2,000,000
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,
non-employee 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 employees of and consultants
to the Company, including officers and directors 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 1,306,488 shares of
Common Stock at exercise prices ranging from $3.00 to $38.75, all of which are
non-statutory stock options.
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<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 of 33% of the
Company's net profits related to its bioequivalent version of
Cardizem/registered trademark/ CD and 3.33% of the Company's net operating
revenues related to its generic version of Seldane D(R). 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(R), 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 bioequivalent version of Cardizem/registered
trademark/ CD 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 bioequivalent version of Dilacor XR /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 3%, 1% and 1% of the
Company's revenues during the years ended December 31, 1994, 1995 and 1996,
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.
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<PAGE>
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 "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, for a total of 1,326,721 shares of Common Stock. 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.
In June 1997, Watson purchased an additional 150,000 shares of Common
Stock from the Company and 450,000 shares from Andrx's founders at a price of
$25.50 per share, the closing price of the Common Stock on the business date
prior to the sale. Watson also entered into a standstill agreement with the
Company pursuant to which it agreed, among other matters, not to acquire more
than a 25% equity interest in the Company or engage in certain transactions with
the Company (including a merger), prior to June 13, 2000, without the prior
approval of the Company's Board of Directors.
The Company has also granted Watson certain demand and piggyback
registration rights under the Securities Act with respect to the shares of
Common Stock held by Watson and the shares underlying the Watson Warrants, which
rights became exercisable commencing June 1997. See "Shares Eligible for Future
Sale."
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.
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<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 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>
NUMBER OF SHARES
BENEFICIALLY OWNED (2) PERCENTAGE OF CLASS
---------------------- -------------------
<S> <C> <C>
Alan P. Cohen(3)................................ 1,588,847 10.6%
Elliot F. Hahn, Ph.D.(4)........................ 982,907 6.6
Chih-Ming J. Chen, Ph.D.(5)..................... 1,681,429 11.1
Scott Lodin(6).................................. 40,000 *
Elaine Bloom(7)................................. 21,975 *
Irwin C. Gerson(8).............................. 24,575 *
Elliot Levine(9)................................ 29,320 *
Michael A. Schwartz, Ph.D.(10).................. 21,575 *
Melvin Sharoky, M.D.(11)........................ 18,280 *
All directors and executive officers
as a group (11 persons)(12)..................... 4,438,708 28.9
5% OR GREATER HOLDERS
Watson Pharmaceuticals, Inc.(13)
311 Bonnie Circle
Corona, CA 91720................................ 3,028,869 19.8
</TABLE>
- -------------------------
* less than 1%
(1) Except as indicated, the address of each person named in the table is c/o
Andrx, 4001 Southwest 47th Avenue, Fort 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 within 60 days from the date of
this Prospectus.
(3) Includes 15,625 shares held by Mr. Cohen, 4,875 shares of Common Stock held
jointly by Mr. Cohen and his spouse, and 1,568,347 shares held in family
limited partnerships.
(4) Includes 583,045 shares of Common Stock held by Dr. Hahn and 399,502 shares
of Common Stock held in trusts for the benefit of Dr. Hahn's children.
(5) Includes 39,121 shares held by Dr. Chen, 242,308 shares held in a family
limited partnership, 1,200,000 shares of Common Stock held by a limited
partnership for which Dr. Chen is an officer of the corporate general
partner, and 200,000 shares of Common Stock issuable upon the exercise of
stock options.
(6) Includes 37,500 shares of Common Stock issuable upon the exercise of stock
options.
(7) Includes 19,075 shares of Common Stock issuable upon the exercise of stock
options.
(8) Includes 21,575 shares of Common Stock issuable upon the exercise of stock
options.
-49-
<PAGE>
(9) Represents 7,620 shares of Common Stock held jointly with Mr. Levine's
spouse; 2,000 shares of Common Stock issuable upon the exercise of Investor
Warrants held jointly with Mr. Levine's spouse; and 19,700 shares of Common
Stock issuable upon the exercise of stock options.
(10) Represents 21,575 shares of Common Stock issuable upon exercise of stock
options.
(11) Includes 12,450 shares of Common Stock issuable upon exercise of stock
options and 830 shares of Common Stock held by Dr. Sharoky as custodian for
his minor children. 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.
(12) Includes the shares of Common Stock described in notes (3) through (5) and
(9); 333,875 shares of Common Stock issuable upon the exercise of the stock
options and warrants described in notes (5) through (11); 6,000 shares of
Common Stock and 13,000 shares of Common Stock issuable upon exercise of
stock options held by Randy Glover, the Company's Vice President of
Manufacturing Operations; and 2,000 shares of Common Stock and 8,000 shares
of Common Stock issuable upon the exercise of stock options held by Angelo
C. Malahias, the Company's Vice President of Finance and Chief Financial
Officer; and 800 shares of Common Stock held by Mr. Malahias as custodian
for his minor children.
(13) Includes 337,079 shares of Common Stock issuable upon the exercise of the
Watson Warrants.
-50-
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by each Selling Shareholder as of the date of this
Prospectus, based on information made available to the Company by the Selling
Shareholders:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF CLASS
NAME OF NUMBER OF SHARES NUMBER OF SHARES BENEFICIALLY OWNED -------------------
SELLING SHAREHOLDER BENEFICIALLY OWNED(1) TO BE REGISTERED AFTER THE OFFERING(2) BEFORE OFFERING AFTER OFFERING
- ------------------- --------------------- ---------------- --------------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Clarke and Barbara S. Adams 22,480(3) 22,480(3) 0 * 0%
Raymond M. Allard 11,240 11,240 0 * 0%
Edward E. and Marta L. Bao 5,620 5,620 0 * 0%
Bedford Falls Investors, Inc. 2,810(4) 2,810(4) 0 * 0%
David and Maria N. Bernard 2,810 2,810 0 * 0%
Richard M. Binder 8,430(6) 8,430(6) 0 * 0%
E. Wayne Boland 5,000(7) 5,000(7) 0 * 0%
Evelyn B. Brown 2,810(4) 2,810(4) 0 * 0%
G. Thomas Catalona 2,810(4) 2,810(4) 0 * 0%
Robert J. Cohen 11,240(3) 11,240(3) 0 * 0%
Sidney Devorsetz 2,248(8) 2,248(8) 0 * 0%
Sheldon Drobny 5,620(5) 5,620(5) 0 * 0%
Craig W. Effron 7,868 7,868 0 * 0%
Donald B. Feinsod, M.D. 5,620(5) 5,620(5) 0 * 0%
James C. Gale and
Judith S. Haselton 22,430(3) 22,430(3) 0 * 0%
Bonnie Gershman Geller IRA 2,810(4) 2,810(4) 0 * 0%
William J. Gilberti, Jr. 2,248(8) 2,248(8) 0 * 0%
Michael Gironta 7,430(10) 7,430(10) 0 * 0%
Ira Goodman 5,620(4) 5,620(4) 0 * 0%
Parry F. and Ivy Goodman 27,906(5) 11,240(5) 16,666 * *
Charles and Donna Greenberg 5,000 5,000 0 * 0%
Gruntal & Co., Incorporated 53,584(11) 53,584(11) 0 * 0%
Joseph Haddad 11,240 5,620 5,620 * 0%
Rose Haddad 11,240 5,620 5,620 * 0%
David T. Harrington 5,620(4) 5,620(4) 0 * 0%
Joshua H. Heintz 2,248(8) 2,248(8) 0 * 0%
Lionel G. Hest 5,115 5,115 0 * 0%
-51-
<PAGE>
NUMBER OF SHARES PERCENTAGE OF CLASS
