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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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Commission file number 0-28454
ANDRX CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0366879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 SOUTHWEST 47TH AVENUE 33314
FORT LAUDERDALE, FL (Zip Code)
(Address of Principal Executive Offices)
954-584-0300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES X NO _________
As of August 3, 1998, 15,060,400 shares of the Registrant's only class
of common stock were issued and outstanding.
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<CAPTION>
ANDRX CORPORATION
INDEX TO THE FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
PAGE NUMBER
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INDEX TO FORM 10-Q 2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
as of June 30, 1998 (Unaudited) and December 31, 1997 3
Consolidated Statements of Operations - (Unaudited)
for the three and six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows - (Unaudited)
for the six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements - (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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ANDRX CORPORATION
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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<CAPTION>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1998 1997
--------------- ----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,910 $ 6,625
Investments available-for-sale 7,473 18,918
Accounts receivable, net of allowances of $1,833 (unaudited) and
$1,589 as of June 30, 1998 and December 31, 1997, respectively 26,354 22,632
Inventories 44,940 25,901
Investment in and due from joint venture, net 365 416
Prepaid and other current assets 653 636
--------------- ----------------
Total current assets 85,695 75,128
Property, plant and equipment, net 17,921 15,403
Other assets 443 314
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Total assets $ 104,059 $ 90,845
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 30,782 $ 24,299
Accrued liabilities 6,716 5,147
Bank loan 6,763 538
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Total current liabilities 44,261 29,984
--------------- ----------------
Commitments and contingencies
Shareholders' equity
Convertible preferred stock; $0.001 par value, 1,000,000 shares authorized;
none issued and outstanding as of June 30, 1998
(unaudited) and December 31, 1997 - -
Common stock; $0.001 par value, 25,000,000 shares authorized;
15,040,200 (unaudited) and 14,856,700 shares issued and
outstanding as of June 30, 1998 and December 31, 1997, respectively 15 15
Additional paid-in capital 84,600 82,954
Accumulated deficit (24,822) (22,145)
Unrealized gain on investments available-for-sale 5 37
--------------- ----------------
Total shareholders' equity 59,798 60,861
--------------- ----------------
Total liabilities and shareholders' equity $ 104,059 $ 90,845
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
---------------- --------------- ----------------- ---------------
<S> <C> <C> <C>
Revenues
Distributed products, net $ 52,855 $ 32,559 $ 100,935 $ 63,221
Manufactured products, net 2,674 - 5,289 -
Licensing 426 - 426 -
---------------- --------------- ----------------- ---------------
Total revenues 55,955 32,559 106,650 63,221
---------------- --------------- ----------------- ---------------
Operating expenses
Cost of distributed products 44,880 27,658 85,819 53,546
Manufacturing costs 1,308 472 2,306 472
(including idle facility costs)
Selling, general and administrative 6,395 4,463 12,475 8,179
Research and development 4,084 1,686 7,180 3,730
Equity in losses of joint venture 388 360 686 763
Software development and administration 746 305 1,236 576
---------------- --------------- ----------------- ---------------
Total operating expenses 57,801 34,944 109,702 67,266
---------------- --------------- ----------------- ---------------
Loss from operations (1,846) (2,385) (3,052) (4,045)
Interest income 230 336 523 722
Interest expense (102) (211) (148) (341)
---------------- --------------- ----------------- ---------------
Net loss $ (1,718) $ (2,260) $ (2,677) $ (3,664)
================ =============== ================= ===============
Basic and diluted net loss per share $ (0.11) $ (0.16) $ (0.18) $ (0.27)
================ =============== ================= ===============
Basic and diluted weighted average shares of
common stock outstanding 15,019,500 13,782,700 14,954,200 13,640,700
================ =============== ================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
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ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities
Net loss $ (2,677) $ (3,664)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 1,472 808
Provision for accounts receivable, net 244 80
