UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
---------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
---------------------------
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 November 2, 1999, there were 31,466,500 shares of the Registrant's
only class of common stock issued and outstanding.
<PAGE>
ANDRX CORPORATION
INDEX TO THE FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Page
Number
------
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheets -
as of September 30, 1999 and December 31, 1998 3
Unaudited Consolidated Statements of Income -
for the three and nine months ended
September 30, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows -
for the nine months ended September 30, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 41,718 $ 17,459
Investments available-for-sale 66,080 5,633
Accounts receivable, net of allowances of $6,574 and $2,529
as of September 30, 1999 and December 31, 1998, respectively 75,483 33,811
Inventories 83,757 42,337
Prepaid and other current assets 6,864 720
--------- ---------
Total current assets 273,902 99,960
Property, plant and equipment, net 32,354 20,429
Other assets 9,772 809
--------- ---------
Total assets $ 316,028 $ 121,198
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 62,058 $ 33,616
Accrued liabilities 20,723 10,837
Bank loan 20,167 4,107
Income taxes payable 7,655 55
--------- ---------
Total current liabilities 110,603 48,615
--------- ---------
Commitments and contingencies (Note 5)
Minority interest in Cybear, Inc. 14,267 --
Shareholders' equity
Convertible preferred stock; $0.001 par value, 1,000,000 shares authorized;
none issued and outstanding as of September 30, 1999 and December 31, 1998 -- --
Common stock; $0.001 par value, 50,000,000
shares authorized; 31,455,600 and 30,346,800
shares issued and outstanding as of September 30, 1999 and
December 31, 1998, respectively 31 30
Additional paid-in capital 131,303 86,305
Retained earnings (accumulated deficit) 59,900 (13,751)
Unrealized loss on investments available-for-sale, net of income taxes (76) (1)
--------- ---------
Total shareholders' equity 191,158 72,583
--------- ---------
Total liabilities and shareholders' equity $ 316,028 $ 121,198
========= =========
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these unaudited consolidated balance sheets.
3
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Distributed products $ 66,113 $ 55,312 $ 195,246 $ 156,247
Manufactured products 42,092 2,731 82,981 8,020
Stipulation fees -- 9,130 70,733 9,130
Licensing and other 3,210 93 4,939 519
------------ ------------ ------------ ------------
Total revenues 111,415 67,266 353,899 173,916
------------ ------------ ------------ ------------
Operating expenses
Distributed products 53,491 46,888 157,647 132,707
Manufactured products 6,389 1,502 14,679 3,808
Selling, general and administrative 13,528 8,321 38,401 20,796
Research and development 6,724 4,996 18,315 12,176
Equity in losses of joint venture 165 228 36 914
Cybear, Inc. Internet operating expenses 3,886 957 9,816 2,220
Legal settlement -- -- 545 --
------------ ------------ ------------ ------------
Total operating expenses 84,183 62,892 239,439 172,621
------------ ------------ ------------ ------------
Income from operations 27,232 4,374 114,460 1,295
Other income
Minority interest in Cybear, Inc. 779 22 783 49
Gain on sale of Cybear, Inc. shares -- 500 300 500
Interest income 1,251 230 2,154 753
Interest expense (510) (174) (1,147) (321)
------------ ------------ ------------ ------------
Income before income taxes 28,752 4,952 116,550 2,276
Income taxes 10,925 90 42,899 90
------------ ------------ ------------ ------------
Net income $ 17,827 $ 4,862 $ 73,651 $ 2,186
============ ============ ============ ============
Basic net income per share $ 0.57 $ 0.16 $ 2.39 $ 0.07
============ ============ ============ ============
Diluted net income per share $ 0.55 $ 0.15 $ 2.27 $ 0.07
============ ============ ============ ============
Basic weighted average shares of
common stock outstanding 31,414,000 30,130,000 30,822,000 29,982,000
============ ============ ============ ============
Diluted weighted average shares of
common stock outstanding 32,703,000 31,826,000 32,449,000 31,781,000
============ ============ ============ ============
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these unaudited consolidated statements.
4
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 73,651 $ 2,186
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,016 2,214
Provision for doubtful accounts, net 4,045 622
Gain on sale of Cybear, Inc. shares (300) (500)
Options granted to consultants -- 150
Minority interest in Cybear, Inc. (783) (49)
Equity in losses of joint venture 36 914
Contributions to joint venture (500) (1,200)
Changes in operating assets and liabilities:
Accounts receivable (45,661) (7,930)
Inventories (41,420) (6,958)
Prepaid and other assets (9,896) (174)
Due from or to joint venture, net (815) 331
Accounts payable and accrued liabilities 38,193 (51)
Income taxes payable 7,610 --
-------- --------
Net cash provided by (used in) operating activities 27,176 (10,445)
-------- --------
Cash flows from investing activities
Purchases of property, plant and equipment (14,801) (4,739)
Acquisition of Telegraph Consulting Corporation (1,177) --
Maturities (purchases) of investments available-for-sale, net (60,532) 9,426
-------- --------
Net cash provided by (used in) investing activities (76,510) 4,687
-------- --------
Cash flows from financing activities
Proceeds from exercises of stock options and warrants 6,324 1,907
Net borrowings under bank loan 16,060 3,395
Net proceeds from Cybear, Inc.'s public share offering 50,787 --
Capital transactions of Cybear, Inc. 122 --
Proceeds from sale of Cybear, Inc. shares 300 500
-------- --------
Net cash provided by financing activities 73,593 5,802
-------- --------
Net increase in cash and cash equivalents 24,259 44
Cash and cash equivalents, beginning of period 17,459 6,625
-------- --------
Cash and cash equivalents, end of period $ 41,718 $ 6,669
======== ========
Supplemental disclosure of cash paid during the period for:
Interest $ 1,147 $ 321
======== ========
Income taxes $ 35,290 $ --
======== ========
</TABLE>
The accompanying notes to the unaudited consolidated financial statements are an
integral part of these unaudited consolidated statements.