NAME OF NUMBER OF SHARES NUMBER OF SHARES BENEFICIALLY OWNED -------------------
SELLING SHAREHOLDER BENEFICIALLY OWNED(1) TO BE REGISTERED AFTER THE OFFERING(2) BEFORE OFFERING AFTER OFFERING
- ------------------- --------------------- ---------------- --------------------- --------------- --------------
Dean G. and Henrietta J. Holefca, 5,620 5,620 0 * 0%
JTWROS
Victor Ianno 2,248(8) 2,248(8) 0 * 0%
Steven B. Kase 5,620 5,620 0 * 0%
Adam Katz 2,000 2,000 0 * 0%
David H. Katz 1,000 1,000 0 * 0%
Philip Katz 47,000 47,000 0 * 0%
Elliot Levine 28,120(12)(13) 7,620(12) 20,500 * *
Steven J. Levinson 22,480(3) 22,480(3) 0 * 0%
Thomas B. Low As Trustee for Low
Family Trust Under Agreement
of Trust 11,240(5) 11,240(5) 0 * 0%
Paul E. and Ruth E. Nicholson 22,480(14) 22,480(14) 0 * 0%
Dr. Andrew J. Potts 11,240(3) 11,240(3) 0 * 0%
Richardson Pratt, Jr. 11,240(5) 11,240(5) 0 * 0%
Oliver Price 2,810(4) 2,810(4) 0 * 0%
Robert J. Reardon 16,860(15) 16,860(15) 0 * 0%
Edward M. Reardon 14,050(16) 14,050(16) 0 * 0%
Barry Richter 11,240(5) 11,240(5) 0 * 0%
Ridgeland Co. 2,810 2,810 0 * 0%
Ronald Ross 3,810(4) 3,810(4) 0 * 0%
Robert Sablowsky 1,010 1,010 0 * 0%
Lois Mettler and Carroll Saks 2,810 2,180 0 * 0%
Lois Mettler and Carroll Saks
Trustees for Aaron A. Alfred 5,620(4) 5,620(4) 0 * 0%
David and Caroll Saks 22,480 11,240 11,240 * 0%
Lynn H. Smith 2,248(8) 2,248(8) 0 * 0%
Arthur Steinberg 5,620(4) 5,620(4) 0 * 0%
Francis D. Stinziano 2,248(8) 2,248(8) 0 * 0%
Walter F. Toombs 22,480(5) 22,480(5) 0 * 0%
David Ward 11,240(3) 11,240(3) 0 * 0%
-52-
<PAGE>
NUMBER OF SHARES PERCENTAGE OF CLASS
NAME OF NUMBER OF SHARES NUMBER OF SHARES BENEFICIALLY OWNED -------------------
SELLING SHAREHOLDER BENEFICIALLY OWNED(1) TO BE REGISTERED AFTER THE OFFERING(2) BEFORE OFFERING AFTER OFFERING
- ------------------- --------------------- ---------------- --------------------- --------------- --------------
Jack Weinstein 2,810 2,810 0 * 0%
Donald Wessel 2,810(4) 2,810(4) 0 * 0%
</TABLE>
- ------------------------
* Less than 1%.
(1) 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. Includes shares of Common Stock that such persons have the right to
acquire a beneficial interest in within 60 days from December 6, 1996,
including shares of Common Stock issuable upon exercise of the Investor
Warrants, the Agent's Option and the Agent's Warrants.
(2) Assumes that all shares of Common Stock registered for the account of the
Selling Shareholders are sold.
(3) Includes 11,240 shares of Common Stock issuable upon exercise of Warrants.
(4) Includes 2,810 shares of Common Stock issuable upon exercise of Warrants.
(5) Includes 5,620 shares of Common Stock issuable upon exercise of Warrants.
(6) Of such shares of Common Stock, 5,620 Shares are held by a Keough account
established for the benefit of Mr. Binder.
(7) Includes 5,000 shares of Common Stock issuable upon exercise of Warrants.
(8) Includes 1,124 shares of Common Stock issuable upon exercise of Warrants.
(9) Includes 3,934 shares of Common Stock issuable upon exercise of Warrants.
(10) Includes 4,215 shares of Common Stock issuable upon exercise of Warrants.
(11) Represents shares of Common Stock issuable upon exercise of an option to
purchase 9,916 shares of Common Stock and warrants to purchase additional
shares of Common Stock. Does not include shares of Common Stock held of
record in the accounts of Gruntal & Co. Incorporated ("Gruntal") for the
benefit of its customers and, with respect to such shares, Gruntal
disclaims beneficial ownership.
(12) Mr. Levine is a director of the Company. Includes 2,000 shares of Common
Stock issuable upon exercise of Warrants.
(13) Includes 15,500 shares of Common Stock issuable upon exercise of options.
(14) Includes 22,480 shares of Common Stock issuable upon exercise of Warrants.
(15) Includes 10,000 shares of Common Stock issuable upon exercise of Warrants.
(16) Includes 14,050 shares of Common Stock issuable upon exercise of Warrants.
(17) Includes 16,860 shares of Common Stock issuable upon exercise of Warrants.
-53-
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of (i) 25,000,000
shares of Common Stock, par value $.001 per share, 14,765,808 shares of which
are presently outstanding and (ii) 1,000,000 shares of Preferred Stock, par
value $.001 per share (the "Preferred Stock"), none of which are outstanding.
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 issuable upon exercise of the Investor Warrants, the Agent's Option and
the Agent's Warrants 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 could 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.
INVESTOR WARRANTS, AGENT'S OPTIONS AND AGENT'S WARRANTS
Each Investor Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $7.25 per share at any time through
December 1998. The Investor Warrants are non-transferrable. Each Agent's Option
entitles the holder thereof to purchase one share of Common Stock and one
Agent's Warrant at an exercise price of $8.90 at any time through December 1998.
The Agent's Warrants are identical to the Investor Warrants.
The number of shares of Common Stock issuable upon exercise of the Investor
Warrants, the Agent's Option and the Agent's Warrants and the exercise prices of
such securities are subject to adjustment upon the occurrence of certain events,
including stock dividends, stock
-54-
<PAGE>
splits and reorganizations. There will be no adjustment for the payment of any
cash dividends by the Company on its Common 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 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 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.
-55-
<PAGE>
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 Common Stock is American Stock Transfer & Trust
Company, New York, New York.
WARRANT AGENT
The Company acts as warrant agent for the Investor Warrants, the Agent's
Option and the Agent's Warrants.
-56-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 14,765,808 shares of Common Stock outstanding. Of these
shares, 8,687,691 shares are deemed to be "restricted securities" as such term
is defined under Rule 144 promulgated pursuant to the Securities Act.
In general, under Rule 144 as currently in effect, if a period of at least
one year 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 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. An "affiliate" of the Company, as such term is defined
in Rule 144 (an "Affiliate") may sell shares not constituting restricted shares
in accordance with the foregoing volume limitations and other requirements but
without regard to the one-year holding period.
Under Rule 144(k), if a period of at least two 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.
Of the Company's 8,687,691 shares which are deemed to be "restricted
securities", 7,197,320 shares are presently eligible for sale in the public
market pursuant to Rule 144, subject to the volume limitations and other
restrictions contained therein. The remaining 1,353,125 restricted shares will
become eligible for sale subject to the restrictions of Rule 144 by June 1998,
substantially all of which shares are subject to certain demand and piggy back
registration rights which may permit their earlier sale. Notwithstanding the
foregoing, the holder of 730,000 of such restricted shares has agreed not to
sell or transfer or otherwise dispose of such shares prior to June 1998 without
prior consent of the Company. As of the date of this Prospectus, options and
warrants to purchase 1,663,399 shares of Common Stock are issued and outstanding
including the Investor Warrants, the Agent's Option and the Agent's Warrants.
The shares of Common Stock issuable upon exercise of such securities are either
registered pursuant to the Registration Statement of which this Prospectus forms
a part or are subject to certain demand and piggy-back registration rights.
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.