Options granted to consultants 100 -
Equity in losses of joint venture 686 763
Contributions to joint venture (900) (700)
Increase in accounts receivable (3,966) (2,669)
Decrease in due from joint venture 265 84
Increase in inventories (19,039) (7,903)
Increase in prepaid and other current assets (17) (401)
Increase in other assets (129) (11)
Increase in accounts payable and accrued liabilities 8,052 4,194
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Net cash used in operating activities (15,909) (9,419)
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Cash flows from investing activities
Maturity (purchase) of investments available-for-sale 11,413 (7,341)
Purchase of property, plant and equipment (3,990) (5,162)
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Net cash provided by (used in) investing activities 7,423 (12,503)
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Cash flows from financing activities
Net borrowings under bank loan 6,225 2,266
Proceeds from issuance of shares of common stock, net - 21,342
Proceeds from exercises of stock options and warrants 1,546 2,673
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Net cash provided by financing activities 7,771 26,281
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Net increase (decrease) in cash and cash equivalents (715) 4,359
Cash and cash equivalents, beginning of period 6,625 3,428
------------ ----------------
Cash and cash equivalents, end of period $ 5,910 $ 7,787
============ ================
Supplemental disclosure of cash paid during the period for:
Interest $ 148 $ 341
============ ================
</TABLE>
See accompanying notes to consolidated financial statements
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ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared by Andrx Corporation ("Andrx" or the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations. However, management believes that the disclosures
contained herein are adequate to make the information presented not misleading.
The unaudited consolidated financial statements reflect, in the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to present fairly the Company's financial position and
results of operations. The results of operations for the three and six months
ended June 30, 1998 and the cash flows for the six months ended June 30, 1998,
are not necessarily indicative of the results of operations or cash flows which
may be expected for the remainder of 1998. The unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes for the year ended December 31, 1997, included in
the Company's December 31, 1997, Form 10-K.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. COMPREHENSIVE LOSS
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income", effective January
1, 1998. SFAS No. 130, establishes standards for reporting and presentation of
comprehensive income or loss and its components in financial statements. The
components of the Company's comprehensive loss are as follows:
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net loss $ (1,718) $ (2,260) $ (2,677) $ (3,664)
Unrealized loss on investments
available-for-sale (23) (15) (32) (25)
-------------- -------------- -------------- ---------------
Comprehensive loss $ (1,741) $ (2,275) $ (2,709) $ (3,689)
============== ============== ============== ===============
</TABLE>
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ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
JUNE 30, 1998
(UNAUDITED)
3. JOINT VENTURE
Condensed unaudited balance sheet and statement of operations
information for ANCIRC Pharmaceuticals, the Company's 50/50 joint venture with
Watson Pharmaceuticals, Inc., are as follows:
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JUNE 30, DECEMBER 31,
1998 1997
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ASSETS (IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents $ 478 $ 416
Inventories 312 312
Laboratory equipment, net 209 237
-------------- ------------------
Total assets $ 999 $ 965
============== ==================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities $ 655 $ 1,050
Partners' equity (deficit) 344 (85)
-------------- ------------------
Total liabilities and partners' equity (deficit) $ 999 $ 965
============== ==================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Research and development expenses $ 779 $ 733 $ 1,378 $ 1,547
============= ============= ============= =============
Net loss $ (775) $ (721) $(1,371) $(1,527)
============= ============= ============= =============
</TABLE>
As of June 30, 1998 and December 31, 1997, the Company was due $193,000 and
$458,000, respectively, from ANCIRC Pharmaceuticals for research and development
services rendered. Such amounts are included in "Investment in and due from
joint venture, net" in the accompanying consolidated balance sheets. The Company
is committed to the funding of ANCIRC Pharmaceuticals' future operations.
