<PAGE>
As filed with the Securities and Exchange Commission on March 31, 2000
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ANDRX CORPORATION
(Exact name of registrant as specified in its charter)
----------------
Florida 65-0366879
(I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
Dr. Elliot F. Hahn, President
Andrx Corporation
4001 Southwest 47th Avenue
Fort Lauderdale, Florida 33314
(954) 584-0300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices and agent for
service of process)
----------------
Copies of communications to:
Dale S. Bergman, P.A. Jonathan I. Mark, Esq.
Michael D. Karsch, P.A. Cahill Gordon & Reindel
Broad and Cassel 80 Pine Street
201 South Biscayne Boulevard New York, New York 10005
Miami, Florida 33131 Telephone: (212) 701-3000
Telephone: (305) 373-9400 Telecopier: (212) 269-5420
Telecopier: (305) 373-9443
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Title of Each Class of Amount Maximum Maximum Amount of
Securities to be to Be Offering Price Aggregate Registration
Registered Registered(1) Per Share(2) Offering Price Fee
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share....... 4,226,250 $109.00 $460,661,250 $121,615
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</TABLE>
(1) Includes 551,250 shares of common stock which may be purchased by the
Underwriters pursuant to an over-allotment option. See "Underwriting."
(2) Estimated pursuant to paragraph (c) of Rule 457 under the Securities Act
of 1933, as amended, solely for the purpose of calculating the
registration fee on the basis of the high and low sales prices for a share
of common stock on the Nasdaq National Market on March 30, 2000.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a), of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. Andrx +
+may not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and Andrx is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus (Not Complete)
Issued March 31, 2000
3,675,000 Shares
[LOGO]
Common Stock
-----------
Andrx Corporation is offering 3,000,842 shares of common stock and a selling
shareholder is offering 674,158 shares of our common stock in a firmly
underwritten offering. We will not receive any proceeds from the sale of shares
of common stock by the selling shareholder.
-----------
Our common stock is quoted on the Nasdaq National Market under the symbol
"ADRX" The last reported sale price of our common stock on the Nasdaq National
Market on March 30, 2000, was $105.13 per share.
-----------
Investing in the common stock involves a high degree of risk. See "Risk
Factors" on page 5.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Offering Price $ $
Discounts and Commissions to Underwriters $ $
Offering Proceeds to Andrx $ $
Offering Proceeds to a Selling Shareholder $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
We and some of the selling shareholders have granted the underwriters the
right to purchase up to 551,250 additional shares of common stock to cover any
over-allotments. The underwriters can exercise this right at any time within 30
days after the offering. The underwriters expect to deliver the shares of
common stock to investors on , 2000.
Joint Book-Running Managers
Banc of America Securities LLC Bear, Stearns & Co. Inc.
-----------
CIBC World Markets Warburg Dillon Read LLC
-----------
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Note Regarding Forward-Looking Statements................................ ii
Prospectus Summary....................................................... 1
Use of Proceeds.......................................................... 12
Price Range of Common Stock and Dividend Policy.......................... 13
Capitalization........................................................... 14
Selected Consolidated Financial Data..................................... 15
Unaudited Pro Forma Condensed Consolidated Financial Data................ 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 29
Management............................................................... 46
Selling Shareholders..................................................... 48
Description of Capital Stock............................................. 49
Shares Eligible for Future Sale.......................................... 51
Underwriting............................................................. 52
Legal Matters............................................................ 54
Experts.................................................................. 54
Where You Can Find More Information...................................... 54
Index to Financial Statements............................................ F-1
</TABLE>
----------------
As used in this prospectus, the terms "we," "us," "our," the "Company" and
"Andrx" mean Andrx Corporation and its subsidiaries and the term "common stock"
means Andrx Corporation's common stock, $0.001 par value per share (unless the
context indicates a different meaning).
The information in this prospectus gives effect to 2-for-1 stock split in
June 1999 and does not give effect to the 2-for-1 stock split effective in
April 2000. Unless otherwise stated, all information contained in this
prospectus assumes no exercise of the over-allotment option granted to the
underwriters.
The underwriters are offering the shares subject to various conditions and
may reject all or part of any order.
We were incorporated on August 28, 1992 under the name "Andrx
Pharmaceuticals, Inc.," commenced operations and assumed our present name in
November 1992. We are located at 4001 Southwest 47th Avenue, Fort Lauderdale,
Florida 33314. Our telephone number is (954) 584-0300 and our website address
is www.andrx.com. The website address of Cybear, Inc., Andrx' majority owned
subsidiary, is www.cybear.com. Information contained on our websites is not
part of this prospectus.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
which is contained in this prospectus. We are offering to sell shares of common
stock and seeking offers to buy shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of the common stock.
i
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
We caution readers that certain important factors may affect our actual
results and could cause such results to differ materially from any forward-
looking statements which may be deemed to have been made in this prospectus or
which are otherwise made by us or on our behalf. For this purpose, any
statements contained in this prospectus that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, words such as "may", "will", "expect", "believe",
"anticipate", "intend", "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 our results
include, but are not limited to, the risks and uncertainties of being a company
which has only commercialized a few products, relies on new technologies, has
limited manufacturing experience, faces current and potential competitors with
significant technical and marketing resources, needs future capital and depends
on collaborative partners and on key personnel. We are also subject to the
risks and uncertainties of being a drug delivery company, including changes in
regulatory scheme, compliance with government regulations and patent
infringement and other litigation. Additionally, we are subject to risks and
uncertainties of being a drug distribution company including, but not limited
to, decreasing gross profits. In addition, our Internet based healthcare
solutions subsidiary is subject to the risks and uncertainties of an early
development stage Internet company including, but not limited to, limited
operating history, uncertainty of market acceptance, changes in technology,
operating losses, and dependence on the adoption of the Internet by the
healthcare industry. We are also subject to other risks detailed herein or
detailed from time to time in our filings with the U.S. Securities and Exchange
Commission.
ii
<PAGE>
PROSPECTUS SUMMARY
This is only a summary and does not contain all of the information that may
be important to you. You should read the more detailed information contained in
this prospectus and all other information, including the financial information
and statements with notes, as discussed in the "Where You Can Find More
Information" section of this prospectus.
Andrx Corporation
Overview
We formulate and commercialize controlled-release oral pharmaceuticals using
our proprietary drug delivery technologies. We market and sell our generic or
bioequivalent versions of Cardizem(R) CD and Dilacor XR(R). Through our
distribution operations, we sell generic drugs manufactured by third parties
primarily to independent pharmacies, pharmacy chains which do not maintain
their own central warehousing facilities and pharmacy buying groups. Through
our Cybear subsidiary, we develop Internet applications to improve the
efficiency of day-to-day administrative and communications tasks for various
participants in the healthcare industry.
We have eight proprietary drug delivery technologies that we have patented
or for which we have filed patent applications. We believe our technologies are
flexible and can be modified to apply to a variety of pharmaceutical products.
We use our proprietary drug delivery technologies and formulation skills to
develop:
. bioequivalent versions of selected controlled-release brand name
pharmaceuticals; and
. brand name controlled-release formulations of existing immediate-release
or controlled-release drugs where we believe that the application of our
drug delivery technologies may improve the efficacy or other
characteristics of those products.
We believe that pharmaceutical companies are increasingly using controlled-
release drug delivery technologies to improve drug therapy. Controlled-release
drug delivery technologies generally provide more consistent and appropriate
drug levels in the bloodstream than immediate-release dosage forms and may
improve drug efficacy and reduce side effects by releasing drug dosages at
specific times and in specific locations in the body. These technologies also
allow for the development of "patient-friendly" dosage forms, which reduce the
number of times a drug must be taken, thus improving patient compliance.
Product Development and Commercialization
We market and sell our bioequivalent versions of Cardizem CD and Dilacor XR.
The U.S. Food and Drug Administration, or FDA, recently gave us tentative
approval of the Abbreviated New Drug Applications, or ANDAs, for our
bioequivalent versions of Prilosec(R) and Naprelan(R). These products had U.S.
brand sales in excess of $3.5 billion in 1999. We do not expect to begin
marketing our bioequivalent version of Prilosec before the favorable resolution
of related patent litigation or the expiration of the composition of matter
patent in April 2001, and this period may be extended for six months under
regulatory provisions that reward pediatric studies. ANDAs for six additional
products, bioequivalent versions of Tiazac(R), Wellbutrin SR(R), Zyban(R), K-
Dur(R), Depakote(R) and Claritin D-24(R), have been filed and are awaiting FDA
approval. These products had U.S. brand sales of approximately $2.1 billion in
1999. Additionally, through our 50/50 joint venture with Watson
Pharmaceuticals, Inc., we have approvals for bioequivalent versions of
Trental(R) and Oruvail(R) and are developing up to six bioequivalent products.
1
<PAGE>
We have 20 additional bioequivalent versions of controlled-release drugs
under development, including ANCIRC products. Total U.S. sales for the brand
versions of these products were approximately $8.0 billion in 1999. We
continually evaluate other potential product candidates. In selecting our
product candidates, we focus on pharmaceuticals which we anticipate will have
high sales volume and for which marketing exclusivity or patent rights have
expired or are near expiration.
We apply our proprietary drug delivery technologies to the development of
brand name controlled-release formulations of existing immediate-release and
controlled-release drugs. The FDA approval process for these products will
require the filing of New Drug Applications, or NDAs. In selecting our product
candidates, we focus on pharmaceuticals with high sales volume whose patent
rights will expire in a time frame that allows us to complete the development
prior to patent expiration. Our most advanced brand products, Lovastatin XL(R),
for the treatment of elevated cholesterol, is in Phase III trials, and
Metformin XT(R), for the treatment of diabetes, is expected to commence Phase
III trials in 2000. These products are in markets which are addressed by
pharmaceutical products which had approximately $7.7 billion in U.S. sales in
1999.
Pharmaceutical Distribution Operations
We market and distribute bioequivalent drugs manufactured by third parties.
Our customers consist primarily of independent pharmacies, pharmacy chains
which do not maintain their own central warehousing facilities and pharmacy
buying groups. Our distribution operations assist in the marketing of our
bioequivalent versions of Cardizem CD, Dilacor XR and Trental and we plan to
use these operations to assist in the marketing of other controlled-release
products being developed by us and our collaborative partners. These operations
allow us to observe and participate directly in developments and trends in the
bioequivalent pharmaceutical industry.
Cybear, Inc.
Cybear is an information technology company that is using the Internet to
improve the efficiency of administrative and communications tasks of managing
patient care with secure and reliable transmission of information. Cybear is an
Internet Service Provider, or ISP, and an Application Services Provider, or
ASP, for the healthcare industry. Cybear uses or intends to use its own secure
private network to provide access to the Internet, e-mail and productivity
applications to physicians, physician organizations, pharmacies and hospitals.
In March 1999, Cybear introduced its first product, dr.cybear, its physician
practice portal, which addresses the communications and operational needs of
physicians and other healthcare providers. dr.cybear is marketed to physicians,
physician organizations, hospitals, managed care organizations and integrated
delivery networks throughout the United States.
Recent Developments
In March 2000, we entered into a definitive agreement for a corporate
recapitalization plan which would give Andrx shareholders the ability to
distinguish between their investments in Andrx and Cybear. This plan will
create a new class of Andrx common stock, called Cybear Group Common, to track
the performance of Cybear. In exchange for their Andrx shares, Andrx
shareholders will receive shares of Andrx Group Common representing the equity
interests of Andrx other than its ownership of Cybear, and Cybear Group Common.
The plan will be submitted for approval to the shareholders of Andrx and Cybear
later this year.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Andrx........ 3,000,842 shares
Common stock offering by a selling 674,158 shares
shareholder.........................
Common stock to be outstanding after shares(1)
the offering........................
Use of proceeds...................... For expansion of manufacturing, research
and development and administrative
facilities; research and development for
branded and bioequivalent products;
acquisitions of products, product
candidates and/or companies; working
capital requirements and other general
corporate purposes.
Nasdaq National Market symbol........ ADRX
</TABLE>
- --------
(1) As of December 31, 1999, excludes (a) 2,823,303 shares of common stock
issuable upon the exercise of outstanding stock options, (b) 1,176,697
shares of common stock reserved for future issuance under our existing
stock option plan, and (c) 26,250 shares of common stock issuable by Andrx
upon exercise of the over-allotment option granted to the underwriters of
this offering.
3
<PAGE>
Summary Consolidated Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
(in thousands, except for share and per
share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:(1)
Revenues
Distributed products............ $ 146,237 $ 215,903 $ 262,402
Manufactured products........... 3,324 11,472 134,796
Stipulation fees................ -- 19,130 70,733
Licensing and other............. 137 552 8,059
---------- ---------- ----------
Total revenues................ 149,698 247,057 475,990
---------- ---------- ----------
Operating expenses
Cost of goods sold.............. 126,802 188,226 235,346
Selling, general and
administrative................. 18,934 30,646 55,266
Research and development........ 9,569 15,906 25,327
Equity in losses of joint
venture........................ 1,682 931 370
Cybear, Inc. Internet operating
expenses....................... 1,473 4,090 14,744
---------- ---------- ----------
Total operating expenses...... 158,460 239,799 331,053
---------- ---------- ----------
Income (loss) from operations..... (8,762) 7,258 144,937
Other income (expense)
Minority interest............... 31 85 1,937
Gain on sale of Cybear, Inc.
shares......................... -- 700 643
Interest income................. 1,585 1,064 3,603
Interest expense................ (490) (380) (1,661)
---------- ---------- ----------
Income (loss) before income
taxes............................ (7,636) 8,727 149,459
Income taxes...................... -- 333 55,405
---------- ---------- ----------
Net income (loss)................. $ (7,636) $ 8,394 $ 94,054
========== ========== ==========
Basic net income (loss) per
share............................ $ (0.27) $ 0.28 $ 3.03
========== ========== ==========
Diluted net income (loss) per
share............................ $ (0.27) $ 0.26 $ 2.90
========== ========== ==========
Basic weighted average shares of
common stock outstanding......... 28,426,200 30,045,400 30,989,900
========== ========== ==========
Diluted weighted average shares of
common stock outstanding......... 28,426,200 31,853,400 32,476,600
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------
Actual As Adjusted(2)
-------- --------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:(1)
Cash, cash equivalents and investments available-for-
sale(3).............................................. $123,418
Working capital....................................... 180,863
Total assets.......................................... 357,954
Short-term borrowings................................. 20,226
Total shareholders' equity............................ 220,972
</TABLE>
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(1) Certain prior years' amounts have been reclassified to conform with the
current year presentation.
(2) Gives effect to the sale of 3,000,642 shares of common stock offered by
Andrx at an assumed public offering price of $ per share, and after
deducting the underwriting discount and estimated expenses of this offering
payable by Andrx and the application of the net proceeds therefrom.
(3) Includes $38.0 million of cash, cash equivalents and investments held-for-
sale by Cybear.
4
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The trading price of our common stock could decline due to
any of these risks, and you could lose all or part of your investment. You also
should refer to the other information set forth in this prospectus, including
our consolidated financial statements and the related notes thereto. These are
not the only risks and uncertainties that we face. Additional risks and
uncertainties that we do not currently know about or that we currently believe
are immaterial may also harm our business operations. If any of these risks or
uncertainties actually occur, our business, financial condition, results of
operations or prospects could be materially adversely affected. In such case,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
Our business is subject to substantial litigation which could expose us to
unfavorable claims.
We have and continue to face substantial litigation with respect to the
manufacture, use and sale of new products that are the subject of patent
rights. To date, actions have been filed against us in connection with
substantially all of the ANDAs we have filed containing certifications relating
to infringement, validity or enforceability of patents. In these applications,
we have certified that we believe an unexpired patent which is listed with the
FDA and covers the brand name product will not be infringed by our product. We
anticipate that additional actions may be filed as we or our collaborative
partners file additional ANDAs. Patent litigation may also be brought against
us in connection with certain NDA products that we may pursue. The outcome of
this type of litigation is difficult to predict because of the uncertainties
inherent in patent litigation. Prior to filing an ANDA or NDA, we evaluate the
probability of patent infringement litigation on a case-by-case basis and have
reserved for the estimated patent infringement litigation costs relating to
litigation. Our business and financial results could be materially harmed by
the delays in marketing our products as a result of litigation, an unfavorable
outcome in any litigation or the expense of litigation whether or not it is
successful.
We are subject to antitrust litigation and an FTC administrative proceeding
relating to a stipulation we entered into with Aventis and its affiliates
which, if adversely determined, would harm our business and financial results.
Putative class actions and individual actions have been filed against us in
a number of state and federal courts. In each of these suits Aventis S.A.,
formerly Hoechst Marion Roussel, Inc., and some of its affiliates, have been
named as co-defendants. We entered into a stipulation and agreement with
Aventis pursuant to which the parties agreed to maintain the status quo during
the litigation and we agreed not to commence marketing our bioequivalent
version of Cardizem CD until the earlier of final resolution of the Aventis
litigation or certain dates specified in the stipulation in exchange for the
right to obtain Aventis' patents and payments made by Aventis to us. The
complaint in each of the class actions alleges that Aventis alone and Aventis
along with us, by way of the stipulation, engaged in antitrust and other
statutory and common law violations which allegedly have, among other things,
given Aventis and us a monopoly in the U.S. market for Cardizem CD and a
bioequivalent version of that pharmaceutical product.
In addition, in October 1998, we were advised that the U.S. Federal Trade
Commission, or FTC, is conducting an investigation to determine whether we or
any other persons have engaged in unfair methods of competition. On March 17,
2000, we were served by the FTC in an administrative action seeking a cease and
desist order against future agreements similar to the stipulation and other
remedies.
An adverse outcome in the class actions, individual actions and FTC
administrative action or the expense to us of defending such actions, whether
or not there is an adverse outcome, could materially harm our business and
financial results.
5
<PAGE>
We only have a limited number of commercialized products and these and other
products typically have declining revenues over their product life.
To date, the FDA has approved the ANDAs for six of our products and we have
commenced marketing only four of these (including the two ANCIRC products). We
cannot assure you that our other products under development or products
submitted to the FDA will be approved by the FDA or other regulatory
authorities or that our development efforts will be successfully completed. Our
future results of operations will depend significantly upon our ability to
develop and market new pharmaceutical products. Our operating results may vary
significantly on an annual or quarterly basis depending on the timing of, and
our ability to obtain, FDA approvals for such products. Newly introduced
bioequivalent pharmaceuticals with limited or no competition are typically sold
at higher selling prices, often resulting in increased gross profit margins. As
competition from other manufacturers intensifies, selling prices and gross
profit margins typically decline. The timing of our future operating results
may also be affected by a variety of additional factors, including the results
of future patent challenges and the market acceptance of our new products.
The stringent governmental regulation in our business subjects us to a costly
and time consuming approval process for our products.
Drug manufacturers are required to obtain FDA approval before marketing
their new drug product candidates. The FDA approval process is costly and time
consuming. We cannot assure you that our bioequivalence or clinical studies and
other data will result in FDA approval to market our new drug products. We
believe that the FDA's abbreviated new drug application procedures will apply
to our bioequivalent versions of controlled-release drugs. We cannot assure you
that any of our bioequivalent versions of controlled-release drugs will be
suitable for, or approved as part of, abbreviated applications. Moreover, once
a drug is approved (under either procedure) we cannot assure you that we will
not have to withdraw such product from the market if it is not manufactured in
accordance with FDA standards or our own internal standards.
Some abbreviated application procedures for bioequivalent controlled-release
drugs and other products are presently the subject of petitions filed by brand
name drug manufacturers, which seek changes from the FDA in the approval
process for bioequivalent drugs. We cannot predict at this time whether the FDA
will make any changes to its abbreviated application procedures as a result of
these petitions or the effect that any changes may have on us. Any changes in
FDA regulations or policies may make abbreviated application approvals more
difficult and thus may materially harm our business and financial results.
In order to market a new drug that does not qualify for the FDA's
abbreviated application procedures, we must conduct extensive clinical trials
to demonstrate product safety and efficacy and submit an NDA. The process of
completing clinical trials and preparing an NDA may take several years and
requires substantial resources. We have never submitted an NDA. We cannot
assure you that our studies and filings will result in FDA approval to market
our new drug products or the timing of any approval.
Patent certification requirements for bioequivalent controlled-release drugs
and for some new drugs could also result in significant delays in obtaining FDA
approval if patent infringement litigation is initiated by the holder or
holders of the brand name patents. Delays in obtaining FDA approval of
abbreviated applications and some new drug applications can also result from a
marketing exclusivity period and/or an extension of patent terms.
Proposed FDA regulations and recent FDA guidelines may result in our
bioequivalent products not being able to fully utilize the 180-day marketing
exclusivity period.
In August 1999, the FDA proposed to amend its regulations relating to 180-
day marketing exclusivity. We cannot predict whether or what changes the FDA
may make to its regulations. In March 2000, the FDA issued new guidelines
regarding the timing of approval of ANDAs following a court decision in patent
infringement actions and the start of the 180-day marketing exclusivity period
provided for in the Waxman-Hatch amendments applicable to generic
pharmaceuticals. These guidelines could result in us not being able to utilize
all or any portion of the 180-day marketing exclusivity period on ANDA products
we were first to file on, depending on the timing of court decisions in patent
litigation. We are unable to predict what impact, if any, the FDAs new
guidelines may have on our business or financial condition. These guidelines
are discussed in further detail under the heading "Business--Government
Regulation--ANDA Process."
6
<PAGE>
We face uncertainties related to clinical trials which could result in delays
in product development and commercialization.
Prior to seeking FDA approval for the commercial sale of brand name
controlled-release formulations under development, we must demonstrate through
clinical trials that these products are safe and effective for use. We have
limited experience in conducting and supervising clinical trials. There are a
number of difficulties associated with clinical trials. The results of these
clinical trials may not be indicative of results that would be obtained from
large-scale testing. Clinical trials are often conducted with patients having
advanced stages of disease and, as a result, during the course of treatment
these patients can die or suffer adverse medical effects for reasons that may
not be related to the pharmaceutical agents being tested, but which
nevertheless, affect the clinical trial results. Moreover, we cannot assure you
that our clinical trials will demonstrate sufficient safety and efficacy to
obtain FDA approval. A number of companies in the pharmaceutical industry have
suffered significant setbacks in advanced clinical trials even after promising
results in pre-clinical studies. These failures have often resulted in
decreases in stock prices. If any of our products under development are not
shown to be safe and effective in clinical trials, our business and financial
results could be materially harmed by any resulting delays in developing other
compounds and conducting related clinical trials.
Restrictive FDA regulations govern the manufacturing and distribution of our
products.
The FDA also regulates the development, manufacture, distribution, labeling
and promotion of prescription drugs, requires that certain records be kept and
reports be made, mandates registration of drug manufacturers and listing of
their products and has the authority to inspect manufacturing facilities for
compliance with Current Good Manufacturing Practices, or cGMP, standards. As a
wholesale distributor of bioequivalent pharmaceuticals manufactured by third
parties, we are subject to state licensure and other requirements pertaining to
the wholesale distribution of prescription drugs. Our business and financial
results could be materially harmed by any failure to comply with licensing and
other requirements.
Other requirements exist for controlled drugs, such as narcotics, which are
regulated by the U.S. Drug Enforcement Administration or DEA. Further, the FDA
has the authority to withdraw approvals of previously approved drugs for cause,
to request recalls of products, to bar companies and individuals from future
drug application submissions and, through action in court, to seize products,
institute criminal prosecution or close manufacturing plants in response to
violations. The DEA has similar authority and may also pursue monetary
penalties. Our business and financial results could be materially harmed by
these requirements or FDA or DEA actions.
We have limited manufacturing capacity and need to acquire or build additional
capacity for products in our pipeline. Our manufacturing facilities must comply
with stringent FDA and other regulatory requirements.
We have an approximately 35,000 square foot commercial manufacturing
facility. This facility is currently being used to manufacture the
bioequivalent versions of Dilacor XR and Cardizem CD. Although this facility is
expected to be sufficient for these products and for our bioequivalent versions
of Tiazac, Oruvail, Naprelan and K-Dur, it will not be suitable for the
manufacture of all of the products we intend to develop and manufacture. We
will need to scale up our current manufacturing operations significantly. We
are in the process of expanding our facilities for manufacturing operations.
In addition to obtaining the appropriate licenses and permits to build the
new facilities, the new manufacturing facilities, once completed, will need to
be in compliance with cGMP and inspected. We cannot assure you that such
permits, licenses and approvals will be obtained or, if obtained, obtained in
time to manufacture additional products as they are approved. Our facilities
will be subject to periodic inspections by the FDA and we cannot assure you
that the facilities will continue to be in compliance with cGMP or other
regulatory requirements. Failure to comply with such requirements could result
in significant delays in the development, approval and distribution of our
planned products, and may require us to incur significant
7
<PAGE>
additional expense to comply with cGMP or other regulatory requirements. We
cannot assure you that we will be able to manufacture our products successfully
on a commercial scale. Further, we will depend on other companies to
manufacture certain of the product candidates under development.
The DEA also periodically inspects facilities for compliance with security,
recordkeeping, and other requirements that govern controlled substances. We
cannot assure you that we will be in compliance with DEA requirements in the
future.
If we are unable to manage our rapid growth, our business will suffer.
We have experienced rapid growth of our operations. This growth has required
us to expand, upgrade and improve our administrative, operational and
management systems, controls and resources. We anticipate additional growth in
connection with the expansion of our manufacturing operations, development of
our brand products, our marketing and sales efforts for the products we
develop, the development and manufacturing efforts for our products and
Internet operations. If we fail to manage growth effectively or to develop a
successful marketing approach, our business and financial results will be
materially harmed.
We face intense competition in the pharmaceutical industry from both brand-name
and bioequivalent manufacturers, wholesalers and distributors that could
severely limit our growth.
The pharmaceutical industry is highly competitive and many of our
competitors have longer operating histories and greater financial, research and
development, marketing and other resources than us. We are subject to
competition from numerous other entities that currently operate or intend to
operate in the pharmaceutical industry, including companies that are engaged in
the development of controlled-release drug delivery technologies and products
and other manufacturers that may decide to undertake in-house development of
these products. Our bioequivalent products may be subject to competition from
competing bioequivalent products marketed by the patent holder. In our
pharmaceutical distribution business, we compete with a number of large
wholesalers and other distributors of pharmaceuticals. We cannot assure you
that we will be able to continue to compete successfully with these companies.
We depend on our patents and trade secrets and our future success is dependent
on our ability to protect these secrets and not infringe on the rights of
others.
We believe that patent and trade secret protection is important to our
business and that our future success will depend in part on our ability to
obtain patents, maintain trade secret protection and operate without infringing
on the rights of others. We have been issued a number of U.S. patents and have
filed additional U.S. and various foreign patent applications relating to our
drug delivery technologies. We expect to apply for additional U.S. and foreign
patents in the future. The issuance of a patent is not conclusive as to its
validity or as to the enforceable scope of the claims of the patent. We cannot
assure you that:
. our patents or any future patents will prevent other companies from
developing similar or functionally equivalent products or from
successfully challenging the validity of our patents;
. any of our future processes or products will be patentable;
. any pending or additional patents will be issued in any or all
appropriate jurisdictions;
. our processes or products will not infringe upon the patents of third
parties; or
. we will have the resources to defend against charges of patent
infringement by third parties or to protect our own patent rights
against infringement by third parties.
Our business and financial results could be materially harmed if we fail to
avoid infringement of the patent or proprietary rights of others or to protect
our patent rights.
8
<PAGE>
We also rely on trade secrets and proprietary knowledge, which we generally
seek to protect by confidentiality and non-disclosure agreements with
employees, consultants, licensees and pharmaceutical companies. We cannot
assure that these agreements will not be breached, that we will have adequate
remedies for any breach or that our trade secrets will not otherwise become
known by competitors.
We depend upon management and key personnel and do not have employment
agreements with them.
Our success for the foreseeable future depends upon the services of Dr.
Chih-Ming J. Chen, Co-Chairman and Chief Scientific Officer; Alan P. Cohen, Co-
Chairman and Chief Executive Officer; and Dr. Elliot F. Hahn, President. We do
not have employment agreements with these individuals. Dr. Chen receives a
3.33% royalty on all sales of our bioequivalent version of Cardizem CD,
regardless of his employment status. In addition, our success will depend in
large part on our ability to attract and retain highly qualified scientific,
technical and business personnel experienced in the development, manufacture
and marketing of pharmaceuticals. Our business and financial results would be
materially harmed by the loss of the services of any of these three officers,
or the inability to attract or retain qualified personnel.