-57-
<PAGE>
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Common Stock offered hereby for their
own accounts in open market or block transactions or otherwise in accordance
with the rules of The Nasdaq National Market, or in private transactions, at
prices related to the prevailing market prices or at negotiated prices. The
Selling Shareholders may effect such transactions by selling shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Shareholders of
the purchasers of shares for whom such broker-dealers may act as agent or to
whom they sell as principal or both. Upon any sale of shares of Common Stock
offered hereby, the Selling Shareholders and participating broker-dealers or
selling agents may be deemed to be "underwriters" as that term is defined in the
Securities Act, in which event any discounts, concessions or commissions they
receive, which are not expected to exceed those customary in the types of
transactions involved, or any profit on resales of such Common Stock by them,
may be deemed to be underwriting commissions or discounts under the Securities
Act. The Company has been advised by the Selling Shareholders that there
currently are no underwriting arrangements with respect to the sale of the
shares of Common Stock. To the extent required, the specific shares of Common
Stock to be sold, names of the Selling Shareholders, purchase price, public
offering price, names of any such broker-dealer or selling agent and any
applicable discount or commission with respect to a particular offer will be set
forth in an accompanying Prospectus Supplement.
The Company has agreed to defray certain of the expenses of the offering
made hereby by the Selling Shareholders and to indemnify them against certain
liabilities arising under the Securities Act.
Pursuant to the provisions under the Exchange Act and the rules and
regulations thereunder, any person engaged in a distribution of the Common Stock
offered by this Prospectus may not simultaneously engage in market making
activities with respect to the Common Stock of the Company during the applicable
"cooling off" periods prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Shareholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of Common Stock by
the Selling Shareholders.
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.
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 reports.
-58-
<PAGE>
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.
-59-
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
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, 1995 and 1996,
and June 30, 1997 (unaudited).................................................... F-3
Consolidated Statements of Operations
for the years ended December 31, 1994, 1995 and 1996,
and the six months ended June 30, 1996 and 1997 (unaudited)...................... F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1994, 1995 and 1996,
and the six months ended June 30, 1996 and 1997 (unaudited)...................... F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1994, 1995 and 1996,
and the six months ended June 30, 1996 and 1997 (unaudited)...................... F-6
Notes to Consolidated Financial Statements........................................... F-7
FINANCIAL STATEMENTS OF ANCIRC:
Report of Independent Certified Public Accountants................................... F-16
Balance Sheets as of December 31, 1995 and 1996,
and June 30, 1997 (unaudited).................................................... F-17
Statements of Operations
for the period from inception (July 8, 1994) to December 31, 1994, the years
ended December 31, 1995 and 1996, the cumulative period from inception (July
8, 1994) to December 31, 1996, and the six months ended June 30, 1996 and
1997 and the cumulative period from inception (July 8, 1994) to June 30,
1997 (unaudited)................................................................. F-18
Statements of Partners' Deficit
for the period from inception (July 8, 1994) to December 31, 1994 and the years
ended December 31, 1995 and 1996, and the six months
ended June 30, 1997 (unaudited).................................................. F-19
Statements of Cash Flows
for the period from inception (July 8, 1994) to December 31, 1994, the years
ended December 31, 1995 and 1996, the cumulative period from inception (July
8, 1994) to December 31, 1996, and the six months ended June 30, 1996 and
1997 and the cumulative period from inception (July 8, 1994) to June 30,
1997 (unaudited)................................................................. F-20
Notes to Financial Statements........................................................ F-21
</TABLE>
<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, 1995 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. 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, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
February 14, 1997.
F-2
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
---------------------------- ------------
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
------------
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 13,841,400 $ 3,427,500 $ 7,787,000
Investments available for sale -- 26,892,000 34,207,600
Accounts receivable, net allowances of $574,200,
$969,800 and $1,050,000 (unaudited) as of December 31,
1995 and 1996, and June 30, 1997, respectively 8,263,400 13,501,900 16,091,100
Due from joint venture, net 488,500 314,100 172,300
Inventories 9,502,000 12,240,400 20,143,600
Prepaid and other current assets 130,500 461,100 862,500
------------ ------------ ------------
Total current assets 32,225,800 56,837,000 79,264,100
Property and equipment, net 3,831,100 9,724,600 14,078,300
Other assets 91,800 74,700 85,900
------------ ------------ ------------
Total assets $ 36,148,700 $ 66,636,300 $ 93,428,300
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,860,000 $ 13,839,100 $ 17,225,400
Accrued liabilities 1,724,200 3,374,000 4,283,300
Bank loan 6,077,500 6,460,900 8,727,200
Notes payable 23,500 102,300 --
Commitment to joint venture, net 139,000 98,400 104,200
------------ ------------ ------------
Total current liabilities 17,824,200 23,874,700 30,340,100
------------ ------------ ------------
Commitments and contingencies (Notes 8 and 13)
Shareholders' equity
Convertible preferred stock; $0.001 par
value, 1,000,000 shares authorized; none
issued and outstanding as of
December 31, 1996 and 1995, and June 30, 1997 (unaudited) -- -- --
Common stock; $0.001 par value, 25,000,000
shares authorized; 10,727,100 and 13,417,500, and
14,673,100 (unaudited) shares issued and outstanding
as of December 31, 1995 and 1996, and June 30, 1997,
respectively 10,700 13,400 14,700
Additional paid-in capital 28,795,000 57,252,700 81,266,800
Accumulated deficit (10,481,200) (14,508,900) (18,172,500)
Unrealized gain (loss) on investments available
for sale -- 4,400 (20,800)
------------ ------------ ------------
Total shareholders' equity 18,324,500 42,761,600 63,088,200
------------ ------------ ------------
Total liabilities and shareholders' equity $ 36,148,700 $ 66,636,300 $ 93,428,300
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------ ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Distribution revenues, net $25,915,500 $50,467,800 $ 86,720,800 $ 37,776,400 $ 63,220,800
Research and development
services to joint venture 375,300 2,528,700 2,205,900 1,554,800 690,900
Licensing revenues 155,500 165,000 50,000 -- --
------------ ------------ ------------ ------------ ------------
Total revenues 26,446,300 53,161,500 88,976,700 39,331,200 63,911,700
------------ ------------ ------------ ------------ ------------
Cost of revenues
Distribution 21,362,400 41,780,900 72,399,900 31,498,200 53,546,400
Research and development
services to joint venture 375,300 2,528,700 2,205,900 1,554,800 690,900
------------ ------------ ------------ ------------ ------------
Total cost of revenues 21,737,700 44,309,600 74,605,800 33,053,000 54,237,300
------------ ------------ ------------ ------------ ------------
Gross profit 4,708,600 8,851,900 14,370,900 6,278,200 9,674,400
------------ ------------ ------------ ------------ ------------
Operating expenses
Selling, general and
administrative 5,389,800 8,647,200 13,177,900 5,840,000 8,753,900
Research and development 2,109,600 3,254,700 3,655,100 1,324,900 3,729,800
Manufacturing overhead -- -- -- -- 472,300
Equity in losses of
joint venture 315,800 1,839,700 2,010,900 1,031,200 763,400
------------ ------------ ------------ ------------ ------------
Total operating expenses 7,815,200 13,741,600 18,843,900 8,196,100 13,719,400
------------ ------------ ------------ ------------ ------------
Loss from operations (3,106,600) (4,889,700) (4,473,000) (1,917,900) (4,045,000)
Interest expense (104,300) (636,200) (764,900) (281,700) (341,400)
Interest income 121,800 249,800 1,210,200 314,700 722,800
Other income (expense), net (15,400) 89,100 -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (3,104,500) $ (5,187,000) $ (4,027,700) $ (1,884,900) $ (3,663,600)
============ ============ ============ ============ ============
Net loss per share $ (0.35) $ (0.55) $ (0.33) $ (0.17) $ (0.27)
