<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,
April 27, 2000.
<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
Registration Statement No. 333-33822
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 To
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>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
<CAPTION>
Proposed
Maximum Proposed
Title of Each Class of Amount Offering Price Maximum Amount of
Securities to be to Be Per Aggregate Registration
Registered Registered(1)(2) Share(1)(3) Offering Price Fee(4)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share....... 8,452,500 $54.50 $460,661,250 $121,615
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
(1) Gives effect to a 2-for-1 stock split effective on April 3, 2000.
(2) Includes 1,102,500 shares of common stock which may be purchased by the
Underwriters pursuant to an over-allotment option. See "Underwriting."
(3) 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.
(4) Previously paid.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a), of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to Section 8(a), may
determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+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 of these securities is +
+not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus (Not Complete)
Issued April 28, 2000
7,350,000 Shares
(Logo for ANDRX)
Common Stock
-----------
Andrx Corporation is offering 6,001,684 shares of common stock and a selling
shareholder is offering 1,348,316 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 April 27, 2000, was $49.00 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 selling shareholders have granted the underwriters the right to
purchase up to 1,102,500 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
Risk Factors............................................................. 5
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................................................................. 30
Management............................................................... 47
Selling Shareholders..................................................... 49
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 52
Underwriting............................................................. 53
Legal Matters............................................................ 55
Experts.................................................................. 55
Where You Can Find More Information...................................... 55
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 splits in
June 1999 and 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
Bioequivalent Controlled-Release Pharmaceuticals
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). Prilosec and Naprelan
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. We filed ANDAs and
are awaiting FDA approval for six additional products, bioequivalent versions
of Tiazac(R), Wellbutrin SR(R), Zyban(R), K-Dur(R), Depakote(R) and Claritin
D-24(R). These products had U.S. brand sales of approximately $2.1 billion in
1999. Additionally, ANCIRC, our 50/50 joint venture with Watson
Pharmaceuticals, Inc., contemplates the development of up to eight
bioequivalent products, two of which, our bioequivalent versions of Trental(R)
and Oruvail(R), have been approved by the FDA.
We currently intend to develop 25 additional bioequivalent versions of
either controlled-release or difficult to copy drugs, including the remaining
products to be developed by ANCIRC. 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.
1
<PAGE>
Brand Name Controlled-Release Pharmaceuticals
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. We are also in various early stages of development for controlled-release
versions of Omeprazole DR(R) (a reformulated version of Prilosec), an analgesic
product and two central nervous system products.
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 the 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
Reorganization
In March 2000, we entered into a definitive agreement for a corporate
reorganization 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.
Financial Results
On April 25, 2000, we reported net income of $16.4 million or $0.25 per
diluted share for the first quarter of 2000, as compared to net income of $6.9
million or $0.11 per diluted share for the first quarter of 1999. The 136%
increase in net income was primarily attributable to Cartia XT(TM) sales, our
bioequivalent version of Cardizem CD. In comparison, the first quarter of 1999
included fees paid to us pursuant to a stipulation we entered into related to
the then pending patent infringement litigation involving our ANDA for Cardizem
CD.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Andrx........ 6,001,684 shares
Common stock offering by a selling 1,348,316 shares
shareholder.........................
Common stock to be outstanding after 68,974,684 shares(1)
the offering........................
Use of proceeds...................... For expansion of manufacturing, research
and development and administrative
facilities; research and development of
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) 5,646,606 shares of common stock
issuable upon the exercise of outstanding stock options, (b) 2,353,394
shares of common stock reserved for future issuance under our existing
stock option plan, and (c) 52,500 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............................ $ (0.13) $ 0.14 $ 1.52
========== ========== ==========
Diluted net income (loss) per
share............................ $ (0.13) $ 0.13 $ 1.45
========== ========== ==========
Basic weighted average shares of
common stock outstanding......... 56,852,400 60,090,800 61,979,800
========== ========== ==========
Diluted weighted average shares of
common stock outstanding......... 56,852,400 63,706,800 64,953,200
========== ========== ==========
</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 $402,529
Working capital....................................... 180,863 459,974
Total assets.......................................... 357,954 637,065
Short-term borrowings................................. 20,226 20,226
Total shareholders' equity............................ 220,972 500,083
</TABLE>
- --------
(1) Certain prior years' amounts have been reclassified to conform with the
current year presentation.
(2) Gives effect to the sale of 6,001,684 shares of common stock offered by
Andrx at an assumed public offering price of $49.00 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 as of December 31, 1999.
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
should also 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 patent infringement litigation with
respect to the manufacture, use and sale of our products. 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 patent infringement litigation that Aventis brought against us. In the
stipulation 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
a license to the relevant Aventis' patents in the event we lost the patent
infringement litigation or if other events occurred as well as payments made by
Aventis to us, among other things. 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 or otherwise restrained trade.
In addition, on or about March 17, 2000, we were named as a respondent by
the FTC in an administrative action seeking a cease and desist order against
future agreements similar to the stipulation and other remedies. The complaint
in the administrative proceeding does not seek any monetary remedies from us of
any kind.
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 requirements are 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
requirements for particular bioequivalent drugs. We cannot predict at this time
whether the FDA will make any changes to its abbreviated application
requirements 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 for which certain bioequivalent drugs may qualify. 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 FDA's 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 and comparable
state-level agencies. 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. Our
business and financial results could be materially harmed by an adverse
determination by the DEA as a result of any such inspection. 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, are 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 63,527,799 shares outstanding as
of April 26, 2000 of which 13,492,572 shares are owned by our
10
<PAGE>
officers and directors and are considered restricted shares. As of March 31,
2000, Watson owned 5,763,476 shares, of which, 4,415,160 are freely tradeable
and the remaining 1,348,316 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.
As of April 26, 2000, our directors and executive officers owned
approximately 23.4% of the outstanding common stock prior to this offering and
21.4% after giving effect to this offering. As of March 31, 2000, Watson owned
approximately 9.1% of the issued and outstanding common stock and will own 6.4%
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 6,001,684 shares of
common stock offered by us will be approximately $279.1 million (at an assumed
public offering price of $49.00 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 Delaware
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
$279.1 million ($281.6 million 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
$49.00 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 of 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 splits in June 1999 and April 2000:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1998
First Quarter.................................................... $ 9.57 $ 6.13
Second Quarter................................................... 10.66 7.04
Third Quarter.................................................... 10.75 6.47
Fourth Quarter................................................... 12.93 6.16
1999
First Quarter.................................................... $23.13 $11.13
Second Quarter................................................... 39.00 15.41
Third Quarter.................................................... 39.00 28.57
Fourth Quarter................................................... 29.00 19.25
2000
First Quarter.................................................... $64.41 $20.13
Second Quarter (through April 27, 2000).......................... 67.31 43.63
</TABLE>
On April 27, 2000, the last sale price of the common stock as reported by
the Nasdaq National Market was $49.00 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 cash,
cash equivalents and investments available-for-sale, short-term borrowings and
capitalization; and (2) the cash, cash equivalents and investments available-
for-sale, short-term borrowings and capitalization, as adjusted to give effect
to the sale of 6,001,684 shares of common stock offered by us (at an assumed
public offering price of $49.00 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>
Cash, cash equivalents and investments available-for-
sale(1)................................................... $123,418 $402,529
======== ========
Short-term borrowings(2)................................... 20,226 20,226
======== ========
Shareholders' equity:
Preferred Stock, $.001 par value, 1,000,000 shares
authorized, no shares issued and outstanding............ -- --
Common Stock, $.001 par value, 100,000,000 shares
authorized; 62,973,000 shares issued and outstanding,
actual and 68,974,684 shares issued and outstanding, as
adjusted(3)............................................. 63 69
Additional paid-in capital............................... 140,700 419,805
Retained earnings........................................ 80,303 80,303
Accumulated other comprehensive income................... (94) (94)
-------- --------
Total shareholders' equity............................. 220,972 500,083
-------- --------
Total capitalization....................................... $220,972 $500,083
======== ========
</TABLE>
- --------
(1) See Note 4 to Consolidated Financial Statements.
(2) See Note 7 to Consolidated Financial Statements.
(3) Excludes (a) 5,646,606 shares of common stock issuable upon the exercise of
outstanding stock options at December 31, 1999, (b) 2,353,394 shares of
common stock reserved for future issuance under our existing stock option
plan, and (c) 52,500 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.............. $ (0.14) $ (0.08) $ (0.13) $ 0.14 $ 1.52
========== ========== ========== ========== ==========
Diluted net income
(loss) per share....... $ (0.14) $ (0.08) $ (0.13) $ 0.13 $ 1.45
========== ========== ========== ========== ==========
Basic weighted average
shares of common stock
outstanding............ 37,787,200 48,592,000 56,852,400 60,090,800 61,979,800
========== ========== ========== ========== ==========
Diluted weighted average
shares of common stock
outstanding............ 37,787,200 48,592,000 56,852,400 63,706,800 64,953,200
========== ========== ========== ========== ==========
<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 as of December 31, 1999.