5
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared by Andrx Corporation ("Andrx" or the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations. However, management believes that the disclosures contained herein
are adequate to make the information presented not misleading. The unaudited
consolidated financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's unaudited financial position and results of
operations. The unaudited results of operations for the three and nine months
ended September 30, 1999 and the cash flows for the nine months ended September
30, 1999 are not necessarily indicative of the results of operations or cash
flows which may be expected for the remainder of 1999. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes for the year ended December
31, 1998, included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Share and per share amounts have been restated for all periods prior to
the Company's May 17, 1999 two-for-one stock split effected in the form of a
stock dividend.
2. CYBEAR, INC.
On June 23, 1999, Cybear, Inc. ("Cybear"), Andrx' Internet-based portal
and provider of healthcare communications and applications subsidiary, completed
a public offering of 3,450,000 of its common shares at $16.00 per share raising
net proceeds of approximately $50.8 million. Such public offering reduced Andrx'
ownership in Cybear from approximately 95% to 76%.
On September 17, 1999, Cybear acquired Telegraph Consulting Corporation
("Telegraph"), the programming, networking and interactive design division of
Telegraph New Technology, Inc. The purchase price of approximately $4.1 million
includes $1.2 million in cash, the issuance of 320,000 shares of restricted
Cybear common stock valued at approximately $2.8 million and the assumption of
approximately $148,000 of Telegraph's debt. The acquisition was recorded using
the purchase method of accounting. Accordingly, the excess of the purchase price
over the fair value of the net assets acquired of approximately $3.9 million
represents goodwill, and is included in "Other assets" in the unaudited
consolidated balance sheet. Such goodwill is being amortized on a straight-line
basis over its estimated life of 10 years.
6
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
The following summarizes the acquisition (in thousands):
Cash used for acquisition $ 1,177
Common stock issued 2,771
Debt assumed 148
-------
Purchase price 4,096
Working capital acquired (24)
Property and equipment acquired (125)
-------
Excess of purchase price over
fair market value of net assets acquired $ 3,947
=======
Due to immateriality, pro-forma financial statements are not included
herein.
The acquisition of Telegraph reduced Andrx' ownership in Cybear to
approximately 74%.
3. INCOME TAXES
For the three and nine months ended September 30, 1999, the Company
provided $10.9 million and $42.9 million, respectively, for Federal and state
income taxes or 38% and 37%, respectively, of income before income taxes. The
Company was not required to provide for Federal and state income taxes at the
39% effective Federal and state statutory rate due to the effect of the
utilization of the Company's net operating loss carryforwards, offset by Andrx'
inability to utilize Cybear's expected losses after June 23, 1999, as Andrx'
ownership of Cybear was reduced below 80% (see Note 2). Accordingly, effective
June 23, 1999, Cybear will be excluded from Andrx' consolidated income tax
return and will file as a separate tax entity. Cybear's net losses did not
generate income tax benefits as its tax benefits were fully offset by a
corresponding increase in the valuation allowance against its net deferred
income tax assets.
For the three and nine months ended September 30, 1998, the Company
provided $90,000 for Federal alternative minimum income taxes. For the 1998
periods, the Company was not required to provide for other Federal or state
income taxes due to its net operating loss carryforwards.
4. COMPREHENSIVE INCOME
The components of the Company's comprehensive income are as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net income $ 17,827 $ 4,862 $ 73,651 $ 2,186
Unrealized income (loss) on
Investments available-for-sale,
net of income taxes (49) 6 (75) (26)
-------- -------- -------- --------
Comprehensive income $ 17,778 $ 4,868 $ 73,576 $ 2,160
======== ======== ======== ========
7
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
5. CONTINGENCIES
In June 1999, a patent infringement claim brought against the Company
by Hoechst Marion Roussel, Inc. and Carderm Capital L.P. (collectively, "HMRI")
in 1996 relating to Andrx' bioequivalent version of Cardizem(Registered
Trademark) CD was resolved and the lawsuit was dismissed with prejudice.
Accordingly, for the nine months ended September 30, 1999, pursuant to a
Stipulation and Agreement with HMRI related to the litigation (the
"Stipulation"), Andrx received $70.7 million in interim and final Stipulation
fees from HMRI. Amongst other things, the Stipulation also provided Andrx with
the option of licensing HMRI's patents covering the Cardizem(Registered
Trademark) CD product at certain times. On June 23, 1999, the Company commenced
selling its bioequivalent version of Cardizem(Registered Trademark) CD, Cartia
XT(Trademark). As Andrx was first to file a Paragraph IV certification related
to its abbreviated New Drug Application ("ANDA"), Cartia XT(Trademark) is
entitled to 180-days of marketing exclusivity as provided by the provisions of
the Hatch-Waxman Amendments to the Federal Food, Drug and Cosmetic Act. Such
180-day marketing exclusivity expires on or about December 19, 1999.
In addition to the putative class actions and other actions disclosed
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998, additional actions have been filed against the Company attacking the
Stipulation and seeking relief similar to that sought in the previously
disclosed actions. The Federal Trade Commission's investigation concerning the
Stipulation, as disclosed in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, is continuing.
On September 9, 1999, Glaxo Wellcome, Inc. ("Glaxo") filed suit against
the Company for alleged infringement of two of Glaxo's patents relating to
Glaxo's bupropion hydrochloride sustained release tablets, sold under the
tradenames Wellbutrin SR(Registered Trademark) and Zyban(Registered Trademark).