============ ============ ============ ============ ============
Weighted average shares of
common stock outstanding 8,758,400 9,446,800 12,148,000 10,952,600 13,640,700
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- -------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- ------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ -- $ -- 8,401,400 $ 8,400 $ 6,108,000
Shares of common stock issued
in connection with private
placement -- -- 147,200 100 1,242,300
Shares of convertible preferred
stock issued in connection with
private placement 33,700 -- -- -- 6,000,000
Shares of common stock issued as
payment for services -- -- 5,000 -- 32,500
Net loss -- -- -- -- --
========= ===== =========== -------- ------------
Balance, December 31, 1994 33,700 -- 8,553,600 8,500 13,382,800
Shares of common stock issued
in connection with private
placements -- -- 1,338,800 1,300 14,622,600
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
Shares of common stock issued in
connection with exercise of
stock options -- -- 6,000 -- 18,000
Net loss -- -- -- -- --
========= ===== =========== -------- ------------
Balance, December 31, 1995 -- -- 10,727,100 10,700 28,795,000
Shares of common stock issued in
connection with initial public
offering -- -- 2,530,000 2,500 27,427,700
Shares of common stock issued in
connection with exercise of
warrants -- -- 28,100 -- 203,700
Shares of common stock issued in
connection with exercise of stock
options -- -- 132,300 200 826,300
Unrealized gain on investments
available for sale -- -- -- -- --
Net loss -- -- -- -- --
========= ===== =========== -------- ------------
Balance, December 31, 1996 -- -- 13,417,500 13,400 57,252,700
Shares of common stock issued in
connection with private placement
(Unaudited) -- -- 880,000 900 21,341,600
Shares of common stock issued in
connection with exercise of
warrants (Unaudited) -- -- 269,400 300 1,993,600
Shares of common stock issued in
connection with exercise of stock
options (Unaudited) -- -- 106,200 100 678,900
Unrealized loss on investments
available for sale (Unaudited) -- -- -- -- --
Net loss, six months ended
June 30, 1997 (Unaudited) -- -- -- -- --
--------- ----- ----------- -------- ------------
Balance, June 30, 1997
(Unaudited) -- $ -- 14,673,100 $ 14,700 $ 81,266,800
========= ===== =========== ======== ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
UNREALIZED
GAIN (LOSS) ON
INVESTMENTS TOTAL
ACCUMULATED AVAILABLE SHAREHOLDERS'
DEFICIT FOR SALE EQUITY
------------ -------- ------------
<S> <C> <C> <C>
Balance, January 1, 1994 $ (2,189,700) $ -- $ 3,926,700
Shares of common stock issued
in connection with private
placement -- -- 1,242,400
Shares of convertible preferred
stock issued in connection with
private placement -- -- 6,000,000
Shares of common stock issued as
payment for services -- -- 32,500
Net loss (3,104,500) -- (3,104,500)
------------ -------- ------------
Balance, December 31, 1994 (5,294,200) -- 8,097,100
Shares of common stock issued
in connection with private
placements -- -- 14,623,900
Shares of common stock issued in
connection with conversion of
shares of convertible preferred
stock -- -- --
Shares of common stock issued in
connection with exercise of
warrants -- -- 772,500
Shares of common stock issued in
connection with exercise of
stock options -- -- 18,000
Net loss (5,187,000) -- (5,187,000)
------------ -------- ------------
Balance, December 31, 1995 (10,481,200) -- 18,324,500
Shares of common stock issued in
connection with initial public
offering -- -- 27,430,200
Shares of common stock issued in
connection with exercise of
warrants -- -- 203,700
Shares of common stock issued in
connection with exercise of stock
options -- -- 826,500
Unrealized gain on investments
available for sale -- 4,400 4,400
Net loss (4,027,700) -- (4,027,700)
------------ -------- ------------
Balance, December 31, 1996 (14,508,900) 4,400 42,761,600
Shares of common stock issued in
connection with private placement
(Unaudited) -- -- 21,342,500
Shares of common stock issued in
connection with exercise of
warrants (Unaudited) -- -- 1,993,900
Shares of common stock issued in
connection with exercise of stock
options (Unaudited) -- -- 679,000
Unrealized loss on investments
available for sale (Unaudited) -- (25,200) (25,200)
Net loss, six months ended
June 30, 1997 (Unaudited) (3,663,600) -- (3,663,600)
------------ -------- ------------
Balance, June 30, 1997
(Unaudited) $(18,172,500) $(20,800) $ 63,088,200
============ ======== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------- -----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(3,104,500) $(5,187,000) $(4,027,700) $(1,884,900)$(3,663,600)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 406,000 901,600 1,015,800 426,600 807,700
Provisions for receivables, net 428,400 271,800 395,600 115,800 80,200
Equity in losses of joint venture 315,800 1,839,700 2,010,900 1,031,200 763,400
Contributions to joint venture (300,000) (1,200,000) (2,505,500) (1,255,500) (700,000)
Issuance of shares of common stock for
payment of services 32,500 -- -- -- --
Cancellation of note receivable--employee -- 100,000 -- -- --
Increase in accounts receivable (2,977,100) (3,939,600) (5,634,100) (1,744,800) (2,669,400)
(Increase) decrease in due from
joint venture (375,300) (629,700) 628,400 328,200 84,200
Increase in inventories (2,313,000) (5,909,000) (2,738,400) (633,000) (7,903,200)
Increase in prepaid and other
current assets (105,000) (1,300) (330,600) (719,500) (401,400)
(Increase) decrease in other assets (137,300) 79,300 17,100 46,300 (11,200)
Increase in accounts payable and
accrued liabilities 2,520,900 6,429,600 5,628,900 3,936,600 4,295,600
Increase (decrease) in unearned revenue 19,500 (115,000) -- -- --
Decrease in due to related party (50,000) -- -- -- --
---------- ---------- ---------- ----------- ----------
Net cash used in operating
activities (5,639,100) (7,359,600) (5,539,600) (353,000) (9,317,700)
---------- ---------- ---------- ----------- ----------
Cash flows from investing activities
Purchase of property and equipment (2,721,000) (1,525,100) (6,909,300) (2,331,600) (5,161,400)
Purchase of investments available
for sale, net -- -- (26,887,600) (14,518,200) (7,340,800)
Disbursement of note receivable--related
party (200,000) -- -- -- --
Disbursement of note receivable
--employee (100,000) -- -- -- --
---------- ---------- ---------- ----------- ----------
Net cash used in investing
activities (3,021,000) (1,525,100) (33,796,900) (16,849,800) (12,502,200)
---------- ---------- ---------- ----------- ----------
Cash flows from financing activities
Proceeds from issuance of shares of common
stock, net 1,242,400 14,623,900 27,430,200 27,430,200 21,342,500
Proceeds from issuance of shares of
convertible preferred stock 6,000,000 -- -- -- --
Proceeds from exercise of stock options
and warrants -- 790,500 1,030,200 18,100 2,672,900
Net borrowings (repayments) under bank
loan 2,551,000 3,526,500 383,400 (1,658,900) 2,266,300
Proceeds from notes payable 36,100 30,100 501,900 501,900 --
Payment on notes payable (93,800) (90,700) (423,100) (61,600) (102,300)
---------- ---------- ---------- ----------- ----------
Net cash provided by financing
activities 9,735,700 18,880,300 28,922,600 26,229,700 26,179,400
--------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 1,075,600 9,995,600 (10,413,900) 9,026,900 4,359,500
Cash and cash equivalents, beginning
of period 2,770,200 3,845,800 13,841,400 13,841,400 3,427,500
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period $ 3,845,800 $13,841,400 $ 3,427,500 $22,868,300 $ 7,787,000
========== ========== ========== ========== ==========
Supplemental disclosure of cash paid
during the period for:
Interest $ 104,300 636,200 764,900 281,700 341,400
======= ======= ======= ======= =======
</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, 1994, 1995 AND 1996
(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 generic
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.
In June 1996, the Company completed an initial public offering (the
"IPO") of 2,530,000 shares of the Company's common stock. The gross proceeds
from the sale of such stock totaled approximately $30.4 million. The Company
anticipates that the net proceeds of $27.4 million will be used primarily for
research and product development activities and for capital expenditures.
The Company is subject to the risks and uncertainties associated with a
drug delivery company which has not commercialized its first product, including
a history of net losses, unproven technology, lack of manufacturing experience,
current and potential competitors with significant technical and marketing
resources, need for future capital and dependence on collaborative partners and
on key personnel. Additionally, the Company is subject to the risks and
uncertainties associated with all drug delivery companies, including compliance
with government regulations and the possibility of patent infringement
litigation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Andrx and its wholly 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 are considered cash equivalents.