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 reorganization plan which will create a new class of Andrx common
stock, Cybear Group Common, to separately track the performance of Cybear (the
"Reorganization"). The unaudited pro forma condensed consolidated financial
statements do not give pro forma effect to the shares of common stock offered
in this registration statement.
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 what
should be a tax-free reorganization. Cybear's public shareholders own
approximately 4.8 million shares, or 27.1%, of the common shares of Cybear as
of December 31, 1999 and those shareholders will receive one share of Cybear
Group Common for every Cybear common share they currently own. In the
Reorganization, the number of Cybear shares held by Andrx will be reduced from
12.9 million shares to 10.8 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 30.6% of
the Cybear Group Common following the closing of the transaction. Pursuant to
the Reorganization, each Andrx common share will be converted into (i) one
share of Andrx Group Common and (ii) approximately .1622 shares of Cybear Group
Common. Upon completion of the Reorganization, (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 30.6% of the Cybear Group Common; and (iii) current Andrx
shareholders will own 100% of the Andrx Group Common and approximately 69.4% of
the Cybear Group Common. The preceding ownership percentages exclude the
potential 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 owned by Andrx.
The unaudited pro forma condensed consolidated balance sheet gives effect to
the Reorganization as if it occurred as of December 31, 1999. The unaudited pro
forma condensed consolidated statement of income gives effect to the
Reorganization as if it occurred as of January 1, 1999.
Prior to the Reorganization, 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
Reorganization, Andrx Corporation will have two classes of common stock as
follows:
1. Cybear Group Common representing the equity interest and businesses of
the Cybear Group comprised of Andrx's Cybear subsidiary, and
2. Andrx Group Common representing the equity interests and businesses of
the Andrx Group comprised of Andrx Corporation and its subsidiaries
other than the Cybear Group.
Accordingly, under the Reorganization, Andrx 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 basic and
diluted earnings (loss) per share based on each group's respective operating
results and basic and diluted shares outstanding. The Andrx Corporation and
subsidiaries consolidated financial statements will not reflect consolidated
basic and diluted earnings (loss) per share since there will be no underlying
equity security related to the consolidated financial results. In connection
with the Reorganization, Cybear and members of the Andrx consolidated group
will enter into, among other things, a federal and state tax sharing agreement.
The financial statements of Andrx Group and Cybear Group will utilize the
separate company method of accounting for purposes of allocating federal and
state consolidated tax liabilities among group members. Under the terms of the
tax sharing agreement, a member of the group will be entitled to its income tax
benefits in the year generated to the extent that the member can utilize such
tax benefits in the year generated. To the extent that a member cannot utilize
its income tax benefits in the year generated, the member will not be
compensated in that year by other
16
<PAGE>
members of the Andrx consolidated group for any utilization of those benefits.
Instead, if and when a member leaves the group, Andrx may elect to reimburse
that member for any income tax benefits utilized. That reimbursement may take
the form of a capital investment by Andrx, for which it will receive stock. In
the case of any "tracking stock" members, such as the Cybear Group, the stock
received by Andrx shall be in the form of tracking shares. In addition, if any
member of the group causes another member to become subject to state tax in a
state where it would otherwise not be taxed on a separate company basis, the
member causing the tax liability shall be fully responsible for the state tax
of the other member.
For financial statement purposes, at such time as the 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 otherwise 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 transferring
such tax benefits to the Cybear Group in the form of a non-cash equity
transaction).
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 $ -- $ 32,555 $11,922 $ 20,633
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 -- 304,321 42,481 261,840
Property, plant and
equipment, net....... 38,271 -- 38,271 3,523 34,748
Other assets.......... 15,362 2,700 (1) 20,780 12,482 8,298
2,718 (3)
-------- ------- -------- ------- --------
Total assets........ $357,954 $ 5,418 $363,372 $58,486 $304,886
======== ======= ======== ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable...... $ 51,863 $ 3,000 (1) $ 56,363 $ 4,258 $ 52,105
1,500 (2)
Accrued liabilities... 35,639 -- 35,639 332 35,307
Bank loan............. 20,226 -- 20,226 -- 20,226
Income taxes payable.. 15,730 15,730 -- 15,730
-------- ------- -------- ------- --------
Total current
liabilities........ 123,458 4,500 127,958 4,590 123,368
Commitments and
contingencies..........
Shareholders' equity.... 220,972 (300) (1) 235,414 53,896 181,518
(1,500) (2)
16,242 (3)
-------- ------- -------- ------- --------
Total liabilities
and shareholders'
equity............. $357,954 $ 5,418 $363,372 $58,486 $304,886
======== ======= ======== ======= ========
Minority interest....... 13,524 (13,524) (3) -- -- --
</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 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 Reorganization 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.
(2) 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.
(3) Reflects the effects of the Reorganization, as follows:
<TABLE>
<CAPTION>
Adjusted
Shares Shares
Outstanding Reorganization Outstanding
at 12/31/1999 Elimination 12/31/99
<S> <C> <C> <C>
----------------------------------------
Andrx ownership of Cybear 12,877,000 (2,058,700) 10,818,300
Minority ownership 4,777,000 -- 4,777,000
----------------------------------------
Total shares outstanding 17,654,000 (2,058,700) 15,595,300
==========
Times per share price $ 3.00 $ 3.40
---------- -----------
Total market capitalization $ 52,962 $ 52,962
========== ===========
Minority ownership 4,777,000
Times adjusted market price $ 3.40
-----------
Purchase price of minority interest acquired 16,242
Less: minority interest historical basis (13,524)
-----------
Goodwill allocated to Cybear Group $ 2,718
===========
</TABLE>
For purposes of the unaudited pro forma condensed consolidated financial
statements, the market price of Cybear, Inc common stock was assumed to be
$3.00 per share, which was adjusted to $3.40 per share resulting from the
elimination of 2,058,700 Cybear shares due to the exchange rate included in
the Reorganization. As provided under the Reorganization terms, the shares
eliminated in the Reorganization are calculated including the potential
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. In connection with the repurchase of the
historical Cybear minority interest, the resulting goodwill of $2,718 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(7) 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....... 55,266 542 (3) 55,808 732 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........... 331,053 542 331,595 15,476 316,119
---------- ------- -------- ---------- ----------
Income (loss) from
operations............. 144,937 (542) 144,395 (15,206) 159,601
Other income (expense)
Minority interest..... 1,937 (1,937) (1) -- -- --
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 (2,479) 146,980 (14,140) 161,120
Income taxes............ 55,405 2,824 (2) 53,240 -- 53,240
(4,989) (4)
---------- ------- -------- ---------- ----------
Net income (loss)....... $ 94,054 $ (314) $ 93,740 $ (14,140) $ 107,880
========== ======= ======== ========== ==========
Basic net income (loss)
per share(6)........... $ 1.52 $ (1.05) $ 1.74
========== ========== ==========
Diluted net income
(loss) per share(6).... $ 1.45 $ (1.05) $ 1.66
========== ========== ==========
Basic weighted average
shares of common stock
outstanding............ 61,979,800 13,411,300(5) 61,979,800
========== ========== ==========
Diluted weighted average
shares of common stock
outstanding............ 64,953,200 13,411,300(5) 64,953,200
========== ========== ==========
</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 the historical minority interest resulting from
the minority ownership of Cybear which is eliminated as a result of the
Reorganization.
(2) Reflects the elimination of Cybear's historical $2,824 income tax benefit
which would not have been used by Cybear Group on a separate income tax
return basis and would have been included in the tax allocation to Andrx
Group in (Note 4) below pursuant to the Reorganization.
(3) Reflects the amortization of $542 of goodwill totalling $5,418, consisting
of $2,718 representing the excess of the purchase price of $16,242 offset
by historical minority interest of $13,524 and Andrx Group's estimated
Reorganization transaction costs and expenses of $2,700 (see unaudited pro
forma condensed consolidated balance sheets Note 1). Such goodwill is
amortized on a straight line basis over an estimated life of ten years.
(4) Represents the Cybear Group income tax benefit allocated to Andrx Group
pursuant to the Reorganization as follows:
<TABLE>
<S> <C>
Cybear Group loss before income taxes $ (14,140)
Nondeductible goodwill amortization (including $115 of
historical amortization) 657
---------
Taxable loss (13,483)
Federal and state statutory tax rate 37%
---------
Income tax benefit $ (4,989)
=========
</TABLE>
(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
Less: shares eliminated as a result of the Reorganization (see
unaudited pro forma condensed consolidated balance sheets
Note 3) (2,058,700)
----------
Pro Forma Cybear Group Common weighted average shares outstand-
ing 13,411,300
==========
</TABLE>
(6) As a result of the Reorganization, 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 Reorganization 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 non-recurring nature.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
We were organized in August 1992, and commenced marketing and distributing
bioequivalent pharmaceuticals manufactured by third parties. In February 1993,
we began to engage in the development of bioequivalent versions of controlled-
release pharmaceuticals utilizing our proprietary drug delivery technologies.