Glaxo seeks a judgment that (i) orders that the effective date of any FDA
approval of the Company's bioequivalent version of Glaxo's product be delayed
until after expiration of the two patents in question and (ii) awards Glaxo
preliminary and final injunctions enjoining the Company from continued
infringement of the patents and grants it reasonable attorney fees, interest and
costs of the action. On September 30, 1999, the Company filed an answer,
affirmative defenses and counterclaims, essentially denying infringement and
claiming that Glaxo's two patents are invalid and or unenforceable.
Except as disclosed above, there have been no material developments in
any legal matters described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
8
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
6. BUSINESS SEGMENTS
Effective December 31, 1998, the Company adopted the provisions of the
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires the
Company to disclose selected segment information on an interim basis.
The Company operates the following business segments:
o Anda Generics, Inc. ("Anda Generics") markets and distributes
generic pharmaceuticals manufactured by third parties.
o Andrx Pharmaceuticals, Inc. ("Andrx Pharmaceuticals") develops
bioequivalent versions of selected controlled-release brand
name pharmaceuticals utilizing its proprietary drug delivery
technologies and manufactures and sells such products.
o Aura Laboratories, Inc. ("Aura Labs") applies the proprietary
drug delivery technologies developed by Andrx Pharmaceuticals
to the development of brand name controlled-release
formulations of existing drugs.
o Cybear uses the Internet to improve the efficiency of
administrative and communications tasks of managing patient
care. Cybear provides access to the Internet and delivers
productivity applications to healthcare providers as well as
health information to consumers.
o Corporate and other ("Corporate and Other") consists of
corporate activities, including general and administrative
expenses, adjustments for minority interest, interest income
and income taxes.
The Company evaluates the performance of the segments after all
intercompany sales are eliminated. The segments are evaluated excluding the
allocation of income taxes.
9
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The following table presents financial information by business segment (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
----------------------------------------------------------------------------------------------
Anda Andrx Aura Corporate
Generics Pharmaceuticals Labs Cybear & Other Consolidated
----------- ---------------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 66,101 $ 45,244 $ -- $ 70 $ -- $ 111,415
Equity in losses of joint venture -- (165) -- -- -- (165)
Income (loss) from operations 4,820 31,617 (2,557) (3,827) (2,821) 27,232
Interest income -- -- -- 634 617 1,251
Interest expense (510) -- -- -- -- (510)
Income taxes -- -- -- -- (10,925) (10,925)
Total assets as of September 30, 1999 118,238 76,556 133 55,600 65,501 316,028
Three Months Ended September 30, 1998
----------------------------------------------------------------------------------------------
Anda Andrx Aura Corporate
Generics Pharmaceuticals Labs Cybear & Other Consolidated
----------- ---------------- --------- --------- --------- ------------
Revenues $ 55,312 $ 11,954 $ -- $ -- $ -- $ 67,266
Equity in losses of joint venture -- (228) -- -- -- (228)
Income (loss) from operations 2,486 5,925 (1,394) (957) (1,686) 4,374
Gain on sale of Cybear shares 500 -- -- -- -- 500
Interest income -- -- -- -- 230 230
Interest expense (174) -- -- -- -- (174)
Income taxes -- -- -- -- (90) (90)
Nine Months Ended September 30, 1999
----------------------------------------------------------------------------------------------
Anda Andrx Aura Corporate
Generics Pharmaceuticals Labs Cybear & Other Consolidated
----------- ---------------- --------- --------- --------- ------------
Revenues $ 195,233 $ 158,568 $ -- $ 98 $ -- $ 353,899
Equity in losses of joint venture -- (36) -- -- -- (36)
Income (loss) from operations 16,849 119,857 (5,524) (9,729) (6,993) 114,460
Gain on sale of Cybear shares 300 -- -- -- -- 300
Interest income -- -- -- 684 1,470 2,154
Interest expense (1,147) -- -- -- -- (1,147)
Income taxes -- -- -- -- (42,899) (42,899)
Nine Months Ended September 30, 1998
----------------------------------------------------------------------------------------------
Anda Andrx Aura Corporate
Generics Pharmaceuticals Labs Cybear & Other Consolidated
----------- ---------------- --------- --------- --------- ------------
Revenues $ 156,247 $ 17,669 $ -- $ -- $ -- $ 173,916
Equity in losses of joint venture -- (914) -- -- -- (914)
Income (loss) from operations 7,750 1,937 (2,489) (2,220) (3,683) 1,295
Gain on sale of Cybear shares 500 -- -- -- -- 500
Interest income -- -- -- -- 753 753
Interest expense (321) -- -- -- -- (321)
Income taxes -- -- -- -- (90) (90)
</TABLE>
10
<PAGE>
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 COMMERCIALIZED A FEW PRODUCTS, HAS NEW
TECHNOLOGIES, LIMITED MANUFACTURING EXPERIENCE, CURRENT AND POTENTIAL
COMPETITORS WITH SIGNIFICANT TECHNICAL AND MARKETING RESOURCES AND DEPENDENCE ON
COLLABORATIVE PARTNERS AND ON KEY PERSONNEL. THE COMPANY IS ALSO SUBJECT TO THE
RISKS AND UNCERTAINTIES ASSOCIATED WITH ALL DRUG DELIVERY COMPANIES, INCLUDING
COMPLIANCE WITH GOVERNMENT REGULATIONS AND PATENT INFRINGEMENT AND OTHER
LITIGATION. ADDITIONALLY, THE COMPANY IS SUBJECT TO THE RISKS AND UNCERTAINTIES
ASSOCIATED WITH DRUG DISTRIBUTION COMPANIES, INCLUDING BUT NOT LIMITED TO,
FIERCE COMPETITION, COMPETITORS WITH SIGNIFICANT TECHNICAL AND MARKETING
RESOURCES AND DECREASING GROSS MARGIN PERCENTAGES. IN ADDITION, CYBEAR, INC.