INVESTMENTS AVAILABLE FOR SALE
The Company utilizes the provisions of Financial Accounting Standards
Board ("FASB") Statement on Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires that marketable equity securities and all debt securities be classified
into three categories: (i) held to maturity securities, (ii) trading securities,
and (iii) available for sale securities. The Company classifies its investments
as available for sale and, accordingly, any unrealized gain or loss is reported
as a separate component of shareholders' equity. The cost related to investments
available for sale is determined utilizing the specific identification method.
INVENTORIES
Inventories, which consist primarily 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, NET
Property and equipment are recorded at cost. Depreciation for laboratory
equipment, computer hardware and software 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 the commercial-scale manufacturing facility and related
equipment once they are placed into service.
In March 1995, the FASB issued SFAS No. 121 "Accounting For The
Impairment Of Long-Lived Assets" which requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstance indicate that
the carrying amount of an asset may not be recoverable. To determine a loss, if
any, to be recognized, the book value of the asset would be compared to the
market value or expected future cash flow value. The Company adopted the
provisions of SFAS No. 121 for the year ended December 31, 1996, as required.
Such adoption had no impact on the Company's results of operations or financial
position.
F-7
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
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 discounts, rebates and allowances.
Research and development services to joint venture and the related cost are
recognized at the time the services are rendered (see Note 7). Licensing revenue
is recognized when earned in accordance with the terms of the underlying
agreements (see Note 6).
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.
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 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. For the years ended December 31, 1994,
1995 and 1996, the Company recognized compensation costs under the provisions of
APB No. 25, and for the years ended December 31, 1995 and 1996 the Company has
provided the expanded disclosure required by SFAS No. 123 (see Note 11).
INCOME TAXES
The Company, at its inception, adopted the provisions of 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".
NET LOSS PER SHARE
For the year ended December 31, 1996, net loss per share is based on the
weighted average number of shares of common stock outstanding. Since the effect
of common stock equivalents was antidilutive, all such equivalents were excluded
in loss per share.
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued at prices below the public
offering price during the 12-month period prior to a 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 prior to the offering (using the
treasury stock method and the initial public offering price). Accordingly, the
weighted average number of shares of common stock outstanding for the years
ended December 31, 1994 and 1995 have been adjusted to reflect the impact of
such additional common and common equivalent shares issued below the initial
public offering price.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1995 and 1996, the carrying amount of cash and cash
equivalents, investments available for sale, accounts receivable, due from joint
venture, prepaid and other current assets, 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.
F-8
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized as follows:
DECEMBER 31,
-----------------------
1995 1996
---- ----
Manufacturing equipment $ 1,255,000 $ 3,923,900
Laboratory equipment 1,321,100 1,621,800
Leasehold improvements 754,900 3,780,500
Computer hardware and software 1,209,700 1,754,900
Furniture and fixtures 539,000 907,900
---------- ----------
5,079,700 11,989,000
Less: accumulated depreciation
and amortization (1,248,600) (2,264,400)
----------- ----------
Property and equipment, net $ 3,831,100 $ 9,724,600
=========== ===========
(4) INCOME TAXES
For the years ended December 31, 1994, 1995 and 1996, the Company was
not required to provide for federal or state income taxes due to its net losses.
Under the provisions of SFAS No. 109, 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, 1996, for financial
reporting purposes and federal income tax purposes, the Company has net
operating loss carryforwards of approximately $13 million and $10 million,
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
In January 1996, Anda Generics, Inc. ("Generics"), the Company's wholly
owned subsidiary engaged in the distribution of pharmaceutical products,
increased the maximum amount available under an existing line of credit from
$8,000,000 to $10,000,000 and the interest rate was decreased from the prime
rate plus 2.0% to the prime rate plus 1.5%. Borrowings under the line of credit
are only available for financing Generics' operations, are secured by all the
assets of that operation and are subject to a borrowing base related to the
value of Generics' accounts receivable and inventories. The loan is guaranteed
by Andrx Corporation and its other subsidiaries. The agreement requires
compliance with certain covenants including the maintenance of minimum working
capital and net worth levels by Generics.
In October 1996, the Company amended its line of credit agreement
whereby, amongst other things, the interest rate was decreased from the prime
rate (8.25% as of December 31, 1996) plus 1.5% to the prime rate plus 1.0%, the
unused commitment fee was reduced from .5% to .25%, and under certain
circumstances, permitted the payment of dividends, repayments and advances from
Generics to Andrx and its other subsidiaries.
F-9
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(6) LICENSING AGREEMENTS
In April 1996, the Company entered into a collaboration agreement for
the development of a brand name controlled-release pharmaceutical product 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 fexofenadine (previously known as terfenadine carboxylate), an
antihistamine being developed by Sepracor. A twice-a-day version of this drug
was approved by the FDA in 1996, and is marketed in the U.S. under the brand
name Allegra(R) by Hoechst Marion Roussel, Inc. ("HMR"). 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.
In December 20, 1996, Andrx entered into a worldwide licensing agreement
with ASTA Medica AG ("Asta Medica"), a subsidiary of Degussa AG, for the use of
dilazep, an orally administered drug to be used in the treatment of cancer.
Under the terms of the agreement, ASTA Medica will be responsible for clinical
development, the filing of a New Drug Application ("NDA") and the
commercialization of the product. Andrx will receive a royalty from ASTA Medica,
on worldwide net sales of the product and will be responsible for certain
royalty payments related thereto. Andrx originally licensing this technology,
which has now been patented, from The UAB Research Foundation.
The Company has entered into an agreement with a brand name
pharmaceutical company to apply one of its technologies to that company's brand
name marketed product in an attempt to develop a once-a-day version of that
product. If that company then wishes to utilize Andrx's technology in connection
with its product, the parties will attempt to negotiate a licensing agreement.
As a result of milestone payments in connection with these and previous
licensing agreements, Andrx received $175,000, $50,000 and $125,000, during the
years ended December 31, 1994, 1995 and 1996, respectively, of which $155,500,
$165,000 and $50,000, respectively, was recognized as licensing revenue.
(7) JOINT VENTURE
In July 1994, the Company and Circa Pharmaceuticals, Inc., now a wholly
owned subsidiary of Watson Pharmaceuticals, Inc. ("Watson") (the Company and
Watson are herein afterwards collectively referred to as 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 10). 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 loss 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 additional shares of
common stock of Andrx (see Note 10), 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 its investment in or its
commitment to this joint venture.
The agreements governing the ANCIRC joint venture require Dr. Chih-Ming
J. Chen, Pharmaceutical's President and the Company's 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) 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-10
<PAGE>
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
Condensed balance sheet and statement of operations information for
ANCIRC is as follows:
DECEMBER 31, JUNE 30,
--------------------
1995 1996 1997
---- ---- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash $ 84,900 $ 700,900 $ 154,100
Equipment, net -- 25,100 261,100
---------- --------- ---------
Total assets $ 84,900 $ 726,000 $ 415,200
========= ========== =========
Current liabilities $1,285,200 $ 1,047,800 $ 863,900
Partners' deficit (1,200,300) (321,800) (448,700)
----------- ---------- ----------
Total liabilities
and Partners' deficit $ 84,900 $ 726,000 $ 415,200
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM INCEPTION PERIOD
YEARS ENDED (JULY 8, 1994) TO SIX MONTHS ENDED FROM INCEPTION
PERIOD FROM INCEPTION DECEMBER 31, DECEMBER 31, JUNE 30, (JULY 8, 1994) TO
(JULY 8, 1994) TO ----------------- ---------------- ------------------ JUNE 30,
DECEMBER 31, 1994 1995 1996 1996 1996 1997 1997
--------------------- ---- ---- ---------------- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Research and
development
expenses $ 527,100 $ 3,183,700 $ 4,038,800 $ 7,749,600 $ 2,065,800 $ 1,546,600 $ 9,296,200
========= ========= ========== ========= ========= ========= =========
Net loss $ (526,400) $(3,173,900) $(4,021,800) $(7,722,100) $(2,062,400) $(1,526,900) $(9,249,000)
========= ========= ========= ========= ========= ========= =========
</TABLE>
During the period from ANCIRC's inception (July 8, 1994) to December 31,
1994 and for the years ended December 31, 1995 and 1996 Pharmaceuticals rendered
research and development services to ANCIRC of $375,300, $2,528,700 and
$2,205,900, respectively. These services were provided at cost which includes
research and development overhead allocations. As of December 31, 1995 and 1996,
the Company was due $1,005,000 and $376,600, respectively, from ANCIRC for
research and development services rendered. In the December 31, 1995 and 1996
consolidated balance sheets, such amounts due from the joint venture have been
offset by $516,500 and $62,500, 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. The Company is committed to the funding of ANCIRC's
future operations.