We will need an effective sales organization to market and sell our future
brand products and our failure to have an effective sales organization may harm
our business.
We do not have a sales organization to market and sell our brand products
that we may develop or acquire. We cannot assure you that prior to the time
these products are available for commercial launch we will be able to license
our products to pharmaceutical companies with sales organizations, enter into a
favorable co-promotion or contract sales arrangement, or recruit or acquire an
effective sales organization. Our inability to enter into satisfactory sales
and marketing arrangements in the future may materially harm our business and
financial results. We may have to rely on collaborative partners to market our
products. These partners may not have the same interests as us in marketing the
products and we may lose control over the sales of these products.
Decreases in healthcare reimbursements could limit our ability to sell our
products or decrease our revenues.
Our ability to maintain profitability in our distribution business or to
commercialize our product candidates depends in part on the extent to which
reimbursement for the cost of pharmaceuticals will be available from government
health administration agencies, private health insurers and other
organizations. In addition, third party payors are attempting to control costs
by limiting the level of reimbursement for medical products, including
pharmaceuticals, which may adversely effect the pricing of our product
candidates. Moreover, healthcare reform has been, and may continue to be, an
area of national and state focus, which could result in the adoption of
measures which could adversely affect the pricing of pharmaceuticals or the
amount of reimbursement available from third party payors. We cannot assure you
that healthcare providers, patients or third party payors will accept and pay
for our pharmaceuticals. In addition, there is no guarantee that healthcare
reimbursement laws or policies will not materially harm our ability to sell our
products profitably or prevent us from realizing an appropriate return on our
investment in product development.
We may be subject to product liability claims and we may not have adequate
insurance.
The design, development and manufacture of our products or the products we
distribute involve a risk of product liability claims. We have obtained product
liability insurance and believe that it is adequate for our current operations,
but may seek to increase our coverage prior to the commercial introduction of
our new product candidates. We cannot assure you that the coverage limits of
our insurance will be sufficient to cover potential claims. Product liability
insurance is expensive and difficult to obtain and may not be available in the
future on acceptable terms or in sufficient amounts, if available at all. Our
business and financial results could be materially harmed by a successful claim
against us in excess of our insurance coverage.
9
<PAGE>
Cybear operates in an evolving market dependent on the Internet and may have
losses for the foreseeable future.
Cybear operates in a market that is at an early stage of development, is
rapidly evolving and is characterized by an increasing number of market
entrants who have introduced or developed competing products and services.
Cybear introduced its first product in March 1999 and has realized only minimal
revenues. As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for Cybear's products and services are subject to
a high level of uncertainty and risk. Cybear is also dependent on the adoption
of the Internet for commerce and broad acceptance of new methods of conducting
business and exchanging information, particularly by those individuals and
companies in the healthcare industry that historically have relied upon
traditional means of commerce. We cannot guarantee that the market for Cybear's
products and services will develop or that demand for Cybear's services will
emerge or be sustainable. Moreover, operating on the Internet raises a number
of additional risks, including reliance on independent content providers,
possible system failures and possible security breaches that could harm
Cybear's business. If the market fails to develop, develops more slowly than
expected or becomes saturated with competitors, or if Cybear's products or
services do not achieve or sustain market acceptance, Cybear's business would
be harmed. Cybear also expects to report losses for the foreseeable future,
which may affect our operating results. Also, Cybear may be required to fund
its losses by raising outside financing and we cannot guarantee you that
outside financing alternatives will be available to Cybear at such time. As a
result of our ownership of Cybear, our business and financial results could
also be materially harmed.
The volatility of our stock price could affect an investment in our stock.
The market prices for securities of companies engaged in pharmaceutical
development activities have been highly volatile. The market price of our
common stock may be impacted by:
. developments or disputes concerning patent or proprietary rights;
. threatened litigation and any settlements;
. progress in the development or approval of our product candidates;
. publicity regarding actual or potential medical results relating to
products under development by us or our competitors;
. announcements of technological innovations or new products by us or our
competitors;
. regulatory developments in both the U.S. and foreign countries;
. public concern as to the safety of drug technologies;
. economic and other external factors;
. period-to-period fluctuations in financial results;
. the volatility of the market price for Cybear's common stock; and
. Cybear's financial performance.
Cybear's common stock also could be subject to fluctuations in response to
the above and other more specific factors. The market prices of equity
securities of technology companies generally and Internet-related companies in
particular, the business in which Cybear operates, is characterized by highly
volatile stock prices. This volatility has included rapid and significant
increases in the trading prices of certain Internet companies to levels that do
not bear any reasonable relationship to the operating performance of such
companies.
A substantial number of our shares are eligible for future sale and the sale of
Andrx shares into the market may depress our stock price.
Our stock price may be depressed by future sales of our shares or the
perception that such sales may occur. We had 31,737,192 shares outstanding as
of March 28, 2000 of which 6,729,486 shares are owned by our officers and
directors and are considered restricted shares. Of the 2,881,738 shares owned
by Watson, 2,207,580
10
<PAGE>
are freely tradeable and the remaining 674,158 shares are being sold in this
offering. We are unable to estimate the amount, timing or nature of future
sales of outstanding common stock. Sales of substantial amounts of the common
stock in the public market by these holders may lower the common stock's market
price.
Ownership of our common stock is concentrated among directors, executive
officers and Watson.
Our directors and executive officers currently own approximately 23.8% of
the outstanding common stock prior to this offering and 20.9% after giving
effect to his offering. Watson currently owns approximately 9.1% of the issued
and outstanding common stock and will own 6.2% after this offering. There are
no agreements between management and Watson with respect to voting of their
respective common stock. Although we have a standstill agreement with Watson
which prevents it from increasing its equity interest in Andrx or merging with
or into Andrx without the approval of our board of directors, the agreement
expires June 13, 2000 and we have no plans to renew or extend it. Management
will and Watson may have the ability to influence significantly our affairs and
operations.
We will have substantial discretion over the use of the net proceeds we receive
in this offering.
We estimate that the net proceeds from the sale of the 3,000,842 shares of
common stock offered by us will be approximately $ million (at an assumed
public offering price of $ per share), after deducting estimated
underwriting discounts and commissions and estimated offering expenses. We
intend to use the net proceeds for various purposes. Consequently, our board of
directors and management will have significant flexibility in applying the net
proceeds of this offering. The failure of management to apply such funds
effectively could materially harm our business and financial results.
The anti-takeover provisions of our charter documents and Florida and law could
affect shareholders.
Certain provisions of our amended and restated articles of incorporation and
bylaws may have anti-takeover effects and may delay, defer or prevent a
takeover attempt of Andrx. In addition, Florida has enacted legislation that
may deter or hinder takeovers of Florida corporations. The Florida Control
Share Act generally provides that shares acquired in excess of certain
specified thresholds will not have any voting rights unless such voting rights
are approved by a majority of the corporation's disinterested shareholders. The
Florida Affiliated Transactions Act generally requires supermajority approval
by disinterested shareholders of certain specified transactions between a
public corporation and holders of more than 10% of the outstanding voting
shares of the corporation or their affiliates. As part of the planned
reorganization of Andrx and Cybear, we will reincorporate in the State of
Delaware and will be subject to the anti-takeover provisions of the Delaware
General Business Corporation Law.
We do not plan to declare dividends.
We have not paid any cash dividends on our common stock and we do not plan
to pay any cash dividends in the foreseeable future. We plan to retain any
earnings for the operation and expansion of our business.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to us from this offering are estimated to be approximately
$ ($ if the underwriters' over-allotment option is exercised in full),
after deducting the underwriting discount and estimated expenses of the
offering payable by us. We will not receive any proceeds from the sale of
shares of common stock by the selling shareholders. For purposes of estimating
net proceeds, we are assuming that the public offering price will be $ per
share.
We intend to use the net proceeds of this offering for:
. expansion of our manufacturing, research and development and
administrative facilities;
. research and development for branded and bioequivalent products;
. acquisitions of products, product candidates and/or companies; and
. working capital and other general corporate purposes.
Our existing commercial manufacturing facility is sufficient for
manufacturing our bioequivalent versions of Dilacor XR, Cardizem CD Tiazac,
Naprelan and K-Dur and ANCIRC's bioequivalent version of Oruvail. However, we
need additional capacity to manufacture all the products we intend to develop
and manufacture. Thus, we intend to convert portions our existing facilities to
additional manufacturing and related warehousing space. In addition, we are
building approximately 160,000 square feet of office, warehouse and
manufacturing space on a 15-acre tract of land we purchased adjacent to one of
our existing facilities.
We also intend to build a dedicated sales force for our brand name products,
which we may do internally, through the acquisition of products with existing
sales forces or otherwise.
The amount and timing of the above expenditures may vary and will depend on
numerous factors, including, but not limited to, results of our research and
development, timing of receipt of FDA product approvals, if any, the rate of
growth of our bioequivalent drug distribution business, the extent to which
additional collaborative arrangements are entered into and other factors.
We are evaluating possible acquisitions of, or investments in, complementary
businesses and product candidates, including products to sell under a brand
name. We may use net proceeds from the offering for these purposes. While we
from time to time consider potential investments or acquisitions, we have no
firm plans, commitments or agreements with respect to any of these types of
investments or acquisitions.
We do not anticipate using any of the proceeds from this offering to fund
Cybear.
Pending use of the proceeds as described above, we intend to invest the net
proceeds of the offering in government securities and other investment-grade,
interest-bearing securities.
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been listed for trading on the Nasdaq National Market
under the symbol ADRX since June 14, 1996. The following table sets forth, for
the calendar quarters indicated, the range of high and low sale prices per
share of common stock as reported by the Nasdaq National Market adjusted for
the stock split in June 1999:
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
1998
First Quarter................................................... $ 19.13 $12.25
Second Quarter.................................................. 21.32 14.07
Third Quarter................................................... 21.50 12.94
Fourth Quarter.................................................. 25.85 12.32
1999
First Quarter................................................... $ 46.25 $22.25
Second Quarter.................................................. 78.00 30.81
Third Quarter................................................... 78.00 57.13
Fourth Quarter.................................................. 58.00 38.50
2000
First Quarter (through March 30, 2000).......................... $131.00 $40.25
</TABLE>
On March 30, 2000, the last sale price of the common stock as reported by
the Nasdaq National Market was $105.13 per share.
We have not paid cash dividends on our common stock and do not intend to pay
cash dividends for the foreseeable future. We intend to retain earnings, if
any, to finance the development and expansion of our business. Payment of cash
dividends in the future will depend, among other things, upon our ability to
generate earnings, our need for capital and our overall financial condition.
13
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1999 (1) our actual short-
term borrowings and capitalization; and (2) the short-term borrowings and
capitalization, as adjusted to give effect to the sale of 3,000,842 shares of
common stock offered by us (at an assumed public offering price of $ per
share) and after deducting the underwriting discounts and commissions and other
estimated expenses of the offering and the receipt of the net proceeds. This
table should be read in conjunction with our Consolidated Financial Statements
and the Notes thereto included elsewhere in the prospectus.
<TABLE>
<CAPTION>
December 31, 1999
------------------
As
Actual Adjusted
-------- --------
(in thousands)
<S> <C> <C>
Short-term borrowings....................................... $ 20,226 $
Shareholders' equity:
Preferred Stock, $.001 par value, 1,000,000 shares
authorized, no shares issued and outstanding............. --
Common Stock, $.001 par value, 50,000,000 shares
authorized; 31,486,500 shares issued and outstanding,
actual and 34,487,342 shares issued and outstanding, as
adjusted(1).............................................. 31
Additional paid-in capital................................ 140,732
Retained earnings......................................... 80,303
Accumulated other comprehensive income.................... (94)
-------- ----
Total shareholders' equity.............................. 220,972
-------- ----
Total capitalization........................................ $241,198 $
======== ====
</TABLE>
- --------
(1) Excludes (a) 2,823,303 shares of common stock issuable upon the exercise of
outstanding stock options at December 31, 1999, (b) 1,176,697 shares of
common stock reserved for future issuance under our existing stock option
plan, and (c) 26,250 shares of common stock issuable by Andrx upon exercise
of the over-allotment option granted to the underwriters of this offering.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the years
ended December 31, 1995, 1996, 1997, 1998 and 1999 are derived from our
consolidated financial statements and have been audited by Arthur Andersen LLP,
independent certified public accountants. The following selected financial data
is qualified by reference to, and should be read in conjunction with, our
Consolidated Financial Statements, our unaudited Consolidated Financial
Statements and related notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(in thousands, except for share and per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income
Data:(1)
Revenues
Distributed products.. $ 50,468 $ 86,721 $ 146,237 $ 215,903 $ 262,402
Manufactured
products............. -- -- 3,324 11,472 134,796
Stipulation fees...... -- -- -- 19,130 70,733
Licensing and other... 165 50 137 552 8,059
---------- ---------- ---------- ---------- ----------
Total revenues...... 50,633 86,771 149,698 247,057 475,990
---------- ---------- ---------- ---------- ----------
Operating expenses
Cost of goods sold.... 41,781 72,400 126,802 188,226 235,346
Selling, general and
administrative....... 9,847 13,778 18,934 30,646 55,266
Research and
development.......... 2,055 3,055 9,569 15,906 25,327
Equity in losses of
joint venture........ 1,840 2,011 1,682 931 370
Cybear, Inc. Internet
operating expenses... -- -- 1,473 4,090 14,744
---------- ---------- ---------- ---------- ----------
Total operating
expenses........... 55,523 91,244 158,460 239,799 331,053
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. (4,890) (4,473) (8,762) 7,258 144,937
Other income (expense)
Minority interest..... -- -- 31 85 1,937
Gain on sale of
Cybear, Inc. shares.. -- -- -- 700 643
Interest income....... 339 1,210 1,585 1,064 3,603
Interest expense...... (636) (765) (490) (380) (1,661)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... (5,187) (4,028) (7,636) 8,727 149,459
Income taxes............ -- -- -- 333 55,405
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (5,187) $ (4,028) $ (7,636) $ 8,394 $ 94,054
========== ========== ========== ========== ==========
Basic net income (loss)
per share.............. $ (0.27) $ (0.17) $ (0.27) $ 0.28 $ 3.03
========== ========== ========== ========== ==========
Diluted net income
(loss) per share....... $ (0.27) $ (0.17) $ (0.27) $ 0.26 $ 2.90
========== ========== ========== ========== ==========
Basic weighted average
shares of common stock
outstanding............ 18,893,600 24,296,000 28,426,200 30,045,400 30,989,900
========== ========== ========== ========== ==========
Diluted weighted average
shares of common stock
outstanding............ 18,893,600 24,296,000 28,426,200 31,853,400 32,476,600
========== ========== ========== ========== ==========
<CAPTION>
December 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:(1)
Cash, cash equivalents
and investments
available-for-sale(2).. $ 13,841 $ 30,320 $ 25,543 $ 23,092 $ 123,418
Working capital......... 14,402 32,963 45,144 51,345 180,863
Total assets............ 36,010 66,538 90,845 121,198 357,954
Short-term borrowings... 6,101 6,563 546 4,107 20,226
Total shareholders'
equity................. 18,325 42,762 60,861 72,583 220,972
</TABLE>
- --------
(1) Certain prior years' amounts have been reclassified to conform with the
current year presentation.
(2) Includes $38.0 million of cash, cash equivalents and investments held-for-
sale by Cybear.
15
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma condensed consolidated financial statements as of
and for the year ended December 31, 1999, give pro forma effect to the
corporate recapitalization plan which will create a new class of Andrx common
stock, Cybear Group Common, to separately track the performance of Cybear (the
"recapitalization").
Pursuant to an Agreement and Plan of Merger and Reorganization, we will
acquire all of the publicly traded shares of common stock of Cybear in a tax-
free "roll-up" merger. Cybear's public shareholders currently own approximately
5.4 million shares (assuming the exercise by Edward E. Goldman, M.D., Cybear's
Chief Executive Officer, of an outstanding warrant to acquire 525,000 shares of
Cybear common stock currently owned by Andrx), or 30.5%, of the common shares
of Cybear, and those shareholders will receive one share of Cybear Group Common
for every Cybear share they currently own. In the recapitalization, the number
of Cybear shares held by Andrx will be reduced from 12.4 million shares to 10.3
million shares so as to provide the equivalent of a 20% increase in shares held
by the non-Andrx shareholders of Cybear. As a result, the non-Andrx
shareholders of Cybear will own approximately 34.5% of the Cybear Group Common
following the closing of the transaction. Pursuant to the recapitalization,
each Andrx common share will be converted into (i) one share of Andrx Group
Common and (ii) approximately .1622 shares of Cybear Group Common, after giving
effect to Andrx' pending two-for-one stock split (in the form of a stock
dividend) approved on February 29, 2000. Upon completion of the
recapitalization, (i) Cybear will be a wholly owned subsidiary of Andrx with
100% of its value publicly traded in the form of Cybear Group Common; (ii)
current Cybear public shareholders will own approximately 34.5% of the Cybear
Group Common; and (iii) current Andrx shareholders will own 100% of the Andrx
Group Common and approximately 65.5% of the Cybear Group Common.
The unaudited pro forma condensed consolidated balance sheet gives effect to
the recapitalization as if it occurred as of December 31, 1999. The unaudited
pro forma condensed consolidated statement of income gives effect to the
recapitalization as if it occurred as of January 1, 1999.
Prior to the recapitalization, Andrx Corporation and subsidiaries had a
single class of common stock outstanding and, accordingly, presented
consolidated financial statements relating to that one class. As a result of
the recapitalization, Andrx Corporation will have two classes of common stock
as follows:
1. Cybear Group Common representing the equity interest and businesses of
its Cybear subsidiary or the Cybear Group, and
2. Andrx Group Common representing the equity interests and businesses of
Andrx Corporation and its subsidiaries other than Cybear or the Andrx
Group.
Accordingly, under the recapitalization, the Company will present
consolidated financial statements and also separate financial statements
relating to each class of common stock.
Cybear Group and Andrx Group financial statements will include earnings
(loss) per share based on each group's respective financial position, operating
results and basic and diluted shares outstanding. The Andrx Corporation and
subsidiaries consolidated financial statements will not reflect consolidated
earnings (loss) per share since there will be no underlying equity security
related to the consolidated financial results. In connection with the
recapitalization, the Cybear and Andrx will enter into, among other things, a
tax sharing agreement, whereby the financial statements of Andrx Group and
Cybear Group will utilize the separate company method of accounting. Under the
terms of the tax sharing agreement, the Cybear Group will be entitled to its
income tax benefits to the extent that the Cybear Group can utilize such tax
benefits in the year generated. To the extent the Cybear Group cannot utilize
its income tax benefits in the same year generated, the Andrx Group will
utilize the Cybear Group income tax benefits. Under the provisions of the tax
sharing agreement, to the extent the Andrx Group utilized the Cybear Group's
income tax benefits, the Cybear Group is not entitled to a cash reimbursement
from the Andrx Group for such income tax benefits. At such time as the
16
<PAGE>
Cybear Group achieves profitability, if ever, or is otherwise able to recognize
its tax benefits under accounting principles generally accepted in the United
States, the Cybear Group will recognize the benefit of its accumulated income
tax benefits (which had previously been utilized by the Andrx Group) in its
statement of operations through a decrease to the Cybear Group's shareholders'
equity (i.e., effectively accounted for as a non-cash dividend). To the extent
the Andrx Group is profitable and is able to utilize such tax benefit and the
Cybear Group is generating losses, it is expected that the Andrx Group
effective tax rate will be less than the statutory Federal and state rate. If
the Cybear Group is ever able to attain profitability or is able to recognize
its tax benefits, the Andrx Group effective tax rate may be greater than the
statutory Federal and state income tax rate to the extent of the Cybear Group's
accumulated tax benefits that can be realized (the Andrx Group will then
reverse the tax benefits previously recorded, i.e., effectively transforming
such tax benefits to the Cybear Group in the form of a non-cash dividend).
The unaudited pro forma financial data are provided for informational
purposes only and are not necessarily indicative of our results of operations
or financial position had the transactions assumed therein occurred, nor are
they necessarily indicative of the results of operations that may be expected
to occur in the future. Consummation of the transaction is subject to various
conditions, including approval by shareholders of Andrx and Cybear. In addition
to shareholder approval, the transaction will be subject to various Federal and
state regulatory approvals, and accordingly, no assurance can be given that
this transaction will be consummated. We and Cybear will file a joint proxy
statement and a registration statement with respect to the proposed
transaction. Furthermore, the unaudited pro forma financial data are based upon
assumptions that we believe are reasonable and should be read in conjunction
with the financial statements and the accompanying notes thereto included
elsewhere in this prospectus.
17
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------
Pro
Historical Pro Forma Pro Forma Forma
Andrx Pro Forma Andrx Cybear Andrx
Consolidated Adjustments Consolidated Group Group
------------ ----------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents.......... $ 32,555 $ 1,575 (1) $ 34,130 $11,922 $ 22,208
Investments available-
for-sale............. 90,863 -- 90,863 26,072 64,791
Accounts receivable,
net.................. 72,032 -- 72,032 105 71,927
Inventories........... 78,771 -- 78,771 -- 78,771
Deferred income tax
assets, net.......... 18,442 -- 18,442 -- 18,442
Prepaid and other
current assets....... 11,658 -- 11,658 4,382 7,276
-------- ------- -------- ------- --------
Total current
assets............. 304,321 1,575 305,896 42,481 263,415
Property, plant and
equipment, net....... 38,271 -- 38,271 3,523 34,748
Other assets.......... 15,362 2,700 (2) 46,393 38,095 8,298
28,331 (4)
-------- ------- -------- ------- --------
Total assets........ $357,954 $32,606 $390,560 $84,099 $306,461
======== ======= ======== ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable...... $ 51,863 $ 3,000 (2) $ 56,363 $ 4,258 $ 52,105
1,500 (3)
Accrued liabilities... 35,639 -- 35,639 332 35,307
Bank loan............. 20,226 -- 20,226 -- 20,226
Income taxes payable.. 15,730 532 (1) 15,485 -- 15,485
(777) (1)
-------- ------- -------- ------- --------
Total current
liabilities........ 123,458 4,255 127,713 4,590 123,123
Commitments and
contingencies..........
Minority interest....... 13,524 (13,661) (4) -- -- --
137 (1)
Shareholders' equity.... 220,972 1,438 (1) 262,847 79,509 183,338
(532) (1)
777 (1)
(300) (2)
(1,500) (3)
41,992 (4)
-------- ------- -------- ------- --------
Total liabilities
and shareholders'
equity............. $357,954 $32,606 $390,560 $84,099 $306,461
======== ======= ======== ======= ========
</TABLE>
The accompanying notes to the unaudited pro forma condensed consolidated
balance sheets are an
integral part of these statements.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1999
(in thousands except for share and per share amounts)
(1) Reflects the agreed-upon exercise of currently outstanding warrants
pursuant to an existing warrant agreement with Cybear's Chief Executive
Officer to purchase 525,000 shares of Cybear common stock from Andrx at
$3.00 per share:
<TABLE>
<S> <C> <C>
Gross Proceeds: 525,000 shares at $ 3.00 per share $ 1,575
Cost basis: 525,000 shares at $ 0.26 per share (137)
-------
Increase to shareholders' equity
resulting from gain on sale of
Cybear shares $ 1,438
=======
</TABLE>
In connection with the exercise of these warrants Andrx Group incurs an
income tax liability of $532 (37% statutory tax rate on the $1,438 gain)
which results in a reduction of shareholders' equity. Also, a reduction of
income tax payable and an increase to shareholders' equity of $777 (37%
statutory tax rate on the excess of the assumed Cybear market value of
$7.00 per share over the warrant exercise price of $3.00 per share for the
575,000 shares issued) results from this transaction. As the effect of the
warrant exercise is non-recurring, it has not been included in the
unaudited pro forma condensed consolidated statements of income.
(2) Reflects the estimated fees and expenses of $2,700 incurred by Andrx Group
with respect to the acquisition of the historical minority interest which
was allocated to goodwill and $300 with respect to the recapitalization
which was charged to shareholders' equity. As the effect of the costs of
$300 is non-recurring, it has not been included in the unaudited pro forma
condensed consolidated statements of income.
(3) Reflects the estimated fees and expenses of $1,500 incurred by Cybear Group
in connection with the acquisition which was charged to shareholders'
equity. As the effect of the costs is non-recurring, it has not been
included in the unaudited pro forma condensed consolidated statements of
income.
(4) Reflects the effects of the recapitalization, as follows:
<TABLE>
<CAPTION>
Pro Forma Adjusted
Shares Warrant Shares
Outstanding Exercise Recapitalization Outstanding
at 12/31/1999 (See Note 1) Subtotal Elimination 12/31/99
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------
Andrx ownership of Cybear 12,877,000 (525,000) 12,352,000 (2,058,700) 10,293,300
Minority ownership 4,777,000 525,000 5,302,000 -- 5,302,000
-------------------------------------------------------------------
Total shares outstanding 17,654,000 -- 17,654,000 (2,058,700) 15,595,300
========== ======== ==========
Times per share price $ 7.00 $ 7.92
----------- -----------
Total market capitalization $ 123,578 $ 123,578
=========== ===========
Minority ownership 5,302,000
Times adjusted market price $ 7.92
-----------
Purchase price of minority interest acquired 41,992
Less: minority interest historical basis (13,661)
-----------
Goodwill allocated to Cybear Group $ 28,331
===========
</TABLE>
For purposes of the unaudited pro forma condensed consolidated financial
statements, the market price of Cybear, Inc common stock was assumed to be
$7.00 per share, which was adjusted to $7.92 per share resulting from the
elimination of 2,058,700 Cybear shares due to the exchange rate included in
the recapitalization. In connection with the repurchase of the historical
Cybear minority interest, the resulting goodwill of $28,331 was allocated
to Cybear Group Common shareholders.
19
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------------------------------
Historical Pro Forma Pro Forma Pro Forma
Andrx Pro Forma Andrx Cybear Andrx
Consolidated Adjustments Consolidated Group Group
------------ ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Distributed products.. $ 262,402 $ -- $262,402 $ 81 $262,321
Manufactured
products............. 134,796 -- 134,796 -- 134,796
Stipulation fees...... 70,733 -- 70,733 -- 70,733
Licensing and other... 8,059 -- 8,059 189 7,870
---------- ------- -------- ---------- ----------
Total revenues...... 475,990 -- 475,990 270 475,720
---------- ------- -------- ---------- ----------
Operating expenses
Cost of goods sold.... 235,346 -- 235,346 -- 235,346
Selling, general and
administrative....... 55,266 3,103 (4) 58,369 3,293 55,076
Research and
development.......... 25,327 -- 25,327 -- 25,327
Equity in losses of
joint venture........ 370 -- 370 -- 370
Cybear, Inc. Internet
operating expenses... 14,744 -- 14,744 14,744 --
---------- ------- -------- ---------- ----------
Total operating
expenses........... 331,053 3,103 334,156 18,037 316,119
---------- ------- -------- ---------- ----------
Income (loss) from
operations............. 144,937 3,103 141,834 (17,767) 159,601
Other income (expense)
Minority interest..... 1,937 (1,937) (3) -- -- --
Gain on sale of
Cybear, Inc. shares.. 643 -- 643 -- 643
Interest income....... 3,603 -- 3,603 1,282 2,321
Interest expense...... (1,661) -- (1,661) (216) (1,445)
---------- ------- -------- ---------- ----------
Income (loss) before
income taxes........... 149,459 (5,040) 144,419 (16,701) 161,120
Income taxes............ 55,405 2,824 (1) 53,240 -- 53,240
(4,989) (2)
---------- ------- -------- ---------- ----------
Net income (loss)....... $ 94,054 $(2,875) $ 91,179 $ (16,701) $ 107,878
========== ======= ======== ========== ==========
Basic net income (loss)
per share(6)........... $ 3.03 $ (1.20) $ 3.48
========== ========== ==========
Diluted net income
(loss) per share(6).... $ 2.90 $ (1.20) $ 3.32
========== ========== ==========
Basic weighted average
shares of common stock
outstanding............ 30,989,900 13,936,300(5) 30,989,900
========== ========== ==========
Diluted weighted average
shares of common stock
outstanding............ 32,476,600 13,936,300(5) 32,476,600
========== ========== ==========
</TABLE>
The accompanying notes to unaudited pro forma condensed consolidated financial
statements are an integral part of these statements.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
For the Year Ended December 31, 1999
(in thousands, except for share and per share amounts)
(1) Reflects the elimination of Cybear's historical $2,824 income tax benefit
which is not able to be used by Cybear Group on a separate income tax
return basis and was included in the allocation to Andrx Group in (Note 2)
below pursuant to the recapitalization.