("CYBEAR"), THE COMPANY'S MAJORITY OWNED INTERNET BASED HEALTHCARE
COMMUNICATIONS AND APPLICATIONS SUBSIDIARY, IS SUBJECT TO THE RISKS AND
UNCERTAINTIES OF AN INTERNET COMPANY, INCLUDING BUT NOT LIMITED TO, LIMITED
OPERATING HISTORY AND SUBSTANTIAL OPERATING LOSSES, AVAILABILITY OF CAPITAL
RESOURCES, ABILITY TO EFFECTIVELY COMPETE, ECONOMIC CONDITIONS, UNANTICIPATED
DIFFICULTIES IN PRODUCT DEVELOPMENT, ABILITY TO GAIN MARKET ACCEPTANCE AND
MARKET SHARE, ABILITY TO MANAGE GROWTH, RELIANCE ON SHORT-TERM NON-EXCLUSIVE
CONTRACTS, INTERNET SECURITY RISKS AND UNCERTAINTY RELATING TO THE EVOLUTION OF
THE INTERNET AS A MEDIUM FOR COMMERCE, DEPENDENCE ON THIRD PARTY CONTENT
PROVIDERS, DEPENDENCE ON KEY PERSONNEL, ABILITY TO PROTECT INTELLECTUAL
PROPERTY, YEAR 2000 PROBLEMS AND THE IMPACT OF FUTURE GOVERNMENT REGULATION. THE
COMPANY IS ALSO SUBJECT TO OTHER RISKS DETAILED HEREIN OR DETAILED FROM TIME TO
TIME IN THE COMPANY'S AND CYBEAR'S FILINGS WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION.
INTRODUCTION
Andrx was organized in August 1992 and 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 applications for healthcare
providers. Through October 9, 1997, the Company's distribution operations
generated substantially all of its revenues. On October 10, 1997, the U.S. Food
and Drug Administration ("FDA") granted final approval of the Company's
Abbreviated New Drug Application ("ANDA") for its bioequivalent version of
Dilacor XR/registered trademark/, the Company's first manufactured product,
which it immediately launched as Diltia XT(Registered Trademark).
In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with Hoechst Marion Roussel, Inc. and Carderm Capital L.P.
(collectively, "HMRI") arising out of a patent infringement claim brought
against the Company in 1996 by HMRI (the "HMRI
11
<PAGE>
Litigation") relating to the Company's ANDA for a bioequivalent version of
Cardizem/registered trademark/ CD. Andrx and HMRI entered into a Stipulation in
partial settlement of the HMRI Litigation in order to reduce the risks that both
parties faced as the case was 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 HMRI. HMRI agreed to compensate Andrx for any
lost profits, which were stipulated to be $100.0 million per year, if Andrx
ultimately prevailed in the HMRI Litigation. HMRI also agreed to make 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 HMRI Litigation was resolved or certain other events
occurred. HMRI also provided Andrx the option of licensing HMRI's patents
covering the Cardizem (Registered Trademark) CD product at certain times. Such
quarterly payments were to be credited against the payments of the stipulated
lost profits if Andrx prevailed in the HMRI Litigation. In July 1998, the
Company received final FDA marketing approval for its bioequivalent version of
Cardizem/registered trademark/ CD. In June 1999, the HMRI Litigation was
resolved, and the lawsuit was dismissed with prejudice and on June 23, 1999 the
Company commenced selling its bioequivalent version of Cardizem(Registered
Trademark) CD, Cartia XT(Trademark). Pursuant to the Stipulation, for the nine
months ended September 30, 1999 Andrx received $70.7 million in interim and
final Stipulation fees from HMRI. Such Stipulation fees terminated in June 1999
upon the dismissal with prejudice of the HMRI Litigation.
As Andrx was first to file a Paragraph IV Certification related to its
ANDA, Cartia XT(Trademark) is entitled to 180-days of marketing exclusivity as
provided by the provisions of the Hatch-Waxman Amendments to the Federal Food,
Drug and Cosmetic Act. Such 180-day marketing exclusivity expires on or about
December 19, 1999.
In June 1999, Cybear, Andrx' majority owned Internet-based portal and
provider of healthcare communications and applications subsidiary, completed a
public offering of 3,450,000 of its common shares at $16.00 per share, raising
net proceeds of approximately $50.8 million. As of September 30, 1999 Andrx
owned approximately 74% of Cybear.
The Company is a 50% partner in ANCIRC Pharmaceuticals ("ANCIRC"), a
joint venture with Watson Pharmaceuticals, Inc., for the development of up to
eight controlled-release pharmaceutical products. The Company is also party to
development and licensing agreements for additional controlled-release products.
In June 1999, the Company entered into an agreement with Geneva Pharmaceuticals,
Inc., a member of the Novartis Group ("Geneva"), for the sale and marketing of
certain products. The agreement includes funding by Geneva of certain
controlled-release dosage forms of existing products that Andrx is developing
for submission as New Drug Applications ("NDA"), the grant of marketing rights
to Geneva in certain territories for these products, and the receipt by Andrx of
at least certain minimum amounts of royalties from the sale of such products.
The Company has also committed to continuing to sell generic products marketed
by Geneva.