F-11
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(8) 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. Additionally, the Company entered into an employment agreement
with its vice president and chief financial officer.
The following schedule summarizes the future minimum payments under the
Company's employment agreements as of December 31, 1996:
1997 $700,500
1998 240,400
-------
$940,900
=======
PURCHASE COMMITMENTS
The Company has entered into agreements to purchase certain
manufacturing equipment and to construct a manufacturing facility with future
commitments of $719,600 and $2,118,600, respectively.
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, 1996:
1997 $ 779,300
1998 488,300
1999 406,800
2000 370,800
2001 354,700
Thereafter 868,900
---------
$3,268,800
=========
Rent expense amounted to $195,900, $209,800 and $445,600 for the years
ended December 31, 1994, 1995 and 1996, respectively.
(9) RELATED PARTY TRANSACTIONS
In March 1994, the Company entered into an amendment to a then existing
royalty agreement (the "March 1994 Amendment") with Dr. Chih-Ming J. Chen,
Pharmaceuticals' president. The March 1994 Amendment changes the amount of the
royalties due to Dr. Chen upon the sale of certain products, including one of
the products for which an ANDA was submitted to the FDA in 1995. These products
are not currently being sold or marketed. 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. In
1996, the board of directors canceled 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. In exchange for
additional consideration in the form of options to purchase shares of PSG common
stock , the Company agreed not to 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
F-12
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
net 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, 1994, 1995 and 1996, approximately
$851,200, $578,900 and $119,200, respectively, of distribution revenues were
generated from related parties, which were owned in part by the Company's
chairman of the board. In December 1994, one of these related parties filed for
Chapter 11 bankruptcy protection. During 1995, management provided an allowance
and wrote off the net outstanding balance of $157,000.
(10) SHAREHOLDERS' EQUITY
In December 1993 and January 1994, the Company sold an aggregate of
44.70 units (the "Placement Units") to various investors. 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. 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. In
December 1996, the Company registered, under the Securities Act of 1933, the
shares of common stock included in the Placement Units including the shares of
common stock issuable upon the exercise of the Placement Warrants and the Agents
Option.
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 stock 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 at an exercise price of $8.90 per share. This issuance was associated with
a joint venture agreement between the Company and Watson. See Note 7 for further
discussion of the joint venture.
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. 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 7 for
further discussion of the amendment to the joint venture agreement.
In June 1996, the Company completed its Initial Public Offering of
2,530,000 shares of the Company's common stock at a price of $12.00 per share.
The net proceeds from the sale of such stock totaled approximately $27.4
million.
(11) 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
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 1996, the
board of directors and shareholders approved an increase in the number of shares
available for grant in the Plan to 1,250,000.
The Company accounts for options granted under this Plan in accordance
with the provisions of APB No. 25. Each stock option has an exercise price equal
to the market price on the date of grant and, accordingly, no compensation
expense has been recorded for any stock option grants.
F-13
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
A summary of the Plan's activity is as follows:
NUMBER OF SHARES OPTION PRICE
UNDER OPTION PER SHARE
---------------- ------------
Outstanding, January 1, 1994 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 (74,000) 3.00 8.00
--------
Outstanding, December 31, 1995 766,625 3.00 11.00
Options granted 378,325 11.00 14.50
Options exercised (132,287) 3.00 11.00
Options forfeited (98,313) 3.00 14.44
--------
Outstanding, December 31, 1996 914,350 3.00 14.50
=======
The range of fair value per share as of the grant date was $2.60 to
$7.85 for stock options granted in 1995 and $3.76 to $10.31 for stock options
granted in 1996. The determination of the fair value of all stock options
granted in 1996 and 1995 was based on (i) risk- free interest rates of 5.5% to
6.1%, depending on the expected life of each option, (ii) expected option lives
1.5 years to 7.5 years, depending on the vesting provisions of each option,
(iii) expected volatility in the market price of the Company's common stock of
70%, and (iv) no expected dividends on the underlying stock.
The following table summarizes the pro forma consolidated results of
operations of the Company as though the fair value based accounting method of
SFAS No. 123 had been used in accounting for stock options.
1995 1996
---- ----
Net Loss As Reported $(5,187,000) $(4,027,700)
============== ==============
Pro Forma $(5,491,800) $(5,108,300)
============== ==============
Net Loss Per Share As Reported $ (0.55) $ (0.33)
============== ==============
Pro Forma $ (0.58) $ (0.42)
============== ==============
(12) 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 years ended December 31, 1995 and 1996, the Company contributed $63,600 and
$86,700, respectively, to the retirement plan.
(13) LITIGATION
In January 1996, HMR and Carderm Capital, L.P. (collectively,
"Hoechst"), filed suit against the Company claiming patent infringement as a
result of the Company's ANDA filing with the FDA in late 1995 for a generic
version of Cardizem CD(R). The Company responded to this claim by denying
infringement, raising various other defenses and by filing certain counterclaims
against Hoechst. While the Company believes its product does not infringe upon
any of the patents 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.
F-14
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
In May 1996, Rhone-Poulenc Rorer, Inc., and Jagotec AG (collectively
"RPR"), commenced a lawsuit against the Company claiming patent infringement as
a result of the Company's ANDA filing with the FDA in late 1995 for a
bioequivalent version of Dilacor XR(R). The Company denied infringement and
raised various other defenses in this claim. In December 1996, RPR agreed to
dismiss the patent infringement lawsuit and the parties signed a settlement
agreement which provided for the dismissal, without prejudice, of all claims and
counterclaims in the lawsuit. An Order of Dismissal was entered by the U.S.
District Court judge on January 7, 1997.
Patent infringement 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, for the years ended December 31, 1995 and 1996, the Company
provided for estimated litigation costs. Although the Company believes it has
adequately provided for such 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.
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. If
litigation is commenced, the Company intends to contest it.
(14) QUARTERLY UNAUDITED FINANCIAL RESULTS
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
1995
- ----
Net revenue $11,425,200 $12,212,000 $13,258,500 $16,265,800
Gross profit $ 1,820,000 $ 2,070,600 $ 2,360,200 $ 2,601,100
Net loss $ (653,700) $(1,134,000) $(1,096,500) $(2,302,800)
Net loss per share $ (0.07) $ (0.12) $ (0.11) $ (0.23)
1996
- ----
Net revenue $18,917,900 $20,413,300 $23,595,000 $26,050,500
Gross profit $ 2,991,100 $ 3,287,100 $ 3,843,500 $ 4,249,200
Net loss $ (722,400) $(1,162,500) $(1,018,100) $(1,124,700)
Net loss per share $ (0.07) $ (0.10) $ (0.08) $ (0.08)
(15) UNAUDITED SUBSEQUENT EVENT
In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with Hoechst related to the suit filed by Hoechst (the "Hoechst
Suit"). In the Stipulation, Andrx agreed that if the Hoechst Suit is not
concluded by the date the FDA grants final approval of the Company's ANDA for
the bioequivalent version of Cardizem/registered trademark/ CD, Andrx will not
commence the commercial sale of the product in the United States until a final
and unappealable judgment is issued. The Stipulation provides that upon
receiving final FDA approval of its ANDA, Andrx will begin to receive interim
payments from Hoechst of $10.0 million quarterly which, absent certain defaults
by Andrx, are nonrefundable. These payments will continue until the Hoechst Suit
is concluded or other events occur. The payments will increase retroactively if
Andrx prevails in the Hoechst Suit with a lump sum payment representing an
agreed amount of profits that Andrx would have earned had it begun to sell its
product upon receiving final FDA approval of its ANDA. The Stipulation also
provides Andrx with the option of licensing Hoechst's patents at certain times.