(2) Represents the Cybear Group income tax benefit allocated to Andrx Group
pursuant to the recapitalization as follows:
<TABLE>
<S> <C>
Cybear Group loss before income taxes $ (16,701)
Nondeductible goodwill amortization (including $115 of
historical amortization) 3,218
---------
Taxable loss (13,483)
Times Federal and state statutory tax rate 37%
---------
Income tax benefit $ (4,989)
=========
</TABLE>
(3) Reflects the elimination of the historical minority interest resulting from
the minority ownership of Cybear which is eliminated as a result of the
recapitalization.
(4) Reflects the amortization of $3,103 of goodwill totalling $31,031,
consisting of $28,331 representing the excess of the purchase price of
$41,992 offset by minority interest of $13,661 as adjusted and estimated
recapitalization transaction costs and expenses of $2,700. Such goodwill is
amortized on a straight line basis over an estimated life of ten years.
(5) Pro Forma Cybear Group weighted average shares outstanding consists of the
following:
<TABLE>
<S> <C>
Historical Cybear weighted average shares outstanding 15,470,000
Plus: assumed exercise of Goldman warrants (see unaudited
pro forma condensed consolidated balance sheets Note 1) 525,000
Less: shares eliminated as a result of the recapitalization
(see unaudited pro forma condensed consolidated balance sheets
Note 4) (2,058,700)
----------
Pro Forma Cybear Group Common weighted average shares outstand-
ing 13,936,300
==========
</TABLE>
(6) As a result of the recapitalization, Andrx issued a second class of common
stock which tracks the results of Cybear, which became a wholly-owned Andrx
subsidiary. Losses of the Cybear subsidiary are allocated to the Cybear
Group Common shareholders based on the outstanding Cybear Group Common
shares with the other remaining Andrx earnings allocated to the Andrx Group
Common shareholders.
(7) Certain results of the recapitalization referred to in the notes to the
unaudited pro forma balance sheets have been excluded from the pro forma
statements of income due to their nonrecurring nature.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Andrx was organized in August 1992, and commenced marketing and distributing
bioequivalent pharmaceuticals manufactured by third parties. In February 1993,
Andrx began to engage in the development of bioequivalent versions of
controlled-release pharmaceuticals utilizing its proprietary drug delivery
technologies. During 1996, Andrx commenced its efforts to develop brand name
controlled-released products and an Internet based software application for
healthcare providers. Through October 9, 1997, Andrx's distribution operations
had generated substantially all of its revenues. On October 10, 1997, the FDA
granted final approval of Andrx's ANDA for its bioequivalent version of Dilacor
XR, Andrx's first manufactured product, which it immediately launched as Diltia
XT.
In September 1997, Andrx entered into the stipulation in partial settlement
with Aventis of the patent infringement litigation involving Cardizem CD in
order to reduce the risks that both parties faced as the case was litigated to
its conclusion. We agreed to maintain the status quo in connection with the
marketing of our product and to dismiss certain claims against Aventis. Aventis
agreed to compensate us for our lost profits, which were stipulated to be
$100.0 million per year, if Andrx ultimately prevailed in the litigation and to
grant us a license for their patents under certain conditions, including if we
ultimately lost the litigation. Aventis also agreed to make non-refundable
interim quarterly payments of $10.0 million to us, beginning upon our receipt
of final FDA approval for our bioequivalent version of Cardizem CD and
continuing until the litigation was resolved or certain other events occurred.
In July 1998, the FDA granted final marketing approval for our ANDA for a
bioequivalent version of Cardizem CD. In June 1999, the litigation concerning
Cardizem CD was resolved and on June 23, 1999, we launched our reformulated
bioequivalent version of Cardizem CD, Cartia XT which enjoyed a 180-day period
of marketing exclusivity through December 19, 1999. Accordingly, for the years
ended December 31, 1999 and 1998, Andrx received a total $70.7 million and
$19.1 million, respectively, in interim and final stipulation fees.
We are a 50% partner in ANCIRC, a joint venture with 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 us and Watson. In September 1997, upon FDA
approval, ANCIRC launched its first product, a bioequivalent version of
Trental. On March 24, 1999, the FDA approved the ANDA for a second ANCIRC
product, a bioequivalent version of Oruvail, which was launched in April 1999.
ANCIRC halted the production and sale of ANCIRC's bioequivalent version of
Oruvail in June 1999 and is currently not producing or selling this product.
ANCIRC suspended the production of generic Oruvail as a result of two factors:
(i) while the product sold by ANCIRC met FDA standards, the manufacturing
process in some instances did not yield a product which met internal quality
standards, whereby product rejection rates (due to dissolution failures) was
higher than we would tolerate and the risk of product stability failures for
some batches was higher than we would tolerate, and (ii) with multiple
competitors for this product, the market opportunity for future sales did not
warrant the risk of continued sales in the short term. We expect to resume
production and sale of ANCIRC's bioequivalent version of Oruvail in 2000. This
did not have a material effect on our consolidated results of operations.
In June 1999, we entered into an agreement with Geneva Pharmaceuticals, Inc.
a member of the Novartis group, for the sale and marketing of specified
products. Geneva will fund the development of controlled-release dosage forms
of existing products that we are developing for submission as NDAs. We granted
marketing rights to Geneva in specified territories for certain products
including one of our NDA products for the United States. Upon approval by the
FDA or other regulatory agencies, we will receive royalties from the sale of
such products. We have also committed to continuing to sell Geneva's
bioequivalent products through Anda, Inc. We are party to other development and
licensing agreements with other pharmaceutical companies for additional
controlled-release products.
22
<PAGE>
In 1997, we formed Cybear, our information technology subsidiary, which
uses the Internet to improve the efficiency of administrative and
communications tasks of managing the healthcare industry's need for the secure
and reliable transmission of information. In June 1999, Cybear completed a
public offering of its common shares at $16.00 per share, thereby reducing our
ownership in Cybear below 80%.
Cybear is an Internet Service Provider, or ISP, and Application Services
Provider, or ASP, for the healthcare industry. Cybear uses or intends to use
its own secure private network to provide access to the Internet, e-mail and
productivity applications to physicians, physician organizations, pharmacies
and hospitals. These are available on a transaction or subscription basis to
physicians, physician organizations, pharmacies and hospitals.
In March 1999, Cybear introduced its first product, dr.cybear, a physician-
oriented healthcare Internet gateway site or portal that provides a
combination of Internet access, healthcare content, software applications to
increase user productivity and entry into a comprehensive private
communications network. Cybear markets dr.cybear to physicians and numerous
physician organizations throughout the United States.
In September 1999, we entered into an arrangement with Cybear pursuant to
which prescription vaccines and injectables and other items distributed by
Anda can be ordered through Cybear's physician practice portal.
Cybear Tracking Stock Recapitalization Plan
In December 1999, Andrx announced a corporate recapitalization plan which,
among other things, would give Andrx shareholders the ability to distinguish
between their investments in Andrx and Cybear. In March 2000, Andrx and Cybear
entered into a definitive agreement with respect to this corporate
recapitalization. This plan, which was recommended to the Cybear Board of
Directors by a special committee and approved by the boards of both Cybear and
Andrx, will create a new class of Andrx common stock, Cybear Group Common, to
separately track the performance of Cybear. The plan will be submitted for
approval to the shareholders of Andrx and Cybear during 2000.
Results of Operations
Year ended December 31, 1999 as compared to year ended December 31, 1998
For 1999, we reported net income of $94.1 million or $2.90 per diluted
weighted average share of common stock outstanding, as compared to net income
of $8.4 million or $0.26 per diluted weighted average share of common stock
outstanding for 1998. The significant increase in net income was a result of
the settlement of the litigation with Aventis and on June 23, 1999 the
commencement of the sale of our bioequivalent version of Cardizem CD, Cartia
XT, which enjoyed a 180-day period of marketing exclusivity through
December 19, 1999. The increase in profitability occurred while we continued
to increase our investment spending in both research and development and
Cybear Internet operating expenses.
Total revenues increased by 92.7% to $476.0 million for 1999, as compared
to $247.1 million for 1998.
Sales from distributed products were $262.4 million for 1999, an increase
of $46.5 million or 21.5%, as compared to $215.9 million for 1998. 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 distribution
of new products launched by other pharmaceutical companies, offset by overall
price declines.
Sales from manufactured products were $134.8 million for 1999, as compared
to $11.5 million in 1998. Sales from manufactured products include sales of
Diltia XT, our bioequivalent version of Dilacor XR, and commencing June 23,
1999, Cartia XT.
Pursuant to the stipulation with Aventis, we received a total of $70.7
million in interim and final fees in 1999, as compared to $19.1 million in
interim fees in 1998.
23
<PAGE>
Licensing and other revenues were $8.1 million in 1999, as compared to
$552,000 in 1998 primarily from our domestic and international licensing
arrangements. These revenues in 1999 were primarily generated from our June
1999 agreement with Geneva.
Gross profits from sales of distributed and manufactured products were
$161.9 million or a gross margin of 40.7% in 1999, as compared to $39.1 million
or a gross margin of 17.2% in 1998. The increase in gross profit and gross
margin was primarily the result of an increase in sales of manufactured
products within the product mix.
Selling, general and administrative expenses were $55.3 million or 11.6% of
total revenues for 1999, as compared to $30.6 million or 12.4% of total
revenues for 1998. The increase in selling, general and administrative expenses
was primarily due to an increase in the activities necessary to support the
increase in sales of both distributed and manufactured products, including
legal costs related to patent infringement claims associated with our ANDA
filings and also includes a royalty to our Co-Chairman and Chief Scientific
Officer related to sales of Cartia XT in 1999 and the Aventis stipulation fees
in 1999 and 1998.
Research and development expenses were $25.3 million in 1999, as compared to
$15.9 million in 1998. The increase in research and development expenses of
$9.4 million or 59.2% reflects the progress and expansion of our development
activities in our bioequivalent (ANDA) and brand name (NDA) programs.
Our equity in losses of ANCIRC was $370,000 in 1999, as compared to $931,000
in 1998. During 1999, sales of ANCIRC products generated $3.3 million in
product sales and $1.2 million in gross profit, as compared to $724,000 and
$360,000, respectively, in 1998. In 1999, ANCIRC incurred $2.0 million in
research and development expenses, as compared to $2.2 million in 1998.
In 1999, we incurred $14.7 million of Cybear Internet operating expenses, as
compared to $4.1 million in 1998. The increase in Cybear Internet operating
expenses primarily relates to the progress in the development of Cybear's
Internet based software applications for healthcare providers and the
establishment of the related administrative infrastructure.
Minority interest was $1.9 million in 1999, as compared to $85,000 in 1998.
The increase in minority interest was a result of the increase in minority
ownership of Cybear, primarily from Cybear's June 1999 public offering and the
issuance of Cybear common shares in the acquisition of Telegraph Consulting
Corporation. In addition, Cybear's net loss increased to $10.8 million in 1999
from $2.5 million in 1998. As of December 31, 1999, Andrx owned 73% of Cybear.
In 1999, we recognized a gain on the sale of Cybear's common stock of
$643,000, as compared to $700,000 in 1998. Such sales were pursuant to existing
subscription and warrant agreements with Cybear's Chairman and its Chief
Executive Officer which were issued at the then current price of $3.00 per
share.
Interest income was $3.6 million in 1999, as compared to $1.1 million in
1998. The increase in interest income is the result of the higher average level
of cash, cash equivalents and investments available-for-sale maintained during
1999, as compared to 1998. The increase was primarily the result of the net
cash provided by operating activities and the net proceeds of $50.8 million
received from Cybear's June 1999 public offering.
Interest expense increased to $1.7 million in 1999, as compared to $380,000
in 1998. The increase in interest expense was primarily the result of a higher
average level of borrowings under our distribution subsidiary's bank loan
during 1999, as compared to 1998. The borrowings are primarily utilized to fund
our distribution operations.
For 1999, we recorded Federal and state income taxes of $55.4 million or 37%
of income before income taxes. We were not required to provide for income taxes
at the 39% effective Federal and state statutory rate due to the effect of the
utilization of our net operating loss carry forwards, offset by our inability
to utilize Cybear's losses after June 23, 1999, as our ownership in Cybear was
reduced below 80%. Accordingly, 1999
24
<PAGE>
Net income includes the reversal of a net tax valuation of $4.0 million. Our
1998 income tax provision of $333,000 resulted from Federal alternative
minimum income taxes. Andrx' 1998 regular income tax provision of $2.1 million
was fully offset by the reversal of a corresponding amount of valuation
allowance against its net deferred income tax assets.
The diluted weighted average shares of common stock outstanding was 32.5
million in 1999, as compared to 31.9 million for 1998. Such increase resulted
primarily from the exercises of stock options and warrants during 1999.
Year ended December 31, 1998 as compared to year ended December 31, 1997
For 1998, we reported net income of $8.4 million or $0.26 per diluted
weighted average share of common stock outstanding, as compared to a net loss
of $7.6 million or $0.27 per diluted weighted average share of common stock
outstanding for 1997. We became profitable in 1998 for the first time. This
profitability primarily resulted from interim stipulation fees generated by us
pursuant to the Aventis stipulation, the continued growth in profitability of
our distribution operation and a full year of profits realized from the sale
of our first manufactured product, Diltia XT. We recorded profitability in
1998 while we continued to increase investment spending in both research and
development and Cybear Internet operating expenses.
Total revenues increased by 65.0% to $247.1 million for 1998, as compared
to $149.7 million for 1997.
Sales from distributed products were $215.9 million for 1998, an increase
of $69.7 million or 47.6%, as compared to $146.2 million for 1997.
Sales from manufactured products were $11.5 million for 1998, as compared
to $3.3 million in 1997. We launched our first manufactured product, a
bioequivalent version of Dilacor XR, in October 1997.
Following the FDA's final approval of our ANDA for Cardizem CD on July 9,
1998, Andrx received a total of $19.1 million pursuant to the stipulation.
Licensing and other revenues of $552,000 were generated in 1998, as
compared to $137,000 in 1997 from our domestic and international licensing
arrangements.
Gross profits from sales of distributed and manufactured products were
$39.1 million or 17.2% in 1998, as compared to $22.8 million or a gross margin
15.2% in 1997. The increase in gross profit and gross margin was primarily the
result of an increase in sales of manufactured products within the mix.
Selling, general and administrative expenses were $30.6 million or 12.4% of
total revenues for 1998, as compared to $18.9 million or 12.6% of total
revenues for 1997. The increase in selling, general and administrative
expenses was primarily due to an increase in the activities necessary to
support the increase in sales of both distributed and manufactured products
including legal costs related to patent infringement claims associated with
our ANDA filings, and also includes a royalty to our Co-Chairman and Chief
Scientific Officer related to the Aventis stipulation fees.
Research and development expenses were $15.9 million in 1998, as compared
to $9.6 million in 1997. The increase in research and development expenses of
$6.3 million or 66.2% reflects the progress and expansion of our development
activities in our bioequivalent and brand programs.
Our equity in losses of ANCIRC was $931,000 in 1998, as compared to $1.7
million in 1997. During 1998, ANCIRC's product generated $724,000 in product
sales and $360,000 in gross profits. There were no ANCIRC product sales in
1997. In 1998, ANCIRC incurred $2.2 million in research and development
expenses, as compared to $3.4 million in 1997.
25
<PAGE>
In 1998, we incurred $4.1 million of Cybear Internet operating expenses, as
compared to $1.5 million in 1997. The increase in Cybear Internet operating
expenses primarily relates to the progress in the development of Cybear's
Internet-based software applications for healthcare providers and the
establishment of the related administrative infrastructure.
Minority interest in Cybear's net losses was $85,000 in 1998, as compared to
$31,000 in 1997. The increase in minority interest was a result of the increase
in minority ownership of Cybear, as well as an increase in Cybear's net losses,
which increased from $1.6 million in 1997 to $2.5 million in 1998.
In 1998, we recognized a gain of $700,000 on the sale of Cybear common stock
to Cybear's Chairman, pursuant to an existing subscription agreement. This sale
was at the then current market price of $3.00 per share.
Interest income was $1.1 million in 1998, as compared to $1.6 million in
1997. The decrease in interest income is the result of the lower average level
of cash, cash equivalents and investments available-for-sale maintained during
1998, as compared to 1997.
Interest expense decreased to $380,000 in 1998 from $490,000 in 1997. The
decrease in interest expense was primarily the result of a lower average level
of borrowings under Andrx' bank loan during 1998, as compared to 1997.
For 1998, our income tax provision of $333,000 resulted from Federal
alternative minimum income taxes. Our 1998 regular income tax provision was
fully offset by the reversal of a corresponding amount of valuation allowance
against its net deferred income tax assets. For 1997, we had no income taxes as
our income tax benefit was fully offset by a corresponding increase to our
valuation allowance against our net deferred income tax assets.
The diluted weighted average shares of common stock outstanding was 31.9
million in 1998, as compared to 28.4 million for 1997. Such increase resulted
primarily from the inclusion of stock equivalents in profitable 1998.
Liquidity and Capital Resources
As of December 31, 1999, we had $123.4 million in cash, cash equivalents and
investments available-for-sale of which $38.0 million relates to Cybear, and
$180.9 million of consolidated working capital.
Net cash provided by operating activities was $39.8 million in 1999, as
compared to net cash used in operating activities of $1.6 million in 1998 and
$16.6 million for 1997. In 1999, operating activities provided net cash, as
compared to net cash used in 1998, primarily due to our generating $94.1
million of net income in 1999, as compared to $8.4 million in 1998. The
decrease in net cash used in operating activities in 1998, as compared to 1997
is due to our generating net income of $8.4 million in 1998, as compared to a
net loss of $7.6 million in 1997. In 1999, 1998 and 1997, operating activities
included increases in inventories, accounts receivable, and prepaid and other
assets offset by increases in current liabilities. The increase in inventories
in 1999 and 1998 includes purchases of inventories for distribution in
anticipation of potential price increases by the generic drug manufacturers.
Net cash used in investing activities was $108.7 million in 1999, as
compared to net cash provided by investing activities of $5.3 million in 1998
and $291,000 in 1997. In 1999, we purchased $85.3 million of investments
available for sales, $22.2 million of property, plant and equipment and Cybear
acquired Telegraph for $1.2 million. The 1999 capital expenditures included the
construction of the new manufacturing, research and development and corporate
facility. Construction of the facility began in 1999 and is anticipated to be
completed by the first quarter of 2001. The total capital requirement for this
project is approximately $55 million, of which approximately $5.1 million was
incurred in 1999. The balance of the 1999 capital
26
<PAGE>
expenditures was predominately the result of the capital procurement of
manufacturing equipment. In 1998, $13.2 million of investments available-for-
sale matured and we purchased $8.0 million of property, plant and equipment. In
1997, $8.0 million of investments available-for-sale matured and we purchased
$7.7 million of property and equipment. In 1998 and 1997, the capital
expenditures were primarily for the procurement of manufacturing equipment. The
1998 capital expenditures also included the purchase of approximately 15 acres
of land and computer hardware and software for Cybear.
Net cash provided by financing activities was $84.0 million in 1999, as
compared to $7.2 million in 1998 and $19.6 million in 1997. Net cash provided
by financing activities in 1999 consisted of net borrowings of $16.1 million
under our bank loan, $6.7 million in proceeds from the issuance of shares of
common stock upon the exercise of warrants and stock options, $9.4 million of
income tax benefits relating to the exercise of stock options, net proceeds of
$50.8 million from Cybear's June 1999 public offering, $379,000 of other
capital transactions of Cybear and $675,000 of proceeds from the sale of shares
of Cybear common stock. Net cash provided by financing activities in 1998
consisted of net borrowings of $3.6 million under our bank loan, $2.8 million
in proceeds from the issuance of shares of common stock upon the exercise of
warrants and stock options and $700,000 in proceeds from the gain on the sale
of shares of Cybear Common Stock. Net cash provided by financing activities for
1997 consisted of $21.3 million from the issuance of shares of common stock in
private placement transactions and $4.1 million in proceeds from the issuance
of shares of common stock upon the exercises of warrants and stock options
offset by $5.9 million of net repayments on our bank loan.
We had an outstanding short-term borrowing balance under our distribution
subsidiary's bank loan of $20.2 million as of December 31, 1999, as compared to
$4.1 million as of December 31, 1998. Such increase in short-term borrowing
balance relates primarily to the financing of additional inventories for
distribution. Borrowings under the bank loan are secured by all of the assets
of the distribution operation, and are subject to a borrowing base related to
the value of that operation's accounts receivable and inventories. The bank
loan agreement requires compliance by us with certain covenants including the
maintenance of minimum working
capital and net worth levels by the distribution subsidiary. The bank loan
currently provides that total available borrowings are $30.0 million, and gives
us the ability to further decrease the interest rate if we maintain certain
levels of average outstanding balance. As of December 31, 1999 the interest
rate on the bank borrowings was the prime rate, 8.5%.
We anticipate that our cash requirements will continue to increase, due to
construction of our research and development manufacturing and corporate
facilities, including the related equipment and expected increases in
distribution inventories. For the year ending December 31, 2000, we expect to
incur approximately $50 million in research and development related to our
bioequivalent and brand development programs. We anticipate that our existing
capital resources will be sufficient to enable us to maintain our operations
for the foreseeable future.
Year 2000 Systems Costs
We undertook various initiatives intended to ensure that our computer
equipment and software would 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. Based upon identification and assessment
efforts, we believed that certain computer equipment and software currently
used would require replacement or modification.
We obtained replacements or modifications that are Year 2000 compliant.
Utilizing both internal and external resources to identify and assess needed
Year 2000 remediation, our Year 2000 identification, assessment, remediation
and testing efforts, which began in the first quarter 1998, were completed by
December 31, 1999, prior to any impact.
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<PAGE>
The cost of our Year 2000 identification, assessment, remediation and
testing efforts, as well as costs we incurred with respect to Year 2000 issues
of third parties, was approximately $1 million and was funded from existing
financial resources.
We are not aware of any difficulties that arose as a result of the Year 2000
issue.
Recent Accounting Pronouncements
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", was issued by the Financial Accounting Standards Board
("FASB") in June 1997. This SFAS requires that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. We adopted the provisions of SFAS No. 130 in the
year ended December 31, 1998, as required.
Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", was issued by the FASB in June 1997. This SFAS establishes
standards for reporting information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. We adopted the provisions of SFAS No. 131
in the year ended December 31, 1998, as required.
Derivatives
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 must be applied to (a) derivative instruments
and (b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and, at
our election, before January 1, 1998).
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133", amends
the effective date of SFAS No. 133 to all fiscal years beginning after June 15,
2000.
We expect to adopt SFAS No. 133, as required, and does not expect the effect
of adoption to be significant to the consolidated financial statements.
Stock Split
On February 29, 2000, our Board of Directors approved a two-for-one stock
split in the form of a 100% stock dividend. Such stock split will be for
holders of record at the close of business on March 15, 2000, and will be
distributed on April 3, 2000. Accordingly, the consolidated financial
statements do not reflect the impact of such stock split. The share and per
share amounts in the accompanying consolidated financial statements will be
retroactively restated for the stock split upon its distribution.
28
<PAGE>
BUSINESS
Overview
We formulate and commercialize controlled-release oral pharmaceuticals using
our proprietary drug delivery technologies. We market and sell our generic or
bioequivalent versions of Cardizem CD and Dilacor XR. Through our distribution
operations, we sell generic drugs manufactured by third parties primarily to
independent pharmacies, pharmacy chains which do not maintain their own central
warehousing facilities and pharmacy buying groups. Through our Cybear
subsidiary, we develop Internet applications to improve the efficiency of day-
to-day administrative and communications tasks for the various participants in
the healthcare industry.
We have eight proprietary drug delivery technologies that we have patented
or for which we have filed patent applications. We believe our technologies are
flexible and can be modified to apply to a variety of pharmaceutical products.
We use our proprietary drug delivery technologies and formulation skills to
develop:
. bioequivalent versions of selected controlled-release brand name
pharmaceuticals; and
. brand name controlled-release formulations of existing immediate-release
or controlled-release drugs where we believe that the application of our
drug delivery technologies may improve the efficacy or other
characteristics of that product.
We believe that pharmaceutical companies are increasingly using controlled-
release drug delivery technologies to improve drug therapy. Controlled-release
drug delivery technologies generally provide more consistent and appropriate
drug levels in the bloodstream than immediate-release dosage forms and may
improve drug efficacy and reduce side effects by releasing drug dosages at
specific times and in specific locations in the body. These technologies also
allow for the development of "patient-friendly" dosage forms, which reduce the
number of times a drug must be taken, thus improving patient compliance.
Product Development and Commercialization
Bioequivalent Controlled-Release Pharmaceuticals
We apply our proprietary drug delivery technologies and formulation skills
to develop bioequivalent versions of selected controlled-release brand name
pharmaceuticals. Specifically, we apply our proprietary processes and
formulations to develop a product that will reproduce the brand product's
physiological characteristics but not infringe upon the patents of the brand
company or innovator. Next, we conduct studies to establish that our product is
bioequivalent to the brand product, and obtain legal advice that our products
will not infringe the innovator's patents or that such patents are invalid or
unenforceable. As required by the Drug Price Competition and Patent Restoration
Act of 1984, known as the Waxman-Hatch Amendments, we then assemble and submit
an ANDA to the FDA for review. As part of this ANDA, we certify to the FDA that
our product will not infringe the innovator's patents or that such patents are
invalid or unenforceable. This certification is called a Paragraph IV
Certification.
Once our ANDA is accepted for filing by the FDA, we must also send a
Paragraph IV Certification to the patent holder. The patent holder may then
initiate a legal challenge to our Paragraph IV Certification within 45 days of
their receipt of our Paragraph IV Certification, which will automatically
prevent the FDA from approving our ANDA until the earlier of 30 months,
expiration of the patent, or when the infringement case is decided in our
favor. Thus, the developer of bioequivalent products may invest a significant
amount of time and expense in the development of these products only to be
subject to significant delay and the results of patent litigation before its
products may be commercialized.
However, the Waxman-Hatch Amendments also provide an economic incentive for
the early development of bioequivalent pharmaceuticals. The developer of the
bioequivalent product which is the first to have its ANDA, containing a
Paragraph IV Certification for any bioequivalent drug, accepted for filing by
the FDA is awarded a 180-day period of marketing exclusivity against other
companies that subsequently file Paragraph IV Certifications. This means that
the FDA may not approve the marketing of another ANDA containing a Paragraph IV
Certification for that product until the first developer's 180-day period of
marketing exclusivity has expired or has been waived. This marketing
exclusivity begins with the commercial marketing of the product or a court
determination that the relevant patents are invalid, unenforceable or not
infringed.
29
<PAGE>
We believe this period of marketing exclusivity provides an opportunity for
the successful patent challenger to build its market share, to recoup the
expense of the lawsuit and to realize greater profit margins. In addition, once
that exclusivity period has lapsed, we believe the first successful developer
may more effectively defend its position against future competition. Our
ability to secure the benefit of 180-day exclusivity, however, depends on some
factors beyond our control, such as the date of filing and the results of
litigation involving other ANDA filers and proposed changes in FDA regulations
which may, for future ANDA filings, decrease the value of the exclusivity
period, as described in "--Government Regulation--ANDA Process." Therefore,
even if we qualify for 180-day exclusivity, we may not be able to benefit from
some or any of the 180-day period.
We have been sued for patent infringement on many of the products for which
we have filed ANDAs. In addition, in March 2000, the FTC initiated an
administrative proceeding against us relating to a stipulation and agreement we
entered into with respect to the then pending patent litigation involving
Cardizem CD.