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ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
4. CARDIZEM/Registered trademark/ CD
Andrx is party to a Stipulation and Agreement (the "Stipulation") with
Hoechst Marion Roussel, Inc. and Carderm Capital L.P. (collectively, "Hoechst")
arising out of a patent infringement claim brought against the Company by
Hoechst (the "HMR Litigation") relating to the Company's bioequivalent version
of Cardizem/Registered trademark/ CD. Andrx and Hoechst entered into the
Stipulation in partial settlement of the HMR Litigation in order to reduce the
risks that both parties face as the case is litigated to its conclusion. Andrx
agreed to maintain the status quo in connection with the marketing of its
product and to dismiss certain claims against Hoechst. Hoechst agreed to
compensate Andrx for any lost profits, which are stipulated to be $100.0 million
per year, if Andrx ultimately prevails in the HMR Litigation. Hoechst also
agreed to make non-refundable quarterly payments of $10.0 million to Andrx,
beginning upon Andrx' receipt of final U.S. Food and Drug Administration ("FDA")
approval for its bioequivalent version of Cardizem/Registered trademark/ CD and
continuing until either the HMR Litigation is resolved or certain other events
occur. Such quarterly payments are to be credited against the payments of the
stipulated lost profits if Andrx prevails in the HMR Litigation. In July 1998,
the Company received both final FDA marketing approval for its bioequivalent
version of Cardizem/Registered trademark/ CD and its first quarterly payment for
$9.1 million (prorated for the 84 days in the quarter ending September 30,
1998).
5. CONTINGENCIES
In May 1998, Astra Aktiebolag, Aktiebolaget Hassle, Astra Merck
Enterprises Inc. and Astra Merck Inc. (collectively, "Astra"), filed suit
against the Company claiming patent infringement as a result of the Company's
Abbreviated New Drug Application ("ANDA") filing with the FDA for
Prilosec/Registered trademark/ (omeprazole). In June 1998, the Company responded
to this claim by denying infringement, raising various other defenses and by
filing certain counterclaims against Astra. While the Company believes its ANDA
does not provide any basis for the alleged claim of infringement, the ultimate
resolution of this matter is not currently known and may delay or prevent the
Company from obtaining an approval to market from the FDA related to this ANDA.
Claims of this nature may be made by other pharmaceutical companies in
connection with the Company's filing of other ANDAs with the FDA. The Company
evaluates the probability of patent infringement litigation with respect to each
of its ANDA submissions on a case by case basis. Although the Company believes
it has adequately provided for these matters based on the current available
information, the Company may incur additional litigation costs in future years
which may be material to the Company's results of operations and financial
position.
On March 18, 1998, Andrx received a letter from counsel for Medix
Resources, Inc. ("Medix") and its subsidiary Cymedix Lynx Corporation
("Cymedix") alleging the theft and unlawful appropriation by CyBear, Inc.
("CyBear", the Company's Internet based healthcare communications technology
subsidiary), Andrx, and certain directors, officers and employees of
8
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ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
CyBear and Andrx, of certain computer medical software and Internet medical
communications technology allegedly owned by Cymedix. The letter demands trebled
damages totaling $396.6 million pursuant to the civil theft provisions of
Florida law, and also alleges claims under Florida's Racketeer Influenced and
Corrupt Organization Act and certain other provisions of federal and state law.
CyBear and Andrx believe that Medix' and Cymedix' accusations and threatened
claims have no basis in substantial fact or legal support and on March 23, 1998,
CyBear and Andrx filed a complaint against Medix and Cymedix for libel and
slander arising from the improper public dissemination of the contents of the
aforesaid demand letter with respect to each of the matters set forth in the
aforesaid demand letter. CyBear and Andrx intend to vigorously prosecute their
complaints, which seek damages, costs, interest and attorneys' fees. On June 2,
1998, Medix, on behalf of Cymedix, filed a complaint against CyBear, Andrx and
certain directors, officers and employees of CyBear and Andrx alleging the theft
and unlawful appropriation of Cymedix' computer medical software for remote
online healthcare providers and Internet medical communications technology
allegedly owned by Cymedix. Medix is seeking treble damages totaling $396.0
million. CyBear and Andrx believe that Medix' suit has no basis in substantial
fact or legal support and is without merit, and intend to vigorously defend
themselves against these claims.