During 1996, we commenced our efforts to develop brand name controlled-released
products and an Internet based software application for healthcare providers.
Through October 9, 1997, our distribution operations had generated
substantially all of our revenues. On October 10, 1997, the FDA granted final
approval of our ANDA for its bioequivalent version of Dilacor XR, Andrx's first
manufactured product, which it immediately launched as Diltia XT.
In September 1997, we 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 we 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, we 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 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 Reorganization Plan
In December 1999, we announced a corporate reorganization plan which, among
other things, would give our shareholders the ability to distinguish between
their investments in Andrx and Cybear. In March 2000, we and Cybear entered
into a definitive agreement with respect to this reorganization. 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.
Recent Developments
On April 25, 2000, we reported net income of $16.4 million or $0.25 per
diluted share for the first quarter of 2000, as compared to net income of $6.9
million or $0.11 per diluted share for the first quarter of 1999. The 136%
increase in net income was primarily attributable to Cartia XT sales, our
bioequivalent version of Cardizem CD. In comparison, the first quarter of 1999
included fees paid to us pursuant to the stipulation.
Our total revenues increased by 48.2% to $115.5 million for the first
quarter of 2000, as compared to $77.9 million for the first quarter of 1999.
Sales from distributed products increased by 7.6% to $67.8 million for the
first quarter of 2000, as compared to $63.0 million for the first quarter of
1999. Sales from manufactured products increased to $44.1 million for the first
quarter of 2000, as compared to $4.4 million for the first quarter of 1999.
Sales from manufactured products include Diltia XT, our bioequivalent version
of Dilacor XR, for the first quarters of 2000 and 1999 and Cartia XT in the
first quarter of 2000. In comparison, in the first quarter of 1999, we received
fees of $10.0 million pursuant to the stipulation.
Gross profit from sales of distributed and manufactured products was $48.7
million, with a gross margin of 43.5% in the first quarter of 2000, as compared
to $14.6 million, with a gross margin of 21.6% in the first quarter of 1999.
The increase in gross profit and gross margin is primarily the result of the
increase in sales of manufactured products within the product mix.
Selling, general and administrative expenses were $11.5 million or 10.0% of
total revenues for the first quarter of 2000, as compared to $9.6 million or
12.3% of total revenues for the first quarter of 1999. The
23
<PAGE>
increase in selling, general and administrative expenses was primarily due to
an increase in the activities necessary to support the increased sales from
distributed and manufactured products, including royalties paid to our Co-
Chairman and Chief Scientific Officer related to sales of Cartia XT in the
first quarter of 2000 and stipulation fees in the first quarter of 1999.
Research and development expenses were $8.2 million in the first quarter of
2000, as compared to $4.3 million in the first quarter of 1999. The increase
in research and development expenses of $3.9 million or 90.2% reflects the
continuing progress and the expansion of both our bioequivalent and brand name
drug development programs.
In the first quarter of 2000, we incurred $6.3 million of Internet
operating expenses through Cybear, as compared to $2.8 million in the first
quarter of 1999. The increase in costs primarily relates to progress in the
development of applications and the establishment of the related operational
and administrative infrastructure of Cybear and also includes $1.2 million of
non-recurring charges. Cybear also incurred $832,000 in costs related to the
reorganization.
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 $1.45 per diluted
weighted average share of common stock outstanding, as compared to net income
of $8.4 million or $0.13 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.
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
24
<PAGE>
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 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 65.0
million in 1999, as compared to 63.7 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 $0.13 per diluted
weighted average share of common stock outstanding, as compared to a net loss
of $7.6 million or $0.13 per diluted weighted average share of
25
<PAGE>
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.
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.
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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 63.7
million in 1998, as compared to 56.9 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 sale, $22.2 million of property, plant and equipment and Cybear
acquired Telegraph Consulting Corporation 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 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.
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
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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.
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
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<PAGE>
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 was for holders of
record at the close of business on March 15, 2000, and was distributed on April
3, 2000. The share and per share amounts in the consolidated financial
statements included in this prospectus reflect this stock split.
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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
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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.
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 on
December 19, 1999. Total U.S. brand and bioequivalent
sales for Cardizem CD were approximately $715 million in
1999.
Prilosec
In March 2000, we received tentative FDA approval of 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 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.
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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 cannot market our bioequivalent version of
Naprelan until the 180-day marketing exclusivity period
of the first ANDA filer 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 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 and we receive FDA
approval. Total U.S. brand sales for K-Dur were
approximately $245 million in 1999.
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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 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. sales of Claritin D-24 were
approximately $370 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 is waived and either
our 30-month waiting period expires or the litigation is
concluded in our favor and 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, intend to develop approximately 25 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
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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 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
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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 dosages of metformin for NDA filings in the near
future. We anticipate filing an NDA in 2001.
We are also in various early stages of development for controlled-release
versions of Omeprazole DR (a reformulated version of Prilosec), 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;
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. 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.
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.
Pelletized Tablet 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.
Porous Tablet 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>
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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.
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.
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
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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 has been recorded using the purchase method of accounting.
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.
In March 2000, Cybear signed a one-year agreement, subject to additional
one-year period renewals by mutual agreement, with Novartis Pharmaceuticals
Corporation pursuant to which Cybear will provide secure on-line connectivity
and communications solution through dr.cybear to an initial group of 5,000
Novartis-selected physicians for monthly subscription fees commencing one month
after these physicians are registered. Novartis has committed to register 5,000
physicians by the end of 2000.
Cybear Tracking Stock
In December 1999, we announced a corporate reorganization 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 reorganization. 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 what
should be a tax-free reorganization. Cybear's public
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shareholders own approximately 4.8 million shares as of December 31, 1999
(excluding the potential 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 27.1%, 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 reorganization, the number of
Cybear shares held by Andrx will be reduced from 12.9 million shares to 10.8
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 30.6% of the Cybear Group Common
following the closing of the transaction. Pursuant to the reorganization, 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,
or Andrx Group Common, and (ii) approximately .1622 shares of Cybear Group
Common. Upon completion of the reorganization, (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 30.6% of
the Cybear Group Common; and (iii) current Andrx shareholders will own 100% of
the Andrx Group Common and approximately 69.4% of the Cybear Group Common.
The reorganization plan is intended to (i) separate the operating losses of
Cybear from our operating results for financial reporting purposes (ii) improve
liquidity for the publicly traded equity of Cybear; (iii) provide Cybear with a
more viable currency for potential strategic acquisitions; and (iv) preserve
financial flexibility for our management to maximize the long-term growth of
shareholder value. In addition, the reorganization should reestablish certain
tax consolidation advantages for us.
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.
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<PAGE>
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 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, a
subsidiary of Faulding, 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.
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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 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
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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, 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. Following our filing of a motion to dismiss for lack of jurisdiction,
Abbott filed a second action against the same defendants and for the same
claims in the United States District Court for the Southern District of
Florida.
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.
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 version 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
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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 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
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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.
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, DEA or comparable state
regulatory agencies' 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 a co-defendant. 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.
On or about March 17, 2000, we were named as a respondent by the FTC in an
administrative action seeking a cease and desist order against future
agreements similar to the stipulation and other remedies.
44
<PAGE>
The FTC is not seeking any fines, penalties, disgorgement or any other monetary
remedy in the administrative proceeding. Contrary to the FTC's position, we
believe that the stipulation was pro-competitive and benefited consumers and
intend to vigorously defend our position before the administrative law judge.
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.
45
<PAGE>
We lease a 56,000 square foot facility in Somerset, New Jersey for the
research and development of certain specialty and niche 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.
Cybear currently leases 37,600 square feet in Boca Raton, Florida housing
its corporate headquarters and network systems. Commencing April 1, 2000, the
lease provides for annual rent of $490,000, excluding taxes, insurance,
utilities and common area maintenance charges. In addition, the lease term was
extended to March 31, 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 March 31, 2000, we had 848 employees, of whom 29 were involved in
corporate administration, 451 were involved in our distribution operations and
112 were involved in Cybear's Internet operation. The remaining 256 employees
were involved in research, pharmaceutical development and manufacturing,
including over 40 scientists, many of whom hold Ph.D., masters or medical
degrees.
46
<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. Dr. Hahn also serves
as a director of Chesapeake Biological Laboratories, Inc. and Delta
Pharmaceuticals, Inc.
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
47
<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.