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 1999 ("1999 QUARTER") AS COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 ("1998 QUARTER")
Andrx' net income increased 266.7% from $4.9 million or $0.15 per
diluted share in the 1998 Quarter to $17.8 million or $0.55 per diluted share in
the 1999 Quarter. This significant increase in net income is the result of the
sale of the Company's bioequivalent version of Cardizem/registered trademark/
CD, Cartia XT/trademark/, which was launched on June 23, 1999. In comparison,
commencing July 9, 1998 the 1998 Quarter included interim Stipulation fees
pursuant to the Stipulation related to the then pending patent infringement
litigation on the Company's bioequivalent version of Cardizem/registered
trademark/ CD.
12
<PAGE>
Total revenues increased by 65.6% to $111.4 million for the 1999
Quarter, as compared to $67.3 million for the 1998 Quarter.
Sales from distributed products increased by 19.5% to $66.1 million for
the 1999 Quarter, as compared to $55.3 million for the 1998 Quarter. The
increase in sales from distributed products reflects an increase in sales to
customers, an increase in the number of customers, as well as the Company's
participation in the distribution of new products launched by other
pharmaceutical companies, offset by overall price declines.
Sales from manufactured products increased to $42.1 million for the
1999 Quarter, as compared to $2.7 million for the 1998 Quarter. Sales from
manufactured products include sales of Diltia XT(Registered Trademark), the
Company's bioequivalent version of Dilacor XR(Registered Trademark), and
commencing June 23, 1999, Cartia XT(Trademark), the Company's bioequivalent
version of Cardizem(Registered Trademark) CD. In comparison, Andrx received $9.1
million in the 1998 Quarter as interim Stipulation fees pursuant to the
Stipulation related to the then pending patent infringement litigation on the
Company's bioequivalent version of Cardizem/registered trademark/ CD. Such
Stipulation fees terminated in June 1999 upon the dismissal with prejudice of
the HMRI Litigation.
The Company recorded $3.2 million of licensing and other revenues in
the 1999 Quarter, as compared to $93,000 in the 1998 Quarter. Such revenues in
the 1999 Quarter were primarily generated from the Company's June 1999 agreement
with Geneva.
Gross profits from sales of distributed products were $12.6 million,
with a gross margin of 19.1% in the 1999 Quarter, as compared to $8.4 million,
with a gross margin of 15.2% in the 1998 Quarter. This represents the 29th
consecutive quarter (every quarter since inception) with an increase in gross
profits from the distribution operation.
Gross profits from sales of manufactured products were $35.7 million,
with a gross margin of 84.8% for the 1999 Quarter, as compared to $1.2 million,
with a gross margin of 45.0% for the 1998 Quarter. Manufacturing costs for the
1998 Quarter included idle manufacturing facility costs since the manufacturing
facility was not fully utilized for the Company's commercial manufacturing
operations.
Selling, general and administrative expenses were $13.5 million or
12.1% of total revenues for the 1999 Quarter, as compared to $8.3 million or
12.4% of total revenues for the 1998 Quarter. The increase in selling, general
and administrative expenses was primarily due to increases in the activities
necessary to support the increased sales from distributed and manufactured
products. Selling, general and administrative expenses also include a royalty to
the Company's Co-Chairman and Chief Scientific Officer related to sales of
Cartia XT(Trademark) in the 1999 Quarter and the Stipulation fees in the 1998
Quarter.
Research and development expenses were $6.7 million in the 1999
Quarter, as compared to $5.0 million in the 1998 Quarter. The increase in
research and development expenses of $1.7 million or 34.6% reflects the progress
and expansion of the Company's activities in both its bioequivalent (ANDA) and
brand name (NDA) drug development programs, including legal costs related to
patent infringement claims associated with the Company's ANDA filings. The
Company's NDA program currently has one product in Phase III clinical trials.
13
<PAGE>
The Company's equity share of losses in ANCIRC decreased to $165,000
for the 1999 Quarter, as compared to $228,000 in the 1998 Quarter. The decrease
was primarily attributable to the launch of ANCIRC's first product, a
bioequivalent version of Trental (Registered Trademark) in September 1998. In
April 1999, ANCIRC received approval and launched its second product, a
bioequivalent version of Oruvail(Registered Trademark). Subsequently, in July
1999, ANCIRC suspended the production and sale of its bioequivalent version of
Oruvail(Registered Trademark). This is not expected to have a material effect on
the Company's consolidated results of operations.
In the 1999 Quarter, the Company incurred $3.9 million of Internet
operating expenses through Cybear, as compared to $957,000 in the 1998 Quarter.
The increase in costs primarily relates to progress in the development of
applications and the establishment of the related operational and administrative
infrastructure of Cybear. During the 1999 Quarter, Cybear launched its second
product, a health and welfare portal, CybearHealth. Additionally, in the 1999
Quarter, Cybear completed the acquisition of Telegraph Consulting Corporation
("Telegraph"), the programming, networking and interactive design division of
Telegraph New Technology, Inc.
Minority interest in Cybear's net losses was $779,000 in the 1999
Quarter, as compared to $22,000 in the 1998 Quarter. The increase in minority
interest is a result of the increase in minority ownership of Cybear. Such
increase in minority ownership is a result of Cybear's June 1999 public offering
and the issuance of Cybear common shares to purchase Telegraph. In addition,
Cybear's net losses increased to $3.2 million in the 1999 Quarter from $1.0
million in the 1998 Quarter.
In the 1998 Quarter the Company recognized a gain on the sale of shares
of Cybear common stock to Cybear's Chairman of $500,000. Such sales were
pursuant to an existing subscription agreement.