On January 13, 1998, Andrx Pharmaceuticals, Inc. ("Andrx
Pharmaceuticals", the Company's wholly owned subsidiary engaged in the
development, manufacture, and sale of bioequivalent pharmaceuticals) filed a
complaint for an Injunction and Declaratory Judgement against the FDA, Faulding,
Inc. and Biovail Corporation International ("Biovail") seeking, inter alia, an
order directing the FDA to provide the Company with a 180 day period of
marketing exclusivity for its bioequivalent formulations of Dilacor
XR/Registered trademark/ and Cardizem/Registered trademark/ CD. On or about May
15, 1998, Biovail Corporation International ("Biovail") filed a counterclaim
against Andrx Pharmaceuticals for alleged violations of Sections 1 and 2 of the
Sherman-Antitrust Act and a declaratory judgment as to federal law as well as
for alleged violations of state common law of unfair competition, tortious
interference with prospective advantage and tortious interference with contract.
Biovail seeks injunctive relief and treble the amount of its proved actual
damages in an unspecified amount, plus interest, with respect to its federal law
claims, and actual and punitive damages in unspecified amounts, plus interest,
with respect to its common law claims. The Company believes that Biovail's
claims have no merit and, on July 10, 1998, Andrx Pharmaceuticals filed a motion
to dismiss the counterclaim upon the ground that it fails to state a claim upon
which relief can be granted.
From time to time, the Company may be involved in litigation relating
to claims arising out of its operations in the normal course of business. Except
for the matters disclosed above or in the Company's Form 10-K for the year ended
December 31, 1997, the Company is not currently a party to any other legal
proceeding, the adverse outcome of which, individually or in
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ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
the aggregate, could reasonably be expected to have a material adverse effect on
the Company's business, operating results and financial condition.
The litigation process is inherently uncertain and it is possible that
the resolution of the matters disclosed above may adversely affect the Company.
Except as noted above, there have been no material developments in any legal
matters since the Company's Form 10-K for the year ended December 31, 1997.
6. CYBEAR MERGER WITH PUBLIC SHELL
In July 1998, CyBear entered into a merger agreement with 1997 Corp.
1997 Corp. is a "blank check" company that has a registration statement on file
with the SEC to seek a business combination with an operating entity. On July
28, 1998, 1997 Corp. filed a post-effective amendment to its Form SB-2
Registration Statement, to consummate the merger with CyBear. The merger is
expected to be effective in or about October 1998. Once effective, the current
1997 Corp. shareholders will own approximately 2% of the outstanding shares of
common stock of CyBear.
10
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ANDRX CORPORATION
PART I
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANDRX CORPORATION AND SUBSIDIARIES ("ANDRX" OR THE "COMPANY") CAUTIONS
READERS THAT CERTAIN IMPORTANT FACTORS MAY AFFECT THE COMPANY'S ACTUAL RESULTS
AND COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING
STATEMENTS WHICH MAY BE DEEMED TO HAVE BEEN MADE IN THIS REPORT OR WHICH ARE
OTHERWISE MADE BY OR ON BEHALF OF THE COMPANY. FOR THIS PURPOSE, ANY STATEMENTS
CONTAINED IN THIS REPORT 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," "COULD," "WOULD," "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 AND UNCERTAINTIES ASSOCIATED WITH A
DRUG DELIVERY COMPANY WHICH HAS ONLY RECENTLY COMMERCIALIZED ITS FIRST PRODUCT,
INCLUDING A HISTORY OF NET LOSSES, RELATIVELY UNPROVEN TECHNOLOGIES, LIMITED
MANUFACTURING EXPERIENCE, CURRENT AND POTENTIAL COMPETITORS WITH SIGNIFICANT
TECHNICAL AND MARKETING RESOURCES AND DEPENDENCE ON COLLABORATIVE PARTNERS AND