We have submitted ANDAs for bioequivalent versions of the following
products:
Dilacor XR In October 1997, we received FDA approval and commenced
selling Diltia XT, our bioequivalent version of Dilacor
XR. This product is used for the treatment of
hypertension and chronic stable angina and is currently
being marketed by Watson Pharmaceuticals, Inc. Our
marketing exclusivity expired in April 1998. Total U.S.
brand and bioequivalent sales for Dilacor XR(R) were
approximately $105 million in 1999.
Cardizem CD In July 1998, we received FDA approval to sell our
bioequivalent version of Cardizem CD, which is used for
the treatment of hypertension and chronic stable angina
and is currently being marketed by Aventis. Although
approved by the FDA, we did not market the product due to
the pending patent infringement litigation against us
with respect to this product. In June 1999, the
litigation was settled and, we commenced selling Cartia
XT, a reformulated version of our bioequivalent version
of Cardizem CD. Our marketing exclusivity expired in
December 19, 1999. Total U.S. brand and bioequivalent
sales for Cardizem CD were approximately $700 million in
1999.
Prilosec In March 2000, we received tentative FDA approval to sell
our bioequivalent version of Prilosec, which is used for
the treatment of ulcers and gastroesophageal reflux
disease and is currently being marketed by AstraZeneca
PLC. Patent infringement litigation was commenced by
Zeneca against us with respect to this product. We
believe that we were the first to have our ANDA for this
product accepted for filing by the FDA and that upon
final FDA approval our product should be entitled to the
180-day period of marketing exclusivity. We do not expect
to begin marketing our bioequivalent version of Prilosec
before the favorable resolution of any patent litigation
and the expiration of the composition of matter patent in
April 2001, which may be extended for six months as a
reward for pediatric studies. Total U.S. brand sales for
Prilosec were approximately $3.5 billion in 1999.
Naprelan In March 2000, we received tentative FDA approval related
to our ANDA for our bioequivalent version of Naprelan,
which is used for the treatment of inflammation and is
currently being marketed by Elan Corporation plc. Elan
commenced patent infringement litigation against us with
respect to this product which is continuing. As we were
not the first to have our ANDA for this product accepted
for filing, we may not be able to market our
bioequivalent version of Naprelan until the 180-day
marketing exclusivity period of the first ANDA filer
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<PAGE>
expires or is waived, and either our 30-month waiting
period expires or the litigation is concluded in our
favor and we receive FDA approval. Total U.S. brand sales
for Naprelan were approximately $55 million in 1999.
Tiazac In September 1998, we submitted an ANDA to the FDA to
sell our bioequivalent version of Tiazac, which is used
for the treatment of hypertension and chronic stable
angina and is currently being marketed by Forest
Laboratories, Inc. Biovail Corporation International, the
developer of Tiazac, commenced patent infringement
litigation against us with respect to this product. In
March 2000, the United States District Court for the
Southern District of Florida entered an order that our
product does not infringe the Biovail patent, and Biovail
filed a notice that it will appeal that decision. We
believe that we were the first to have our ANDA for this
product accepted for filing by the FDA and that upon
final FDA approval our product should be entitled to the
180-day period of marketing exclusivity. The 30-month
period from our ANDA filing expires in March 2001. Total
U.S. brand sales for Tiazac were approximately $170
million in 1999.
Wellbutrin SR In August 1999, we submitted an ANDA to the FDA to sell
our bioequivalent version of Wellbutrin SR, which is used
to treat depression and is currently being marketed by
Glaxo Wellcome Plc. Glaxo commenced patent infringement
litigation against us with respect to this product. We
believe that we were the first to have our ANDA for the
150 mg dosage of this product accepted for filing by the
FDA and that this dosage form of our product should be
entitled to 180-day marketing exclusivity. We do not
expect to market this product until the 30-month waiting
period expires or the litigation is concluded in our
favor and we receive FDA approval. Total U.S. brand sales
for Wellbutrin SR were approximately $530 million in
1999.
Zyban In August 1999, we submitted an ANDA to the FDA to sell
our bioequivalent version of Zyban, which is prescribed
for the cessation of smoking and is being marketed by
Glaxo. Glaxo commenced patent infringement litigation
against us with respect to this product. We believe that
we were the first to have our ANDA for this product
accepted for filing by the FDA and that our product
should be entitled to the 180-day period of marketing
exclusivity. We do not expect to market this product
until the 30-month waiting period expires or the
litigation is concluded in our favor and we receive FDA
approval. Total U.S. brand sales for Zyban were
approximately $105 million in 1999.
K-Dur In August 1999, we submitted an ANDA to the FDA to sell
our bioequivalent version of K-Dur, a potassium
supplement that is currently being marketed by Key
Pharmaceuticals, Inc., a subsidiary of Schering-Plough
Corporation. No patent infringement suit related to the
ANDA for K-Dur has been filed against us. As we were not
the first to have our ANDA for this product accepted for
filing, we cannot market our bioequivalent version of K-
Dur until the 180-day marketing exclusivity period of the
first ANDA filer expires or is waived, assuming the FDA
approves our ANDA. Total U.S. brand sales for K-Dur were
approximately $245 million in 1999.
Claritin D-24 In February 2000, we submitted an ANDA to the FDA to sell
our bioequivalent version of Claritin D-24, which is a
once-a-day antihistamine for the treatment of allergies
and is currently marketed by Schering-Plough Corporation.
Schering- Plough has commenced patent infringement
litigation against us with respect to this product. We
believe that we were the first to have our ANDA for this
product
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<PAGE>
accepted for filing by the FDA and that upon final FDA
approval our product should be entitled to the 180-day
period of marketing exclusivity. We do not expect to
market this product until the 30-month waiting period
expires or the litigation is concluded in our favor and
we receive FDA approval. Total U.S. sales of Claritin D-
24 were approximately $350 million in 1999.
Depakote In March 2000, we submitted an ANDA to the FDA to sell
our bioequivalent version of Depakote, which is used to
treat epilepsy and is currently marketed by Abbott
Laboratories Inc. Abbott has recently commenced patent
infringement litigation against us. As we were not the
first to have our ANDA for this product accepted for
filing, we cannot market our bioequivalent version of
Depakote until the 180-day marketing exclusivity period
of the first ANDA filer expires or the litigation is
successfully concluded, assuming the FDA approves our
ANDA. Total U.S. sales of Depakote were approximately
$700 million in 1999.
In addition, ANCIRC Pharmaceuticals, our 50/50 joint venture with Watson
Pharmaceuticals, Inc. received FDA approval for bioequivalent versions of the
following products:
Trental In September 1998, ANCIRC received FDA approval to sell
its bioequivalent version of Trental. This product is for
the treatment of patients with chronic occlusion of
arteries of the limbs. This product was formulated by us,
is being manufactured by Watson and is being marketed by
us. Total U.S. brand and bioequivalent sales for Trental
were approximately $85 million in 1999. The ANDA for this
product did not contain a Paragraph IV certification.
Oruvail In March 1999, ANCIRC received FDA approval to sell its
bioequivalent version of Oruvail. This product is being
used for the treatment of patients with rheumatoid
arthritis and osteoarthritis. This product is to be
manufactured and marketed by us and was launched in April
1999, but was discontinued in June 1999 due to
manufacturing problems related to this product. We are in
the process of rectifying these problems and expect to
start producing and marketing this product again later in
2000. Total U.S. brand and bioequivalent sales for
Oruvail were approximately $50 million in 1999. The ANDA
for this product did not contain a Paragraph IV
certification.
Bioequivalent Product Pipeline. In addition to the products for which ANDAs
have been submitted, we, either directly or through ANCIRC or other
collaborative ventures, are attempting to develop approximately 20 additional
bioequivalent versions of brand name drugs. We are continually evaluating
potential product candidates, including specialty or niche pharmaceutical
products.
Brand Name Controlled-Release Pharmaceuticals
We are developing brand name controlled-release formulations by applying our
proprietary drug delivery technologies to existing immediate-release and
controlled-release drugs. We believe that the application of our drug delivery
technologies will improve the characteristics of these products, for example,
by decreasing undesired side effects or reducing the frequency of
administration. In selecting our product candidates, we focus on high sales
volume pharmaceuticals that will lack patent protection at the time we plan to
market our product. We are continually evaluating potential product candidates
for this program.
In order to facilitate development of these products, we plan to undertake
formulation and development on our own and use contract research organizations
for clinical studies. Currently, we are evaluating entering into collaborative
arrangements with other pharmaceutical companies to commercialize these
products. These
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potential products generally require us to file an Investigational Drug
Application, or IND, with the FDA before commencing clinical trials and a New
Drug Application, or NDA, in order to obtain FDA approval. We believe that the
FDA approval process of our NDAs for these type of brand name controlled-
release formulations will be simpler than that typically associated with most
NDAs for new chemical entities because our development efforts involve chemical
entities which have been previously approved by the FDA. We may also receive
certain marketing exclusivity rights for a controlled-release product we
develop in our new drug program.
The following describes the status of our brand name controlled-release
products:
Lovastatin XL Our product, Lovastatin XL, is a newly developed
extended-release tablet which uses one of our proprietary
drug delivery technologies to treat elevated cholesterol
or hypercholesterolemia. Merck & Co., Inc. markets
Lovastatin immediate-release oral tablets under the brand
name Mevacor(R). Mevacor immediate-release tablets are
currently marketed in 10 mg, 20 mg and 40 mg strengths
and are administered once a day. The usual recommended
starting dose is 20 mg once a day. The recommended dosing
range is 10 mg to 80 mg per day in one or two doses.
Mevacor belongs to a class of drugs known as statins.
Statin products had approximately $5.7 billion in U.S.
sales in 1999, of which Mevacor sales were approximately
$300 million.
Our tablet formulation also contains 10 mg, 20 mg, 40 mg
or 60 mg doses. Several published studies suggest
therapeutic advantages may be achieved by an extended-
release dosage form of Lovastatin, including greater
efficacy, resulting in the need for fewer doses, and an
improved safety profile compared to the conventional
immediate-release dosage form. In a Phase II crossover
study conducted by us in patients with elevated
cholesterol, Lovastatin XL produced a greater reduction
in mean LDL cholesterol than was produced by an
equivalent dose of Mevacor. There was little or no
difference in adverse events between Lovastatin XL and
Mevacor. In June 1999, we initiated Phase III studies of
Lovastatin XL with over 500 targeted patients in over 40
centers to further evaluate the efficacy and safety of
our product before we file an NDA, which we anticipate
will occur in 2001.
Metformin XT We have developed Metformin XT, an oral extended-release
dosage form of metformin using our proprietary modified
release system, to treat non-insulin-dependent diabetes
mellitus, commonly referred to as Type II diabetes.
Bristol Myers Squibb Inc. markets metformin as an
immediate-release tablet under the brand name
Glucophage(R). Our once daily product is intended to have
bioavailability equivalent to the currently marketed
Glucophage product. Glucophage tablets are marketed in
500 mg, 850 mg or 1000 mg doses. Although there is no
fixed dosage regimen, it is typically administered two to
three times per day with a maximum recommended dose of
2550 mg per day. Bristol Myers Squibb filed an NDA for a
once a day metformin in late 1999. There were over
$2 billion of U.S. sales of glucose-lowering products in
1999 including Glucophage, Glucotrol XL(R) and
Glynase(R). Metformin use has been associated with
gastrointestinal side effects. These adverse events may
be partially avoided using an extended-release dosage
form. Another advantage of an extended-release dosage
form is a reduction in the frequency of administration,
which we expect to increase patient compliance.
In January 2000, we successfully completed Phase II
clinical studies and we expect to commence pivotal Phase
III clinical studies in the second quarter of 2000. We
believe that other companies may also be developing once-
a-day dosage products for NDA filings in the near future.
We anticipate filing an NDA in 2001.
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We are also in various early stages of development for Omeprazole DR, an
analgesic product, and two central nervous system products.
Brand Sales and Marketing Strategy. We are developing and evaluating various
strategies for the sale and marketing of our brand name controlled-release
pharmaceuticals. These strategies include licensing our brand name products to
other pharmaceutical companies with sales organizations sufficient to support
our products, entering into co-promotion or contract sales arrangements with
respect to the products, establishing our own sales organization and related
infrastructure to support and manage our sales effort or any combination of the
above. If we license our products or enter into co-promotional or contract
sales arrangements, we would not incur the significant upfront expenses
associated with building a sales organization, but our potential profit margins
for the product could be lower. Whichever strategy we pursue, we expect that
when our current brand name controlled-release pharmaceuticals are ready to be
launched we will have an established sales organization in place or have
entered into arrangements to market our products to physicians and other
healthcare professionals who prescribe that product. We also expect to have the
ability to access doctors through Cybear's online communication system.
Our Proprietary Drug Delivery Technologies
Both our bioequivalent controlled-release pharmaceuticals and our brand name
controlled release pharmaceuticals generally utilize our proprietary drug
delivery technologies to control the release characteristics of a variety of
orally administered drugs. Controlled-release products are formulations which
release active drug compounds in the body gradually and predictably over a 12
or 24-hour period and therefore need be taken only once or twice daily.
Controlled-release products typically provide numerous benefits over immediate
release drugs, including:
. greater effectiveness in the treatment of chronic conditions;
. reduced side effects;
. greater convenience (only once or twice a day); and
. higher levels of patient compliance due to a simplified dosing schedule.
We have eight proprietary drug delivery technologies that are either
patented or for which we have filed patent applications. We have been issued 38
patents with respect to these technologies. We originally designed these
controlled-release technologies specifically for a drug that was being
formulated. However, we believe that our technologies are relatively flexible
and can be modified to apply to a variety of pharmaceutical products.
Our drug delivery technologies utilize a variety of polymers and other
materials to encapsulate or entrap the active drug compound and to release the
drug at varying rates at predetermined locations in the gastrointestinal tract.
In applying an appropriate drug delivery technology to a particular drug
candidate, we consider such factors as:
. the desired release rates of the drug;
. the physio-chemical properties of the drug;
. the physiology of the gastrointestinal tract and the manner in which the
drug will be absorbed during passage through the gastrointestinal tract;
and
. the effect of food on the absorption rate and transit time of the drug.
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The following summarizes our drug delivery technologies:
<TABLE>
<CAPTION>
Drug Delivery Technology Description
------------------------ -----------
<C> <S>
Pelletized Pulsatile Delivery System PPDS is designed for use with products
("PPDS") that require a pulsed release of the
drug. This technology uses pellets that
are coated with specific polymers and
agents to control the release rate of the
microencapsulated drug. By varying the
proportion and composition of the polymer
mixtures, the release rate of the drug
may be specifically controlled.
Single Composition Osmotic Tablet SCOT utilizes various osmotic modulating
System ("SCOT") agents as well as polymer coatings to
provide a zero-order release of a drug (a
constant rate of release).
Solubility Modulating Hydrogel SMHS is designed for products utilizing a
System ("SMHS") hydrogel-based dosage system that
provides for sustained release without
the need to use special coatings or
structures, which add to the cost of
manufacturing. This technology avoids the
"initial burst effect" commonly observed
with other sustained-release hydrogel
formulations.
Delayed Pulsatile Hydrogel System DPHS is designed for use with hydrogel
("DPHS") matrix products that are characterized by
an initial zero-order release of drug
followed by a rapid release. This release
profile is achieved by the blending of
selected hydrogel polymers to achieve a
delayed pulse.
Stabilized Pellet Delivery System SPDS is designed specifically for
("SPDS") unstable drugs, incorporating a pellet
core of drug and protective polymer outer
layer(s).
Granulated Modulating Hydrogel GMHS incorporates hydrogel and binding
System ("GMHS") polymers with the drug, which is formed
into granules and then pressed into
tablet form.
Peltab System PELTAB utilizes polymer-coated drug
("PELTAB") pellets or drug crystals which are
manufactured into tablets. In order to
provide a controlled release, a water
insoluble polymer is used to coat
discrete drug pellets or crystals, which
then can resist the action of fluids in
the gastrointestinal tract. This
technology incorporates a strong polymer
coating enabling the coated pellets to be
compressed into tablets without
significant breakage.
Portab System PORTAB is designed for controlled-release
("PORTAB") dosage forms which utilize an osmotic
core, typically containing a water
soluble drug. The core includes a water
soluble component and a continuous
polymer coating. The purpose of the
soluble agent is to expand the core and
thereby create microporous channels
through which the drug is released.
</TABLE>
Collaborative Arrangements
We work with other pharmaceutical companies to formulate controlled-release
versions of their existing commercialized drugs and drugs they are developing
using our proprietary drug delivery technologies. In addition to improving drug
efficacy, we believe that our drug delivery technologies will provide these
pharmaceutical companies with the opportunity to enhance the commercial value
of their existing drug products and new drug candidates.
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ANCIRC is a 50/50 joint venture between us and Watson for the development of
eight bioequivalent controlled-release pharmaceuticals. Capital contributions,
distributions and net income or losses are allocated equally between us and
Watson. Capital contributions are utilized by ANCIRC to pay outside vendors,
services rendered by Watson or us to ANCIRC and to purchase finished goods
inventory manufactured by Watson or us on ANCIRC's behalf. We have made
investments in ANCIRC totaling $7.9 million through December 31, 1999.
From time to time, we have had discussions with Watson to potentially
restructure ANCIRC. We are currently having discussions, although no definitive
agreements have been reached.
Development and Licensing Agreements
In June 1999, we entered into an agreement with Geneva, a member of the
Novartis pharmaceutical group. Geneva has agreed to fund the development costs
of certain controlled-release products that we are developing for submission as
NDAs in exchange for exclusive marketing rights to those products in specified
territories. Under this arrangement, one of our NDA products has been
outlicensed for the U.S. Upon receiving approval from the FDA or other
regulatory agencies, we will receive royalties from the sale of these products
in the specified territories. We have committed to continuing to sell Geneva's
bioequivalent products in our Anda distribution operation.
We have entered into additional development and licensing agreements
covering bioequivalent pharmaceuticals with U.S. and foreign pharmaceutical
companies. Pursuant to these agreements, the licensees typically will fund the
cost of product development and will pay us royalties in exchange for a license
to market the products for a specified period in a specified territory.
Manufacturing
We presently have a manufacturing facility capable of producing the
projected necessary commercial quantities of our bioequivalent versions of
Dilacor XR, Cardizem CD, Tiazac, Oruvail, Naprelan and K-Dur. However, since
our existing manufacturing facility will not be suitable for the manufacture of
all of the products that we intend to develop and manufacture, we are in the
process of expanding our manufacturing capabilities by converting portions of
our existing facilities to additional manufacturing and related warehousing
space, and by building a new facility on an adjacent 15 acre parcel of property
that we own. Following the completion of these projects, we will have
approximately 200,000 square feet for the manufacture of our products.
We also depend upon Watson to manufacture certain products subject to the
ANCIRC joint venture and on other companies with which we have or may have
agreements to manufacture other products.
Bioequivalent Pharmaceutical Distribution Operations
We market and distribute bioequivalent pharmaceuticals manufactured by third
parties through our Anda subsidiary formerly known as Anda Generics Inc. We
purchase pharmaceuticals directly from manufacturers and wholesalers and market
them through our in-house telemarketing staff primarily to independent
pharmacies, pharmacy chains which do not maintain their own central warehousing
facilities and pharmacy buying groups. We offer competitive pricing, quality
products and responsive customer service, which we believe are the critical
elements to competing effectively in this market. Our telemarketing staff
currently has approximately 130 persons and is supplemented by sales executives
who are responsible for national accounts.
In March 2000, we acquired Valmed Pharmaceutical, Inc., a privately owned
distributor of bioequivalent pharmaceuticals based in Grand Island, New York.
The purchase price was $14.8 million in cash, subject to certain adjustments.
The acquisition will be recorded using the purchase method of accounting.
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We currently utilize our distribution operations' sales and marketing
personnel for the marketing of our bioequivalent versions of Dilacor XR,
Cardizem CD and ANCIRC's bioequivalent version of Trental. We plan to continue
to utilize Anda personnel and start to use the Valmed operations in the
marketing and distribution of our current products and other products being
developed by us, by ANCIRC and by our collaborative partners.
We purchase our bioequivalent products for resale from a number of
pharmaceutical manufacturers and wholesalers. We believe that we are not
dependent upon any particular supplier and that alternative sources of supply
for most of our products are available if required.
Cybear
Cybear is an information technology company that is using the Internet to
improve the efficiency of administrative and communications tasks of managing
patient care while addressing the healthcare industry's
need for the secure and reliable transmission of information. Cybear is an
Internet Service Provider, or ISP, and Application Services Provider, or ASP,
for the healthcare industry. Cybear uses or intends to use its own secure
private network to provide access to the Internet, e-mail and productivity
applications. These are available on a transaction or subscription basis to
physicians, physician organizations, pharmacies and hospitals. Some of its
online applications include or will include business tools for hospital
messaging, lab orders and results, streamlined purchasing, prescription
writing, claims processing, eligibility verification, formulary compliance,
credentialing, web site creation and physician-patient communications via the
Internet.
In March 1999, Cybear introduced its first product, dr.cybear, a physician
practice portal, which is designed to address the communications and
operational needs of physicians and other healthcare providers. The physician
practice portal is an Internet portal site that provides a combination of
healthcare content, practice management tools, the entry point to a
comprehensive communications network and ongoing access to further products and
services. dr.cybear is marketed to physicians, physician organizations,
hospitals, managed care organizations and integrated delivery networks
throughout the United States.
In September 1999, we entered into an arrangement with Cybear pursuant to
which prescription vaccines and injectables and other items distributed by Anda
can be ordered through Cybear's physician practice portal.
Cybear Tracking Stock
In December 1999, we announced a corporate recapitalization plan which,
among other things, would give Andrx shareholders the ability to distinguish
their investments in Andrx and Cybear. In March 2000, these two companies
entered into a definitive agreement with respect to this corporate
recapitalization. This plan, which was recommended by a special committee of
the Board of Directors of Cybear, as well as by the boards of both Cybear and
Andrx, will create a new class of Andrx common stock, Cybear Group Common, to
separately track the performance of Cybear. The plan will be submitted for
approval to the shareholders of Andrx and Cybear later this year.
Pursuant to an Agreement and Plan of Merger and Reorganization, we will
acquire all of the publicly traded shares of common stock of Cybear in a tax-
free "roll-up" merger. Cybear's public shareholders currently own approximately
5.4 million shares (assuming the exercise by Edward E. Goldman, M.D., Cybear's
Chief Executive Officer, of an outstanding warrant to acquire 525,000 shares of
Cybear common stock currently owned by Andrx), or 30.5%, of the common shares
of Cybear, and those shareholders will receive one share of Cybear Group Common
for every Cybear share they currently own. In the recapitalization, the number
of Cybear shares held by Andrx will be reduced from 12.4 million shares to 10.3
million shares so as to provide the equivalent of a 20% increase in shares held
by the non-Andrx shareholders of Cybear. As a result, the non-Andrx
shareholders of Cybear will own approximately 34.5% of the Cybear Group Common
following the closing of the transaction. Pursuant to the recapitalization,
each Andrx common share will be converted into (i) one share of Andrx common
stock representing the equity interest in Andrx other than its ownership of
Cybear,
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or Andrx Group Common, and (ii) approximately .1622 shares of Cybear Group
Common, after giving effect to Andrx' pending 2-for-1 stock split (in the form
of a stock dividend) approved on February 29, 2000. Upon completion of the
recapitalization, (i) Cybear will be our wholly owned subsidiary with 100% of
its value publicly traded in the form of Cybear Group Common; (ii) current
Cybear shareholders will own approximately 34.5% of the Cybear Group Common;
and (iii) current Andrx shareholders will own 100% of the Andrx Group Common
and approximately 65.5% of the Cybear Group Common.
The recapitalization plan is intended to (i) reestablish certain tax
consolidation advantages for us; (ii) separate the operating losses of Cybear
from our operating results for financial reporting purposes (iii) improve
liquidity for the publicly traded equity of Cybear; (iv) provide Cybear with a
more viable currency for potential strategic acquisitions; and (v) preserve
financial flexibility for our management to maximize the long-term growth of
shareholder value.
Consummation of the transaction is subject to various conditions, including
approval by shareholders of Andrx and Cybear. In addition to shareholder
approval, the transaction will be subject to various Federal and state
regulatory approvals, and accordingly, no assurance can be given that this
transaction will be consummated. We and Cybear will file a joint proxy
statement and a registration statement with respect to the proposed
transaction.
Competition
The pharmaceutical industry is highly competitive and is affected by new
technologies, new developments, government regulations, healthcare legislation,
availability of financing and other factors. Many of our competitors have
longer operating histories and greater financial, research and development,
marketing and other resources than us. We expect to be subject to competition
from numerous other entities that currently operate or intend to operate in the
pharmaceutical industry, including companies that are engaged in the
development of controlled-release drug delivery technologies and products, and
other manufacturers that may decide to undertake in-house development of these
products. In our pharmaceutical distribution business, we compete with a number
of large wholesalers and other distributors of pharmaceuticals. In our Cybear
subsidiary, competitors include online services or web sites, ISPs, publishers
and distributors of offline media, healthcare information companies and large
data processing and information companies. We cannot assure you that we will be
able to compete successfully with these companies.
Patent Litigation and Proprietary Rights
General
We believe that our future will depend in part on our ability to obtain
patents and trade secret protection, maintain trade secret protection and
operate without infringing the proprietary rights of others. We have been
issued numerous U.S. and foreign patents and notices of allowances relating to
our drug delivery technologies. In addition, we have filed additional U.S.
patent applications and various foreign patent applications relating to our
drug delivery technologies. We expect to apply for additional U.S. and foreign
patents in the future. The issuance of a patent is not conclusive as to its
validity or as to the enforceable scope of the claims of the patent. We depend
on our patents and trade secrets. Failure by us to protect our patent rights or
infringement by us of the patent or proprietary rights of others could have a
material adverse effect on our results of operations and financial position.
Patent Litigation
There has been substantial litigation in the pharmaceutical, biomedical and
biotechnology industries with respect to the manufacture, use and sale of new
products that are the subject of patent rights. Most of the brand name
controlled-release products for which we are developing bioequivalent versions
are covered by one or
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more patents. Under the Waxman-Hatch Amendments, when a drug developer files an
ANDA for a bioequivalent drug, the developer must make a certification to the
FDA as to whether the developer believes that an unexpired patent which has
been listed with the FDA as covering the relevant brand-name product will be
infringed by the developer's product or is invalid or unenforceable. If the
developer believes that its product does not infringe the brand product's
patents or that the unexpired patent is invalid or unenforceable, it provides a
Paragraph IV Certification to the patent holder, who may then challenge the
developer's Paragraph IV Certification by filing a lawsuit for patent
infringement. If a lawsuit is filed within 45 days from the day the patent
holder received the Paragraph IV Certification, the FDA can review and
tentatively approve the ANDA, but cannot make the marketing approval effective
until a judgment in the action has been rendered in favor of the developer, 30
months from the date the patent holder received the Paragraph IV Certification,
or when the patent expires, whichever is sooner. The outcome of such litigation
is difficult to predict because of the uncertainties inherent in patent
litigation.
Numerous such actions have been filed against us. The Dilacor XR action was
dismissed without prejudice; the litigation relating to our bioequivalent
version of Cardizem CD was dismissed with prejudice; the
trial court found in our favor in the Tiazac litigation; and the other actions
relating to our ANDAs for bioequivalent versions of Prilosec, Wellbutrin SR and
Zyban, Naprelan, Depakote and Claritin D-24 are pending. We anticipate that
additional actions may be filed as we, ANCIRC, or our collaborative partners
file additional ANDAs containing Paragraph IV Certifications. Similar patent
litigation may affect NDAs that we file in the future. Our business could be
harmed by the delay in obtaining FDA approval to market our products as a
result of litigation, the expense of litigation whether or not we are
successful, or an adverse outcome in such litigation.
Cardizem CD Litigation and the Stipulation
In September 1997, we entered into a stipulation in connection with the
patent infringement litigation brought against us by Aventis relating to the
sale of our bioequivalent version of Cardizem CD. In June 1999, the Aventis
litigation was resolved, the lawsuit was dismissed with prejudice and we
received the outstanding stipulation fees owed to us.