48
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock by the selling shareholders as of April 26, 2000
adjusted to reflect the sale of 6,001,684 shares offered hereby by us and
1,348,316 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 1,102,500
shares of common stock of which up to 1,050,000 shares may be offered by
selling shareholders and up to 52,500 shares may be offered by us. See note (2)
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 to After Offering
----------------- be ------------------------
Name Shares Percent Sold Shares Percent
- ------------------------- ------ ------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Watson Pharmaceuticals,
Inc. (1)................ 5,763,476 9.1% 1,348,316 4,415,250 6.4%
Alan P. Cohen(2)(3)...... 5,940,888 9.3 -- 5,940,888 8.5
Chih-Ming J. Chen,
Ph.D.(2)(4)............. 6,694,804 10.4 -- 6,694,804 9.5
Elliot F. Hahn,
Ph.D.(2)(5)............. 1,757,780 2.7 -- 1,741,780 2.5
Scott Lodin(2)(6)........ 190,000 * -- 190,000 *
</TABLE>
- --------
* Less than 1%
(1) Beneficial ownership is set forth as of March 31, 2000.
(2) If the underwriters' overallotment option is exercised in full, Mr. Cohen
will sell 400,000 shares of common stock, Dr. Chen will sell 400,000
shares of common stock, Dr. Hahn will sell 200,000 shares of common stock
and Mr. Lodin will sell 50,000 shares of common stock.
(3) Includes 17,500 shares of common stock held jointly by Mr. Cohen and his
spouse, 5,873,388 shares held in family limited partnerships and 50,000
shares of common stock issuable upon the exercise of stock options.
(4) Includes 92,262 shares of common stock owned by Dr. Chen, 5,730,752 shares
of common stock and held by limited partnerships for which Dr. Chen is an
officer of the corporate general partner, 4,790 shares held by a
charitable family foundation, 850,000 shares of common stock issuable upon
the exercise of stock options, and 17,000 issuable upon exercise of
options held by Dr. Chen's spouse.
(5) Represents 1,707,780 shares of common stock held in family trusts and a
family limited partnership and 50,000 shares issuable upon the exercise of
stock options.
(6) Represents 190,000 shares of common stock issuable upon the exercise of
stock options.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of (1) 100,000,000 shares of common
stock, par value $.001 per share, 69,529,483 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
50
<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 reorganization, 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.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 69,529,483 shares of common
stock outstanding. Of these shares, 56,036,911 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
5,695,866 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.
52
<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........................................................ 7,350,000
=========
</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 1,102,500 shares of common stock to
cover over-allotments, if any, at the same price as the 7,350,000 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.
53
<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
54
<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.
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 (except for the April 2000
stock split described in Note 2, as to
which the date is April 3, 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, 100,000,000 shares autho-
rized; issued and outstanding 60,693,600 shares in 1998
and 62,973,000 shares in 1999........................... 61 63
Additional paid-in capital................................. 86,274 140,700
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......... $ (0.13) $ 0.14 $ 1.52
========== ========== ==========
Diluted net income (loss) per share....... $ (0.13) $ 0.13 $ 1.45
========== ========== ==========
Basic weighted average shares of common
stock outstanding........................ 56,852,400 60,090,800 61,979,800
========== ========== ==========
Diluted weighted average shares of common
stock outstanding........................ 56,852,400 63,706,800 64,953,200
========== ========== ==========
</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................... -- $-- 53,670,000 $54 $ 57,212 $(14,509) $ 5
Shares of common stock
issued in connection
with private
placements............. -- -- 3,520,000 4 21,339 -- --
Shares of common stock
issued in connection
with exercises of
warrants and stock
options................ -- -- 2,236,800 2 4,133 -- --
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................... -- -- 59,426,800 60 82,909 (22,145) 37
Shares of common stock
issued in connection
with exercises of
warrants and stock
options................ -- -- 1,266,800 1 2,835 -- --
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................... -- -- 60,693,600 61 86,274 (13,751) (1)
Shares of common stock
issued in connection
with exercises of
warrants and stock
options................ -- -- 2,279,400 2 6,681 -- --
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................... -- $-- 62,973,000 $63 $140,700 $ 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 occurred. 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 Reorganization Plan
In December 1999, Andrx announced a corporate reorganization plan (the
"Reorganization") 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
Reorganization. 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 what
should be a tax-free reorganization. Cybear's public shareholders currently own
approximately 5.4 million shares as of December 31, 1999, 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 Reorganization, 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 Reorganization, 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 Reorganization, (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 Reorganization is intended to (i) separate the operating losses of
Cybear from the operating results of Andrx for financial reporting purposes;
(ii) improve liquidity for the publicly traded equity of Cybear; (iii) provide
Cybear with a more viable currency for potential future strategic acquisitions;
and (iv) preserve financial flexibility for Andrx management to maximize the
long-term growth of shareholder value. In addition, the Reorganization should
reestablish certain tax consolidation advantages for Andrx.
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 Reorganization 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..................... 56,852,400 60,090,800 61,979,800
=========== =========== ===========
Basic net income (loss) per share...... $ (0.13) $ 0.14 $ 1.52
=========== =========== ===========
Diluted Earnings (Loss) Per Share:
Net income (loss)...................... $ (7,636) $ 8,394 $ 94,054
=========== =========== ===========
Weighted average shares of common stock
outstanding........................... 56,852,400 60,090,800 61,979,800
Effect of dilutive items:
Stock options........................ -- 2,296,000 2,356,600
Warrants............................. -- 1,320,000 616,800
----------- ----------- -----------
Diluted weighted average shares of common
stock outstanding....................... 56,852,400 63,706,800 64,953,200
=========== =========== ===========
Net income (loss) per share............ $ (0.13) $ 0.13 $ 1.45
=========== =========== ===========
Anti-dilutive weighted options......... 3,785,800 100,400 78,400
=========== =========== ===========
</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 Splits
In June 1999 and April 2000, the Company effected two-for-one stock splits
in the form of a 100% stock dividend. All share and per share amounts in the
accompanying consolidated financial statements and notes to consolidated
financial statements reflect the June 1999 and April 2000 stock splits.
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). 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
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 80,000 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 2,920,000 shares of common stock and
Watson purchased an additional 600,000 shares of common stock. The purchase
price paid by each of Capital and Watson was $6.38 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 1,800,000 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 1,348,400 shares of
Andrx common stock at an exercise price of $2.23. 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 8,000,000.
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..... 3,657,400 $ .75 $ 3.63 $ 2.22 1,854,280 $1.67
Granted............... 1,039,600 5.00 9.47 6.30
Exercised............. (680,656) .75 3.50 1.84
Forfeited............. (172,996) 1.63 9.47 5.65
---------
December 31, 1997..... 3,843,348 .75 9.47 3.23 1,982,916 2.25
Granted............... 2,121,000 6.22 10.13 8.24
Exercised............. (545,172) .75 8.25 2.78
Forfeited............. (267,184) .75 10.13 5.50
---------
December 31, 1998..... 5,151,992 .75 10.13 5.23 2,256,208 2.96
Granted............... 1,544,800 8.38 30.07 20.05
Exercised............. (869,086) .75 9.72 4.11
Forfeited............. (181,100) 1.82 30.07 10.36
---------
December 31, 1999..... 5,646,606 $ .75 $30.07 $ 9.24 2,527,456 $4.13
========= ===== ====== ====== ========= =====
</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>
$ .75-
$ 5.00 1,891,456 4.31 $ 2.38 1,611,456 $ 2.20
$5.01-
$ 9.50 1,884,300 5.73 $ 7.44 815,000 $ 7.08
$9.51-
$30.07 1,870,850 7.26 $17.99 101,000 $11.20
------- --------- ---------
5,646,606 5.76 $ 9.24 2,527,456 $ 4.13
========= ---- ------ ========= ======
</TABLE>
The range of weighted average fair value per share as of the grant date was
$2.86 to $6.43, $5.89 to $16.28, and $5.36 to $20.41 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 $ (0.13) $ 0.14 $ 1.52
======== ======= ========
Pro forma $ (0.17) $ 0.10 $ 1.46
======== ======= ========
Diluted net income (loss) per
share.............................. As reported $ (0.13) $ 0.13 $ 1.45
======== ======= ========
Pro forma $ (0.17) $ 0.09 $ 1.39
======== ======= ========
</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 March 2000, the U.S. Federal Trade Commission ("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 is not seeking any
fines, penalties, disgorgement or any other monetary remedy in the
administrative 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 Andrx's filing of 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.................. (0.03) (0.04) (0.05) (0.01)
<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...................... (0.02) (0.03) 0.08 0.11
Diluted net income (loss)
per share.................. (0.02) (0.03) 0.08 0.09
<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.. 0.11 0.80 0.28 0.33
Diluted net income per
share...................... 0.11 0.75 0.27 0.32
</TABLE>
(19) Subsequent Events
Increase in Authorized Shares of Common Stock
In March 2000, the Company amended its Articles of Incorporation to increase
its authorized shares of Common Stock from 50,000,000 to 100,000,000. The
accompanying Consolidated Financial Statements reflect this increase in
authorized shares of Common Stock.