ON KEY PERSONNEL. ADDITIONALLY, THE COMPANY IS SUBJECT TO THE RISKS AND
UNCERTAINTIES ASSOCIATED WITH ALL DRUG DELIVERY AND PHARMACEUTICAL DISTRIBUTION
COMPANIES, INCLUDING, BUT NOT LIMITED TO, COMPLIANCE WITH GOVERNMENT REGULATIONS
AND THE POSSIBILITY OF PATENT INFRINGEMENT LITIGATION. THE COMPANY IS ALSO
SUBJECT TO OTHER RISKS DETAILED HEREIN OR DETAILED FROM TIME TO TIME IN THIS
REPORT AND THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
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
bioequivalent versions of controlled-release pharmaceuticals utilizing its
proprietary drug delivery technologies. During 1996 the Company commenced its
efforts to develop brand name controlled-released products and Internet based
software applications for healthcare providers. Through October 9, 1997, the
Company's distribution operations had generated substantially all of its
revenues. On October 10, 1997, the U.S. Food and Drug Administration ("FDA")
granted final approval of the Abbreviated New Drug Application ("ANDA") for the
Company's bioequivalent version of Dilacor XR/Registered trademark/, its first
manufactured product, which the Company immediately launched.
Andrx is party to a Stipulation and Agreement (the "Stipulation") with
Hoechst Marion Roussel, Inc. and Carderm Capital L.P. (collectively "Hoechst")
arising out of a patent infringement claim brought against the Company by
Hoechst (the "HMR Litigation") relating to the Company's bioequivalent version
of Cardizem/Registered trademark/ CD. Andrx and Hoechst entered into the
Stipulation in partial settlement of the HMR Litigation in order to reduce the
risks that both parties face as the case is litigated to its conclusion. Andrx
agreed to maintain the status quo in connection with the marketing of its
11
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product and to dismiss certain claims against Hoechst. Hoechst agreed to
compensate Andrx for any lost profits, which are stipulated to be $100.0 million
per year, if Andrx ultimately prevails in the HMR Litigation. Hoechst also
agreed to make non-refundable quarterly payments of $10.0 million to Andrx,
beginning upon Andrx' receipt of final FDA approval for its bioequivalent
version of Cardizem/Registered trademark/ CD and continuing until the HMR
Litigation is resolved or certain other events occur. Such quarterly payments
are to be credited against the payments of the stipulated lost profits if Andrx
prevails in the HMR Litigation. In July 1998, the Company received both final
FDA marketing approval for its bioequivalent version of Cardizem/Registered
trademark/ CD and its first quarterly payment for $9.1 million (prorated for the
84 days in the quarter ending September 30, 1998).
The Company is a 50% partner in ANCIRC Pharmaceuticals ("ANCIRC"), a
joint venture with Watson Pharmaceuticals, Inc. ("Watson"), for the development
of up to eight controlled-release pharmaceutical products. Capital contributions
to, distributions from, and net income or losses generated by ANCIRC are
allocated equally between the Company and Watson. The Company is also party to
development and licensing agreements for additional controlled-release products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998, AS COMPARED TO THREE MONTHS ENDED
JUNE 30, 1997.
Net sales from distributed products were $52.9 million for the three
months ended June 30, 1998 ("1998 Quarter"), an increase of $20.3 million or
62.3%, as compared to $32.6 million for the three months ended June 30, 1997
("1997 Quarter"). The increase in net sales from distributed products reflects
an increase in sales to customers, as well as an increase in the number of
customers.
For the 1998 Quarter, net sales from the Company's first manufactured
product, a bioequivalent version of Dilacor XR/Registered trademark/, were $2.7
million.
Licensing revenues of $426,000 were generated in the 1998 Quarter from
the Company's domestic and international licensing arrangements.
