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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 MARCH 31, 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 May 3, 1999, 15,294,000 shares of the Registrant's only class of
common stock were issued and outstanding.
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<PAGE>
ANDRX CORPORATION
INDEX TO THE FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
PAGE
NUMBER
------
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheets -
as of March 31, 1999 and December 31, 1998 3
Unaudited Consolidated Statements of Operations -
for the three months ended March 31, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows -
for the three months ended March 31, 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 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 11,700 $ 17,459
Investments available-for-sale 16,799 5,633
Accounts receivable, net of allowances of $2,755 and $2,529
as of March 31, 1999 and December 31, 1998, respectively 35,645 33,811
Investment in and due from or to joint venture, net 434 89
Inventories 61,614 42,337
Prepaid and other current assets 993 631
--------- ---------
Total current assets 127,185 99,960
Property, plant and equipment, net 24,167 20,429
Other assets 913 809
--------- ---------
Total assets $ 152,265 $ 121,198
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 48,393 $ 33,516
Accrued liabilities 12,533 10,892
Bank loan 10,206 4,107
Notes payable 37 100
--------- ---------
Total current liabilities 71,169 48,615
--------- ---------
Commitments and contingencies (Notes 2 and 7)
Shareholders' equity
Convertible preferred stock; $0.001 par
value, 1,000,000 shares authorized; none
issued and outstanding as of March 31, 1999
and December 31, 1998 -- --
Common stock; $0.001 par value, 25,000,000
shares authorized; 15,272,000 and 15,173,400
shares issued and outstanding as of March 31, 1999 and
December 31, 1998, respectively 15 15
Additional paid-in capital 87,911 86,320
Accumulated deficit (6,807) (13,751)
Unrealized loss on investments available-for-sale (23) (1)
--------- ---------
Total shareholders' equity 81,096 72,583
--------- ---------
Total liabilities and shareholders' equity $ 152,265 $ 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 OPERATIONS
(in thousands, except for share and per share amounts)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1999 1998
------------ ------------
Revenues
Distributed products $ 63,025 $ 48,080
Manufactured products 4,373 2,615
Stipulation fees 10,000 --
Licensing 526 --
------------ ------------
Total revenues 77,924 50,695
------------ ------------
Operating expenses
Cost of distributed products 50,569 40,939
Manufacturing costs
(including idle facility costs) 2,257 998
Selling, general and administrative 8,808 6,081
Research and development 4,405 3,096
Equity in losses of joint venture 148 298
Software development and administrative 2,744 490
Legal settlement 545 --
------------ ------------
Total operating expenses 69,476 51,902
------------ ------------
Income (loss) from operations 8,448 (1,207)
Other income (expense)
Gain on sale of Cybear, Inc. shares 300 --
Interest income 366 293
Interest expense (154) (46)
------------ ------------
Income (loss) before income taxes 8,960 (960)
Income taxes 2,016 --
------------ ------------
Net income (loss) $ 6,944 $ (960)
============ ============
Basic net income (loss) per share $ 0.46 $ (0.06)
============ ============
Diluted net income (loss) per share $ 0.43 $ (0.06)
============ ============
Basic weighted average shares of common
stock outstanding 15,218,000 14,888,900
============ ============
Diluted weighted average shares of common
stock outstanding 16,156,300 14,888,900
============ ============
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>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 6,944 $ (960)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 862 678
Provisions for doubtful accounts, net 226 16
Options granted to consultants -- 50
Gain on sale of Cybear, Inc. shares (300) --
Equity in losses of joint venture 148 298
Contributions to joint venture (500) (600)
Changes in operating assets and liabilities:
Accounts receivable (2,060) (571)
Due from or to joint venture 7 265
Inventories (19,277) (7,706)
Prepaid and other current assets (362) 11
Other assets (104) (486)
Accounts payable and accrued liabilities 16,518 4,465
-------- --------
Net cash provided by (used in) operating activities 2,102 (4,540)
-------- --------
Cash flows from investing activities
Purchases of property, plant and equipment (4,600) (799)
Maturities (purchases) of investments available-for-sale, net (11,188) 1,277
-------- --------
Net cash provided by (used in) investing activities (15,788) 478
-------- --------
Cash flows from financing activities
Proceeds from exercises of stock options and warrants 1,501 769
Net borrowings under bank loan 6,099 457
Payments on notes payable (63) --
Proceeds from sale of Cybear, Inc. shares 300 --
Capital transactions of Cybear, Inc. 90 --
-------- --------
Net cash provided by financing activities 7,927 1,226
-------- --------
Net decrease in cash and cash equivalents (5,759) (2,836)
Cash and cash equivalents, beginning of period 17,459 6,625
-------- --------
Cash and cash equivalents, end of period $ 11,700 $ 3,789
======== ========
Supplemental disclosure of cash paid during the period for:
Interest $ 154 $ 46
======== ========
Income taxes $ 115 $ --
======== ========
</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
MARCH 31, 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 ("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 unaudited financial
position and results of operations. The unaudited results of operations and cash
flows for the three months ended March 31, 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.