In May 1998, Biovail filed a claim against us alleging that the stipulation
violated Sections 1 and 2 of the Sherman-Antitrust Act and seeking a
declaratory judgment as to federal law as well as for alleged violations of
state common law of unfair competition, tortious interference with prospective
advantage and tortious interference with contract. Biovail sought injunctive
relief and treble the amount of its actual damages in an unspecified amount,
plus interest, with respect to its federal law claims, and actual and punitive
damages in unspecified amounts, plus interest, with respect to its common law
claims. In July 1998, we filed a motion to dismiss Biovail's claims. That
motion was granted with prejudice in January 2000. Biovail has both appealed
that dismissal to the Court of Appeals and also has requested that the District
Court reconsider its determination in light of certain facts that Biovail
failed to provide the court. These matters are still pending.
In March 2000, we received a letter from Purepac Pharmaceuticals stating its
belief that Cartia XT, our bioequivalent version of Cardizem CD, infringed
certain claims of a patent that had been issued in its favor on March 7, 2000.
The letter offered to license that patent to us. On March 7, 2000, Faulding
also filed an infringement suit against us in the U.S. District Court for the
Eastern District of Pennsylvania regarding the same patent. We are currently
evaluating these patent infringement claims and this licensing offer. Purepac
has also filed a complaint in the U.S. District Court for the Eastern District
of Pennsylvania for patent infringement.
Prilosec Litigation
We made a Paragraph IV Certification in connection with the ANDA we filed
for our bioequivalent version of Prilosec. We believe that we were the first to
have our ANDA for this product accepted for filing by the FDA and that once
final approval is received our product should be entitled to the 180-day period
of marketing exclusivity. In May 1998, AstraZeneca filed suit against Andrx in
the U.S. District Court for the Southern
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District of Florida claiming patent infringement because of an ANDA filed by
Andrx with the FDA for a bioequivalent version of Prilosec. Andrx responded to
this claim by denying infringement, raising various other defenses, filing
certain counterclaims against AstraZeneca and by seeking a declaration that
there has been no infringement and that the patent is invalid. AstraZeneca
seeks an injunction enjoining Andrx from further infringing the subject patent
and an order directing that the effective date of any FDA approval of Andrx'
proposed bioequivalent version of Prilosec be no earlier than the expiration
date of its patents.
A second Paragraph IV Certification was made by Andrx with regard to a
different strength of Prilosec. This resulted in AstraZeneca filing another
suit in the U.S. District Court for the Southern District of Florida. Both of
these suits have been consolidated in the U.S. District Court for the Southern
District of New York, together with three other patent infringement suits
initiated by AstraZeneca involving ANDAs submitted by other companies for
bioequivalent versions of Prilosec.
Tiazac Litigation
We made a Paragraph IV Certification in connection with the ANDA we filed
for our bioequivalent version of Tiazac. In October 1998, Biovail, Biovail
Laboratories Inc. and Galephar Puerto Rico, Inc., or the Biovail Group, filed
suit against Andrx in the U.S. District Court for the Southern District of
Florida claiming patent infringement because of the ANDA filed by Andrx with
the FDA for a bioequivalent version of Tiazac. Andrx responded to this claim by
denying infringement, raising various other defenses, filing certain
counterclaims against the Biovail Group and by seeking a declaration that there
has been no infringement and that the patent is invalid. The Biovail Group
sought an injunction enjoining Andrx from further infringing the subject patent
and an order directing that the effective date of any FDA approval of Andrx'
proposed bioequivalent version of Tiazac be no earlier than the expiration date
of the subject patent. In March 2000, the court entered an order that Andrx's
product does not infringe the Biovail patent. Biovail has filed a notice of
appeal of that order.
Naprelan Litigation
We made a Paragraph IV Certification in connection with the ANDA we filed
for our bioequivalent version of Naprelan. In October 1998, Elan Corporation
Plc filed suit against Andrx in the U.S. District Court for the Southern
District of Florida claiming patent infringement because of the ANDA filed by
Andrx with the FDA for a bioequivalent version of Naprelan. Andrx responded to
this claim by denying infringement, raising various other defenses, filing
certain counterclaims against Elan and by seeking a declaration that there has
been no infringement and that the patent is invalid. Elan seeks a judgment
enjoining Andrx from further infringing the subject patent and ordering that
the effective date of any FDA approval of Andrx' proposed bioequivalent version
of Naprelan be no earlier than the expiration date of the patent.
Wellbutrin SR and Zyban Litigation
We made Paragraph IV Certifications in connection with the ANDAs we filed
for our bioequivalent versions of Wellbutrin SR and Zyban. In September 1999,
Glaxo Wellcome PLC filed suit against Andrx in the U.S. District Court for the
Southern District of Florida claiming patent infringement because of the ANDAs
filed by Andrx with the FDA for bioequivalent versions of Wellbutrin SR and
Zyban. Andrx responded to this claim by denying infringement, raising various
other defenses, filing certain counterclaims against Glaxo and by seeking a
declaration that there has been no infringement and that the patent is invalid.
Glaxo seeks an injunction enjoining Andrx from further infringing the subject
patents and orders directing that the effective date of any FDA approval of
Andrx' proposed bioequivalent versions of Wellbutrin SR and Zyban be no earlier
that the expiration date of the subject patent.
Depakote Litigation
We made a Paragraph IV certification relative to the ANDA we filed for our
bioequivalent version of Depakote. In March 2000, Abbott Laboratories filed
suit against Andrx Corporation, Andrx Pharmaceuticals,
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Inc. and Andrx Pharmaceuticals L.L.C. in the United States District Court for
the Northern District Court of Illinois, claiming infringement of two of its
patents because of our filing the aforementioned ANDA. Abbott seeks a judgment
enjoing defendants from further infringing the subject patents and ordering
that the effective date of any FDA approval of the Company's proposed
bioequivalent version of Depakote be no earlier than the expiration dates of
the two patents in suit. Although we have not yet responded to the complaint,
we believe that our product does not infringe the patents involved or that
either or both such patents are invalid or unenforceable.
Claritin D-24 Litigation
We made a Paragraph IV Certification in connection with the ANDA we filed
for our bioequivalent version of Claritin D-24. In March 2000, Schering-Plough
filed suit against Andrx in the U.S. District Court for New Jersey claiming
patent infringement because of an ANDA filed by Andrx with the FDA for a
bioequivalent version of Claritin D-24. Although we have not yet been served
with the complaint, we believe that our product does not infringe the patent
involved or that the patent is invalid or unenforceable.
While we believe our ANDA products do not infringe the patents that we have
been sued upon or that such patents are invalid and/or unenforceable, the
ultimate resolution of these patent litigation matters is not known and there
is no assurance our position will ultimately prevail.
Government Regulation
Drug manufacturers are required to obtain FDA approval before marketing
their new drug product candidates. This approval process is often costly and
time consuming and we cannot assure you that any drug application will timely
be approved by the FDA or any other health authority, if at all.
ANDA Process. FDA approval is required before a bioequivalent equivalent of
a previously approved drug or a new dosage form of an existing drug can be
marketed. Approval is sought using an Abbreviated New Drug Application or ANDA.
Complete clinical studies are not required in support of an ANDA, although
typically bioavailability and bioequivalence studies must be conducted.
Bioavailability indicates the rate and extent of absorption and levels of
concentration of a drug product in the blood stream. Bioequivalence compares
the bioavailability of one drug product with another, and when established,
indicates that the rate of absorption and levels of concentration of a generic
drug in the body are substantially equivalent to the previously approved drug.
An ANDA may be submitted for a drug on the basis that it is the equivalent to a
previously approved drug or, in the case of a new dosage form, is suitable for
use for the indications specified.
Under the Waxman-Hatch Amendments, the developer of a bioequivalent drug
which is the first to have its ANDA accepted for filing by the FDA and includes
a Paragraph IV Certification is awarded a 180-day period of marketing
exclusivity. This means that the FDA may not approve another ANDA containing a
Paragraph IV Certification for that product until the first developer's 180-day
period of marketing exclusivity has expired or has been waived. This marketing
exclusivity period begins with the commercial marketing of the product or a
court determination that the relevant patents are invalid, unenforceable or not
infringed. Also, a court decision triggering the 180-day period can occur
either in litigation involving the first Paragraph IV filer or a subsequent
filer.
Until recently, the FDA has interpreted the reference in the statute to a
court determination to mean a court determination which is final and non-
appealable. This interpretation was challenged in litigation in which the
courts disagreed with the FDA's interpretation. Prompted in part by those
decisions, the FDA issued guidelines in March 2000 in which it announced a
change in its interpretation of the statute for ANDAs and the publication of
the guidelines. The new guidelines state that the FDA now will view a court
decision to be the first court decision which finds a patent at issue to be
invalid, unenforceable or not infringed. The FDA stated that when a lower court
renders such a decision, the FDA may approve an ANDA as of the date of that
decision and the 180-day exclusivity period will commence on that date, unless
the marketing of the product has already
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commenced. If the lower court decision finds the patent is infringed, but the
decision is reversed on appeal, the FDA may approve the ANDA on the date a
judgment is entered that the patent is invalid, unenforceable or not infringed.
The FDA stated that neither a stay or a reversal of a district court decision
finding the patent invalid, unenforceable or not infringed will have an effect
on the approval of an ANDA or on the beginning, or continued running of the
exclusivity period.
The FDA's new interpretation of the statute may substantially decrease the
value of the 180-day exclusivity period. A patent holder whose patent is found
invalid, unenforceable or not infringed in a lower court decision may seek to
reverse such a ruling on appeal. Under the new FDA interpretation, even if such
an appeal is taken, however, the 180-day period would start once the lower
court rendered its decision. The developer of the product for which the
relevant ANDA was approved would thus be faced with the prospect of beginning
marketing of its product despite the pending appeal and lack of final
resolution of the litigated issue or delaying marketing at a time when under
the FDA's new interpretation the 180-day exclusivity period had started. A
decision to delay marketing of the product following a lower court decision
which is subject to an appeal would mean that the developer of the product
would have less than 180 days, and possibly no days, in which it was the
exclusive marketer of that bioequivalent product.
We are unable to predict what impact, if any, the FDA's new guidelines may
have on our business or financial results.
NDA Process. FDA approval is required before any new drug can be marketed. A
New Drug Application or NDA is a filing submitted to the FDA to obtain approval
of a drug not eligible for an ANDA and must contain complete pre-clinical and
clinical safety and efficacy data or a reference to such data. Before clinical
testing can begin, stringent government requirements for pre-clinical data must
be satisfied. The pre-clinical data must provide an adequate basis for
evaluating both the safety and the scientific rationale for the initiation of
clinical trials.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. The process of completing clinical trials for a new
drug may take several years and requires the expenditure of substantial
resources. Preparing a NDA involves considerable data collection, verification,
analysis and expense, and we cannot guarantee that the FDA or any other health
authority will approve any of our products on a timely basis, if at all. The
approval process is affected by a number of factors, primarily the risks and
benefits demonstrated in clinical trials as well as the severity of the disease
and the availability of alternative treatments. The FDA or other health
authorities may deny a NDA if the regulatory criteria are not satisfied, or may
require additional testing or information before that NDA is approved.
We believe that the FDA's ANDA procedures will apply to our bioequivalent
versions of controlled-release drugs. We cannot assure you that our
bioequivalence studies and other data will result in FDA approval to market our
drug products. Certain ANDA procedures for bioequivalent controlled-release
drugs and other products are presently the subject of petitions filed by brand
name drug manufacturers, which seek changes from the FDA in the approval
process for bioequivalent drugs. We cannot predict at this time whether the FDA
will make any changes to the ANDA procedures as a result of such petitions,
ongoing rulemakings, or litigation or the effect that such changes may have on
us. Any changes in FDA regulations or policies may make ANDA approvals more
difficult and, thus, may have a material adverse effect on our business.
Patent certification requirements for bioequivalent controlled-release drugs
could also result in significant delays in obtaining FDA approval if patent
infringement litigation is initiated by the holder or holders of the brand name
patents. Delays in obtaining FDA approval of ANDAs and certain NDAs can also
result from a marketing exclusivity period and/or an extension of patent terms.
If some of our drugs do not qualify for ANDA procedures, as will be the case
with certain of our controlled-release formulations, the FDA approval process
may require time consuming and expensive clinical studies and NDA filings.
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The FDA also regulates the development, manufacture, distribution, labeling
and promotion of prescription drugs. It requires that certain records be kept
and reports be made, mandates registration of drug manufacturers and their
products and has the authority to inspect manufacturing facilities for
compliance with cGMP standards. As a distributor of bioequivalent
pharmaceuticals manufactured by third parties, we are subject to state
licensure and other requirements pertaining to the wholesale distribution of
prescription drugs. We could be materially adversely affected by any failure to
comply with licensing and other requirements. Other requirements exist for
controlled drugs, such as narcotics, which are regulated by the DEA.
Finally, the FDA has the authority to withdraw approvals of previously
approved drugs for cause, to request recalls of products, to debar companies
and individuals from future regulatory submissions and, through action in
court, to seize products, institute criminal prosecution or close manufacturing
plants in response to violations. The DEA has similar authority. We could be
materially adversely affected by any such FDA or DEA actions.
Product Liability Insurance
The design, development and manufacture of our products or the products we
distribute involve a risk of product liability claims. We have obtained product
liability insurance that covers substantially all products marketed by our drug
distribution operations, in bioequivalence and other studies for our
controlled-release product candidates and for the products we intend to
commercialize. We believe that our product liability insurance is adequate for
our current operations, but may seek to increase our coverage prior to the
commercial introduction of our product candidates. We cannot give assurance
that the coverage limits of our insurance will be sufficient to cover potential
claims. Product liability insurance is expensive and difficult to obtain and
may not be available in the future on acceptable terms or in sufficient
amounts, if available at all. We could be harmed by a successful claim against
us in excess of our insurance coverage.
Legal Proceedings
In addition to the previously described litigation, commencing in August
1998, putative class and individual actions have been filed against Andrx in
Alabama, California, Florida, Illinois, Kansas, Michigan, Minnesota, New York,
Tennessee, Wisconsin, North Carolina and the District of Columbia. The actions
pending in federal court have been consolidated for multi-district litigation
purposes in the U.S. District Court for the Eastern District of Michigan. In
all of these suits Aventis has been named as co-defendants. The complaint in
each action alleges that Andrx and Aventis, by way of the stipulation, have
engaged in alleged state antitrust and other statutory and common law
violations that allegedly have given Aventis and Andrx a near monopoly in the
U.S. market for Cardizem CD and a bioequivalent version of that pharmaceutical
product. According to the complaints, the monopoly possessed by the defendants
enables Aventis to perpetuate its ability to fix the price of Cardizem CD at an
artificially high price, free from bioequivalent competition, with the result
that direct purchasers such as pharmacies, as well as indirect purchasers such
as medical patients who have been issued prescriptions for Cardizem CD are
forced to overpay for the drug. Each complaint seeks compensatory damages on
behalf of each class member in an unspecified amount and, in some cases, treble
damages, as well as costs and counsel fees, disgorgement, injunctive relief and
other remedies. Due to the early stage of the litigation, we are unable to
predict the outcome of the litigation, although we believe that these actions
have no merit and we intend to mount a vigorous defense against each action.
In October 1998, we became aware that an investigation by the FTC's staff
was being conducted to determine whether Aventis, Andrx or any other persons
have engaged in unfair methods of competition. We cooperated fully with the
FTC's investigation, which relates to the Cardizem stipulation. On March 16,
2000 the FTC announced it had voted to commence an administrative proceeding
against Aventis and Andrx concerning the stipulation because it has to believe
that the stipulation had or may have had the capacity or the potential to be
anticompetitive. The FTC stated it is not seeking any fines, penalties,
disgorgement or any other monetary remedy in the proceeding. Contrary to the
FTC's position, we believe that the stipulation was pro-competitive and
benefited consumers and intends to vigorously defend our position before the
administrative law judge.
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In January 1999, Andrx and our bioequivalent pharmaceutical distribution
subsidiary, Anda, Inc., a Florida corporation, were served with third party
complaints filed against them by certain doctors and distributors who are
defendants in various legal actions relating to the sale of phentermine by Anda
and its usage as a diet drug when taken in combination with fenfluramine,
commonly known as "phen-fen". The substance of the third party complaints is
that the defendants are without fault with respect to the claims in those
actions but, if they are found liable on any of those claims, then allegedly
having obtained one or more of the drugs from Anda, they are entitled to
indemnification in an amount to pay and discharge any judgment entered against
them in the putative class action together with costs, expenses and attorney
fees. We and Anda have never sold fenfluramine and believe that these claims
are without merit.
In November 1999, another phen-fen diet lawsuit was filed against Anda in
the Superior Court of New Jersey by a husband, who claims to have obtained or
purchased, either directly or indirectly, from Anda and others, and thereafter
ingested, phentermine, dexfenfluramine and fenfluramine, causing serious
medical consequences, all to his financial detriment, and his wife, who, on
behalf of herself and her two children, claims monetary damages arising from
emotional distress to herself and her children, loss of spousal/paternal
companionship and expenditure of money, time and care for her husband required
by her husband's alleged injuries which are permanent and continuous in nature.
Anda has never sold dexfenfluramine or fenfluramine and believes that these
claims, including any based solely on the use of phentermine, have no merit.
Other than the patent litigation matters and the above described litigation,
we are not party to a legal proceeding wherein an adverse outcome would have a
material adverse effect on our results of operations, financial condition or
business.
Properties
We lease approximately 97,000 square feet in a facility in Fort Lauderdale,
Florida, which houses a portion of our executive offices, warehousing and
shipping facilities, a laboratory and pilot manufacturing plant and a
commercial-scale manufacturing facility. The buildings are occupied pursuant to
leases expiring May 31, 2003 at a current total annual rent of approximately
$800,000. Each of the leases affords us five five-year renewal options, and
requires us to pay certain increases in common area costs.
We purchased a 15-acre tract of land in Fort Lauderdale adjacent to our
existing facilities. On this parcel, we are building approximately 160,000
square feet of office, warehouse and manufacturing space sufficient to expand
those portions of the existing square foot facility which are being used for
purposes other than research, product development and manufacturing. We expect
to occupy this facility in mid-2000.
In April 1999, we entered into a one-year lease for an additional 18,000
square feet of warehouse space, at an annual rent of approximately $200,000.
This lease has been renewed for an additional year, as we intend to continue to
use this facility until the new building has been completed and is available
for its intended use.
We lease a 152,000 square foot facility in Weston, Florida, for our
distribution operations and a portion of our executive offices. This lease has
a ten year term expiring in 2009, with two five year renewal options, at an
initial annual rental of approximately $1.4 million.
We also occupy a 2,900 square foot facility in Hackensack, New Jersey, for
our clinical development operations, pursuant to a five year lease expiring
August 2003 at an initial annual rental of approximately $70,000.
We lease a 56,000 square foot facility in Somerset, New Jersey for the
research and development of certain specialty bioequivalent pharmaceuticals
pursuant to a five year lease expiring in March 2005, with two five year
renewal options, at an initial annual rental of approximately $310,000.
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<PAGE>
In February 1999, Cybear occupied 21,600 square feet of space in Boca Raton,
Florida, with the option to expand their facility to 38,100 square feet to
house its corporate headquarters and network systems. This facility is located
in a high-technology office park and includes a state-of-the-art power and
communications infrastructure that will be adequate for Cybear's needs for the
foreseeable future. The lease provides for annual rent of $700,000 on the
expanded facility and has a seven-year lease expiring March 2007.
In connection with the Valmed transaction, we acquired an 11,000 square foot
facility in Grand Island, New York for distribution operations.
Personnel
As of December 31, 1999, we had 725 employees, of whom 25 were involved in
corporate administration, 384 were involved in our distribution operations and
83 were involved in software development and administration. The remaining 233
employees were involved in research, pharmaceutical development and
manufacturing, including over 40 scientists, many of whom hold Ph.D., masters
or medical degrees.
45
<PAGE>
MANAGEMENT
Set forth below is certain information concerning the directors and
executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Alan P. Cohen(1)........ 45 Co-Chairman, Chief Executive Officer and Director
Chih-Ming J. Chen,
Ph.D.(1)............... 48 Co-Chairman, Chief Scientific Officer and Director
Elliot F. Hahn,
Ph.D.(1)............... 55 President and Director
Scott Lodin............. 44 Vice President, General Counsel and Secretary
Angelo C. Malahias...... 38 Vice President and Chief Financial Officer
Melvin Sharoky,
M.D.(2)................ 49 Executive Director and Director
Rep. Elaine Bloom(2).... 62 Director
Lawrence J. DuBow....... 68 Director
Irwin C. Gerson(2)(3)... 70 Director
Michael A. Schwartz,
Ph.D.(3)............... 69 Director
</TABLE>
- --------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Alan P. Cohen is Co-Chairman of the Board, Chief Executive Officer and a
director of Andrx, which he founded in August 1992. Mr. Cohen was the Chairman
and a director of Cybear from February 1997 through August 1998, when he
resigned as Chairman. He remains a director of Cybear. He is a graduate of the
University of Florida and is a registered pharmacist. In 1984, Mr. Cohen
founded Best Generics, Inc., a bioequivalent drug distribution firm ("Best"),
which was sold to IVAX Corporation ("IVAX") in 1988. Mr. Cohen served as
President of Best from April 1989 until June 1990.
Dr. Chih-Ming J. Chen has been Co-Chairman since November 1998 and the Chief
Scientific Officer and a director since November 1992. In January 1992, Dr.
Chen formed his own company, ASAN Labs, Inc., which was acquired by Andrx in
November 1992. Dr. Chen served as the Director of Product Development at IVAX
from 1988 to 1992, where he was the leader of a research team which specialized
in the development of drug formulations, including several controlled-release
products. After graduating with a Ph.D. degree in pharmaceutics from Ohio State
University in 1981, Dr. Chen worked at Bristol-Myers and Berlex Labs.
Dr. Elliot F. Hahn has been President and a director of Andrx since February
1993. From June 1990 to February 1993, Dr. Hahn was employed as Vice President,
Scientific Affairs of IVAX, where he was involved in the evaluation and
international licensing of product opportunities and was responsible for
maintaining the intellectual property of IVAX. From 1988 to 1993, Dr. Hahn also
served as the Vice President of Research of Baker Norton Pharmaceuticals, a
subsidiary of IVAX. Prior to that, he was an Associate Professor at The
Rockefeller University from 1977 to 1988. From 1972 until 1977, Dr. Hahn was an
Assistant Professor at Albert Einstein College of Medicine and a member of the
Institute for Steroid Research at Montefiore Hospital in New York City. Since
1988, he has been an adjunct Associate Professor at the University of Miami
School of Medicine. Dr. Hahn holds a B.S. degree from City College of New York
and a Ph.D. degree in chemistry from Cornell University.
Scott Lodin joined Andrx in January 1994 and is its Vice President, General
Counsel and Secretary. Mr. Lodin has also been the Secretary and a director of
Cybear since February 1997. Prior to joining Andrx, Mr. Lodin was Special
Counsel to Hughes, Hubbard & Reed and a predecessor firm in Miami, Florida,
where he practiced primarily in the areas of corporate and commercial law.
Angelo C. Malahias joined Andrx as its Vice President and Chief Financial
Officer in January 1996. Mr. Malahias has also been a director of Cybear since
April 1999. From January 1995 to January 1996, Mr. Malahias was Vice President
and Chief Financial Officer of Circa, where he also served as Corporate
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<PAGE>
Controller from July 1994 to January 1995. From 1983 to July 1994 he was
employed by KPMG LLP. Mr. Malahias is a certified public accountant.
Dr. Melvin Sharoky, a director of Andrx since November 1995, joined Andrx as
Executive Director on March 1, 1999. Dr. Sharoky has also been a director of
Cybear since April 1999. Dr. Sharoky is also president of Somerset
Pharmaceuticals Inc., 50% owned by Watson. Dr. Sharoky was a director of Watson
from July 1995 to May 1998. From July 1995 through January 1998, Dr. Sharoky
was President of Watson. From February 1993 through January 1998, Dr. Sharoky
served as the President and Chief Executive Officer of Circa. From November
1995 to May 1998, Dr. Sharoky served on Andrx' Board of Directors as the
designee of Watson.
Representative Elaine Bloom, a director of Andrx since October 1993, is the
former Speaker Pro-Tempore of the Florida House of Representatives, of which
she has been a member from 1974 to 1978 and since 1986. She currently chairs
the Joint Legislative Management Committee and serves on the Health Care, Aging
and Human Services and Government Operations Committees.
Lawrence J. DuBow, a director of Andrx since April 2000, has been Chairman
and Chief Executive Officer of HMS Sales and Marketing Inc., which is presently
engaged in marketing pharmaceutical products, since he founded it in 1991.
Since 1957, he has been engaged in various capacities within the pharmaceutical
industry. Mr. DuBow was the former President of the Drug Wholesalers'
Association and a former Chairman of the National Wholesale Druggists'
Association.
Irwin C. Gerson, a director of Andrx since November 1993 and currently
Chairman Emeritus, was the Chairman of the Lowe McAdams Healthcare division of
the Interpublic Group (formerly William Douglas McAdams, Inc.), a healthcare
marketing, communications and public relations company, from 1987 through
January 1998. Mr. Gerson is a member of the board of trustees of academic
institutions, including Long Island University, Albany College of Pharmacy and
is Chairman of the Council of Overseers of the Arnold and Marie Schwartz
College of Pharmacy. Mr. Gerson is also a director of Cytoclonal Pharmaceutics,
Inc., a biotechnology company.
Dr. Michael A. Schwartz, a director of Andrx since November 1993, is
currently Dean Emeritus and a Professor at the College of Pharmacy at the
University of Florida having served as Dean of that college from April 1978
through May 1996.
Our Articles provide that the Board of Directors is divided into three
classes and directors serve staggered three-year terms. Dr. Chih-Ming J. Chen,
Irwin C. Gerson and Dr. Michael A. Schwartz will hold office until the 2000
annual meeting. Dr. Elliot F. Hahn and Representative Elaine Bloom will hold
office until the 2001 annual meeting. Alan P. Cohen, Dr. Melvin Sharoky and
Lawrence J. DuBow will hold office until the 2002 annual meeting.
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<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock by a selling shareholder as of March 15, 2000
adjusted to reflect the sale of 3,000,842 shares offered hereby by us and
674,158 shares offered hereby by a selling shareholder. Some selling
shareholders will only offer to sell shares of common stock subject to the
underwriters' over-allotment option to purchase up to an additional 551,250
shares of common stock of which up to 525,000 shares may be offered by selling
shareholders and up to 26,250 shares may be offered by us. See note (1) to the
following table. The underwriters may exercise this option in full or in part,
but the underwriters are not required to exercise the option at all. The
following table does not give effect to any exercise of the over-allotment
option.
<TABLE>
<CAPTION>
Beneficial
Ownership Prior Beneficial Ownership
to Offering Shares After Offering
----------------- to be ------------------------
Name Shares Percent Sold Shares Percent
- --------------------------- ------ ------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Watson Pharmaceuticals,
Inc. ..................... 2,881,738 9.1% 674,158 2,207,580 6.2%
Alan P. Cohen(1)(2)........ 2,971,444 9.4 -- 2,971,444 8.4
Chih-Ming J. Chen,
Ph.D.(1)(3)............... 3,347,402 10.6 -- 3,347,402 9.3
Elliot F. Hahn,
Ph.D.(1)(4)............... 890,890 2.8 -- 890,810 2.5
Scott Lodin(1)(5).......... 95,000 * -- 95,000 *
</TABLE>
- --------
* Less than 1%
(1) If the underwriters' overallotment option is exercised in full, Mr. Cohen
will sell 200,000 shares of common stock, Dr. Chen will sell 200,000
shares of common stock, Dr. Hahn will sell 100,000 shares of common stock
and Mr. Lodin will sell 25,000 shares of common stock.
(2) Includes 9,750 shares of common stock held jointly by Mr. Cohen and his
spouse, 2,936,694 shares held in family limited partnerships and 25,000
shares of common stock issuable upon the exercise of stock options.
(3) Includes 46,131 shares of common stock owned by Dr. Chen, 2,865,376 shares
of common stock and held by limited partnerships for which Dr. Chen is an
officer of the corporate general partner, 2,395 shares held by a
charitable family foundation, 425,000 shares of common stock issuable upon
the exercise of stock options, and 8,500 issuable upon exercise of options
held by Dr. Chen's spouse.