Interest income was $1.3 million in the 1999 Quarter, as compared to
$230,000 in the 1998 Quarter. The increase in interest income is the result of
the higher average level of cash, cash equivalents and investments
available-for-sale maintained during the 1999 Quarter, as compared to the 1998
Quarter. Such increase was primarily the result of the positive cash flow
generated from operations, and the net proceeds of $50.8 million received from
Cybear's June 1999 public offering. The Company invests its investments
available-for-sale in investment grade interest bearing securities.
Interest expense increased to $510,000 in the 1999 Quarter from
$174,000 in the 1998 Quarter. The increase in interest expense was primarily the
result of a higher average level of borrowings under the Company's bank loan
during the 1999 Quarter, as compared to the 1998 Quarter. Such borrowings are
primarily utilized to fund the Company's distribution operations.
In the 1999 Quarter, the Company provided $10.9 million for Federal and
state income taxes or 38% of income before income taxes. The Company was not
required to provide for income taxes at the 39% effective Federal and state
statutory rate due to the effect of the utilization of the Company's net
operating loss carryforwards, offset by Andrx' inability to utilize Cybear's
expected losses after June 23, 1999, as Andrx' ownership in Cybear was reduced
below 80%. Accordingly, effective June 23, 1999, Cybear will be excluded from
Andrx' consolidated tax return and will file as a separate tax entity. Cybear's
net losses did not generate income tax benefits as its tax benefits were fully
offset by a corresponding increase in the valuation allowance against its net
deferred income tax assets. In the 1998 Quarter, the Company provided $90,000
for Federal alternative minimum income taxes. In the 1998 Quarter the Company
was not required to provide for other Federal or state income taxes due to its
net operating loss carryforwards.
14
<PAGE>
The diluted weighted average shares of common stock outstanding were
32.7 million during the 1999 Quarter, as compared to 31.8 million during the
1998 Quarter. The increase in such diluted weighted average shares of common
stock outstanding in the 1999 Quarter, as compared to the 1998 Quarter resulted
primarily from exercises of stock options and warrants. Share and related per
share amounts have been restated for all periods prior to the Company's May 17,
1999 two-for-one stock split effected in the form of a 100% stock dividend.
NINE MONTHS ENDED SEPTEMBER 30, 1999 ("1999 PERIOD") AS COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1998 ("1998 PERIOD")
Andrx' net income increased from $2.2 million or $0.07 per diluted
share in the 1998 Period to $73.7 million or $2.27 per diluted share in the 1999
Period. The significant increase in net income is the result of the interim and
final Stipulation fees generated in the 1999 Period through June 23, 1999 and
the revenues generated from the sale of the Company's bioequivalent version of
Cardizem(Registered Trademark) CD, which was launched on June 23, 1999. In
comparison, commencing July 9, 1998, the 1998 Period included interim
Stipulation fees pursuant to the Stipulation.
Total revenues increased by 103.5% to $353.9 million for the 1999
Period, as compared to $173.9 million for the 1998 Period.
For the 1999 Period, sales from distributed products increased by 25.0%
to $195.2 million, as compared to $156.2 million for the 1998 Period.
Sales from manufactured products increased to $83.0 million for the
1999 Period, as compared to $8.0 million for the 1998 Period. Sales from
manufactured products include the Company's bioequivalent version of Dilacor
XR(Registered Trademark), and, commencing June 23, 1999, the Company's
bioequivalent version of Cardizem(Registered Trademark) CD.
In the 1999 Period, Andrx received $70.7 million in interim and final
Stipulation fees from HMRI pursuant to the Stipulation and the resolution of the
HMRI Litigation, as compared to $9.1 million of interim Stipulation fees in the
1998 Period. Such Stipulation fees terminated in June 1999, upon the dismissal
with prejudice of the HMRI Litigation.
The Company recorded $4.9 million of licensing and other revenues in
the 1999 Period, as compared to $519,000 in the 1998 Period. Such revenues in
the 1999 Period were primarily generated from the Company's June 1999 agreement
with Geneva.
Gross profits from sales of distributed products was $37.6 million,
with a gross margin of 19.3% in the 1999 Period, as compared to $23.5 million,
with a gross margin of 15.1% in the 1998 Period.
Gross profits from sales of manufactured products were $68.3 million,
with a gross margin of 82.3% in the 1999 Period, as compared to $4.2 million,
with a gross margin of 52.5% in the 1998 Period.
15
<PAGE>
Selling, general and administrative expenses were $38.4 million or
10.9% of total revenues for the 1999 Period, as compared to $20.8 million or
12.0% for the 1998 Period. The increase in selling, general and administrative
expenses was primarily due to an increase in the activities necessary to support
the increase in sales from distributed and manufactured products and includes a
royalty to the Company's Co-Chairman and Chief Scientific Officer related to
Stipulation fees in the 1999 Period and 1998 Period and sales of the Company's
bioequivalent version of Cardizem (Registered Trademark) CD in the 1999 Period.
Research and development expenses were $18.3 million in the 1999
Period, as compared to $12.2 million in the 1998 Period. The increase in
research and development expenses of $6.1 million or 50.4% reflects the progress
and expansion of the Company's development activities for its ANDA and NDA drug
development programs, including legal costs related to patent infringement
claims associated with the Company's ANDA filings.
The Company's equity share of losses in ANCIRC decreased to $36,000 for
the 1999 Period, as compared to $914,000 in the 1998 Period. This decrease was
primarily attributable to the sale of ANCIRC 's first product, a bioequivalent
version of Trental(Registered Trademark) commencing in September 1998. In April
1999, ANCIRC received approval and launched its second product, a bioequivalent
version of Oruvail(Registered Trademark). Subsequently, in July 1999, ANCIRC
suspended the production and sale of its bioequivalent version of
Oruvail(Registered Trademark). This is not expected to have a material effect on
the Company's consolidated results of operations.