F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
ANCIRC Pharmaceuticals:
We have audited the accompanying balance sheets of ANCIRC Pharmaceuticals (a New
York general partnership in the development stage) as of December 31, 1995 and
1996, 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 years
ended December 31, 1995 and 1996, and for the cumulative period from inception
(July 8, 1994) to December 31, 1996. 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, 1995
and 1996, and the results of its operations and its cash flows for the period
from inception (July 8, 1994) to December 31, 1994, for the years ended December
31, 1995 and 1996, and for the cumulative period from inception (July 8, 1994)
to December 31, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 31, 1997.
F-16
<PAGE>
<TABLE>
<CAPTION>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
BALANCE SHEETS
ASSETS
DECEMBER 31, JUNE 30,
-------------------------- --------
1995 1996 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 84,927 $ 700,946 $154,123
---------- ---------- --------
Total current assets 84,927 700,946 154,123
Laboratory equipment, net of accumulated
depreciation of $6,278 and $12,298
(Unaudited), as of December 31, 1996
and June 30, 1997 -- 25,112 261,065
----------- ---------- --------
Total assets $ 84,927 $ 726,058 $415,188
========== ========== ========
LIABILITIES AND PARTNERS' DEFICIT
Current Liabilities:
Due to joint venture partners $1,275,830 $1,045,542 $863,795
Accounts payable 9,415 2,328 101
------------ ----------- ---------
Total current liabilities 1,285,245 1,047,870 863,896
----------- ---------- ---------
Partners' Deficit:
SR Six, Inc. (655,505) (160,906) (224,354)
Circasub, Inc. (544,813) (160,906) (224,354)
----------- ----------- ---------
Total partners' deficit (1,200,318) (321,812) (448,708)
----------- ----------- ---------
Total Liabilities and Partners'
Deficit $ 84,927 $ 726,058 $415,188
============ =========== =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets
F-17
<PAGE>
<TABLE>
<CAPTION>
ANCIRC PHARMACEUTICAL
(A DEVELOPMENT STAGE PARTNERSHIP)
STATEMENTS OF OPERATIONS
CUMULATIVE
PERIOD FROM CUMULATIVE PERIOD FROM
INCEPTION PERIOD FROM INCEPTION
(JULY 8, INCEPTION (JULY 8,
1994) (JULY 8, 1994) 1994)
TO YEAR ENDED TO SIX MONTHS ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1997 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Research and development
expenses
Purchased research and $422,189 $2,825,305 $3,841,625 $7,089,119 $1,962,026 $1,368,323 $8,457,442
development services
Operating supplies 83,813 310,638 142,871 537,322 91,000 100,153 637,475
Other 21,140 47,824 54,277 123,241 12,738 78,093 201,334
-------- ---------- ---------- ---------- ---------- ---------- ----------
Loss from operations (527,142) (3,183,767) (4,038,773) (7,749,682) (2,065,764) (1,546,569) (9,296,251)
-------- ---------- ---------- ---------- ---------- ---------- ----------
Interest income 762 9,829 16,961 27,552 3,328 19,673 47,225
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss $(526,380) $(3,173,938) $(4,021,812) $(7,722,130)$(2,062,436) (1,526,896) $(9,249,026)
======== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
F-18
<PAGE>
<TABLE>
<CAPTION>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
STATEMENTS OF PARTNERS' DEFICIT
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 partner 2,505,505 2,394,813 4,900,318
Net loss (2,010,906) (2,010,906) (4,021,812)
----------- ----------- -----------
Balance, December 31, 1996 (160,906) (160,906) (321,812)
Additional contributions by joint venture 700,000 700,000 1,400,000
partners (Unaudited)
Net loss (Unaudited) (763,448) (763,448) (1,526,896)
----------- ----------- -----------
Balance June 30, 1997 (Unaudited) $ (224,354) $ (224,354) $ (448,708)
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
F-19
<PAGE>
<TABLE>
<CAPTION>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
STATEMENTS OF CASH FLOWS
CUMULATIVE
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JULY 8, 1994) (JULY 8, 1994)
TO YEAR ENDED TO SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 1996 1996 1997
---- ---- ---- ---- ---- ----
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(526,380) $(3,173,938) $(4,021,812) $(7,722,130) $(2,062,436) $(1,526,896)
Depreciation -- -- 6,278 6,278 3,139 6,020
Increase (decrease) due
to joint venture partners 526,980 748,850 (230,288) 1,045,542 (382,553) (181,747)
Increase (decrease) in accounts
payable -- 9,415 (7,087) 2,328 (7,915) (2,227)
-------- ---------- ---------- ---------- ---------- ----------
Cash provided by (used in)
operating activities 600 (2,415,673) (4,252,909) (6,667,982) (2,449,765) (1,704,850)
-------- ---------- ---------- ---------- ---------- ----------
Cash flows from investing activities
Purchase of laboratory
equipment -- -- (31,390) (31,390) (31,390) (241,973)
-------- ---------- ---------- ---------- ---------- ----------
Cash used in investing activities -- -- (31,390) (31,390) (31,390) (241,973)
--------- ---------- ---------- ---------- ---------- ----------
Cash flows from financing activities
Contributions by joint venture
partners 500,000 2,000,000 4,900,318 7,400,318 2,400,317 1,400,000
--------- ---------- ---------- ---------- ---------- ----------
Cash provided by
financing activities 500,000 2,000,000 4,900,318 7,400,318 2,400,317 1,400,000
--------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents 500,600 (415,673) 616,019 700,946 (80,838) (546,823)
Cash and cash equivalents,
beginning of period -- 500,600 84,927 -- 84,927 700,946
-------- ---------- ---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period $500,600 $ 84,927 $ 700,946 $ 700,946 $ 4,089 $ 154,123
======== ========== ========== ========== ========== ==========
CUMULATIVE
PERIOD FROM
INCEPTION
(JULY 8, 1994)
TO
JUNE 30,
1997
----
(UNAUDITED)
<S> <C>
Cash flows from operating activities $(9,249,026)
Net loss 12,298
Depreciation
Increase (decrease) due
to joint venture partners 863,795
Increase (decrease) in accounts
payable 101
----------
Cash provided by (used in) (8,372,832)
operating activities ----------
Cash flows from investing activities
Purchase of laboratory
equipment (273,363)
----------
Cash used in investing activities (273,363)
----------
Cash flows from financing activities
Contributions by joint venture
partners 8,800,318
----------
Cash provided by
financing activities 8,800,318
Net increase (decrease) in
cash and cash equivalents 154,123
Cash and cash equivalents,
beginning of period --
----------
Cash and cash equivalents,
end of period $ 154,123
==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements
F-20
<PAGE>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) GENERAL:
ANCIRC Pharmaceuticals, a joint venture ("ANCIRC"), was formed on July 8,
1994 by SR Six, Inc., a wholly owned subsidiary of Andrx Corporation (the "Andrx
Partner") and Circasub, Inc., 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
at least eight controlled-release generic pharmaceutical products. The Andrx
Partner will cause certain of its other subsidiaries to 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, 1996, 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, 1996, since inception (July 8, 1994), ANCIRC has incurred
net losses of $7,722,130. 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 the funding of ANCIRC's 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 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 due to the short maturity of
these instruments.
LABORATORY EQUIPMENT
Laboratory equipment is recorded at cost and depreciation is provided using
the straight-line method over an estimated life of five years.
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-21
<PAGE>
ANCIRC PHARMACEUTICALS
(A DEVELOPMENT STAGE PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
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.
(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, 1995, amounts due to the Andrx Partner and the Watson Partner
were $1,004,986 and $270,844, respectively. As of December 31, 1996, ANCIRC had
amounts due to the Andrx Partner and the Watson Partner of $376,633 and
$668,909, 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:
As discussed in Note (1), as of the Amendment Date, the interest of the
Andrx Partner and the Watson Partner shall each be 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-22
<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............................................................