(4) Represents 860,810 shares of common stock held in a trust for the benefit
of Dr. Hahn's spouse, 5,000 shares held in a family foundation and 25,000
shares issuable upon the exercise of stock options.
(5) Represents 95,000 shares of common stock issuable upon the exercise of
stock options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of (1) 100,000,000 shares of common
stock, par value $.001 per share, shares of which will be outstanding
(assuming no exercise of options and warrants) upon completion of this offering
and (2) 1,000,000 shares of preferred stock, par value $.001 per share, none of
which are outstanding.
Common Stock
Subject to the rights of the holders of any preferred stock that may be
outstanding, each holder of common stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation, to
share pro rata in any distribution of our assets after payment or providing for
the payment of liabilities and the liquidation preference of any outstanding
preferred stock. Each holder of common stock is entitled to one vote for each
share held of record on the applicable record date on all matters presented to
a vote of shareholders, including the election of directors. Holders of common
stock have no cumulative voting rights or preemptive rights to purchase or
subscribe for any stock or other securities, and there are no conversion rights
or redemption or sinking fund provisions with respect to such stock. All
outstanding shares of common stock are, and the shares of common stock offered
hereby will be when issued, fully paid and nonassessable.
Preferred Stock
Our Board of Directors has the authority to issue 1,000,000 shares of
preferred stock in one or more series and to fix, by resolution, conditional,
full, limited or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if any, including the
number of shares in such series (which the Board may increase or decrease as
permitted by Florida law), liquidation preferences, dividend rates, conversion
or exchange rights, redemption provisions of the shares constituting any series
and such other special rights and protective provisions with respect to any
class or series as the Board may deem advisable without any further vote or
action by the shareholders. Any shares of preferred stock so issued could have
priority over the common stock with respect to dividend or liquidation rights
or both and could have voting and other rights of shareholders. We have no
present plans to issue shares of preferred stock.
Anti-Takeover Legislation
Florida has enacted legislation that may deter or hinder takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in a "control share acquisition" will not possess any voting
rights unless such voting rights are approved by a majority of the
corporation's disinterested shareholders. A "control share acquisition" is an
acquisition, directly or indirectly, by any person of ownership of, or the
power to direct the exercise of voting power with respect to, issued and
outstanding "control shares" of a publicly held Florida corporation. "Control
shares" are shares, which, except for the Florida Control Share Act, would have
voting power that, when added to all other shares owned by a person or in
respect to which such person may exercise or direct the exercise of voting
power, would entitle such person, immediately after acquisition of such shares,
directly or indirectly, alone or as a part of a group, to exercise or direct
the exercise of voting power in the election of directors within any of the
following ranges: (1) at least 20% but less than 33-1/3% of all voting power;
(2) at least 33-1/3% but less than a majority of all voting power; or (3) a
majority or more of all voting power. The Florida Affiliated Transactions Act
generally requires supermajority approval by disinterested shareholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law and our Articles and Bylaws also authorize Andrx to
indemnify our directors, officers, employees and agents. In addition, our
Articles and Florida law presently limit the personal liability of corporate
directors for monetary damages, except where the directors (1) breach their
fiduciary duties, and (2) such breach constitutes or includes certain
49
<PAGE>
violations of criminal law, a transaction from which the directors derived an
improper personal benefit, certain unlawful distributions or certain other
reckless, wanton or willful acts or misconduct.
Upon completion of the plan of recapitalization, Andrx will be incorporated
in the State of Delaware and will be subject to the provisions of Section 203
of the Delaware General Corporation Law, an anti-takeover law. In general, the
statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns or within three years prior to the proposed business
combination, did own 15% or more of the corporation's voting stock.
Anti-Takeover Effects of Certain Provisions of the Company's Articles of
Incorporation and Bylaws
Certain provisions of our Articles and Bylaws may be deemed to have an anti-
takeover effect and may delay, defer or prevent a tender offer or takeover
attempt, including attempts that might result in a premium being paid over the
market price for the shares held by shareholders. The following provisions may
not be amended in our Articles or Bylaws without the affirmative vote of the
holders of two-thirds of the outstanding shares of common stock.
Classified Board of Directors. The Articles and Bylaws provide for the Board
of Directors to be divided into three classes serving staggered terms. As a
result, approximately one-third of the Board of Directors will be elected each
year. The Articles and Bylaws also provide that directors may only be removed
for cause and only upon the affirmative vote of the holders of at least two-
thirds of the outstanding shares of capital stock entitled to vote. These
provisions, when coupled with the provision of the Articles and Bylaws
authorizing only the Board of Directors to fill vacant directorships or
increase the size of the Board, may deter a shareholder from removing incumbent
directors and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with its own nominees.
Special Meeting of Shareholders, Prohibition of Action by Unanimous
Consent. The Articles and Bylaws prohibit the taking of shareholder action by
written consent without a meeting and provide that special meetings of
shareholders be called only by a majority of the Board of Directors, our Chief
Executive Officer or holders of not less than one-third of our outstanding
voting stock.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for
election as directors at an annual or special meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to or mailed and received at Andrx' principal executive
offices not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder, to be timely, must be received no later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made, whichever is
first. The Bylaws also specify certain requirements as to the content and form
of a shareholder's notice. These provisions may preclude shareholders from
bringing matters before the shareholders at an annual or special meeting or
from making nominations for directors at an annual or special meeting.
Amendment of Bylaws. Except for the provisions identified above requiring a
two-thirds vote of the outstanding shares to alter, amend or repeal, the Bylaws
may only be altered, amended or repealed by the Board or the affirmative vote
of the holders of at least a majority of our outstanding shares of capital
stock.
Transfer Agent
The transfer agent for the common stock is American Stock Transfer & Trust
Company, New York, New York.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common stock
outstanding. Of these shares, shares will be freely tradable without
restriction under the Securities Act, except for such shares which may be
acquired by an "affiliate" of Andrx as that term is defined in Rule 144 under
the Securities Act, which shares generally may be sold publicly without
registration under the Securities Act only in compliance with Rule 144.
In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed since the later of the date the "restricted shares" (as
that phrase is defined in Rule 144) were acquired from us and the date they
were acquired from an affiliate, then the holder of such restricted shares
(including an affiliate) is entitled to sell a number of shares within any
three-month period that does not exceed the greater of 1% of the then
outstanding shares of the common stock or the average weekly reported volume of
trading of the common stock on the Nasdaq National Market during the four
calendar weeks preceding such sale. The holder may only sell such shares
through unsolicited brokers' transactions or directly to market makers. Sales
under Rule 144 are also subject to certain requirements pertaining to the
manner of such sales, notices of such sales and the availability of current
public information concerning us. An affiliate may sell shares not constituting
restricted shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year holding period.
Under Rule 144(k), if a period of at least two years has elapsed between the
later of the date restricted shares were acquired from us and the date they
were acquired from an affiliate, as applicable, a holder of such restricted
shares who is not an affiliate at the time of the sale and has not been an
affiliate for at least three months prior to the sale would be entitled to sell
the shares immediately without regard to the volume limitations and other
conditions described above.
Andrx, each of the directors and officers and some of the selling
shareholders have agreed that they will not sell or otherwise dispose of any
shares of common stock for a period of 90 days after the date of this
prospectus as described more fully in "Underwriting."
As of the date of this prospectus, options and warrants to purchase
shares of common stock are issued and outstanding.
We can make no predictions as to the effect, if any, that sales of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the common
stock in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices.
51
<PAGE>
UNDERWRITING
The underwriters named below have severally agreed, subject to the terms and
conditions set forth in an underwriting agreement among the underwriters, Andrx
and the selling shareholders, to purchase the number of shares of common stock
indicated below opposite their respective names at the public offering price
less the discounts and commissions to underwriters set forth on the cover page
of this prospectus. The underwriting agreement provides that the obligations of
the underwriters are subject to certain conditions precedent, and that the
underwriters are committed to purchase all of shares of common stock if any are
purchased.
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
Banc of America Securities LLC.................................
Bear, Stearns & Co. Inc........................................
CIBC World Markets Corp........................................
Warburg Dillon Read LLC........................................
-----
Total........................................................
=====
</TABLE>
The managing underwriters are Banc of America Securities LLC, Bear, Stearns
& Co. Inc., CIBC World Markets Corp. and Warburg Dillon Read LLC. The
underwriters have advised us that the underwriters propose initially to offer
the common stock to the public on the terms set forth on the cover page of this
prospectus. The underwriters may allow to selected dealers a concession of not
more than $ per share of common stock, and the underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share of
common stock to certain other dealers. After the offering, the offering price
and other selling terms may be changed by the underwriters. The common stock is
being offered subject to receipt and acceptance by the underwriters, and to
certain other conditions, including the right to reject an order in whole or in
part. The underwriters may offer the common stock through a selling group.
The underwriters have been granted an option by us and some of the selling
shareholders, exercisable during the 30-day period after the date of this
prospectus, to purchase up to a maximum of 551,250 shares of common stock to
cover over-allotments, if any, at the same price as the 3,675,000 shares of
common stock to be purchased by the underwriters. To the extent that the
underwriters exercise this option, each of the underwriters will be committed,
subject to certain conditions, to purchase such additional common stock in
approximately the same proportion as set forth in the table above. The
underwriters may purchase such common stock only to cover over-allotments made
in connection with the offering.
The underwriting agreement provides that Andrx will indemnify the
underwriters and their controlling persons against certain liabilities,
including civil liabilities under the Securities Act of 1933, or will
contribute to payments the underwriters may be required to make in respect
thereof.
One or more of the underwriters may facilitate the marketing of this
offering online, either directly or through one or more of their affiliates. In
those cases, prospective investors may view offering terms and a prospectus
online and, depending upon the particular underwriter, place orders online or
through their financial advisors.
52
<PAGE>
Certain of the underwriters and their affiliates have engaged in, and may
engage in, transactions with, have performed, and may perform, services for, or
have owned, currently own or may own, equity or equity-like securities of Andrx
or its subsidiaries in the ordinary course of their businesses.
Some of the selling shareholders and directors and executive officers of
Andrx have agreed that they will not, without the prior written consent of Banc
of America Securities LLC and Bear, Stearns & Co. Inc. (which consent may be
withheld in their sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including, without limitation, any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934 or otherwise
dispose of any shares of common stock and warrants owned either of record or
beneficially by them, or publicly announce the intention to do any of the
foregoing, for a period commencing on the date of this prospectus and
continuing through the close of trading on the date 90 days after such date.
Banc of America Securities LLC and Bear, Stearns & Co. Inc. may, in their sole
discretion and at any time without notice, release all or any portion of the
securities subject to those lock-up agreements. In addition, Andrx has agreed
that for a period of 90 days after the date of this prospectus, it will not,
without the prior written consent of Banc of America Securities LLC and Bear,
Stearns & Co. Inc. (which consent may be withheld in their sole discretion),
directly or indirectly, issue, sell, offer, contract or grant any option to
sell, pledge, transfer or establish an open "put equivalent position" within
the meaning of Rule 16a-1(h), or otherwise dispose of or transfer, or announce
the offering of, or file any registration statement under the Securities Act of
1933 in respect of, any shares of common stock, options or warrants to acquire
shares of common stock or securities exchangeable or exercisable for or
convertible into shares of common stock or any securities substantially similar
to the common stock (except the common stock offered hereby), subject to some
exceptions, including granting of options and sales of shares under existing
option plans.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters to
bid for and purchase the common stock. As an exception to these rules, the
underwriters are permitted to engage in certain transactions that stabilize the
price of the common stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of common stock. If the
underwriters create a short position in the common stock in connection with the
offering, i.e., if they sell more common stock than are set forth on the cover
page of this prospectus, the underwriters may reduce that short position by
purchasing common stock in the open market. The underwriters may also elect to
reduce any short position by exercising all or part of the over-allotment
option described above. The underwriters may also impose a penalty bid on
certain selling group members. This means that if the underwriters purchase
common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the selling group members who sold those common stock
as part of the offering.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither Andrx nor any of the
underwriters make any representations or predictions as to the discretion or
magnitude of any effect that the transactions described above may have on the
price of the common stock. In addition, neither Andrx nor any of the
underwriters make any representations that the underwriters will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
In connection with the offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M. Rule 103 permits
passive market making during the period when Regulation M would otherwise
prohibit market activity by the participants in this offering. Passive market
making may occur during the business day before the pricing of this offering,
before the commencement of offers or sales of the common stock. Passive market
makers must
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<PAGE>
comply with applicable volume and price limitations and must be identified as a
passive market maker. In general, a passive market maker must display its bid
at a price not in excess of the highest independent bid for the security. If
all independent bids are lowered below the passive market maker's bid, however,
the bid must then be lowered when purchase limits are exceeded. Net purchases
by a passive market maker on each day are limited to a specified percentage of
the passive market maker's average daily trading volume in the common stock
during a specified period and must be discontinued when such limit is reached.
Underwriters and dealers are not required to engage in passive market making
and may end passive market making activities at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of common
stock offered hereby will be passed upon for us and the selling shareholders by
Broad and Cassel, a partnership including professional associations, Miami,
Florida. Certain legal matters relating to the offering will be passed upon for
the underwriters by Cahill Gordon & Reindel, New York, New York.
EXPERTS
The financial statements included in this prospectus have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any report or document we file
at the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the SEC's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the
SEC at 1-800-SEC-0880 for more information about the public reference rooms.
Our SEC filings are also available from the SEC's website located at
http://www.sec.gov.
Quotations for the prices of our common stock appear on the Nasdaq National
Market, and reports, proxy statements and other information about us can also
be inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and later information that we file with the SEC
will automatically update and supersede this information. We incorporate by
reference our Annual Report on Form 10-K for the year ended December 31, 1999,
and any future filings made with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to the common stock covered by this prospectus.
This prospectus, which is a part of the registration statement, does not
contain all the information set forth in, or annexed as exhibits to, the
registration statement, as permitted by the SEC's rules and regulations. For
further information about us and the common stock offered under this
prospectus, please refer to the registration statement, including the exhibits.
Copies of the registration statement, including exhibits, may be obtained from
the SEC's public reference facilities listed above upon payment of the fees
prescribed by the SEC, or may be examined without charge at these facilities.
Statements concerning any document filed as an exhibit are not necessarily
complete and, in each instance, we refer you to the copy of the document filed
as an exhibit to the registration statement.
54
<PAGE>
We will provide without charge to each person, including any beneficial
owner, to whom a prospectus is delivered, upon written or oral request of that
person, a copy of any and all of the information that has been incorporated by
reference in this prospectus (excluding exhibits unless those exhibits are
specifically incorporated by reference into the documents requested). Please
direct such requests to Chief Financial Officer, Angelo C. Malahias, 2915
Weston Road, Suite 201, Weston, Florida 33331, telephone number (954) 584-0300.
55
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF
ANDRX CORPORATION AND SUBSIDIARIES:
Report of Independent Certified Public Accountants....................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999............. F-3
Consolidated Statements of Income for the years ended December 31, 1997,
1998 and 1999........................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1998 and 1999........................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Andrx Corporation:
We have audited the accompanying consolidated balance sheets of Andrx
Corporation (a Florida corporation) and subsidiaries as of December 31, 1998
and 1999, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Andrx Corporation and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 27, 2000.
F-2
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................ $ 17,459 $ 32,555
Investments available-for-sale........................... 5,633 90,863
Accounts receivable, net of allowances of $2,529 in 1998
and $6,426 in 1999...................................... 33,811 72,032
Inventories.............................................. 42,337 78,771
Deferred income tax assets, net.......................... -- 18,442
Prepaid and other current assets......................... 720 11,658
-------- --------
Total current assets................................... 99,960 304,321
Property, plant and equipment, net....................... 20,429 38,271
Other assets............................................. 809 15,362
-------- --------
Total assets........................................... $121,198 $357,954
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable......................................... $ 33,616 $ 51,863
Accrued liabilities...................................... 10,837 35,639
Bank loan................................................ 4,107 20,226
Income taxes payable..................................... 55 15,730
-------- --------
Total current liabilities.............................. 48,615 123,458
Commitments and contingencies (Notes 11, 16 and 19)........
Minority interest.......................................... -- 13,524
Shareholders' equity
Convertible preferred stock; $0.001 par value, 1,000,000
shares authorized; none issued and outstanding.......... -- --
Common stock; $0.001 par value, 50,000,000 shares autho-
rized; issued and outstanding 30,346,800 shares in 1998
and 31,486,500 shares in 1999........................... 30 31
Additional paid-in capital................................. 86,305 140,732
Retained earnings (accumulated deficit).................... (13,751) 80,303
Accumulated other comprehensive loss....................... (1) (94)
-------- --------
Total shareholders' equity............................. 72,583 220,972
-------- --------
Total liabilities and shareholders' equity............. $121,198 $357,954
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-3
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Distributed products.................... $ 146,237 $ 215,903 $ 262,402
Manufactured products................... 3,324 11,472 134,796
Stipulation fees........................ -- 19,130 70,733
Licensing and other..................... 137 552 8,059
---------- ---------- ----------
Total revenues........................ 149,698 247,057 475,990
---------- ---------- ----------
Operating expenses
Cost of goods sold...................... 126,802 188,226 235,346
Selling, general and administrative..... 18,934 30,646 55,266
Research and development................ 9,569 15,906 25,327
Equity in losses of joint venture....... 1,682 931 370
Cybear, Inc. Internet operating ex-
penses................................. 1,473 4,090 14,744
---------- ---------- ----------
Total operating expenses.................. 158,460 239,799 331,053
---------- ---------- ----------
Income (loss) from operations............. (8,762) 7,258 144,937
Other income (expense)
Minority interest....................... 31 85 1,937
Gain on sale of Cybear, Inc. shares..... -- 700 643
Interest income......................... 1,585 1,064 3,603
Interest expense........................ (490) (380) (1,661)
---------- ---------- ----------
Income (loss) before income taxes......... (7,636) 8,727 149,459
Income taxes.............................. -- 333 55,405
---------- ---------- ----------
Net income (loss)......................... $ (7,636) $ 8,394 $ 94,054
========== ========== ==========
Basic net income (loss) per share......... $ (0.27) $ 0.28 $ 3.03
========== ========== ==========
Diluted net income (loss) per share....... $ (0.27) $ 0.26 $ 2.90
========== ========== ==========
Basic weighted average shares of common
stock outstanding........................ 28,426,200 30,045,400 30,989,900
========== ========== ==========
Diluted weighted average shares of common
stock outstanding........................ 28,426,200 31,853,400 32,476,600
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-4
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for share amounts)
<TABLE>
<CAPTION>
Stock
-------------------------------
Convertible Retained Accumulated
Preferred Common Additional Earnings Other
------------- ----------------- Paid-In (Accumulated Comprehensive Comprehensive
Shares Amount Shares Amount Capital Deficit) Income (Loss) Income (Loss)
------ ------ ---------- ------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... -- $-- 26,835,000 $27 $ 57,239 $(14,509) $ 5
Shares of common stock
issued in connection
with private
placements............. -- -- 1,760,000 2 21,341 -- --
Shares of common stock
issued in connection
with exercises of
warrants and stock
options................ -- -- 1,118,400 1 4,134 -- --
Options granted to
consultants............ -- -- -- -- 225 -- --
Unrealized gain on
investments available-
for-sale............... -- -- -- -- -- -- 32 $ 32
Net loss................ -- -- -- -- -- (7,636) -- (7,636)
-------
Comprehensive loss...... $(7,604)
--- ---- ---------- --- -------- -------- ---- =======
Balance, December 31,
1997................... -- -- 29,713,400 30 82,939 (22,145) 37
Shares of common stock
issued in connection
with exercises of
warrants and stock
options................ -- -- 633,400 -- 2,836 -- --
Income tax benefits
related to exercises of
stock options.......... -- -- -- -- 67 -- --
Options granted to
consultants............ -- -- -- -- 433 -- --
Capital transactions of
Cybear, Inc............ -- -- -- -- 30 -- --
Unrealized loss on
investments available-
for-sale............... -- -- -- -- -- -- (38) $ (38)
Net income.............. -- -- -- -- -- 8,394 -- 8,394
-------
Comprehensive income.... $ 8,356
--- ---- ---------- --- -------- -------- ---- =======
Balance, December 31,
1998................... -- -- 30,346,800 30 86,305 (13,751) (1)
Shares of common stock
issued in connection
with exercises of
warrants and stock
options................ -- -- 1,139,700 1 6,682 -- --
Income tax benefits
related to exercises of
stock options.......... -- -- -- -- 9,368 -- --
Options granted to
consultants............ -- -- -- -- 10 -- --
Capital transactions of
Cybear, Inc............ -- -- -- -- 38,367 -- --
Unrealized loss on
investments available-
for-sale, net of income
tax benefit of $13..... -- -- -- -- -- -- (93) $ (93)
Net income.............. -- -- -- -- -- 94,054 -- 94,054
-------
Comprehensive income.... $93,961
--- ---- ---------- --- -------- -------- ---- =======
Balance, December 31,
1999................... -- $-- 31,486,500 $31 $140,732 $ 80,303 $(94)
=== ==== ========== === ======== ======== ====
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-5
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1997 1998 1999
-------- ------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)............................... $ (7,636) $ 8,394 $ 94,054
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 2,036 2,960 4,516
Provision for doubtful accounts, net.......... 619 940 3,897
Options granted to consultants................ 225 433 10
Minority interest............................. (31) (85) (1,937)
Gain on sale of Cybear, Inc. shares........... -- (700) (643)
Deferred income tax benefit................... -- -- (18,442)
Equity in losses of joint venture............. 1,682 931 370
Changes in operating assets and liabilities:
Accounts receivable.......................... (9,749) (12,119) (42,062)
Inventories.................................. (13,661) (16,436) (36,434)
Prepaid and other assets..................... (2,296) (1,094) (22,042)
Accounts payable and accrued liabilities..... 12,162 15,092 42,869
Income taxes payable......................... -- 55 15,675
-------- ------- ---------
Net cash provided by (used in) operating ac-
tivities..................................... (16,649) (1,629) 39,831
-------- ------- ---------
Cash flows from investing activities
Purchases of property, plant and equipment...... (7,715) (7,986) (22,233)
Maturities (purchases) of investments available-
for-sale, net.................................. 8,006 13,247 (85,323)
Acquisition of Telegraph Consulting Corpora-
tion........................................... -- -- (1,181)
-------- ------- ---------
Net cash provided by (used in) investing ac-
tivities..................................... 291 5,261 (108,737)
-------- ------- ---------
Cash flows from financing activities
Proceeds from the issuance of shares of common
stock and exercises of warrants and stock
options........................................ 4,135 2,836 6,683
Proceeds from the issuance of shares of common
stock in connection with a 1997 private
placement...................................... 21,343 -- --
Income tax benefits related to exercises of
stock options.................................. -- 67 9,368
Net borrowings (repayments) under bank loan..... (5,923) 3,569 16,119
Net proceeds from Cybear, Inc.'s public share
offering....................................... -- -- 50,778
Other capital transactions of Cybear, Inc....... -- 30 379
Proceeds from sale of Cybear, Inc. shares....... -- 700 675
-------- ------- ---------
Net cash provided by financing activities..... 19,555 7,202 84,002
-------- ------- ---------
Net increase in cash and cash equivalents........ 3,197 10,834 15,096
Cash and cash equivalents, beginning of year..... 3,428 6,625 17,459
-------- ------- ---------
Cash and cash equivalents, end of year........... $ 6,625 $17,459 $ 32,555
======== ======= =========
Supplemental disclosure of cash paid during the
year for:
Interest....................................... $ 490 $ 380 $ 1,661
======== ======= =========
Income taxes................................... $ -- $ 210 $ 48,790
======== ======= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-6
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
(1) General
Andrx Corporation and subsidiaries ("Andrx" or the "Company") was organized
in August 1992 and commenced marketing and distributing generic pharmaceutical
products manufactured by third parties. In February 1993, the Company began to
engage in the development of bioequivalent controlled-release pharmaceutical
products utilizing its proprietary drug delivery technologies. During 1996, the
Company commenced its efforts to develop brand name controlled-release 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 United States Food
and Drug Administration ("FDA") granted final approval of the Company's
abbreviated new drug application ("ANDA"), for a bioequivalent version of
Dilacor XR(R), the Company's first manufactured product, which it immediately
launched as Diltia XT(R).
In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with Hoechst Marion Roussel, Inc. (now known as Aventis, S.A.,
"Aventis") and Carderm Capital, L.P. in partial settlement of a patent
infringement claim brought against Andrx by Aventis (the "Aventis 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 Aventis.
Aventis agreed to compensate Andrx for any lost profits, stipulated to be
$100,000 per year, if Andrx ultimately prevailed in the Aventis Litigation and
to grant Andrx a license for its patents under certain conditions, including if
Andrx ultimately lost the litigation. Aventis also agreed to make non-
refundable interim quarterly payments of $10,000 to Andrx, beginning upon
Andrx' receipt of final FDA approval for its bioequivalent version of
Cardizem(R) CD and continuing until the Aventis Litigation was resolved or
certain other events occured. In July 1998, the FDA granted final marketing
approval for the Company's ANDA for a bioequivalent version of Cardizem(R) CD.
In June 1999, the Aventis Litigation was resolved and on June 23, 1999, the
Company launched its reformulated bioequivalent version of Cardizem(R) CD,
Cartia XT(TM), which enjoyed a 180-day period of marketing exclusivity through
December 19, 1999.
On November 20, 1998, Cybear, Inc. ("Cybear"), a Florida corporation, the
Company's subsidiary engaged in the development of Internet applications
designed for the healthcare community, merged with a wholly-owned subsidiary of
1997 Corp., a Delaware corporation, pursuant to a Merger Agreement and Plan of
Reorganization dated July 15, 1998. 1997 Corp. was a "blank check" company that
had a registration statement on file with the Securities and Exchange
Commission to seek a business combination with an operating entity. In June
1999, Cybear completed a public offering of its common shares. As a result of
the public offering, exercises of Cybear stock options, other Cybear stock
issuances, and sales of shares of Cybear common stock by Andrx, Andrx'
ownership in Cybear decreased to approximately 73% as of December 31, 1999.
Cybear Tracking Stock Recapitalization Plan
In December 1999, Andrx announced a corporate recapitalization plan (the
"Recapitalization") which would give Andrx shareholders the ability to
distinguish between their investments in Andrx and Cybear. In March 2000, Andrx
and Cybear entered into a definitive agreement with respect to this corporate
recapitalization. This plan, which was recommended to the Cybear Board of
Directors by its Special Committee and approved by the boards of both Cybear
and Andrx, will create a new class of Andrx common stock to separately track
the performance of Cybear called "Cybear Group Common". The plan will be
submitted for approval to the shareholders of Andrx and Cybear during 2000.
F-7
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Pursuant to an Agreement and Plan of Merger and Reorganization, Andrx will
acquire all of the publicly traded shares of common stock of Cybear in a tax-
free "roll-up" merger. Cybear's public shareholders currently own approximately
5.4 million shares, assuming the exercise by Edward E. Goldman, M.D., Cybear's
Chief Executive Officer, of an outstanding warrant to acquire 525,000 shares of
common stock of Cybear currently owned by Andrx (see Note 11), or 30.5%, of the
common shares of Cybear, and those shareholders will receive one share of
Cybear Group Common for every Cybear share they currently own. In the
Recapitalization, the number of Cybear shares held by Andrx will be reduced
from 12.4 million shares to 10.3 million shares so as to provide the equivalent
of a 20% increase in shares held by the non-Andrx shareholders of Cybear. As a
result, the non-Andrx shareholders of Cybear will own approximately 34.5% of
the Cybear Group Common following the closing of the transaction. Pursuant to
the Recapitalization, each Andrx common share will be converted into (i) one
share of Andrx common stock representing the common equity interest in Andrx
other than its ownership of Cybear ("Andrx Group Common"), and (ii)
approximately .1622 shares of Cybear Group Common, after giving effect to
Andrx' pending two-for-one stock split (in the form of a stock dividend)
approved on February 29, 2000 (see Note 19). Upon completion of the
Recapitalization, (i) Cybear will be a wholly-owned subsidiary of Andrx with
100% of its value publicly traded in the form of Cybear Group Common; (ii)
current Cybear public shareholders will own approximately 34.5% of the Cybear
Group Common; and (iii) current Andrx shareholders will own 100% of the Andrx
Group Common and approximately 65.5% of the Cybear Group Common.