In the 1999 Period, through Cybear, the Company incurred $9.8 million
of Internet operating expenses as compared to $2.2 million in the 1998 Period.
Such increase is primarily the result of progress in the development of
applications and the establishment of the related operational and administrative
infrastructure of Cybear.
In the 1999 Period, the Company and a former employee who claimed that
he was entitled to receive a royalty equal to 1% of gross revenues from the
Company's bioequivalent versions of Dilacor XR(Registered Trademark) and
Cardizem(Registered Trademark) CD, agreed to settle their claims against each
other with a payment from Andrx to such employee of $545,000.
Minority interest in Cybear's net losses was $783,000 in the 1999
Period, as compared to $49,000 in the 1998 Period. The increase in minority
interest is a result of the increase in minority ownership of Cybear. In
addition, Cybear's net losses increased to $9.0 million in the 1999 Period from
$2.2 million in the 1998 Period.
In the 1999 Period, the Company recognized a gain on the sale of shares
of Cybear common stock to Cybear's Chairman of $300,000, as compared to $500,000
for the 1998 Period. Such sales were pursuant to an existing subscription
agreement.
Interest income was $2.2 million in the 1999 Period, as compared to
$753,000 in the 1998 Period. The increase in interest income is the result of
the higher average level of cash, cash equivalents and investments
available-for-sale maintained during the 1999 Period, as compared to the 1998
Period.
Interest expense increased to $1.1 million in the 1999 Period, as
compared to $321,000 in the 1998 Period. The increase in interest expense was
primarily the result of a higher average level of borrowings under the Company's
bank loan during the 1999 Period, as compared to the 1998 Period.
16
<PAGE>
In the 1999 Period, the Company provided $42.9 million for Federal and
state income taxes or 37% of income before income taxes. The Company was not
required to provide for income taxes at the 39% effective Federal and state
statutory rate, due to the effect of the utilization of the Company's net
operating loss carryforwards, offset by Andrx' inability to utilize Cybear's
expected losses after June 23, 1999, as Andrx' ownership in Cybear was reduced
below 80%. Cybear's net losses after June 23, 1999 did not generate income tax
benefits as its tax benefits were fully offset by a corresponding increase in
the valuation allowance against its net deferred income tax assets. In the 1998
Period, the Company provided $90,000 for Federal alternative minimum income
taxes. For the 1998 Period the Company was not required to provide for other
Federal or state income taxes due to its net operating loss carryforwards.
The diluted weighted average shares of common stock outstanding were
32.4 million in the 1999 Period, as compared to 31.8 million in the 1998 Period.
The increase in such diluted weighted average shares of common stock outstanding
in the 1999 Period, as compared to the 1998 Period resulted primarily from
exercises of stock options and warrants. Share and per share amounts have been
restated for all periods prior to the Company's May 17, 1999 two-for-one stock
split effected in the form of a 100% stock dividend.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, Andrx had $107.8 million in cash, cash
equivalents and investments available-for-sale which includes $44.7 million of
cash, cash equivalents and investments available-for-sale held by Cybear. The
Company had consolidated net working capital of $163.3 million.
Net cash provided by operating activities was $27.2 million in the 1999
Period, as compared to net cash used in operating activities of $10.4 million in
the 1998 Period. Net cash provided by operating activities in the 1999 Period is
primarily due to the Company generating $73.7 million of net income, in addition
to increases in accounts payable and accrued liabilities, and income taxes
payable, offset by increases in accounts receivable, inventories and prepaid and
other assets. Net cash used in operating activities in the 1998 Period consists
primarily of the increases in accounts receivable and inventories, offset by the
Company generating $2.2 million of net income. The increase in accounts
receivable in the 1999 Period is primarily the result of the launch of Cartia
XT(Trademark), the Company's bioequivalent version of Cardizem(Registered
Trademark) CD on June 23, 1999. The increase in inventories in the 1999 Period
includes distributed and manufactured products. The increase in inventories for
distribution in the 1999 Period and 1998 Period is in anticipation of potential
price increases by generic drug manufacturers.
Net cash used in investing activities was $76.5 million in the 1999
Period, as compared to net cash provided by investing activities of $4.7 million
in the 1998 Period. In the 1999 Period, the Company purchased investments
available-for-sale of $60.5 million, property, plant and equipment of $14.8
million and Telegraph for $1.2 million. In the 1998 Period, $9.4 million of
investments available-for-sale matured and the Company purchased property, plant
and equipment of $4.7 million.
17
<PAGE>
Net cash provided by financing activities was $73.6 million in the 1999
Period, as compared to $5.8 million in the 1998 Period. Net cash provided by
financing activities in the 1999 Period consisted of net proceeds from Cybear's
June 1999 public offering of $50.8 million, net borrowings under the Company's
bank loan of $16.1 million and proceeds from the issuance of shares of common
stock upon the exercises of stock options and warrants of $6.3 million. Net cash
provided by financing activities for the 1998 Period consisted primarily of net
borrowings under the Company's bank loan of $3.4 million and proceeds from the
issuance of shares of common stock upon the exercises of stock options and
warrants of $1.9 million.
The Company had outstanding short-term borrowings under its
distribution subsidiary's bank loan of $20.2 million as of September 30, 1999 as
compared to $4.1 million as of December 31, 1998. Such increase relates
primarily to the financing of additional inventories for distribution.
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
operations 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 Company's distribution
subsidiary. As of September 30, 1999, the Company was in compliance with all of
the covenants of this bank loan.