Forward-Looking Statements....................................................
Available Information.........................................................
Risk Factors..................................................................
Use of Proceeds...............................................................
Dividend Policy...............................................................
Price Range of Common Stock...................................................
Capitalization................................................................
Selected Consolidated Financial Data..........................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................
Business......................................................................
Management....................................................................
Certain Transactions..........................................................
Principal Shareholders........................................................
Selling Shareholders..........................................................
Description of Capital Stock..................................................
Shares Eligible for Future Sale...............................................
Plan of Distribution..........................................................
Legal Matters.................................................................
Experts.......................................................................
Available Information.........................................................
Index to Financial Statements.................................................
--------------
502,065 SHARES
[ANDRX CORPORATION LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
____________, 1997
================================================================================
<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......... $ 3,285
Printing and engraving expenses............................. 15,000
Accounting fees and expenses................................ 15,000
Legal fees and expenses..................................... 30,000
Transfer Agent's fees and expenses.......................... 5,000
Miscellaneous............................................... 2,500
---------
TOTAL....................................................... $ 70,785
========
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
Registrant has also agreed to indemnify the Selling Shareholders named in the
Registration Statement against certain liabilities, including liabilities under
the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. In June 1997, the Company sold an aggregate of 880,000 shares of
Common Stock to two entities for an aggregate consideration of $22.4 million or
$25.50 per share, including 150,000 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.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Form of Registrant's Amended and Restated Articles of
Incorporation(1)
3.2 Form of Registrant's Amended and Restated Bylaws(1)
4.1 Specimen Common Stock Certificate(1)
5.1 Opinion of Broad and Cassel(2)
10.1 Form of Stock Incentive Plan, as amended(1)*
10.2 Employment Agreement between the Registrant and Alan P
Cohen, as amended(1)*
10.3 Employment Agreement between the Registrant and Elliot
E Hahn, as amended(1)*
10.4 Employment Agreement between the Registrant and
Chih-Ming J. Chen, as amended(1)*
10.5 Severance Agreement between the Registrant and Scott
Lodin (1)*
10.6 Royalty Agreement between the Registrant and Chih-Ming
J. Chen, as amended(1)*
10.7 Form of Indemnification Agreement between the
Registrant and its officers and directors(1)*
10.8 Development and License Agreement dated as of June 28,
1993 by and between Zenith Laboratories, Inc. and the
Registrant(1)(3)
10.9 Technical Transfer Agreement dated as of July 30, 1993
by and between Yung Shin Pharmaceutical Ind. Co. Ltd.
and the Registrant(1)(3)
10.10 Development and License Agreement dated as of
September 22, 1993 by and between Circa
Pharmaceuticals, Inc. and the Registrant(1)(3)
10.11 Development and License Agreement dated as of November
10, 1993 by and between Mylan Pharmaceuticals Inc. and
the Registrant(1)(3)
10.12 Development and License Agreement dated as of December
7, 1993 by and between Circa Pharmaceuticals, Inc. and
the Registrant(1)(3)
10.13 Development and License Agreement dated as of January
17, 1994 by and between Purzer Pharmaceutical Co.,
Ltd. and the Registrant(1)(3)
10.14 Lease Agreement relating to premises located at 4001
S.W. 47th Avenue, Fort Lauderdale, Florida(1)
10.15 Lease Agreement relating to premises located at 4011
S.W. 47th Avenue, Fort Lauderdale, Florida(1)
10.16 Lease Agreement relating to premises located at 3436
University Drive, Davie, Florida(1)
10.17 Loan and Security Agreement by and between Congress
Financial Corporation (Florida) and the Registrant, as
amended(1)
10.18 ANCIRC General Partnership Agreement between Circa
Pharmaceuticals, Inc. and the Registrant, as amended(1)
10.19 Research and Development Services Agreement dated as
of July 8, 1994 by and between ANCIRC and the
Registrant, as amended(1)
10.20 Manufacturing and Regulatory Approval Agreement dated
as of July 8, 1994 by and between Circa
Pharmaceuticals, Inc. and ANCIRC, as amended(1)
10.21 Distribution and Marketing Agreement dated as of July
8, 1994 between ANCIRC and the Registrant, as
amended(1)
10.22 Patent and Know How License Agreement dated as of July
8, 1994 between ANCIRC and the Registrant, as
amended(1)
10.23 Patent and Know How License Agreement dated as of July
8, 1994 between Circa Pharmaceuticals, Inc. and
ANCIRC, as amended(1)
10.24 Securities Purchase Agreement dated as of July 8, 1994
between the Registrant and Circa Pharmaceuticals,
Inc.(1)
10.25 Securities Purchase Agreement dated as of August 17,
1995 between the Registrant and Watson
Pharmaceuticals, Inc.(1)
10.26 Securities Purchase Agreement dated October 30, 1995
between Circa Pharmaceuticals, Inc. and the
Registrant(1)
10.27 Development Agreement between Sepracor, Inc. and the
Registrant(1)(3)
10.28 Sixth Amendment to the Loan and Security Agreement by
and between Congress Financial Corporation (Florida)
and Registrant(4)
10.29 Employment Agreement between the Registrant and Angelo
C. Malahias(5)*
10.30 First Amendment to Lease Agreement relating to the
premises located at 3436 University Drive, Davie,
Florida(5)
21.1 Subsidiaries of the Registrant(1)
23.1 Consent of Broad and Cassel (included in its opinion
filed as Exhibit 5.1)(2)
II-2
<PAGE>
23.2 Consent of Arthur Andersen LLP(6)
24.1 Powers of Attorney (included on the signature page of
this Registration Statement)(2)
- -------------------
* Management Compensation Plan or Arrangement
(1) Filed as an Exhibit of the same number to the Company's
Registrant Statement on Form S-1 (File No. 333- 03614) and
incorporated herein by reference.
(2) Previously filed.
(3) A request for confidential treatment pursuant to Rule 406 under the
Securities Act has been made and granted for certain portions of this
Exhibit.
(4) Filed as an Exhibit of the same number to the Company's Quarterly Report
on Form 10-Q for the Period Ended September 30, 1996 and incorporated
herein by reference.
(5) Filed as an Exhibit of the same number to the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1996 and incorporated herein by
reference.
(6) Filed herewith.
(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-2
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:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-3
<PAGE>
(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 that 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,a s amended,
the Registrant has duly caused this Registrant Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Fort
Lauderdale, State of Florida, on October 21, 1997.
ANDRX CORPORATION
By: /S/ ALAN P. COHEN
------------------
Alan P. Cohen, Chief Executive Officer
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 Executive Officer October 21, 1997
Alan P. Cohen and Director (principal
executive officer)
/S/ ELLIOT F. HAHN President and Director October 21, 1997
- ------------------
Elliot F. Hahn, Ph.D.
/S/ CHIH-MING J. CHEN Vice President and Director October 21, 1997
- ---------------------
Chih-Ming J. Chen, Ph.D.
/S/ ANGELO C. MALAHIAS Vice President and Chief October 21, 1997
- ---------------------- Financial Officer (principal
Angelo C. Malahias financial and accounting
officer)
* Director October 21, 1997
- -----------------------
Elaine Bloom
* Director October 21, 1997
- ------------------------
Irwin C. Gerson
* Director October 21, 1997
- ------------------------
Elliot Levine
* Director October 21, 1997
- ------------------------
Michael Schwartz, Ph.D.
* Director October 21, 1997
- ------------------------
Melvin Sharoky, M.D.
* By: /S/ ELLIOT F. HAHN
-------------------
Elliot F. Hahn, Ph.D., Attorney-in-Fact
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Shareholders 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
<TABLE>
<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING
ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
BALANCE AT BALANCE
BEGINNING AT END
OF OF
YEAR ADDITIONS DEDUCTIONS YEAR
---------- --------- ---------- -------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
Year ended December
31, 1996, allowance
for doubtful accounts $574,200 $576,800 $(181,200) $969,800
======== ======== ======== ========
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
23.2 Consent of Arthur Andersen LLP
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,
October 21, 1997.