The Recapitalization is intended to (i) reestablish certain tax
consolidation advantages for Andrx; (ii) separate the operating losses of
Cybear from the operating results of Andrx for financial reporting purposes;
(iii) improve liquidity for the publicly traded equity of Cybear; (iv) provide
Cybear with a more viable currency for potential future strategic acquisitions;
and (v) preserve financial flexibility for Andrx management to maximize the
long-term growth of shareholder value.
Consummation of the transaction is subject to various conditions, including
approval by shareholders of Andrx and Cybear. In addition to shareholder
approval, the transaction will be subject to various Federal and state
regulatory approvals, including the SEC and accordingly, no assurance can be
given that this transaction will be consummated. Andrx and Cybear will file a
preliminary joint proxy statement and a registration statement with respect to
the proposed transaction.
Risks and Uncertainties
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 and limited
manufacturing experience, current and potential competitors with significant
technical and marketing resources, and dependence on key personnel. The Company
is also subject to the risks and uncertainties associated with all drug
delivery companies, including changes in the regulatory scheme, difficulty in
receiving regulatory approval to market new products, 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 and decreasing gross profits. In addition, the Company's Internet
based healthcare information technology subsidiary is subject to the risks and
uncertainties of an early stage 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, ability to obtain content, 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
F-8
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
property, the possibility that the tracking stock recapitalization will not be
completed and the impact of future government regulation.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Andrx Corporation and its majority owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The most significant estimates made by management include the provision for
doubtful accounts receivable, inventory writedowns, discounts and rebates to
customers or from vendors, returns, pricing adjustments and other adjustments
related to purchases and sales of products, and provisions for litigation (see
Note 16).
Management periodically evaluates estimates used in the preparation of the
consolidated financial statements for continued reasonableness. Appropriate
adjustments, if any, to the estimates used are made prospectively based on such
periodic evaluations.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or
less are considered cash equivalents and are carried at cost.
Investments Available-for-Sale
The Company utilizes the provisions of Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
115 requires that marketable equity securities and all debt securities be
classified into three categories: (i) held to maturity securities, (ii) trading
securities, and (iii) available-for-sale securities. The Company classifies its
investments as available-for-sale and, accordingly, such investments are
carried at market value and any unrealized gain or loss is reported as a
separate component of shareholders' equity. The cost related to investments
available-for-sale is determined utilizing the specific identification method.
Inventories
Inventories of pharmaceutical products consist primarily of finished goods
held for distribution, and raw materials, work in process and finished goods of
manufactured products. Inventories are stated at the lower of cost (first-in,
first-out) or market. Cost of inventories held for distribution is based on
purchase price, net of vendor discounts, rebates and other allowances.
F-9
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Property, Plant and Equipment, Net
Property, plant and equipment are recorded at cost, less accumulated
depreciation or amortization. Depreciation or amortization is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Manufacturing equipment...................................... 10 years
Laboratory equipment......................................... 5 years
Leasehold improvements....................................... Term of lease
Computer hardware and software............................... 3 years
Furniture and fixtures....................................... 5 years
</TABLE>
Major renewals and betterments are capitalized, while maintenance, repairs
and minor renewals are expensed as incurred.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company utilizes the provision of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
which requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstance indicate that the carrying amount of an asset
may not be recoverable. To determine a loss, if any, to be recognized, the
carrying value of the asset would be compared to the market value or expected
undiscounted future cash flow value.
Revenue Recognition
Sales of distributed and manufactured products and the related cost of goods
sold are recognized at the time a product is shipped. Provisions for discounts,
rebates, returns, pricing adjustments and other adjustments related to sales to
customers are provided in the same period the related sales are recorded.
The Company has entered into long term supply arrangements with certain
customers related to manufactured products. Prepayments by the Company to
customers related to such arrangements are capitalized in the Consolidated
Balance Sheet as Prepaid and other current assets and Other assets, as
appropriate, and, are amortized in the Consolidated Statement of Income against
Revenues--Manufactured products over the life of the arrangements, on a
straight-line basis, as appropriate. Such assets are periodically assessed for
realizability and any adjustments for impairments are made as they become
known.
Stipulation fees and Licensing and other revenue are recognized when earned
in accordance with the terms of the underlying agreements (see Notes 8 and 16).
Research and Development Expenses
Research and development expenses consist of costs related to products being
developed internally as well as costs related to products subject to licensing
agreements in both the Company's bioequivalent (ANDA) and brand (NDA) programs.
Research and development costs are expensed as incurred.
The Company is a 50% partner in ANCIRC. In addition to Andrx' 50% ownership
in ANCIRC, the Company also provides research and development services to
ANCIRC at cost. Accordingly, research and development expenses in the
Consolidated Statements of Income exclude costs of research and development
services rendered to ANCIRC, as such costs are charged to ANCIRC as incurred
(see Note 9).
F-10
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". Under the provisions of SFAS No. 123, companies can either
measure the compensation cost of equity instruments issued under employee
compensation plans using a fair value based method, or can continue to
recognize compensation cost using the intrinsic value method under the
provisions of Accounting Principles Board Opinion ("APB") No. 25. However, if
the provisions of APB No. 25 are applied, pro forma disclosures of net income
or loss and earnings or loss per share must be presented in the financial
statements as if the fair value method had been applied. For the years ended
December 31, 1997, 1998 and 1999, the Company recognized compensation costs
under the provisions of APB No. 25, and the Company has provided the expanded
disclosure required by SFAS No. 123 (see Note 14).
Issuance of Stock by Subsidiary
The Company accounted for the issuances of shares of common stock by Cybear
as equity transactions within the Consolidated Statements of Stockholders'
Equity and excludes the results of such transactions from the Consolidated
Statements of Income. The Company does not currently intend to issue shares of
common stock of its other subsidiaries.
Income Taxes
The provisions of SFAS No. 109, "Accounting for Income Taxes", require,
among other things, recognition of future tax benefits measured at enacted
rates attributable to the deductible temporary differences between the
financial statement and income tax bases of assets and liabilities and to tax
net operating loss carryforwards to the extent that the realization of such
benefits is "more likely than not" (see Note 10). Under SFAS No. 109, deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities, using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Earnings (Loss) Per Share
The Company utilizes the provisions of SFAS No. 128, "Earnings Per Share".
For the years ended December 31, 1998 and 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 year
ended December 31, 1997, 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. As such, for the year ended
December 31, 1997 diluted net loss per share is based on the weighted average
shares of common stock outstanding.
F-11
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Earnings (Loss) Per Share--(continued)
A reconciliation of the numerators and denominators of basic and diluted
earnings (loss) per share for the years ended December 31, 1997, 1998 and 1999
is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Basic Earnings (Loss) Per Share:
Net income (loss)...................... $ (7,636) $ 8,394 $ 94,054
=========== =========== ===========
Basic weighted average shares of common
stock outstanding..................... 28,426,200 30,045,400 30,989,900
=========== =========== ===========
Basic net income (loss) per share...... $ (0.27) $ 0.28 $ 3.03
=========== =========== ===========
Diluted Earnings (Loss) Per Share:
Net income (loss)...................... $ (7,636) $ 8,394 $ 94,054
=========== =========== ===========
Weighted average shares of common stock
outstanding........................... 28,426,200 30,045,400 30,989,900
Effect of dilutive items:
Stock options........................ -- 1,148,000 1,178,300
Warrants............................. -- 660,000 308,400
----------- ----------- -----------
Diluted weighted average shares of common
stock outstanding....................... 28,426,200 31,853,400 32,476,600
=========== =========== ===========
Net income (loss) per share............ $ (0.27) $ 0.26 $ 2.90
=========== =========== ===========
Anti-dilutive weighted options......... 1,892,900 50,200 39,200
=========== =========== ===========
</TABLE>
The above anti-dilutive weighted options to purchase shares of common stock
were not included in computing diluted earnings per share because their effects
were anti-dilutive for the respective periods.
Stock Split
In May 1999, the Company effected a two-for-one stock split in the form of a
100% stock dividend. All share and per share amounts for prior periods in the
accompanying consolidated financial statements have been restated to reflect
the May 1999 stock split.
Fair Value of Financial Instruments
As of December 31, 1998 and 1999, the carrying amount of Cash and cash
equivalents, Investments available-for-sale, Accounts receivable, net, Accounts
payable, Accrued liabilities, Bank loan and Income taxes payable approximate
fair value due to the short maturity of these instruments.
Concentration of Credit Risk
The Company invests in U.S. Treasury and government agency securities, debt
instruments of corporations and tax advantaged money market preferreds with
investment grade credit ratings. The Company has established guidelines
relative to diversification and maturities that are designed to help ensure
safety and liquidity.
Accounts receivable are principally due from independent pharmacies,
pharmacy chains, pharmacy buying groups and wholesalers and distributors.
Credit is extended based on an evaluation of the customer's financial condition
and collateral is generally not required. The Company performs ongoing credit
evaluations of its customers and maintains allowances for potential
uncollectable accounts.
F-12
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
The Company has no significant off-balance sheet concentration of credit
risk.
Comprehensive Income (Loss)
The Company adopted the provision of SFAS No. 130, "Reporting Comprehensive
Income", effective January 1, 1998, as required. SFAS No. 130 establishes
standards for reporting and presentation of comprehensive income or loss and
its components in financial statements. The Company has included the required
disclosure of this SFAS in the accompanying Consolidated Statements of
Shareholders' Equity for the years ended December 31, 1997, 1998 and 1999, as
required.
Business Segments
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which was issued by the FASB in June 1997.
This SFAS replaced SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise" and establishes new standards for defining the Company's segments
and disclosing information about them. The provisions of SFAS No. 131 require
that the segments be based on the internal structure and reporting of the
Company's operations. (see Note 17.)
Derivatives
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The provisions of SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. The provisions of SFAS No. 133 must be applied
to (a) derivative instruments and (b) certain derivative instruments embedded
in hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at the Company's election, before January 1, 1998).
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133", amends
the effective date of SFAS No. 133 to all fiscal years beginning after June 15,
2000.
The Company expects to adopt the provisions of SFAS No. 133, as required,
and does not expect the effect of the adoption to be significant to the
consolidated financial statements.
Reclassifications
Certain prior years' amounts have been reclassified to conform to the
current year presentation.
(3) Cybear, Inc.
On June 23, 1999, Cybear completed a public offering of 3,450,000 of its
common shares at $16.00 per share raising net proceeds of approximately
$50,800. The Company did not record a gain in connection with this offering.
The transaction was recorded as an equity transaction in the Company's
Consolidated Statements of Shareholders' Equity.
F-13
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
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 $4,088
includes $1,181 in cash, the issuance of 320,000 shares of restricted Cybear
common stock valued at approximately $2,771 and the assumption of approximately
$136 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 $3,933 represents
goodwill, and is included in Other assets in the Consolidated Balance Sheet.
Such goodwill is being amortized on a straight-line basis over its estimated
life of 10 years.
The following summarizes the acquisition:
<TABLE>
<S> <C>
Cash used for acquisition.......................................... $1,181
Cybear Common stock issued......................................... 2,771
Debt assumed....................................................... 136
------
Purchase price..................................................... 4,088
Working capital acquired........................................... (30)
Property and equipment acquired.................................... (125)
------
Excess of purchase price over fair market value of net assets
acquired.......................................................... $3,933
======
</TABLE>
Pro forma information is not required to be included herein because the
transaction was not material to the Company.
(4) Investments Available-for-Sale
Investments available-for-sale consist of the following:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Treasury and government agency
securities........................ $5,634 $ 4 $(5) $5,633
====== === === ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities................ $31,186 $-- $(127) $31,059
Corporate bonds................... 10,163 -- (8) 10,155
Tax advantaged money market
preferreds....................... 49,649 -- -- 49,649
------- ---- ----- -------
$90,998 $-- $(135) $90,863
======= ==== ===== =======
</TABLE>
F-14
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
(5) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------- -------
<S> <C> <C>
Raw materials................................................ $ 4,846 $ 8,638
Work in process.............................................. 796 3,182
Finished goods............................................... 36,695 66,951
------- -------
Total inventories.......................................... $42,337 $78,771
======= =======
</TABLE>
(6) Property, Plant and Equipment, Net
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Land...................................................... $ 2,436 $ 2,804
Manufacturing equipment................................... 7,032 14,029
Laboratory equipment...................................... 2,872 4,926
Leasehold improvements.................................... 6,897 9,042
Computer hardware and software............................ 6,426 10,067
Furniture and fixtures.................................... 1,739 3,544
Construction in progress.................................. 288 5,636
------- --------
27,690 50,048
Less: accumulated depreciation and amortization........... (7,261) (11,777)
------- --------
Property, plant and equipment, net........................ $20,429 $ 38,271
======= ========
</TABLE>
(7) Bank Loan
In April 1998, Anda, Inc. ("Anda"), the Company's wholly-owned subsidiary
engaged in the distribution of pharmaceutical products, amended its line of
credit agreement to increase the total available borrowings from $10,000 to
$30,000 and, to decrease the interest rate and to potentially further decrease
the interest rate if the Company maintains certain levels of average
outstanding balance. As of December 31, 1999, the interest rate on the bank
borrowings of $20,226 was the prime rate, 8.5%.
Borrowings under the line of credit are available for financing the
Company's operations, are secured by all the assets of Anda and are subject to
a borrowing base related to the value of Anda's accounts receivable and
inventories. The loan is guaranteed by Andrx Corporation and some of its other
subsidiaries. The agreement requires compliance with certain covenants
including the maintenance of minimum working capital and net worth levels by
Anda. As of December 31, 1999, the Company was in compliance with all of the
covenants of this line of credit agreement.
(8) Licensing Agreements
In June 1999, Andrx entered into an agreement with Geneva Pharmaceuticals,
Inc. ("Geneva") a member of the Novartis Group, for the sale and marketing of
specified products. Geneva will fund the development costs of certain
controlled-release dosage forms of existing products that the Company is
developing for
F-15
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
submissions as brands (NDA's). Andrx granted marketing rights to Geneva in
specified territories for these products including one of the Company's NDA
products for the United States. Upon receiving FDA approval, Andrx will receive
at least minimum amounts of royalties from the sale of such products. Andrx
also has committed to continuing to sell Geneva's bioequivalent products
through Anda.
Andrx has entered into various other domestic and international licensing
agreements. These agreements generally contemplate that one of Andrx' drug
delivery technologies will be utilized to commercialize certain pharmaceutical
products, and that the Company will receive fees pursuant to these agreements
and possibly royalties from the sale or license of the subject products.
(9) ANCIRC Joint Venture
In July 1994, and as later amended on October 30, 1995, the Company and
Circa Pharmaceuticals, Inc., now a wholly-owned subsidiary of Watson
Pharmaceuticals, Inc. ("Watson") (the Company and Watson are hereafter
collectively referred to as the "Partners"), formed ANCIRC Pharmaceuticals, a
50/50 joint venture to develop, manufacture and market up to eight
bioequivalent controlled-release pharmaceutical products (the "joint venture"
or "ANCIRC"). The agreement between the Partners contemplates that Andrx
Pharmaceuticals, Inc. ("Andrx Pharmaceuticals"), a wholly-owned subsidiary of
the Company, will perform the research and development formulations for the
joint venture products, that Anda will market and distribute ANCIRC's products
following FDA approval, and that Watson will provide the regulatory support for
the joint venture products and will manufacture the ANCIRC products.
In September 1998, ANCIRC received approval of its first manufactured
product, a bioequivalent version of Trental(R) and launched this product. On
March 24, 1999 the FDA approved the ANDA for the second ANCIRC product, a
bioequivalent version of Oruvail(R), which was launched in April 1999. ANCIRC
halted the production and sale of ANCIRC's bioequivalent version of Oruvail(R)
in June 1999, and is currently not producing or selling such product.
Capital contributions to, distributions from and net income or loss
generated by ANCIRC are allocated in proportion to the respective Partners'
interest in the joint venture.
ANCIRC is managed by and under the direction of a management committee which
is comprised of six members. Three members are appointed by each Partner. Based
on the equal representation of the management committee and the Company's
inability to unilaterally control the joint venture, the Company utilizes the
equity method to account for this joint venture.
F-16
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Condensed balance sheet and statement of operations information for ANCIRC
is as follows:
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Assets
Cash and cash equivalents........................................ $ 695 $ 487
Inventories...................................................... 363 1,115
------ ------
Total assets................................................... $1,058 $1,602
====== ======
Liabilities and Partners' Equity
Current liabilities.............................................. $ 87 $ 369
Partners' equity................................................. 971 1,233
------ ------
Total liabilities and partners' equity......................... $1,058 $1,602
====== ======
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Product sales, net................................ $ -- $ 724 $ 3,307
======== ======== =======
Gross profit...................................... $ -- $ 360 $ 1,239
======== ======== =======
Research and development expenses................. $ 3,392 $ 2,237 $ 2,004
======== ======== =======
Net loss.......................................... $ (3,364) $ (1,862) $ (740)
======== ======== =======
</TABLE>
As of December 31, 1998 and 1999, Andrx Pharmaceuticals was due $139 and
$705, respectively, from ANCIRC for research and development services rendered.
As of December 31, 1998 and 1999 Anda, the distributor of ANCIRC products owed
ANCIRC $627 and $326, respectively, for purchases of ANCIRC's products. Amounts
due to or from ANCIRC, net, are included in Prepaid and other current assets in
the accompanying Consolidated Balance Sheets. Product sales and the related
costs of product sales are recognized by ANCIRC at the time product is shipped
to third-party customers by Anda. Sales to Anda are discounted by an agreed-
upon percentage from the ultimate net selling price realized from the sale to
the third party customers to allow Anda to recover selling and marketing costs.
The Company is committed to the funding of ANCIRC's future operations. From
time to time, the Partners have discussions to potentially restructure ANCIRC.
(10) Income Taxes
For the year ended December 31, 1997, 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.
For the year ended December 31, 1998, the Company's income tax provision of
$333 resulted from Federal alternative minimum income taxes. The Company's 1998
regular income tax provision was fully offset by the reversal of a
corresponding amount of valuation allowance against its net deferred income tax
assets.
For the year ended December 31, 1999, the Company provided for $55,405 for
Federal and state income taxes or 37% of Income before income taxes. The
Company was not required to provide for income taxes at an effective combined
Federal and state statutory rate of 39% due to the effect of the utilization of
the Company's net operating loss carryforwards. As of June 23, 1999, Cybear was
excluded from Andrx' consolidated tax
F-17
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
return and was filed as a separate entity because Andrx' ownership in Cybear
was reduced below 80%. Cybear's net operating 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.
The components of the provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
--------------------------
<S> <C> <C> <C>
Current provision
Federal........................................... $ -- $ 333 $ 69,855
State............................................. -- -- 3,992
------- ------- ----------
-- 333 73,847
------- ------- ----------
Deferred benefit
Federal........................................... -- -- (17,445)
State............................................. -- -- (997)
------- ------- ----------
-- -- (18,442)
------- ------- ----------
Total............................................... $ -- $ 333 $ 55,405
======= ======= ==========
</TABLE>
The following table indicates the significant elements contributing to the
difference between the Federal statutory rate and the Company's effective tax
rate:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate.......................... (35.0)% 35.0% 35.0%
State income taxes, net of Federal effect....... (3.6) 3.6 2.0
Change in valuation allowance on net deferred
income tax assets.............................. 38.6 (36.8) (7.8)
Federal alternative minimum tax................. -- 2.0 --
Other, net...................................... -- -- 7.8
-------- -------- -------
Effective tax rate.............................. -- % 3.8% 37.0%
======== ======== =======
</TABLE>
Deferred income taxes represent the tax effect of the difference between
book and tax bases of assets and liabilities. The major components of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Net operating loss carryforward................................ $1,857 $ 3,929
Allowance for doubtful accounts................................ 976 2,377
Other operating reserves....................................... 4,539 17,230
Tax over book depreciation..................................... (465) (1,137)
Charitable contribution carryforward........................... 749 --
Alternative minimum tax credit carryforward.................... 333 --
------ -------
7,989 22,399
Valuation allowance............................................ (7,989) (3,957)
------ -------
Deferred income tax assets, net.............................. $ -- $18,442
====== =======
</TABLE>
F-18
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
The following table indicates the activity in valuation allowance:
<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Beginning balance, January 1,............................... $(10,051) $(7,989)
Utilized.................................................... 2,062 7,989
Provided for Cybear, separate company....................... -- (3,957)
-------- -------
Ending balance, December 31,................................ $ (7,989) $(3,957)
======== =======
</TABLE>
Under the provisions of SFAS No. 109, as of December 31, 1998, the Company
recorded a valuation allowance to reserve against 100% of its net deferred
income tax assets due to the uncertainty of the realization of such assets.
When the uncertainty was resolved in 1999, such valuation allowance was fully
reversed and the only remaining valuation allowance as of December 31, 1999
related to the net deferred income tax assets of Cybear of $3,957 which
resulted after June 23, 1999 as previously discussed.
As of December 31, 1999, the Company had a net operating loss carryforward
for tax purposes of approximately $10,000, which is available to only offset
future earnings of Cybear.
Net operating loss carryforwards are subject to review and possible
adjustment by the Internal Revenue Service and may be limited in the event of
certain cumulative changes in the ownership interest of significant
shareholders over a three-year period in excess of 50%.
(11) Commitments
Purchase Commitments
The Company has entered into agreements primarily for the construction of a
new manufacturing and research and development facility with future commitments
of approximately $14,000.
Operating Leases
The Company leases manufacturing, laboratory, warehouse, office space, and
various equipment under operating leases which expire at various dates through
2009. The following schedule summarizes future minimum lease payments required
under non-cancellable operating leases with terms greater than one year, as of
December 31, 1999:
<TABLE>
<S> <C>
2000............................................................... $ 3,830
2001............................................................... 3,822
2002............................................................... 3,042
2003............................................................... 2,548
2004............................................................... 2,224
Thereafter......................................................... 9,058
-------
$24,524
=======
</TABLE>
Rent expense amounted to $969, $1,189 and $2,674 for the years ended
December 31, 1997, 1998 and 1999, respectively.
F-19
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Employment Agreements
The Company has entered into employment agreements with certain officers,
the terms of which expire at various dates through September 2003. The
following schedule summarizes the future minimum payments under the Company's
employment agreements as of December 31, 1999:
<TABLE>
<S> <C>
2000................................................................ $ 710
2001................................................................ 612
2002................................................................ 612
2003................................................................ 390
------
$2,324
======
</TABLE>
Cybear entered into an employment agreement effective August 24, 1998 with
Edward Goldman, M.D., Cybear's Chief Executive Officer. Pursuant to the
Employment Agreement, Andrx agreed to issue to Dr. Goldman upon payment of $50,
a warrant to purchase 650,000 shares of Cybear common stock held by Andrx (the
"Warrant") at its then market price of $3.00 per share. In addition, Andrx will
issue to Dr. Goldman stock options for 40,000 shares of Andrx common stock
having an exercise price, per share, of the fair market value of Andrx stock at
the close of business on the date of grant. The stock to be issued pursuant to
the exercise of the Warrant includes piggyback registration rights. The Warrant
is exercisable commencing on April 30, 1999 (the "Warrant Exercise Date"). The
Warrant shall be exercisable for a period of seven years after the Warrant
Exercise Date, subject to contractual obligations with Andrx. In October 1999,
Dr. Goldman exercised a portion of the warrant and received 125,000 shares of
Cybear common stock. Andrx recognized a gain of $343 on the transaction, which
is included in the Consolidated Statement of Income.
(12) Related Party Transactions
The Company is party to a royalty agreement with Dr. Chen, which provides
for royalties to Dr. Chen upon the sale of Andrx' bioequivalent version of
Cardizem(R) CD, for which the Company received final approval in July 1998 from
the FDA. In August 1998, the Company amended that royalty agreement to account
for the various contingencies presented by a Stipulation and Agreement (see
Note 16). Royalties paid to Dr. Chen of $637 and $7,000 for the years ended
December 31, 1998 and 1999, respectively were based on 3.33% of the net sales
of Cartia XT(TM), as defined, and the Stipulation fees. Such royalties are
included in Selling, general, and administrative expenses in the accompanying
Consolidated Statements of Income.
In September 1998, Andrx agreed to sell 333,333 shares of Cybear common
stock for $1,000 or the then current market value of $3.00 per share to
Cybear's Chairman of the Board. As of December 31, 1998, Andrx had sold 233,333
shares to Cybear's Chairman and in January 1999, Andrx sold the remaining
100,000 shares under this agreement. Accordingly, Gain on sale of Cybear shares
in the Consolidated Statements of Income include $700 and $300, for the years
ended December 31, 1998 and 1999, respectively, from these transactions.
(13) Shareholders' Equity
In June 1997, Capital Research and Management Company ("Capital"), an
investment management firm, purchased 1,460,000 shares of common stock and
Watson purchased an additional 300,000 shares of common stock. The purchase
price paid by each of Capital and Watson was $12.75 per share, the closing
price of Andrx' common stock on June 11, 1997. In a contemporaneous
transaction, certain of the Company's principals also sold a total of 900,000
shares of Andrx' common stock to Watson on the same terms and conditions.
Capital
F-20
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
and Watson were granted certain registration rights under the Securities Act of
1933, as amended, with respect to the shares purchased. Watson entered into a
standstill agreement with the Company pursuant to which it agreed, among other
matters, not to acquire more than a 25.0% equity interest in the Company or to
engage in certain transactions with the Company (including a merger), prior to
June 13, 2000, without the prior approval of the Company's Board of Directors.
In June 1999, Watson exercised a warrant to acquire 674,200 shares of Andrx
common stock at an exercise price of $4.45. Such warrant was issued to Watson
in connection with the original investment in the Company in July 1994.
(14) Stock Incentive Plan
Under the Company's Stock Incentive Plan as Amended (the "Plan") the
Company's Board of Directors or its Compensation Committee (the "Committee") is
authorized to grant stock options, stock appreciation rights, restricted stock,
deferred stock, performance units, loans and tax offset payments or any
combination thereof, to employees, consultants or advisors of the Company. The
terms for, and exercise price at which any stock option may be awarded is to be
determined by the Committee. Options granted under the Plan must be exercised
within ten years of grant, unless a shorter period is designated at the time of
grant. Options cannot be awarded under the Plan after February 26, 2003. In
1997, the Company's Board of Directors and shareholders approved an increase in
the number of shares available for grant under the Plan to 4,000,000.
The Company accounts for options granted to employees under the Plan in
accordance with the provisions of APB Opinion No. 25. Each stock option has an
exercise price equal to the market price on the date of grant, and accordingly,
no compensation expense has been recorded for any employees stock option
grants. On rare occasions, the Company may issue an insignificant amount of
equity instruments to non-employees. No such options were granted for the year
ended December 31, 1999. Stock options issued to consultants for the years
ended December 31, 1997 and 1998 were accounted for based on the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable, as required by SFAS No. 123. In
instances where the fair value or the goods or services received is not
reliably measurable, the measure is based upon the fair value of the equity
instruments issued, and such value is amortized over the period for which
services are provided. The fair value of equity instruments issued to
consultants are valued using the Black-Scholes option pricing model.
F-21
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
A summary of the Plan's activity is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------- -------------------
Number of Exercise Price per
Shares Share Wtd. Avg.
Under ----------------------- Exercise
Option Low High Wtd. Avg. Shares Price
--------- ------ ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996.... 1,828,700 $ 1.50 $ 7.25 $ 4.43 927,140 $3.34
Granted.............. 519,800 10.00 18.94 12.60
Exercised............ (340,328) 1.50 7.00 3.67
Forfeited............ (86,498) 3.25 18.94 11.30
---------
December 31, 1997.... 1,921,674 1.50 18.94 6.46 991,458 4.49
Granted.............. 1,060,500 12.44 20.25 16.48
Exercised............ (272,586) 1.50 16.50 5.55
Forfeited............ (133,592) 1.50 20.25 11.00
---------
December 31, 1998.... 2,575,996 1.50 20.25 10.45 1,128,104 5.91
Granted.............. 772,400 16.75 60.13 40.09
Exercised............ (434,543) 1.50 19.44 8.22
Forfeited............ (90,550) 3.63 60.13 20.72
---------
December 31, 1999.... 2,823,303 $ 1.50 $60.13 $18.47 1,263,728 $8.26
========= ====== ====== ====== ========= =====
</TABLE>
<TABLE>
<CAPTION>
Exercisable Options
Options Outstanding at December 31, 1999 at December 31, 1999
----------------------------------------------------------------------------
Range of Number of Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Shares Remaining Life Exercise Exercise
Prices Under Option (Years) Price Shares Price
-------- ------------ -------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
$ 1.50-
$10.00 945,728 4.31 $ 4.76 805,728 $ 4.39
$10.01-
$19.00 942,150 5.73 $14.87 407,500 $14.16
$19.01-
$60.13 935,425 7.26 $35.97 50,500 $22.40
------- --------- ---- ------ --------- ------
2,823,303 5.76 $18.47 1,263,728 $ 8.26
========= ==== ====== ========= ======
</TABLE>
The range of weighted average fair value per share as of the grant date was
$5.72 to $12.85, $11.78 to $32.55, and $10.72 to $40.82 for stock options
granted during the years ended December 31, 1997, 1998 and 1999, respectively.