Gross profit on net sales from distributed products was $8.0 million or
15.1% in the 1998 Quarter, an increase of $3.1 million or 62.7% as compared to
$4.9 million or 15.1% in the 1997 Quarter. The Company expects that continuing
competition and pricing pressures within the generic pharmaceutical industry may
reduce the Company's gross profit percentage on net sales from distributed
products in future periods.
Manufacturing costs, which include costs of manufactured products sold
and idle manufacturing facility costs, were $1.3 million in the 1998 Quarter, as
compared to $472,000 in the 1997 Quarter. The increase in manufacturing costs
primarily relates to the costs of manufactured products sold in the 1998
Quarter. The Company's first manufactured product was launched in October 1997.
While the Company commenced its commercial-scale manufacturing operation in the
second quarter of 1997, the manufacturing facility was not fully
12
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utilized for its commercial manufacturing operations during the 1998 Quarter and
the 1997 Quarter. As the Company increases its production of saleable products
in the future periods, manufacturing costs will be absorbed as a component of
the cost of inventory.
Selling, general and administrative expenses as a percentage of total
revenues decreased to 11.4% for the 1998 Quarter, as compared to 13.7% for the
1997 Quarter. Selling, general and administrative expenses increased to $6.4
million in the 1998 Quarter, as compared to $4.5 million in the 1997 Quarter,
primarily due to an increase in the selling activities necessary to support the
increase in sales from distributed products and sales from the Company's first
manufactured product.
Research and development expenses increased to $4.1 million in the 1998
Quarter, as compared to $1.7 million in the 1997 Quarter. This increase of $2.4
million or 142.2% in research and development expenses reflects the progress and
expansion of activities in the Company's ANDA program to develop bioequivalent
controlled-release products and the expansion of activities in the Company's New
Drug Application ("NDA") program to develop brand name controlled-release
products.
The Company's equity in losses of ANCIRC was $388,000 in the 1998
Quarter, as compared to $360,000 in the 1997 Quarter.
The Company incurred $746,000 of software development and
administration costs in the 1998 Quarter, as compared to $305,000 in the 1997
Quarter. These costs relate to the continued development of the Company's
CyBear/Registered trademark/ software applications and the establishment of the
related administrative infrastructure to commercialize CyBear's products.
Interest income was $230,000 in the 1998 Quarter, as compared to
$336,000 in the 1997 Quarter. The decrease in interest income is the result of
the lower average level of cash, cash equivalents and investments
available-for-sale maintained during the 1998 Quarter, as compared to the 1997
Quarter, primarily a result of spending on research and development efforts and
purchases of inventories. The Company invests in short-term investment grade
interest bearing securities.
Interest expense decreased to $102,000 in the 1998 Quarter from
$211,000 in the 1997 Quarter. The decrease in interest expense was primarily the
result of a lower average level of borrowings under the Company's bank loan
during the 1998 Quarter, as compared to the 1997 Quarter. Such borrowings are
utilized to fund the Company's distribution operations.
Due to its net losses for the 1998 Quarter and the 1997 Quarter, the
Company was not required to provide for federal or state income taxes. Under the
provisions of SFAS No. 109, the Company has provided a valuation allowance to
reserve against 100% of its net operating loss carryforwards. As of December 31,
1997, the Company has net operating loss carryforwards of approximately $19
million and $14 million, for financial reporting purposes and federal income tax
purposes, respectively, which, if not utilized, will begin to expire in 2008.
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SIX MONTHS ENDED JUNE 30, 1998, AS COMPARED TO SIX MONTHS ENDED JUNE
30, 1997.
Net sales from distributed products were $100.9 million for the six
months ended June 30, 1998 ("1998 Period"), an increase of $37.7 million or
59.7%, as compared to $63.2 million for the six months ended June 30, 1997
("1997 Period"). The increase in net sales from distributed products reflects an
increase in sales to customers, as well as an increase in the number of
customers.
For the 1998 Period, net sales from the Company's first manufactured
product, a bioequivalent version of Dilacor XR/Registered trademark/, were $5.3
million.