2. CYBEAR, INC.
For the three months ended March 31, 1999, Andrx recognized a gain of
$300,000 on the sale of Cybear, Inc. ("Cybear") (OTC Bulletin Board: CYBR)
common stock to Cybear's Chairman pursuant to an existing subscription
agreement.
On April 20, 1999, Cybear filed a registration statement for a public
offering of primary shares of its common stock. No assurance can be given that
the offering will be consummated. If the offering is not consummated, Cybear,
Inc. will need additional funding, which may be provided by the Company or other
sources.
3. INCOME TAXES
For the three months ended March 31, 1999, the Company provided
$2,016,000 for Federal and state income taxes or 22.5% of income before taxes,
which is the Company's estimated annual 1999 effective tax rate. The Company was
not required to provide for Federal and state income taxes for the three months
ended March 31, 1999 at the statutory rate due to its utilization of net
operating loss carryforwards.
For the three months ended March 31, 1998, the Company had no income
taxes as its income tax benefits were fully offset by a corresponding increase
to the valuation allowance against its net deferred income tax assets.
6
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
4. EARNINGS (LOSS) PER SHARE
For the three months ended March 31, 1999 in which the Company
generated net income, the diluted basis considers the weighted average shares of
common stock outstanding including common stock equivalents.
For the three months ended March 31, 1998 the Company generated net
losses. Accordingly, all common stock equivalents were excluded from the
calculation of net loss per diluted share since the effects were anti-dilutive.
The diluted net loss per share is based on the weighted average shares of common
stock outstanding.
5. COMPREHENSIVE INCOME (LOSS)
The components of the Company's comprehensive income (loss) are as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Net income (loss) $ 6,944 $ (960)
Unrealized gain (loss) on investments available-for-sale (22) 8
----------------- -----------------
Comprehensive income (loss) $ 6,922 $ (952)
================= =================
</TABLE>
6. STOCK SPLIT
In May 1999, Andrx' Board of Directors approved a 2-for-1 stock split.
The stock split will be in the form of a 100% stock dividend to be distributed
on or about June 1, 1999. In connection with this stock split, the Company's
authorized common stock will be increased to 50,000,000. Anti-dilutive
adjustments will be made to the Company's Stock Option Plan and the options
outstanding thereunder. Shareholders of record at the close of business on May
17, 1999 will receive an additional share of common stock for each share of the
Company's stock held on that date. Such stock split has not been reflected in
the accompanying unaudited consolidated financial statements.
7
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
7. CONTINGENCIES
CARDIZEM(R) CD LITIGATION
In addition to the putative class actions described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, another suit
has been filed against the Company in Florida attacking the stipulation and
seeking relief similar to that sought in those class actions.
FORMER EMPLOYEE
In May 1996, a former employee of the Company filed a suit against the
Company claiming he was entitled to receive, pursuant to the terms of his
employment arrangement with the Company, a royalty equal to 1% of the gross
revenues from the Company's bioequivalent versions of Dilacor XR(R) and
Cardizem(R) CD. Following mediation which commenced in March 1999, this action
was settled with the parties releasing each other from any liability, through a
payment to the former employee of $545,000.
8. 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.
Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The operating segments are
managed separately because of the fundamental difference in their operations or
in the uniqueness of their product(s).
The Company operates in 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.
8
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 and Internet-based browser technologies
to develop applications designed to improve communication among,
and increase efficiencies for, healthcare providers.
The category "Corporate and Other" consists of corporate headquarters,
including general and administrative expenses, interest income, income taxes and
adjustments for minority interest.