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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,350,000 Shares
[Logo for ANDEX]
----------------
Prospectus
, 2000
----------------
Joint Book-Running Managers
Banc of America Securities LLC Bear, Stearns & Co. Inc.
----------------
CIBC World Markets
Warburg Dillon Read LLC
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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................ $121,615
NASD filing fee.................................................... 30,500
Nasdaq listing fee................................................. 17,500
Printing and engraving expenses.................................... 125,000
Accounting fees and expenses....................................... 150,000
Legal fees and expenses............................................ 150,000
Transfer Agent's fees and expenses................................. 10,000
Miscellaneous...................................................... 30,385
--------
Total............................................................ 635,000
========
</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
4.1 Specimen common stock Certificate(1)
5.1 Opinion of Broad and Cassel
23.1 Consent of Broad and Cassel (included in its opinion filed as Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (included on the signature page of this
Registration Statement)
</TABLE>
- --------
(1) 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 April 26,
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>
/s/ Alan P. Cohen Co-Chairman, Chief April 26, 2000
______________________________________ Executive Officer and
Alan P. Cohen Director (Principal
Executive Officer)
/s/ Chih-Ming J. Chen Co-Chairman, Chief April 26, 2000
______________________________________ Scientific Officer and
Chih-Ming J. Chen, Ph.D. Director
/s/ Elliot F. Hahn President and Director April 26, 2000
______________________________________
Elliot F. Hahn, Ph.D.
/s/ Angelo C. Malahias Vice President and Chief April 26, 2000
______________________________________ Financial Officer
Angelo C. Malahias (Principal Financial and
Accounting Officer)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Elaine Bloom Director April 26, 2000
______________________________________
Rep. Elaine Bloom
/s/ Lawrence J. DuBow Director April 26, 2000
______________________________________
Lawrence J. DuBow
/s/ Irwin C. Gerson Director April 26, 2000
______________________________________
Irwin C. Gerson
/s/ Michael A. Schwartz Director April 26, 2000
______________________________________
Michael A. Schwartz, Ph.D.
/s/ Melvin Sharoky Director April 26, 2000
______________________________________
Melvin Sharoky, M.D.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Broad and Cassel
23.1 Consent of Broad and Cassel (included in its opinion filed as Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP
</TABLE>
<PAGE>
ANDRX CORPORATION
7,350,000 Shares
Common Stock
($0.001 Par Value)
UNDERWRITING AGREEMENT
, 2000
<PAGE>
UNDERWRITING AGREEMENT
, 2000
BANC OF AMERICA SECURITIES LLC
BEAR, STEARNS & CO. INC.
CIBC OPPENHEIMER CORP.
WARBURG DILLON READ LLC
as Managing Underwriters
9 West 57th Street
New York, New York 10019
Ladies and Gentlemen:
ANDRX CORPORATION, a Florida corporation (the "Company"), proposes to
-------
issue and sell and the persons named in Schedule B annexed hereto (the "Selling
---------- -------
Stockholders") propose to sell to the underwriters named in Schedule A annexed
- ------------ ----------
hereto (the "Underwriters"), for whom Banc of America Securities LLC ("BOA"),
------------ ---
Bear Stearns & Co. Inc. ("Bear Stearns"), CIBC Oppenheimer Corp. and Warburg
Dillon Read LLC are acting as managing underwriters (collectively, the "Managing
--------
Underwriters"), an aggregate of 7,350,000 shares (the "Firm Shares") of Common
- ------------ -----------
Stock, $0.001 par value (the "Common Stock"), of the Company, of which 6,001,684
------------
shares are to be issued and sold by the Company and an aggregate of 1,348,316
shares are to be sold by the Selling Stockholders in the respective amounts set
forth under the caption "Firm Shares" in Schedule B annexed hereto. In addition,
solely for the purpose of covering over-allotments, Company and the Selling
Stockholders propose to grant to the Underwriters the option to purchase from
the Company and the Selling Stockholders up to an additional 1,102,500 shares of
Common Stock (the "Additional Shares"), of which the Company will grant an
-----------------
option to purchase 52,500 shares and each Selling Stockholder will grant an
option to purchase an aggregate of 1,050,000 shares in the respective amounts
set forth under the caption "Additional Shares" in Schedule B. The Firm Shares
and the Additional Shares are hereinafter collectively sometimes referred to as
the "Shares." The Shares are described in the Prospectus which is referred
------
to below.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively called the "Act"), with the Securities and Exchange Commission
---
(the "Commission") a registration statement on Form S-3 (File No. 333- ),
----------
including a prospectus relating to the Shares which incorporates by reference
documents which the Company has filed in accordance with the provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (collectively called the "Exchange Act"). The Company has furnished
------------
to you, for use by the Underwriters and by dealers, copies of one or more
preliminary prospectuses and the documents incorporated by reference therein
(each thereof, including the
<PAGE>
documents incorporated therein by reference, being herein called a "Preliminary
-----------
Prospectus") relating to the Shares. Except where the context otherwise
- ----------
requires, the registration statement, as amended when it becomes effective,
including all documents filed as a part thereof or incorporated by reference
therein, and including any information contained in a prospectus subsequently
filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act and also including any registration statement filed pursuant
to Rule 462(b) under the Act, is herein called the "Registration Statement," and
----------------------
the prospectus, including all documents incorporated therein by reference, in
the form filed by the Company with the Commission pursuant to Rule 424(b) under
the Act on or before the second business day after the date hereof (or such
earlier time as may be required under the Act) or, if no such filing is
required, the form of final prospectus included in the Registration Statement at
the time it became effective, is herein called the "Prospectus."
----------
The Company, the Selling Stockholders and the Underwriters agree as
follows:
1. Sale and Purchase. Upon the basis of the warranties and
-----------------
representations and subject to the terms and conditions herein set forth, the
Company and each of the Selling Stockholders, severally and not jointly, agree
to sell to the respective Underwriters and each of the Underwriters, severally
and not jointly, agrees to purchase from the Company and each Selling
Stockholder the respective number of Firm Shares (subject to such adjustment as
you may determine to avoid fractional shares) which bears the same proportion to
the number of Firm Shares to be sold by the Company or by such Selling
Stockholders, as the case may be, as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule A bears to the total number of
Firm Shares to be sold by the Company and the Selling Stockholders, in each case
at a purchase price of $ per Share. The Company and each Selling Stockholder
is advised by you that the Underwriters intend (i) to make a public offering of
their respective portions of the Firm Shares as soon after the effective date of
the Registration Statement as in your judgment is advisable and (ii) initially
to offer the Firm Shares upon the terms set forth in the Prospectus. You may
from time to time increase or decrease the public offering price after the
initial public offering to such extent as you may determine.
In addition, the Company and the Selling Stockholders listed on
Schedule B hereto hereby grant to the several Underwriters the option to
purchase, and upon the basis of the warranties and representations and subject
to the terms and conditions herein set forth, the Underwriters shall have the
right to purchase, severally and not jointly, from the Company and the Selling
Stockholders listed on Schedule B hereto, ratably in accordance with the number
of Firm Shares to be purchased by each of them (subject to such adjustment as
you shall determine to avoid fractional shares), all or a portion of the
Additional Shares as may be necessary to cover over-allotments made in
connection with the offering of the Firm Shares, at the same purchase price per
share to be paid by the Underwriters to the Company and the Selling Stockholders
listed on Schedule B hereto for the Firm Shares. This option may be exercised by
you on behalf of the several Underwriters at any time (but not more than once)
on or before the thirtieth day following the date hereof, by written notice to
the Company and the Selling Stockholders listed on Schedule B hereto. Such
notice shall set forth the aggregate number of Additional Shares as to which the
option is being exercised, and the date and time when the Additional Shares are
to be delivered (such date and time being herein referred to as the "additional
----------
time of purchase"); provided,
- ---------------- --------
<PAGE>
however, that the additional time of purchase shall not be earlier than the time
- -------
of purchase (as defined below) nor earlier than the second business day/1/ after
the date on which the option shall have been exercised nor later than the tenth
business day after the date on which the option shall have been exercised. The
number of Additional Shares to be sold to each Underwriter shall be the number
which bears the same proportion to the aggregate number of Additional Shares
being purchased as the number of Firm Shares set forth opposite the name of such
Underwriter on Schedule A bears to the total number of Firm Shares (subject, in
each case, to such adjustment as you may determine to eliminate fractional
shares).
Pursuant to powers of attorney (collectively, "Powers of Attorney"),
------------------
which shall be satisfactory to counsel for the Underwriters, granted by each
Selling Stockholder, and will act as representatives of the
Selling Stockholders (the "Representatives of the Selling Stockholders"). The
-------------------------------------------
Representatives of the Selling Stockholders are authorized, on behalf of each
Selling Stockholder, to execute any documents necessary or desirable in
connection with the sale of the Shares to be sold hereunder by each Selling
Stockholder, to make delivery of the certificates of such Shares, to receive the
proceeds of the sale of such Shares, to give receipts for such proceeds, to pay
therefrom the expenses to be borne by each Selling Stockholder in connection
with the sale and public offering of the Shares, to distribute the balance of
such proceeds to each Selling Stockholder in proportion to the number of Shares
sold by each Selling Stockholder, to receive notices on behalf of each Selling
Stockholder and to take such other action as may be necessary or desirable in
connection with the transactions contemplated by this Agreement.