Licensing revenues of $426,000 were generated in the 1998 Period from
the Company's domestic and international licensing arrangements.
Gross profit on net sales from distributed products was $15.1 million
or 15.0% in the 1998 Period, an increase of $5.4 million or 56.2% as compared to
$9.7 million or 15.3% in the 1997 Period. The Company expects that continuing
competition and pricing pressures within the generic pharmaceutical industry may
reduce the Company's gross profit percentage on net sales from distributed
products in future periods.
Manufacturing costs, which include costs of manufactured products sold
and idle manufacturing facility costs, were $2.3 million in the 1998 Period, as
compared to $472,000 in the 1997 Period. The increase in manufacturing costs
primarily relates to the costs of manufactured products sold in the 1998 Period.
The Company's first manufactured product was launched in October 1997. While the
Company commenced its commercial-scale manufacturing operation in the second
quarter of 1997, the manufacturing facility was not fully utilized for its
commercial manufacturing operations during the 1998 Period and the 1997 Period.
As the Company increases its production of saleable products in the future
periods, manufacturing costs will be absorbed as a component of the cost of
inventory.
Selling, general and administrative expenses as a percentage of total
revenues decreased to 11.7% for the 1998 Period, as compared to 12.9% for the
1997 Period. Selling, general and administrative expenses increased to $12.5
million in the 1998 Period, as compared to $8.2 million in the 1997 Period,
primarily due to an increase in the activities necessary to support the increase
in sales from distributed products and sales from the Company's first
manufactured product.
Research and development expenses increased to $7.2 million in the 1998
Period, as compared to $3.7 million in the 1997 Period. This increase of $3.5
million or 92.5% in research and development expenses reflects the progress and
expansion of activities in the Company's ANDA program to develop bioequivalent
controlled-release products and the expansion of activities in the NDA program
to develop brand products.
The Company's equity in losses of ANCIRC was $686,000 in the 1998
Period, as compared to $763,000 in the 1997 Period.
14
<PAGE>
The Company incurred $1.2 million of software development and
administration costs in the 1998 Period, as compared to $576,000 in the 1997
Period. These costs relate to the continued development of the Company's
CyBear/Registered trademark/ healthcare software applications and the
establishment of the related administrative infrastructure to commercialize such
products.
Interest income was $523,000 in the 1998 Period, as compared to
$722,000 in the 1997 Period. The decrease in interest income is the result of
the lower average level of cash, cash equivalents and investments
available-for-sale maintained during the 1998 Period, as compared to the 1997
Period, primarily as a result of increased spending on research and development
efforts and purchases of inventories.
Interest expense decreased to $148,000 in the 1998 Period from $341,000
in the 1997 Period. The decrease in interest expense was primarily the result of
a lower average level of borrowings under the Company's bank loan during the
1998 Period, as compared to the 1997 Period.
Due to its net losses for the 1998 Period and the 1997 Period, the
Company was not required to provide for federal or state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Prior to June 1996, the Company financed its operations primarily
through private placements of equity securities which generated net proceeds of
$27.9 million and, to a lesser extent, through bank borrowings. In June 1996,
the Company consummated its initial public offering which generated net proceeds
of $27.4 million. In June 1997, the Company completed two private placements
which generated net proceeds of $21.3 million. As of June 30, 1998, Andrx had
$13.4 million in cash, cash equivalents and investments available-for-sale and
$41.4 million of working capital.
Net cash used in operating activities for the 1998 Period was $15.9
million, as compared to $9.4 million for the 1997 Period. In the 1998 Period and
the 1997 Period, the net cash used in operating activities was primarily used to
fund research and development efforts and increases in inventories and accounts
receivable, offset by increases in accounts payable and accrued liabilities. The
increase in inventories include purchases in anticipation of potential price
increases by the generic manufacturers.