The Company anticipates that its cash requirements will continue to
increase due to the construction of its research and development, manufacturing,
and corporate facilities including the related equipment purchases, and expected
continued increases in distribution inventories. The Company anticipates that
its existing capital resources will be sufficient to enable it to maintain its
operations for the foreseeable future.
Year 2000 Systems Costs
The Year 2000 issue results from computer programs being written using
two digits rather than four to define the applicable year. This could cause the
Company's time-sensitive computers to recognize a date using "00" as the year
1900 rather than the year 2000 resulting in system failures and disruption of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in other normal business activities.
The Company has undertaken various initiatives intended to ensure that
its computer equipment and software will function properly with respect to dates
in the Year 2000 and thereafter. For this purpose, the term "computer equipment
and software" includes systems that are commonly thought of as IT systems,
including accounting, data processing, telephone/PBX systems, hand-held
terminals, scanning equipment, and other miscellaneous systems, as well as
systems that are not commonly thought of as IT systems, such as alarm systems,
fax machines and other equipment. Both IT and non-IT systems may contain
embedded technology and complicate the Company's Year 2000 identification,
assessment, remediation, and testing efforts. Based upon identification and
assessment efforts, certain of the Company's computer equipment and software
required or requires replacement or modification.
18
<PAGE>
As such, the Company has obtained or is obtaining replacements or
modifications that are Year 2000 compliant. Utilizing both internal and external
resources to identify and assess needed Year 2000 remediation, the Company
anticipates that its Year 2000 identification, assessment, remediation and
testing efforts, which began in the first quarter 1998, will be completed by the
fourth quarter 1999, prior to any currently anticipated impact from this issue.
The Company estimates that as of September 30, 1999, it had completed
approximately 90% of the initiatives that it believes will be necessary to fully
address potential Year 2000 issues. The projects comprising the remaining 10% of
the initiatives are in process.
The Company has also mailed letters to its significant vendors,
customers and service providers to determine the extent to which interfaces with
such entities are vulnerable to Year 2000 issues and whether products and
services purchased from or by such entities are Year 2000 compliant. For those
significant service providers that have not provided written assurance that they
are year 2000 compliant, the Company developed contingency plans to address
issues that might arise from interfaces with such entities.
The Company believes that the cost of its Year 2000 identification,
assessment, remediation and testing efforts, as well as currently anticipated
costs to be incurred by the Company with respect to Year 2000 issues of third
parties, will be approximately $1 million and will be funded from currently
existing financial resources. As of September 30, 1999 the Company had incurred
costs of approximately $700,000 related to its Year 2000 identification,
assessment, remediation and testing efforts. These costs were for analysis,
repair of existing software, or evaluation of information received from
significant vendors, service providers, or customers. Other non-Year 2000
efforts have not been materially delayed by these efforts and Year 2000 issues
should not pose significant operational problems for the Company. However, if
all Year 2000 issues are not properly identified, or assessment, remediation and
testing are not effected timely with respect to Year 2000 problems that are
identified, there can be no assurance that the Year 2000 issue will not
materially adversely impact the Company's results of operations or adversely
affect the Company's relationships with customers, vendors, or others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities will not have a material adverse impact on the Company's systems or
results of operations.
The Company has initiated a comprehensive analysis of the operational
problems and costs (including loss of revenues) that are reasonably likely to
result from the failure by the Company and certain third parties to complete
efforts necessary to achieve Year 2000 compliance on a timely basis. A
contingency plan is 70% complete for dealing with the most reasonably likely
worst case scenario, but such scenario has not yet been clearly identified. The
Company currently plans to complete such analysis and contingency planning by
December 31, 1999.
The costs of the Company's Year 2000 identification, assessment,
remediation and testing efforts and the dates on which the Company believes it
will complete such efforts are based upon management's best estimates, which
were derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated.
19
<PAGE>
Specific factors that could cause such material differences include, but are not
limited to, the availability and cost of personnel trained in Year 2000 issues,
the ability to identify, assess, remediate and test all relevant computer codes
and embedded technology, and similar uncertainties. In addition, variability of
definitions of "compliance with Year 2000" and the myriad of different products
and services, and combinations thereof, sold or received by the Company may lead
to claims whose impact on the Company is not currently estimatable. No assurance
can be given that the aggregate cost of defending and resolving such claims, if
any, will not materially adversely affect the Company's results of operations.
20
<PAGE>
ANDRX CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5 to the "Notes to Unaudited Consolidated Financial
Statements" included in PART I, Item 1 of this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits:
27.1 Financial Data Schedule
(b)Reports on Form 8-K:
None
21
<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
Co-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)
November 15, 1999
22
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
27.1 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 41,718,000
<SECURITIES> 66,080,000
<RECEIVABLES> 82,057,000
<ALLOWANCES> (6,574,000)
<INVENTORY> 83,757,000
<CURRENT-ASSETS> 273,902,000
<PP&E> 42,616,000
<DEPRECIATION> (10,262,000)
<TOTAL-ASSETS> 316,028,000
<CURRENT-LIABILITIES> 110,603,000
<BONDS> 0
0
0
<COMMON> 31,000
<OTHER-SE> 191,127,000
<TOTAL-LIABILITY-AND-EQUITY> 316,028,000
<SALES> 278,227,000
<TOTAL-REVENUES> 353,899,000
<CGS> 172,326,000
<TOTAL-COSTS> 239,439,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,147,000)
<INCOME-PRETAX> 116,550,000
<INCOME-TAX> 42,899,000
<INCOME-CONTINUING> 73,651,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,651,000
<EPS-BASIC> 2.39
<EPS-DILUTED> 2.27
</TABLE>