2. Payment and Delivery. Payment of the purchase price for the Firm
--------------------
Shares shall be made to the Company and each of the Selling Stockholders by
Federal Funds wire transfer, against delivery of the certificates for the Firm
Shares to you through the facilities of The Depository Trust Company ("DTC") for
---
the respective accounts of the Underwriters. Such payment and delivery shall be
made at 10:00 A.M., New York City time, on , 2000 (unless another time
shall be agreed to by you, the Company and the Representatives of the Selling
Stockholders or unless postponed in accordance with the provisions of Section 10
hereof). The time at which such payment and delivery are actually made is
hereinafter sometimes called the "time of purchase." Certificates for the Firm
----------------
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify no later than the second business day
preceding the time of purchase. For the purpose of expediting the checking of
the certificates for the Firm Shares by you, the Company and the Selling
Stockholders agree to make such certificates available to you for such purpose
at least one full business day preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be made
at the additional time of purchase in the same manner and at the same office as
the payment for the Firm Shares. Certificates for the Additional Shares shall be
delivered to you in definitive form in such names and in such denominations as
you shall specify no later than the second business day preceding the additional
time
- -------------------
1 As used herein "business day" shall mean a day on which the New York
Stock Exchange is open for trading.
<PAGE>
of purchase. For the purpose of expediting the checking of the certificates for
the Additional Shares by you, the Company and the Selling Stockholders agree to
make such certificates available to you for such purpose at least one full
business day preceding the additional time of purchase.
The Selling Stockholders will pay all applicable state transfer taxes,
if any, involved in the transfer to the several Underwriters of the Shares to be
purchased by them from the Selling Stockholders.
3. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each of the Underwriters that:
(a) the Company has not received, and has no notice of, any order of
the Commission preventing or suspending the use of any Preliminary Prospectus,
or instituting proceedings for that purpose, and each Preliminary Prospectus, at
the time of filing thereof, conformed in all material respects to the
requirements of the Act; the Registration Statement has been declared effective
by the Commission; no stop order suspending the effectiveness of the
Registration Statement is in effect and no proceedings for such purpose have
been instituted or are pending or, to the best knowledge of the Company, are
contemplated or threatened by the Commission; the Registration Statement and the
Prospectus will fully comply in all material respects with the provisions of the
Act, and the Registration Statement will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Preliminary
Prospectus and the Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; the documents incorporated by reference in the
Preliminary Prospectus and the Prospectus, at the time they were filed (or, if
an amendment with respect to any such document was filed, when such amendment
was filed) with the Commission, complied in all material respects with the
requirements of the Exchange Act, and do not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and the Company has not distributed any
offering material in connection with the offering or sale of the Shares other
than the Registration Statement, the Preliminary Prospectus, the Prospectus or
any other materials, if any, permitted by the Act; provided, however, that the
-------- -------
Company makes no warranty or representation with respect to any statement
contained in the Registration Statement, the Preliminary Prospectus or the
Prospectus in reliance upon and in conformity with information concerning the
Underwriters and furnished in writing by or on behalf of any Underwriter through
you to the Company expressly for use in the Registration Statement, the
Preliminary Prospectus or the Prospectus;
(b) the Company has delivered to the Managing Underwriters four
complete manually signed copies of the Registration Statement and of each
consent and certificate of experts filed as a part thereof, and conformed copies
of the Registration Statement (without exhibits) and Preliminary Prospectuses
and the Prospectus, as amended or supplemented, in such quantities and at such
places as the Managing Underwriters have reasonably requested for each of the
Underwriters;
(c) as of the date of this Agreement, the Company has an authorized
capitalization as set forth under the heading entitled "Actual" in the section
of the Registration Statement and the Pro-
<PAGE>
spectus entitled "Capitalization" and, as of the time of purchase and the
additional time of purchase, as the case may be, the Company shall have an
authorized capitalization as set forth under the heading entitled "As Adjusted"
in the section of the Registration Statement and the Prospectus entitled
"Capitalization"; all of the issued and outstanding shares of capital stock
(including the Common Stock owned by Selling Stockholders) have been duly and
validly authorized and issued and are fully paid and non-assessable, have been
issued in compliance with all federal and state securities laws and were not
issued in violation of any preemptive rights, resale rights, right of first
refusal or similar rights; there are no authorized or outstanding options,
warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or any of its subsidiaries
other than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other plans or arrangements, and the
options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly represents the information required to be shown with
respect to such plans, arrangements, options and rights;
(d) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Florida, with full
power and authority to own, lease and operate its properties and conduct its
business as described in the Registration Statement and Prospectus;
(e) the Company is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction where the ownership or leasing
of its properties or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the business, properties, condition (financial or otherwise), results of
operation or prospects of the Company, its Subsidiaries (as hereinafter defined)
and ANCIRC (as hereinafter defined) taken as a whole (a "Material Adverse
----------------
Effect"). The Company has no subsidiaries (as defined in the Exchange Act) other
- ------
than those entities listed on Schedule C hereto (collectively, the
"Subsidiaries"); other than the Subsidiaries and ownership of 50% of the
------------
outstanding capital stock of ANCIRC Pharmaceuticals, an unincorporated joint
venture ("ANCIRC"), the Company does not own, directly or indirectly, any shares
------
of stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association or
other entity; complete and correct copies of the certificates of incorporation
and of the bylaws of the Company and the Subsidiaries and of the definitive
documentation organizing ANCIRC (the "JV Documentation") and all amendments
----------------
thereto have been delivered to you, and no changes therein will be made
subsequent to the date hereof and prior to the time of purchase or, if later,
the additional time of purchase; each Subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and Prospectus; each Subsidiary is duly qualified
to do business as a foreign corporation in good standing in each jurisdiction
where the ownership or leasing of its properties or the conduct of its business
requires such qualification (and ANCIRC requires no such qualification), except
where the failure to so qualify would not have a Material Adverse Effect; all of
the outstanding shares of capital stock of each of the Subsidiaries and ANCIRC
have been duly authorized and validly issued, are fully paid and non-assessable
and (except, with regard to ANCIRC, as otherwise stated in the Registration
Statement) are owned by the Company,
<PAGE>
except as set forth on Schedule C, subject to no security interest, other
encumbrance or adverse claim; no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligation into shares of capital stock or ownership interests the Company, its
Subsidiaries or ANCIRC are outstanding except as otherwise stated in the
Registration Statement;
(f) neither the Company, any of its Subsidiaries nor ANCIRC is in
breach of, or in default under (nor has any event occurred which with notice,
lapse of time, or both would result in any breach of, or constitute a default
under), its respective charter or bylaws (or, in the case of ANCIRC, the JV
Documentation) or in the performance or observance of any obligation, agreement,
covenant or condition contained in any license, indenture, mortgage, deed of
trust, bank loan or credit agreement or other evidence of indebtedness, or any
lease, contract or other agreement or instrument to which the Company, any of
its Subsidiaries or ANCIRC is a party or by which any of them or any of their
properties may be bound or affected, and the execution, delivery and performance
of this Agreement, the issuance and sale of the Shares and the consummation of
the transactions contemplated hereby will not conflict with, or result in any
breach of or constitute a default under (nor constitute any event which with
notice, lapse of time or both would result in any breach of or constitute a