Net cash provided by investing activities was $7.4 million in the 1998
Period, as compared to net cash used in investing activities of $12.5 million in
the 1997 Period. In the 1998 Period, $11.4 million of investments
available-for-sale matured and the Company purchased $4.0 million of property,
plant and equipment. In the 1997 Period, the Company purchased investments
available-for-sale of $7.3 million and purchased $5.2 million of property, plant
and equipment. In the 1998 Period, the capital expenditures were primarily for
the purchase of approximately 15 acres of land. In the 1997 Period, the capital
expenditures were primarily for the procurement of manufacturing equipment.
15
<PAGE>
Net cash provided by financing activities was $7.8 million in the 1998
Period, as compared to $26.3 million in the 1997 Period. Net cash provided by
financing activities in the 1998 Period consisted of net borrowings of $6.2
million from the Company's bank loan and $1.5 million in proceeds from the
issuance of shares of common stock upon the exercises of stock options and
warrants. Net cash provided by financing activities for the 1997 Period,
consists of $21.3 million from the issuance of shares of common stock in private
placement transactions, $2.7 million in proceeds from the issuance of shares of
common stock upon the exercises of stock options and warrants and $2.3 million
of net borrowings from the Company's bank loan.
The Company had an outstanding short-term borrowing balance under its
distribution subsidiary's bank loan of $6.8 million as of June 30, 1998, as
compared to $538,000 as of December 31, 1997. Borrowings under the bank loan 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 bank loan 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 April 1998, the Company amended
its bank loan whereby the total available borrowings were increased from $10.0
million to $30.0 million and, if the Company maintains certain levels of an
average outstanding balance, the interest rate may be decreased from the present
rate of prime (8.5% as of June 30, 1998) plus 0.5%.
In the 1998 Quarter, the Company purchased approximately 15 acres of
land on which it intends to construct a facility for its research and
development, manufacturing and corporate activities. The Company intends to
evaluate and possibly obtain external financing for such construction.
Additionally, the Company is evaluating leasing new premises for its
distribution and software development activities.
16
<PAGE>
ANDRX CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5 to the Consolidated Financial Statements included in PART I, ITEM I
of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) On June 29, 1998, the Company held its Annual Meeting of
Shareholders (the "Meeting").
b) Not applicable.
c) At the Meeting, the following matters were voted upon:
(i) Election of Directors.
The following table sets forth the name of each nominee and the voting with
respect to each nominee for director:
WITHHOLD
NAME FOR AUTHORITY
---- --- ---------
Elliot F. Hahn, Ph.D. 13,695,534 8,708
Rep. Elaine Bloom 13,695,734 8,508
(ii) Ratification of the appointment of Arthur
Andersen LLP as the Company's independent
certified public accountants for the year ending
December 31, 1998.
With respect to the foregoing matter, 13,700,736
shares were voted in favor, 1,525 shares against
and 1,981 shares abstained. There were no broker
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
17
<PAGE>
ANDRX CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By /s/ ALAN P. COHEN
--------------------------------------------
Alan P. Cohen
Chairman and Chief Executive Officer
(Principal Executive Officer)
By /s/ ANGELO C. MALAHIAS
--------------------------------------------
Angelo C. Malahias
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
August 12, 1998
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,910,000
<SECURITIES> 7,473,000
<RECEIVABLES> 26,354,000
<ALLOWANCES> 1,833,000
<INVENTORY> 44,940,000
<CURRENT-ASSETS> 85,695,000
<PP&E> 17,921,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 104,059,000
<CURRENT-LIABILITIES> 44,261,000
<BONDS> 0
0
0
<COMMON> 15,000
<OTHER-SE> 59,783,000
<TOTAL-LIABILITY-AND-EQUITY> 104,059,000
<SALES> 100,935,000
<TOTAL-REVENUES> 106,650,000
<CGS> 0
<TOTAL-COSTS> 109,702,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148,000
<INCOME-PRETAX> (2,677,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,677,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,677,000)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