The fair market value of an option was estimated using the Black-Scholes
option pricing model with the following assumptions:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate.................................... 5.3% 4.6% 6.4%
Average life of options (years)............................ 4.9 5.1 6.0
Average volatility......................................... 48.0% 99.0% 70.0%
Dividend yield............................................. -- -- --
</TABLE>
F-22
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
The following table summarizes the pro forma consolidated results of
operations of the Company as though the provision of the fair value-based
accounting method of SFAS No. 123 had been used in accounting for stock
options:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
-------- ----------------
<S> <C> <C> <C> <C>
Net income (loss)................... As reported $ (7,636) $ 8,394 $ 94,054
======== ======= ========
Pro forma $ (9,317) $ 5,613 $ 86,969
======== ======= ========
Basic net income (loss) per share... As reported $ (0.27) $ 0.28 $ 3.03
======== ======= ========
Pro forma $ (0.33) $ 0.19 $ 2.92
======== ======= ========
Diluted net income (loss) per
share.............................. As reported $ (0.27) $ 0.26 $ 2.90
======== ======= ========
Pro forma $ (0.33) $ 0.18 $ 2.79
======== ======= ========
</TABLE>
(15) 401 (k) Plan
In February 1995, the Company adopted a 401(k) retirement plan covering
substantially all of its employees. Monthly contributions to the retirement
plan are made by the Company based upon the employees' contributions to the
plan. During the years ended December 31, 1997, 1998 and 1999, the Company
contributed $167, $229 and $366, respectively, to the 401(k) retirement plan.
(16) Litigation
Waxman-Hatch Patent Infringement Litigation
There has been substantial litigation in the pharmaceutical, biomedical and
biotechnology industries with respect to the manufacture, use and sale of new
products that are the subject of patent rights. Most of the brand name
controlled-release products for which the Company is developing bioequivalent
versions are covered by one or more patents. Under the Drug Price Competition
and Patent Restoration Act of 1984 (the "Waxman-Hatch Amendments"), when a drug
developer files an ANDA for a bioequivalent drug, the developer must make a
certification to the FDA as to whether the developer believes that an unexpired
patent that has been listed with the FDA as covering the relevant brand-name
product will be infringed by the developer's product. If the developer believes
that its product does not infringe the brand product patent or that any such
unexpired patent is invalid or unenforceable (a "Paragraph IV Certification"),
the developer must send a Paragraph IV Certification to the patent holder, who
may then initiate a legal challenge to the developer's Paragraph IV
Certification 45 days from the Paragraph IV Certification, which will prevent
the FDA from approving the ANDA, until the earlier of 30 months or when the
infringement case is decided in favor of the developer. The outcome of such
litigation is difficult to predict because of the uncertainties inherent in
patent litigation.
Patent infringement claims of the nature described above may be made by
other pharmaceutical companies in connection with the Company's filing of other
ANDAs or NDAs with the FDA. The Company evaluates the probability of patent
infringement litigation with respect to each of its ANDA and NDA submissions on
a case by case basis. Accordingly, the Company provides for the estimated
litigation costs to final resolution of each case, as appropriate. Although the
Company believes it has adequately provided for such matters based on currently
available information, the Company may incur additional litigation costs in
future years which may be material to the Company's results of operations and
financial position.
F-23
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Cardizem(R) CD Patent Infringement Litigation
In connection with the ANDA filed for Andrx' bioequivalent version of
Cardizem(R) CD, Andrx certified to the FDA that its product did not infringe
upon any of the patents listed as covering that brand name product and sent the
required notices to the holders of each of those patents. In January 1996,
Aventis commenced litigation in the United States District Court, Southern
District of Florida, alleging that Andrx' product infringes upon one of the six
patents listed as covering Cardizem(R) CD.
In September 1997, Andrx entered into the Stipulation in partial settlement
with Aventis of the patent infringement litigation involving Cardizem(R) CD in
order to reduce the risks that both parties faced as the case was litigated to
its conclusion. The Company agreed to maintain the status quo in connection
with the marketing of its product and to dismiss certain claims against
Aventis. Aventis agreed to compensate the Company for its lost profits, which
were stipulated to be $100,000 per year, if Andrx ultimately prevailed in the
litigation and to grant Andrx a license for their patents under certain
conditions, including if the Company ultimately lost the litigation. Aventis
also agreed to make non-refundable interim quarterly payments of $10,000 to the
Company, beginning upon its receipt of final FDA approval for its bioequivalent
version of Cardizem(R) CD and continuing until the litigation was resolved or
certain other events occurred. In July 1998, the Company received both final
FDA marketing approval for its bioequivalent version of Cardizem(R) CD and its
first quarterly payment for $9,130 (prorated for the 84 days in the quarter
ended September 30, 1998). For the year ended December 31, 1998 the Company
received a total of $19,130 in interim Stipulation fees. In June 1999, the
Aventis Litigation was settled and the lawsuit was dismissed with prejudice.
For the year ended December 31, 1999, the Company received pursuant to the
Stipulation $70,733 in interim and final Stipulation fees from Aventis. On June
23, 1999, the Company commenced selling Cartia XT(TM), its reformulated
bioequivalent version of Cardizem(R) CD. Having been the first Company to have
its ANDA with a Paragraph IV Certification
accepted as filed by the FDA relative to Cardizem(R) CD, the Company enjoyed
180 days of marketing exclusivity that expired on or about December 19, 1999.
FDA Litigation
In January 1998, the Company filed an action in the United States District
Court for the District of Columbia against the FDA, Biovail Corporation
("Biovail") and F.H. Faulding and Co. ("Faulding"), regarding the FDA's
interpretation of certain provisions of the Waxman-Hatch Amendments. The
Company sought, among other things, a final injunction requiring the FDA to
provide the Company a 180-day period of marketing exclusivity for its
bioequivalent version of Cardizem(R) CD and its Dilacor XR(R). On March 26,
1998, the Court entered a temporary restraining order prohibiting Mylan
Pharmaceuticals, Inc. from shipping or otherwise distributing its bioequivalent
version of Dilacor XR(R) until the expiration of the Company's 180-day period
of marketing exclusivity for its bioequivalent version of Dilacor XR(R).
Biovail Anti-Trust Litigation
In May 1998, Biovail filed counterclaims against Andrx alleging that the
stipulation violated Sections 1 and 2 of the Sherman-Antitrust Act and a
declaratory judgment as to federal law as well as for alleged violations of
state common law of unfair competition, tortious interference with prospective
advantage and tortious interference with contract. Biovail sought injunctive
relief and treble damages in an unspecified amount, plus interest, with respect
to its federal law claims, and actual and punitive damages in unspecified
amounts, plus interest, with respect to its common law claims. In July 1998,
Andrx filed a motion to dismiss the counterclaim that motion was granted with
prejudice with respect to the federal antitrust claims in January
F-24
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
2000, with the state law claims being dismissed without prejudice. On February
2, 2000 Biovail filed a motion to vacate the order dismissing its counterclaims
and on or about February 6, 2000 filed a notice of appeal to the United States
Court of Appeals for the District of Columbia. The appeal is still pending.
Other Cardizem(R) CD Patent Infringement Claim
On March 7, 2000, Purepac Pharmaceutical Co. (a subsidiary of F.H. Faulding
& Co.) filed suit against Andrx in the U.S. District Court for the Eastern
District of Pennsylvania claiming patent infringement because of Andrx making,
using, selling and/or offering Cartia XT(R) which, according to Purepac,
infringes a patent issued to Faulding on March 7, 2000 but now owned by
Purepac. The letter also offered to license that patent to the company. Andrx
is currently evaluating Purepac's infringement claims and licensing offer and
in due course will file an appropriate response.
Putative Class Action
In addition to the above Cardizem(R) CD patent infringement litigation with
Aventis, commencing in August 1998, putative class actions have been filed
against Andrx Pharmaceuticals in either state or federal courts in Alabama,
California, Florida, Illinois, Kansas, Michigan, Minnesota, New York, North
Carolina, Tennessee, Wisconsin and the District of Columbia. In all of these
suits Hoechst Aktiengesellschaft and Aventis (collectively "Aventis Group")
have been named as co-defendants. The complaint in each action alleges that
Andrx Pharmaceuticals and Aventis Group, by way of the Stipulation, have
engaged in alleged state antitrust and other statutory and common law
violations that allegedly have given Aventis Group and Andrx Pharmaceuticals a
near monopoly in the U.S. market for Cardizem(R) CD and a generic version of
that pharmaceutical product. According to the complaints, the monopoly
possessed by the defendants enable Aventis Group to perpetuate its ability to
fix the price of Cardizem(R) CD at an artificially high price, free from
bioequivalent competition, with the result that direct purchasers (such as
pharmacies), as well as indirect purchasers (such as medical patients who have
been issued prescriptions for Cardizem(R) CD) are forced to overpay for the
drug. Each complaint seeks compensatory damages on behalf of each class member
in an unspecified amount and, in some cases, treble damages, as well as costs
and counsel fees, disgorgement, injunctive relief and other remedies. In June
1999, most of these class actions were consolidated for pretrial purposes in
the United States District Court for the Eastern District of Michigan. In the
consolidated proceeding, Aventis Group and Andrx Pharmaceuticals have filed
motions to dismiss the complaints on various grounds and plaintiffs have filed
motions for partial summary judgment. All of these motions are still pending.
The four state court actions (two in Kansas and two in Florida) that have not
been included in the consolidated proceeding have been temporarily stayed in
light of the consolidated proceeding in Michigan.
FTC Administrative Proceeding
In October 1998, the Company was advised that the U.S. Federal Trade
Commission ("FTC") is conducting an investigation to determine whether Andrx,
Aventis or any other persons have engaged in unfair methods of competition. The
FTC's investigation, with which the Company has fully cooperated relates to the
Stipulation with Aventis. In March 2000, the FTC commenced an administrative
proceeding against Aventis and Andrx concerning the Stipulation because it has
reason to believe that the Stipulation had or may have had the capacity or the
potential to be anti-competitive. The FTC stated it is not seeking any fines,
penalties, disgorgement or any other monetary remedy in the proceeding. Despite
the views of the FTC, the Company continues to believe the Stipulation was
procompetitive and benefited consumers, and intends to vigorously defend its
position before the administrative law judge.
F-25
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Prilosec(R) Patent Infringement Litigation
In May 1998, Astra, Aktiebolaget Hassle, Astra Merck Enterprises, Inc. and
Astra Merck, Inc. (collectively, the "Astra Group"), filed suit against Andrx
in the U.S. District Court for the Southern District of Florida claiming patent
infringement because of an ANDA filed by Andrx with the FDA for a bioequivalent
version of Prilosec(R). Subsequently, another patent infringement suit was
filed by the Astra Group against Andrx in the same Court after Andrx made a
second Paragraph IV Certification relative to a different strength of
Prilosec(R). Andrx responded to these claims by denying infringement, raising
various other defenses, filing certain counterclaims against the Astra Group
and by seeking a declaration that there has been no infringement and that the
patents are invalid. The Astra Group seeks an injunction enjoining Andrx from
further infringing the subject patents and an order directing that the
effective date of any FDA approval of Andrx' proposed bioequivalent version of
Prilosec(R) be no earlier than the expiration date of its patents. In September
1999, for pretrial purposes, both of these actions were consolidated in the
U.S. District Court for the Southern District of New York with three other
patent infringement suits initiated by the Astra Group relative to ANDAs
submitted by other companies for bioequivalent versions of Prilosec(R). The
consolidated suit is still in the discovery phase. The Company believes that
its product does not infringe on the subject patents or that such patents are
invalid or unenforceable.
Tiazac(R) Patent Infringement Litigation
In October 1998, Biovail, Biovail Laboratories Inc. and Galephar Puerto
Rico, Inc. (collectively, the "Biovail Group") filed suit against Andrx in the
U.S. District Court for the Southern District of Florida claiming patent
infringement because of an ANDA filed by Andrx with the FDA for a bioequivalent
version of Tiazac(R). Andrx responded to this claim by denying infringement,
raising various other defenses, filing certain counterclaims against the
Biovail Group and by seeking a declaration that there has been no infringement
and that the patent is invalid. The Biovail Group sought an injunction
enjoining Andrx from further infringing the subject patent and an order
directing that the effective date of any FDA approval of Andrx' proposed
bioequivalent version of Tiazac(R) be no earlier than the expiration date of
the subject patent. In March 2000, the court entered an order that Andrx'
product does not infringe the Biovail patent. Biovail has filed a notice of
appeal from that order.
Naprelan(R) Patent Infringement Litigation
In October 1998, Elan Corporation, plc ("Elan") filed suit against Andrx in
the U.S. District Court for the Southern District of Florida claiming patent
infringement because of an ANDA filed by Andrx with the FDA for a bioequivalent
version of Naprelan(R). Andrx responded to this claim by denying infringement,
raising various other defenses, filing certain counterclaims against Elan and
by seeking a declaration that there has been no infringement and that the
patent is invalid. Elan seeks a judgment enjoining Andrx from further
infringing the subject patent and ordering that the effective date of any FDA
approval of Andrx' proposed bioequivalent version of Naprelan(R) be no earlier
than the expiration date of the patent. The Company believes that its product
does not infringe on the subject patent or that such patent is invalid or
unenforceable.
Wellbutrin SR(R) and Zyban(R) Patent Infringement Litigation
In September 1999, Glaxo Wellcome plc ("Glaxo") filed suit against Andrx in
the U.S. District Court for the Southern District of Florida claiming patent
infringement because of the ANDAs filed by Andrx with the FDA for bioequivalent
versions of Wellbutrin SR(R) and Zyban(R). Andrx responded to this claim by
denying infringement, raising various other defenses, filing certain
counterclaims against Glaxo and by seeking a
F-26
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
declaration that there has been no infringement and that the patent is invalid.
Glaxo seeks an injunction enjoining Andrx from further infringing the subject
patents and orders directing that the effective date of any FDA approval of
Andrx' proposed bioequivalent versions of Wellbutrin SR(R) and Zyban(R) be no
earlier than the
expiration date of the subject patent. The Company believes that its product
does not infringe on the subject patents or that such patents are invalid or
unenforceable.
Depakote(R) Patent Infringement Litigation
In March 2000, Abbott Laboratories ("Abbott") filed suit against Andrx in
the United States District Court for the Northern District Court of Illinois,
claiming infringement of two of its patents because of our filing the
aforementioned ANDA. Abbott seeks a judgment enjoining defendants from further
infringing the subject patents and ordering that the effective date of any FDA
approval of the Company's proposed bioequivalent version of Depakote(R) be no
earlier than the expiration dates of the two patents in suit. Although the
Company has not yet responded to the complaint, the Company believes that its
product does not infringe the patents involved or that either or both patents
are invalid or unenforceable.
Claritin D 24(R) Patent Infringement Litigation
In February 2000, the Company submitted an ANDA to the FDA to sell the
Company's bioequivalent version of Claritin D 24(R). In March 2000, Schering-
Plough Corporation filed suit in the U.S. District Court for New Jersey
claiming patent infringement because of an ANDA filed by the Company with the
FDA for a bioequivalent version of Claritin D-24(R). Although the Company has
not yet been served with the complaint, the Company believes that its product
does not infringe the patent involved or that the patent is invalid or
unenforceable.
Phentermine (Phen-Fen) Litigation
In January 1999, Andrx was served with third party complaints filed against
them by certain doctors and distributors who are defendants in various legal
actions relating to the sale of phentermine by the Company and its usage as a
diet drug when taken in combination with fenfluramine, commonly known as "phen-
fen". The substance of the third party complaints is that the defendants are
without fault with respect to the claims in those actions but, if they are
found liable on any of those claims, then allegedly having obtained one or more
of the drugs from Andrx, they are entitled to indemnification in an amount to
pay and discharge any judgment entered against them in the putative class
action together with costs, expenses and attorney fees. Andrx has never sold
fenfluramine and believes that these claims are without merit.
In November, 1999 another Phen-fen diet lawsuit was filed against Andrx in
the Superior Court of New Jersey by (i) a husband, who claims to have obtained
or purchased, either directly or indirectly, from Andrx and others, and
thereafter ingested, phentermine, dexfenfluramine and fenfluramine, causing
serious medical consequences, all to his financial detriment, and (ii) his
wife, who, on behalf of herself and her two children, claims monetary damages
arising from emotional distress to herself and her children, loss of
spousal/paternal companionship and expenditure of money, time and care for her
husband required by her husband's alleged injuries which are permanent and
continuous in nature. Andrx has never sold dexfenfluramine or fenfluramine and
believes that these claims, including any based solely on the use of
phentermine, have no merit.
The Company is being represented and defended in both of these lawsuits by
counsel designated by the Company's insurer.
F-27
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Other Litigation
As of December 31, 1999, the Company was involved with other legal
proceedings incidental to its business. Although it is not possible to predict
the outcome of such proceedings, it is the opinion of management, based on the
legal advice of counsel, that the ultimate outcome of those proceedings will
not have any significant adverse effect on the Company's consolidated financial
statements.
(17) Segments
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This SFAS establishes new standards for
defining the Company's segments and disclosing information about them. It
requires that the segments be based on the internal structure and reporting of
the Company's operations.
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 four business segments:
. Anda
. Andrx Pharmaceuticals
. Aura Laboratories, Inc. ("Aura Labs")
. Cybear
Andrx established Anda, its distribution operation, to complement its Andrx
Pharmaceuticals controlled-release bioequivalent segment in anticipation of
improving overall profitability by managing its products from the laboratory to
the drug store shelf. Anda markets and distributes generic pharmaceuticals
manufactured by third parties. Anda purchases generic pharmaceuticals directly
from manufacturers and wholesalers and markets them through its in-house
telemarketing staff primarily to independent pharmacies, pharmacy chains which
do not maintain their own central warehousing facilities and pharmacy buying
groups.
Andrx Pharmaceuticals is developing and applying multiple drug delivery
technologies to control the release characteristics of a variety of orally-
administered drugs. Controlled-release products are formulations which release
active drug compounds in the body gradually and predictably over a 12- or 24-
hour period and which therefore need be taken only once or twice daily.
Controlled-release products typically provide numerous benefits over immediate
release drugs, including (i) greater effectiveness in the treatment of chronic
conditions; (ii) reduced side effects; (iii) greater convenience (only once or
twice a day); and (iv) higher levels of patient compliance due to a simplified
dosing schedule. To date, Andrx Pharmaceuticals has developed eight distinct
drug delivery technologies that are patented or for which patent applications
have been filed. Andrx Pharmaceuticals is applying its proprietary drug
delivery technologies and formulation skills either directly or through
collaborative arrangements, to the development of bioequivalent versions of
selected controlled release brand name pharmaceuticals. Andrx Pharmaceuticals
also constructed a commercial-scale manufacturing facility enabling the Company
to make the transition from the development stages through to the commercial
manufacture of the controlled-release pharmaceuticals. Andrx Pharmaceuticals
sells its products directly to pharmacy chains, wholesalers and distributors
and utilizes the resources of the Anda segment.
F-28
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
Through its wholly-owned subsidiary Aura Labs, the Company is engaged in
applying the proprietary drug delivery technologies developed by Andrx
Pharmaceuticals to clinical programs to the development of brand name
controlled-release formulations of existing immediate-release and controlled-
release drugs. In addition to improving drug efficacy and reducing side
effects, Andrx believes that its drug delivery technologies will provide
pharmaceutical companies with the opportunity to enhance the commercial value
of their existing products and new drug candidates. Aura labs currently has one
product in Phase III clinical trials and one other product will enter Phase III
clinical trials in 2000.
Through its information technology subsidiary Cybear, the Company uses the
Internet and Internet-based browser technologies to develop applications
designed to improve communication 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.
F-29
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
The following table presents financial information by business segment:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
---------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharmaceuticals Labs Cybear Other Consolidated
-------- --------------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $146,237 $ 3,461 $ -- $ -- $ -- $149,698
Equity in losses of
joint venture.......... -- (1,682) -- -- -- (1,682)
Income (loss) from
operations............. 7,078 (10,302) (1,104) (1,504) (2,930) (8,762)
Interest income......... -- -- -- -- 1,585 1,585
Interest expense........ (490) -- -- -- -- (490)
Depreciation and
amortization........... 815 941 1 51 228 2,036
Capital expenditures.... 1,496 5,305 3 242 669 7,715
Total assets............ 65,995 25,823 9 399 (1,381) 90,845
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharmaceuticals Labs Cybear Other Consolidated
-------- --------------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $215,903 $ 31,154 $ -- $ -- $ -- $247,057
Equity in losses of
joint venture.......... -- (931) -- -- -- (931)
Income (loss) from
operations............. 10,698 9,428 (4,023) (4,135) (4,710) 7,258
Gain on sale of Cybear
shares................. 700 -- -- -- -- 700
Interest income......... -- -- -- -- 1,064 1,064
Interest expense........ (380) -- -- -- -- (380)
Income tax expense...... -- -- -- -- (333) (333)
Depreciation and
amortization........... 982 1,536 33 123 286 2,960
Capital expenditures.... 833 4,572 145 2,340 96 7,986
Total assets............ 68,735 29,989 136 3,332 19,006 121,198
<CAPTION>
Year Ended December 31, 1999
---------------------------------------------------------------------
Andrx Aura Corporate &
Anda Pharmaceuticals Labs Cybear Other Consolidated
-------- --------------- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $262,321 $213,399 $ -- $ 270 $ -- $475,990
Equity in losses of
joint venture.......... -- (370) -- -- -- (370)
Income (loss) from
operations............. 20,010 157,959 (9,453) (14,550) (9,029) 144,937
Gain on sale of Cybear
shares................. 643 -- -- -- -- 643
Interest income......... -- -- -- 1,282 2,321 3,603
Interest expense........ (1,661) -- -- -- -- (1,661)
Income tax expense...... -- -- -- -- (55,405) (55,405)
Depreciation and
amortization........... 1,209 1,923 46 1,080 258 4,516
Capital expenditures.... 6,960 13,004 44 2,154 71 22,233
Total assets............ 123,494 45,623 134 53,105 135,598 357,954
</TABLE>
F-30
<PAGE>
ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997, 1998 and 1999
(in thousands, except for share and per share amounts)
(18) Selected Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues.............. $30,661 $ 32,559 $ 42,661 $ 43,817
Loss from operations........ (1,691) (2,385) (3,200) (1,486)
Net loss.................... (1,402) (2,261) (2,865) (1,108)
Basic and diluted net loss
per share.................. (0.05) (0.08) (0.09) (0.03)
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues.............. $50,695 $ 55,955 $ 67,266 $ 73,141
Income (loss) from
operations................. (1,233) (1,846) 4,374 5,963
Net income (loss)........... (959) (1,718) 4,862 6,209
Basic net income (loss) per
share...................... (0.03) (0.06) 0.16 0.21
Diluted net income (loss)
per share.................. (0.03) (0.06) 0.15 0.19
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Total revenues.............. $77,924 $164,560 $111,415 $122,091
Income from operations...... 8,448 78,784 27,232 30,473
Net income.................. 6,944 48,880 17,827 20,403
Basic net income per share.. 0.23 1.60 0.57 0.65
Diluted net income per
share...................... 0.22 1.51 0.55 0.63
</TABLE>
(19) Subsequent Events
Stock Split
On February 29, 2000, the Board of Directors of the Company approved a two-
for-one stock split in the form of a 100% stock dividend. Such stock split will
be for holders of record of at the close of business on March 15, 2000 and to
be distributed on April 3, 2000. Accordingly, the consolidated financial
statements do not reflect the impact of such stock split. The share and per
share amounts in the accompanying consolidated financial statements will be
retroactively restated for the stock split upon the date of its distribution.
Acquisition of Valmed Pharmaceutical, Inc.
In March 2000, Andrx acquired Valmed Pharmaceutical, Inc., a privately owned
distributor of bioequivalent pharmaceuticals based in Grand Island, New York.
The purchase price was $14,800 in cash, subject to certain adjustments. The
acquisition will be recorded using the purchase method of accounting.
F-31
<PAGE>
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Shares
[logo]
----------------
Prospectus
, 2000
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Joint Book-Running Managers
Banc of America Securities LLC Bear, Stearns & Co. Inc.
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CIBC World Markets
Warburg Dillon Read LLC
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $132,772
NASD filing fee.................................................... 30,500
Nasdaq listing fee.................................................
Printing and engraving expenses....................................
Accounting fees and expenses.......................................
Legal fees and expenses............................................
Transfer Agent's fees and expenses.................................
Miscellaneous......................................................
--------
Total............................................................
========
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Registrant has authority under Section 607.0850 of the Florida Business
Corporation Act to indemnify its directors and officers to the extent provided
for in such statute. The Registrant's Amended and Restated Articles of
Incorporation and Bylaws provide that the Registrant may insure, shall
indemnify and shall advance expenses on behalf of our officers and directors to
the fullest extent not prohibited by law. We are also a party to
indemnification agreements with each of our directors and officers. The
Registrant has also agreed to indemnify the selling shareholders named in the
Registration Statement against certain liabilities, including liabilities under
the Securities Act.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement(1)
4.1 Specimen common stock Certificate(2)
5.1 Opinion of Broad and Cassel(1)
23.1 Consent of Broad and Cassel (included in its opinion filed as
Exhibit 5.1)(1)
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (included on the signature page of this
Registration Statement)
</TABLE>
- --------
(1) To be filed by amendment.
(2) Filed as an Exhibit of the same number to our Registrant Statement on Form
S-1 (File No. 333- 03614) and incorporated herein by reference.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plans annual report pursuant to Section
15(d) of the Securities
II-1
<PAGE>
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X are not set forth in
the prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim financial
information.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other that the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registrant Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Lauderdale, State of Florida, on March 30,
2000.
ANDRX CORPORATION
/s/ Angelo C. Malahias
By: _________________________________
Angelo C. Malahias
Vice President and Chief
Financial Officer
Each person whose signature appears below constitutes and appoints Alan P.
Cohen, Elliot F. Hahn and Angelo C. Malahias, or any one of them, as his or her
true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for him or her and in his or her name, place and stead in
any and all capacities to execute in the name of each such person who is then
an officer or director of the Registrant any and all amendments (including
post-effective amendments) to this Registration Statement, and any registration
statement relating to the offering hereunder pursuant to Rule 462 under the
Securities Act of 1933, as amended, and to file the same with all exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents and each
of them full power and authority to do and perform each and every act and thing
required or necessary to be done in and about the premises as fully as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents; or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Co-Chairman, Chief March 30, 2000
______________________________________ Executive Officer and
Alan P. Cohen Director (Principal
Executive Officer)
Co-Chairman, Chief March 30, 2000
______________________________________ Scientific Officer and
Chih-Ming J. Chen, Ph.D. Director
President and Director March 30, 2000
______________________________________
Elliot F. Hahn, Ph.D.
Vice President and Chief March 30, 2000
______________________________________ Financial Officer
Angelo C. Malahias (Principal Financial and
Accounting Officer)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director March 30, 2000
______________________________________
Melvin Sharoky, M.D.
Director March 30, 2000
______________________________________
Rep. Elaine Bloom
Director March 30, 2000
______________________________________
Irwin C. Gerson
Director March 30, 2000
______________________________________
Michael A. Schwartz, Ph.D.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
23.2 Consent of Arthur Andersen LLP
</TABLE>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report and to all references to our firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Fort Lauderdale, Florida,
March 27, 2000.