default under), any provisions of the charter or bylaws of the Company or any of
its Subsidiaries, under any provisions of the JV Documentation or under any
provision of any license, indenture, mortgage, deed of trust, bank loan, credit
agreement or other evidence of indebtedness, or any lease, contract or other
agreement or instrument to which the Company, any of its Subsidiaries or ANCIRC
is a party or by which any of them or their respective properties may be bound
or affected, or under any federal, state, local or foreign law, regulation or
rule or any decree, judgment or order applicable to the Company, any of its
Subsidiaries or ANCIRC;
(g) this Agreement and each Custody Agreement (as defined below) have
each been duly authorized, executed (or in the case of the Custody Agreements
acknowledged) and delivered by the Company and are legal, valid and binding
agreements of the Company enforceable in accordance with their respective terms;
(h) the capital stock of the Company, including the Shares, conforms
in all material respects to the description thereof contained in the
Registration Statement and Prospectus and the certificates for the Shares are in
due and proper form and the holders of the Shares will not be subject to
personal liability by reason of being such holders;
(i) the Common Stock (including the Shares) is registered pursuant to
Section 12(g) of the Exchange act and is listed on the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ"), and
the Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the exchange Act or
delisting the common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. (the "NASD") is contemplating terminating such
registration or listing;
<PAGE>
(j) the Shares to be purchased by the Underwriters from the Company
have been duly and validly authorized and, when issued and delivered against
payment therefor as provided herein, will be duly and validly issued and fully
paid and non-assessable;
(k) no approval, authorization, consent or order of or filing with any
national, state or local governmental or regulatory commission, board, body,
authority or agency is required in connection with the issuance or sale of the
Shares or the consummation by the Company of the transactions as contemplated
hereby other than registration of the Shares under the Act and any necessary
qualification under the securities or blue sky laws or Canadian provincial
securities laws of the various jurisdictions in which the Shares are being
offered by the Underwriters or under the rules and regulations of the NASD;
(l) except as otherwise stated in the Registration Statement, no
person has the right, contractual or otherwise, to cause the Company to issue to
it, or register pursuant to the Act, any equity or debt securities of the
Company upon the issue and sale of the Shares to the Underwriters hereunder
(other than the Selling Stockholders with respect to the Shares), nor does any
person have preemptive rights, co-sale rights, rights of first refusal or other
rights to purchase any of the Shares other than those that have been expressly
waived prior to the date hereof;
(m) Arthur Andersen LLP, whose report on the consolidated financial
statements of the Company and its Subsidiaries is filed with the Commission as
part of the Registration Statement and Prospectus, are independent public
accountants as required by the Act;
(n) there are no legal or governmental proceedings, statutes,
regulations, contracts, licenses, agreements, leases or documents of a character
which are required to be filed as exhibits to the Registration Statement or to
be summarized or described in the Prospectus which have not been so filed,
summarized or described;
(o) the audited financial statements included in the Registration
Statement and the Prospectus present fairly the consolidated financial position
of the Company and its Subsidiaries (including the Company's equity interest in
ANCIRC) as of the dates indicated and the consolidated results of operations and
cash flows of the Company and its Subsidiaries (including the Company's equity
interest in ANCIRC) for the periods specified; such financial statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis during the periods involved; no other financial
statements are required to be included in the Registration Statement; the
financial data set forth in the Prospectus under the captions "Prospectus
Summary -- Summary Consolidated Financial Data" and "Selected Consolidated
Financial Data" fairly present the information set forth therein on a basis
consistent with that of the audited financial statements contained in the
Registration Statement;
(p) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been (i)
any material adverse change or any development which is likely to cause a
material adverse change in the business, properties or assets described or
referred to in the Registration Statement and the Prospectus, or a Material
Adverse Effect, (ii) any
<PAGE>
transaction which is material to the Company, its Subsidiaries or ANCIRC taken
as a whole, except transactions in the ordinary course of business, (iii) any
obligation, direct or contingent, which is material to the Company, its
Subsidiaries or ANCIRC, incurred by the Company, its Subsidiaries or ANCIRC,
except obligations incurred in the ordinary course of business, (iv) any change
in the capital stock or outstanding indebtedness of the Company, its
Subsidiaries or ANCIRC or (v) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company. Neither the Company nor any of
its Subsidiaries has any material contingent obligation which is not disclosed
in the Registration Statement and the Prospectus;
(q) the Company has obtained the agreement of Alan P. Cohen, Chih-Ming
J. Chen, PH.D., Elliot F. Hahn, PH.D. and Scott Lodin (collectively the
"Management Selling Stockholders") and of its directors and officers through
-------------------------------
letters (collectively, the "Lock-Up Letters") not to sell, offer to sell,
---------------
contract to sell, hypothecate, grant any option to purchase or otherwise dispose
of, directly or indirectly, any shares of Common Stock or securities convertible
into or exchangeable for Common Stock or warrants or other rights to purchase
Common Stock for a period of 90 days after the date of the Prospectus;
(r) the Company, its Subsidiaries and ANCIRC own or possess the right
to use all patents, trademarks (including the Company's name, together with its
logo), trademark registrations, service marks, service mark registrations, trade
names, copyrights, licenses, inventions, trade secrets, know-how and rights
described in the Prospectus as being owned by them or any of them or necessary
for the conduct of their respective businesses, and the Company is not aware of
any claim to the contrary or any challenge by any other person to the rights of
the Company, its Subsidiaries and ANCIRC with respect to the foregoing. Except
as described in the Prospectus, no claim has been made against or notice given
to the Company, its Subsidiaries or ANCIRC alleging the infringement or other
violation by the Company, its Subsidiaries or ANCIRC of any patent, trademark,
service mark, trade name, copyright, trade secret, license or other intellectual
property right or franchise right of any person;
(s) the Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
----------------------
(t) except for matters which, individually or in the aggregate, could
not have a Material Adverse Effect, (i) each of the Company, its Subsidiaries
and ANCIRC has obtained all permits, licenses and other authorizations, consents
and approvals which are required under the Environmental Laws (as defined
below), (ii) each of the Company, its Subsidiaries and ANCIRC is in full
compliance with all terms and conditions of all permits, licenses and
authorizations required under the Environmental Laws, (iii) each of the Company,
its Subsidiaries and ANCIRC is in full compliance with all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws or contained in any
regulation, code, plan, consent or other order, decree, judgment, notice of
violation or other notice, or demand letter issued, entered, promulgated or
approved thereunder (collectively, the "Environmental Requirements"), (iv) no
--------------------------
officer of the Company is aware of nor has he or she received (A) notice
(written or oral) from a governmental
<PAGE>
authority, citizens group, employee or otherwise that alleges that the Company,
any of its Subsidiaries or ANCIRC is not in full compliance with one or more
Environmental Requirements, or (B) notice (written or oral) respecting the
Company, any of its Subsidiaries or ANCIRC of any past, present or future
events, conditions, circumstances, activities, practices, incidents, actions or
plans that may interfere with or prevent continued compliance with all
Environmental Requirements, or that may give rise to any common law or other
legal liability or otherwise form the basis of any claim, action, suit,
proceeding, hearing or investigation (each, an "Action"), based on or related to
------
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened
release, of any chemical, pollutant, contaminant, or hazardous or toxic material
or waste or petroleum or petroleum products into ambient air, surface water,
ground water or land, and (v) there is no Action relating to any Environmental
Requirement pending or, to the best knowledge of the Company, threatened against
or affecting (A) the Company, any of its Subsidiaries, ANCIRC or their
respective properties, or (B) any person or entity whose liability for such
Action has or may have been retained or assumed either contractually or by
operation of law by the Company, any of its Subsidiaries or ANCIRC.