The Company evaluates the performance of the segments after all
intercompany sales are eliminated. The allocation of income taxes is not
evaluated at the segment level.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
(in thousands)
- -----------------------------------------------------------------------------------------------------------------
ANDA ANDRX AURA CORPORATE &
GENERICS PHARMACEUTICALS LABS CYBEAR OTHER CONSOLIDATED
-------- --------------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 63,025 $ 14,899 $ -- $ -- $ -- $ 77,924
Equity in losses of
joint venture -- (148) -- -- -- (148)
Income (loss) from
operations 6,321 8,121 (1,239) (2,794) (1,961) 8,448
Gain on sale of Cybear
shares 300 -- -- -- -- 300
Interest income -- -- -- -- 366 366
Interest expense (154) -- -- -- -- (154)
Income tax expense -- -- -- -- (2,016) (2,016)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
(in thousands)
- -----------------------------------------------------------------------------------------------------------------
ANDA ANDRX AURA CORPORATE &
GENERICS PHARMACEUTICALS LABS CYBEAR OTHER CONSOLIDATED
-------- --------------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 48,080 $ 2,615 $ -- $ -- $ -- $ 50,695
Equity in losses of joint
venture -- (298) -- -- -- (298)
Income (loss) from
operations 2,381 (1,692) (410) (501) (985) (1,207)
Interest income -- -- -- -- 293 293
Interest expense (46) -- -- -- -- (46)
</TABLE>
9
<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, NEED FOR FUTURE
CAPITAL 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 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 PROFITS. IN ADDITION, THE COMPANY'S
INTERNET BASED HEALTHCARE SOLUTIONS SUBSIDIARY IS SUBJECT TO THE RISKS AND
UNCERTAINTIES OF A DEVELOPMENT STAGE INTERNET COMPANY, INCLUDING BUT NOT LIMITED
TO LIMITED OPERATING HISTORY, UNCERTAINTY OF MARKET ACCEPTANCE, CHANGES IN
TECHNOLOGY, LIMITED CAPITAL, AND DEPENDENCE ON THE ADOPTION OF THE INTERNET AS A
BUSINESS AND ADVERTISING MEDIUM. THE COMPANY IS ALSO SUBJECT TO OTHER RISKS
DETAILED HEREIN OR DETAILED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE
U.S. SECURITIES AND EXCHANGE COMMISSION (THE "SEC").
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 an Internet based
software application 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 Company's Abbreviated New Drug Application
("ANDA") for its bioequivalent version of Dilacor XR(R), the Company's first
manufactured product, which it immediately launched.
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 clam brought against
the Company by HMRI (the "HMRI Litigation") relating to the Company's
bioequivalent version of Cardizem(R) CD. Andrx and HMRI 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 HMRI.
10
<PAGE>
HMRI 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.
HMRI 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(R) 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 final FDA marketing approval for
its bioequivalent version of Cardizem(R) CD.
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. In September 1998, upon FDA
approval, ANCIRC launched its first product, a bioequivalent version of
Trental(R). In March 1999, the FDA approved ANCIRC's second product, a
bioequivalent version of Oruvail(R), and ANCIRC commenced the sale of such
product in April 1999. The Company is also party to development and licensing
agreements for additional controlled-release products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 ("1999 QUARTER") AS COMPARED TO THREE MONTHS
ENDED MARCH 31, 1998 ("1998 QUARTER")
For the 1999 Quarter, Andrx reported net income of $6,944,000 or $0.43
per diluted share as compared to a net loss of $960,000 or $0.06 per diluted
share for the 1998 Quarter.
Total revenues increased by 53.7% to $77,924,000 for the 1999 Quarter
as compared to $50,695,000 for the 1998 Quarter.
For the 1999 Quarter, sales from distributed products increased by
31.1% to $63,025,000 as compared to $48,080,000 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 participation
in the distribution of new products launched by other pharmaceutical companies,
offset by overall price declines.
Sales from manufactured products increased to $4,373,000 for the 1999
Quarter as compared to $2,615,000 for the 1998 Quarter.
In the 1999 Quarter, Andrx earned $10,000,000 in stipulation fees
pursuant to the Stipulation.
Licensing revenues of $526,000 were generated in the 1999 Quarter from
the Company's domestic and international licensing arrangements.
11
<PAGE>
Gross profits from sales of distributed products were $12,456,000 or a
gross margin of 19.8% in the 1999 Quarter, as compared to $7,141,000 or a gross
margin of 14.9% in the 1998 Quarter. This represents the 27th consecutive
quarter (every quarter since inception) with an increase in gross profits from
the distribution operation. The gross margin percentage in the 1999 Quarter was
higher than historical trends and may not be indicative of the expected gross
margin percentage in future periods.
Manufacturing costs, which consist of costs of manufactured products as
well as idle facility costs, were $2,257,000 for the 1999 Quarter as compared to
$998,000 for the 1998 Quarter. The manufacturing facility was not fully utilized
for the Company's commercial manufacturing operations during the 1999 Quarter
and the 1998 Quarter.
Selling, general and administrative expenses were $8,808,000 or 11.3%
of total revenues for the 1999 Quarter, as compared to $6,081,000 or 12.0% of
total revenues for the 1998 Quarter. 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 but also includes a royalty, with respect to the Stipulation fees, to
the Company's Co-Chairman and Chief Scientific Officer, who is also a principal
shareholder.
Research and development expenses were $4,405,000 in the 1999 Quarter,
as compared to $3,096,000 in the 1998 Quarter. The increase in research and
development expenses of $1,309,000 or 42.3% reflects the progress and expansion
of the Company's development activities for 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 equity share of losses in ANCIRC, decreased to $148,000
for the 1999 Quarter, as compared to $298,000 in the 1998 Quarter. This decrease
was primarily attributed to the launch of ANCIRC's first product, a
bioequivalent version of Trental(R) in September 1998.
In the 1999 Quarter, the Company incurred $2,744,000 of software
development and administrative costs as compared to $490,000 in the 1998
Quarter. The increase in software development and administrative costs primarily
relates to progress in software applications and the establishment of the
related administrative infrastructure by Cybear, Inc. ("Cybear") (OTC Bulletin
Board: CYBR), the Company's 94% owned Internet based healthcare communications
technology subsidiary.
In the 1999 Quarter, 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 versions of Dilacor XR(R) and Cardizem(R) CD, agreed to settle their
claims against each other with a payment from Andrx to such employee of
$545,000.
In the 1999 Quarter, Andrx recognized a gain of $300,000 on the sale of
Cybear common stock to Cybear's Chairman pursuant to an existing subscription
agreement.
12
<PAGE>
Interest income was $366,000 in the 1999 Quarter, as compared to
$293,000 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. The Company invests in short-term investment grade interest bearing
securities.
Interest expense increased to $154,000 in the 1999 Quarter from $46,000
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.
In the 1999 Quarter, the Company provided $2,016,000 for Federal and
state income taxes or 22.5% of income before taxes, which is the estimated
annual 1999 effective tax rate. The Company was not required to provide for
Federal and state income taxes in the 1999 Quarter at the statutory rate due to
the utilization of net operating loss carryforwards. In the 1998 Quarter, the
Company had no income taxes as its income tax benefits were fully offset by a
corresponding increase to the valuation allowance against its net deferred
income tax assets.
The diluted weighted average shares of common stock outstanding were
16.2 million in the 1999 Quarter as compared to 14.9 million for the 1998
Quarter. The increase in such diluted weighted average shares of common stock
outstanding in the 1999 Quarter, as compared to the comparable 1998 Quarter
resulted primarily from the inclusion of stock equivalents in the profitable
1999 Quarter.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, Andrx had $28.5 million in cash, cash equivalents
and investments available-for-sale and $56.0 million of working capital.
Net cash provided by operating activities was $2.1 million in the 1999
Quarter, as compared to net cash used in operating activities of $4.5 million in
the 1998 Quarter. Net cash provided by operating activities in the 1999 Quarter
is primarily due to the Company generating $6.9 million of net income in the
1999 Quarter, and increases in accounts payable and accrued expenses offset by
increases in accounts receivable and inventories. Net cash used in operating
activities in the 1998 Quarter is primarily attributed to increases in
inventories and accounts receivable, offset by increases in accounts payable and
accrued liabilities. The increase in inventories in the 1999 Quarter and the
1998 Quarter include purchases of inventories for distribution in anticipation
of potential price increases by generic drug manufacturers.
Net cash used in investing activities was $15.8 million in the 1999
Quarter, as compared to net cash provided by investing activities of $478,000 in
the 1998 Quarter. In the 1999 Quarter, the Company invested $11.2 million in
investments available-for-sale and the Company purchased $4.6 million of
property, plant and equipment. In the 1998 Quarter, $1.3 million of investments
available-for-sale matured and the Company purchased $799,000 of property, plant
and equipment.
13
<PAGE>
Net cash provided by financing activities was $7.9 million in the 1999
Quarter, as compared to $1.2 million in the 1998 Quarter. Net cash provided by
financing activities in the 1999 Quarter consisted of net borrowings of $6.1
million under the Company's bank loan, $1.5 million in proceeds from the
issuance of shares of common stock upon the exercises of stock options and
warrants and $300,000 in proceeds from the gain on the sale of shares of Cybear
common stock. Net cash provided by financing activities for the 1998 Quarter
consisted of $769,000 from the issuance of shares of common stock upon the
exercises of stock options and warrants and $457,000 of net borrowings under on
the Company's bank loan.
The Company had an outstanding short-term borrowing balance under its
distribution subsidiary's bank loan of $10.2 million as of March 31, 1999 as
compared to $4.1 million as of March 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 distribution subsidiary.
In September 1997, the Company entered into the Stipulation in which,
the Company agreed that if the HMR Litigation is not concluded by the date the
FDA grants final approval of the ANDA for the Company's bioequivalent version of
Cardizem(R)CD, Andrx will not commence the commercial sale of the product in the
United States until a final and unappealable judgment is issued or certain other
events occur. The Stipulation provides that upon receiving final FDA approval of
its product, Andrx will begin to receive interim payments from HMRI of $10.0
million quarterly which, absent certain defaults by Andrx, are non-refundable.
The FDA approval Andrx received in July 1998 triggered the $10.0 million
quarterly payment. These payments will increase retroactively to $100.0 million
per year, less the amounts previously received by Andrx, if Andrx prevails in
the HMR Litigation. The Stipulation also provides Andrx with the option of
licensing HMRI's patents covering the Cardizem(R) CD product at certain times.
The Company anticipates that its cash requirements will continue to
increase due to the construction of its research and development,
manufacturing, distribution and corporate facilities including the related
equipment purchases, and expected increases in distribution inventories. The
Company anticipates that for the year ending December 31, 1999 it will incur
approximately $27 million in capital expenditures and distribution inventories
will increase by $30 million. The Company anticipates that its existing capital
resources will be sufficient to enable it to maintain its operations through
1999. Accordingly, the Company may need additional funding in future periods.
Additional funding, whether obtained through public or private debt or equity
financing, or from collaborative arrangements, may not be available when
required or may not be available on terms favorable to the Company, if at all.
If additional financing is not available, the Company may be required to delay,
scale back or eliminate some or all of its research and development programs and
software development or to license to third parties products or technologies
that the Company might otherwise seek to develop and commercialize itself.
In April 1999, Cybear filed a registration statement for a public
offering of primary shares of common stock. No assurance can be given that the
offering will be consummated. If the offering is not consummated, Cybear will
need additional funding, which may be provided by the Company or other sources.
14
<PAGE>
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 to date, the Company believes that certain computer equipment
and software that it currently uses will require replacement or modification.
As such, the Company will attempt to obtain 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, shall be completed by
third quarter 1999, prior to any currently anticipated impact from this issue.
The Company estimates that as of May 3, 1999, it had completed approximately 60%
of the initiatives that it believes will be necessary to fully address potential
Year 2000 issues. The projects comprising the remaining 40% 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 is developing 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 not exceed $1.6 million and will be funded from current existing
financial resources. As of May 3, 1999 the Company had incurred costs of
approximately $640,000 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.
15
<PAGE>
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 40% 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. 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.
16
<PAGE>
ANDRX CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 7 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
(SEC use only)
(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
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)
May 14, 1999
18
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,700,000
<SECURITIES> 16,799,000
<RECEIVABLES> 38,400,000
<ALLOWANCES> (2,755,000)
<INVENTORY> 61,614,000
<CURRENT-ASSETS> 127,185,000
<PP&E> 32,290,000
<DEPRECIATION> (8,123,000)
<TOTAL-ASSETS> 152,265,000
<CURRENT-LIABILITIES> 71,169,000
<BONDS> 0
0
0
<COMMON> 15,000
<OTHER-SE> 81,081,000
<TOTAL-LIABILITY-AND-EQUITY> 152,265,000
<SALES> 67,398,000
<TOTAL-REVENUES> 77,924,000
<CGS> 52,826,000
<TOTAL-COSTS> 69,476,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,000
<INCOME-PRETAX> 8,960,000
<INCOME-TAX> 2,016,000
<INCOME-CONTINUING> 6,944,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,944,000
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.43
</TABLE>