"Environmental Laws" shall mean Federal, state and local laws relating to
------------------
pollution or protection of human health or the environment, including, without
limitation, laws (including the common law) relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants or
hazardous or toxic materials or wastes or petroleum or petroleum products into
ambient air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemicals, pollutants, contaminants or hazardous or
toxic materials or wastes or petroleum or petroleum products;
(u) except as described in the Registration Statement or the
Prospectus, there is no action, suit, investigation or proceeding pending or to
the knowledge of the Company, threatened or contemplated before or by any
Federal or state court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, including, without limitation, the
Commission, the Food and Drug Administration (the "FDA"), the Drug Enforcement
---
Administration (the "DEA") or the Department of Justice (the "DOJ"), or
--- ---
arbitrator to which the Company, any of its Subsidiaries or ANCIRC is or may
become a party or of which any property of the Company, any of its Subsidiaries
or ANCIRC is subject or affected, at law or equity, that (A) might affect the
consummation of the transactions contemplated under this Agreement, including
the issuance or validity of the Shares, (B) might have a Material Adverse
Effect, (C) is required to be disclosed in the Registration Statement or the
Prospectus and is not so disclosed or (D) relates to a material violation of the
Federal Food, Drug and Cosmetic Act (the "FDC Act") (and each state's equivalent
-------
of said act), the Federal Controlled Substances Act (and each state's equivalent
of such act) (collectively, the "CSA"), or any regulations promulgated
---
thereunder which violations might have a Material Adverse Effect. All pending
legal or governmental proceedings to which the Company, any of its Subsidiaries
or ANCIRC is a party or of which any of their respective properties are subject
or affected which are not described in the Prospectus, including ordinary
routine litigation incidental to the business, would not have a Material Adverse
Effect;
(v) none of the Company, any of its Subsidiaries or ANCIRC has
received any notice, or warning letter from the FDA, the DEA or the DOJ, that
any product ever manufactured or marketed by the Company, any of its
Subsidiaries or ANCIRC is, or is alleged to be, an unapproved, adulterated or
misbranded drug or controlled substance including, without limitation, (1) an
order or
<PAGE>
-10-
request from the FDA, the DEA or the DOJ or other authorized governmental or
regulatory body that the Company, any of its Subsidiaries or ANCIRC recall or
withdraw from the market or cease to market any product sold or manufactured by
the Company, other than product recalls of products marketed by Anda Generics,
Inc., which have had no Material Adverse Effect or (2) a lawsuit filed by the
United States with respect to any product sold or manufactured by the Company or
against the Company, any of its Subsidiaries or ANCIRC or any of their
respective officers, directors or employees alleging that any of the Company's,
any of its Subsidiaries' or ANCIRC's products is an unapproved, adulterated or
misbranded drug or controlled substance, or (3) an order from the FDA debarring
the Company, any of its Subsidiaries or ANCIRC or any of their respective
officers, directors or employees from submitting or participating in the
submission of abbreviated new drug applications (the "ANDAs");
-----
(w) except as disclosed in the Registration Statement and Prospectus,
none of the Company, any of its Subsidiaries or ANCIRC has been served with any
complaint or received any other notice of lawsuits, arbitrations, legal or
administrative or regulatory proceedings, charges, complaints or investigations
by any state regulatory agency against or pending against or relating to any
Permits (as hereinafter defined). There have not been any drug application
withdrawals, product recalls or similar actions by the Company, any of its
Subsidiaries or ANCIRC. All pre-clinical and clinical studies conducted by or on
behalf of the Company, each of its Subsidiaries and ANCIRC as well as all
manufacturing, labeling, and distribution of materials related to all drug
development activities, have been conducted in compliance in all material
respects with applicable FDA and DEA rules and regulations, including but not
limited to the FDA's good laboratory practice and good manufacturing practice
requirements. Neither the Company, any of the Subsidiaries nor ANCIRC, nor any
of their respective officers, directors or employees have been debarred by the
FDA from submitting or participating in the submission of ANDAs. The FDA has not
refused to file any ANDA submitted by the Company, any of its Subsidiaries or
ANCIRC;
(x) the Company is not aware that any of the products sold or being
developed by the Company, any of its Subsidiaries or ANCIRC are unsafe or
inefficacious;
(y) the Company, each of its Subsidiaries and ANCIRC have such
licenses, consents, permits and other approvals and has made all necessary
filings required under any federal, state or local and foreign law, regulation
or rule, and has obtained all authorizations of and from governmental or
regulatory authorities ("Permits") as are necessary under applicable law to own
their respective properties and to conduct their respective businesses in the
manner now being conducted and as described in the Registration Statement and
the Prospectus, including, but not limited to state drug wholesale distributor
registrations, licenses or permits and letters of reference to drug master files
established by other companies, except such Permits which individually or in the
aggregate could not have a Material Adverse Effect; and the Company, each of the
Subsidiaries and ANCIRC have fulfilled and performed all of their respective
obligations with respect to such Permits, and no event has occurred which
allows, or after notice or lapse of time or both would allow, revocation or
termination thereof or result in any other material impairment of the rights of
the holder of any such Permits except such Permits which individually or in the
aggregate could not have a Material Adverse Effect. Neither the Company, any of
the Subsidiaries nor ANCIRC has ever been denied a Permit of the type referred
to in this Section 3(y);
<PAGE>
-11-
(z) all necessary new drug applications (the "NDAs"), ANDAs,
----
investigational new drug applications (the "INDs"), premarket approval
----
applications and amendments and or supplements thereto, as required by the FDC
Act, the regulations of the FDA adopted thereunder, and any policies issued by
the FDA in connection with such INDs, NDAs or ANDAs, premarket approval
applications and amendments and/or supplements thereto, have been filed with FDA
for the Company's proposed generic versions of Prilosec, Naprelan, Tiazac,
Wellbutrin SR, Zyban, K-Dur, Claritin D-24 and Depakote;
(aa) each of the Company, its Subsidiaries and ANCIRC has timely filed
all Federal, state, local and foreign tax returns which are required to be filed
through the date hereof, or has received extensions thereof, and has paid all
taxes shown on such returns and all assessments received by it to the extent
that the same are material and have become due. The Company has no knowledge,
nor any reasonable grounds to know, of any tax deficiencies which would have a
Material Adverse Effect; each of the Company, its Subsidiaries and ANCIRC has
paid all taxes which have become due, whether pursuant to any assessment, or
otherwise, and there is no further liability (whether or not disclosed on such
returns) or assessment for any such tax, and no interest or penalties accrued or
accruing with respect thereto, except as may be set forth or adequately reserved
for in the consolidated financial statements included in the Registration
Statement and the Prospectus; the amounts currently set up as provisions for
taxes or otherwise by the Company, its Subsidiaries and ANCIRC on their books
and records are sufficient for the payment of all their unpaid federal, foreign,
state, country and local taxes accrued through the dates as of which they speak,
and for which the Company, its Subsidiaries and ANCIRC may be liable in their
own right, or as a transferee of the assets of, or as successor to any other
corporation, association, partnership, joint venture or other entity;
(bb) the Company, each of its Subsidiaries and ANCIRC are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are customary in the businesses in which they are
engaged, including, but not limited to, policies covering real and personal
property owned or leased by the Company, its Subsidiaries and ANCIRC against
theft, damage, destruction, acts of vandalism and earthquakes; and neither the
Company, any of the Subsidiaries nor ANCIRC has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect;
(cc) except as otherwise stated in the Registration Statement, the
Company does not expect that the Company, any of its Subsidiaries or ANCIRC will
have following the time of purchase and the additional time of purchase, as the
case may be, any liability for any prohibited transaction or funding deficiency
or any complete or partial withdrawal liability with respect to any pension,
profit sharing or other plan which is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), to which the Company, any of its
Subsidiaries or ANCIRC makes or ever has made a contribution and in which any
employee of the Company, any of its Subsidiaries or ANCIRC is or has ever been a
participant. With respect to such plans, the Company, each of its Subsidiaries
and ANCIRC are in compliance in all material respects with all applicable
provisions of ERISA;
<PAGE>
-12-
(dd) The Company has not distributed and will not distribute, prior to
the later of the additional time of purchase and the completion of the
Underwriters' distribution of the Shares, any offering material in connection
with the offering and sale of the Shares other than the Prospectus or the
Registration Statement;
(ee) each of the Company, its Subsidiaries and ANCIRC has good and
marketable title to all real property and good title to all personal property
described in the Registration Statement as being owned by it and good and
marketable title to a leasehold estate in the real and personal property
described in the Registration Statement as being leased by it free and clear of
all liens, charges, encumbrances or restrictions, except as described in the
Registration Statement or to the extent the failure to have such title or the
existence of such liens, charges, encumbrances or restrictions would not,
individually or in the aggregate, have a Material Adverse Effect. All leases,
contracts and agreements to which the Company, any of its Subsidiaries or ANCIRC
is a party or by which any of them is bound are valid and enforceable against
the Company, such Subsidiary or ANCIRC, and are valid and enforceable against
the other party or parties thereto and are in full force and effect with only
such exceptions as would not, individually or in the aggregate, have a Material
Adverse Effect;
(ff) neither the Company nor any of the Subsidiaries is involved in
any labor dispute nor, to the best knowledge of the Company, is any such dispute
threatened, which dispute could have a Material Adverse Effect. Except as set
forth in the Registration Statement and Prospectus, neither the Company nor any
of the Subsidiaries has violated any applicable safety or similar law applicable
to its business nor any Federal or state laws relating discrimination in the
hiring, promotion or pay of employees, nor any applicable Federal or state wages
and hours law, nor any provisions of the Employee Retirement Income Security Act
or the rules and regulations promulgated thereunder, the violation of any of
which could have a Material Adverse Effect;
(gg) no transaction has occurred between or among the Company, any of
the Subsidiaries and any of their officers or directors or any affiliate or
affiliates of any such officer or director that is required to be described in
and is not in the Registration Statement and the Prospectus;
(hh) the books, records and accounts of the Company, its Subsidiaries
and ANCIRC, respectively, accurately and fairly reflect, in reasonable detail,
the transactions in and dispositions of, the assets of, and the results of
operations of, the Company, its Subsidiaries or ANCIRC, as the case may be. The
Company, each of the Subsidiaries and ANCIRC maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (A)
transactions are executed in accordance with management's general or specific
authorizations; (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (C) access to assets is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences;
<PAGE>
-13-
(ii) the Company has not taken, nor will take, directly or indirectly,
any action designed to, or that might be reasonably expected to, cause or result
in stabilization or manipulation of the price of its Common Stock to facilitate
the sale or resale of the Shares; and
(jj) the statistical and market-related data included in the
Prospectus are based on or derived from sources that the Company believes to be
reliable and accurate or represent the Company's good faith estimates that are
made on the basis of data derived from such sources.
4. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder, severally and not jointly, represents and warrants to each
Underwriter that:
(a) such Selling Stockholder now is and at the time of delivery of
such Shares (whether the time of purchase or the additional time of purchase, as
the case may be) will be the lawful owner of the number of Shares to be sold by
such Selling Stockholder pursuant to this Agreement and has and, at the time of
delivery thereof, will have valid and marketable title to such Shares, and upon
delivery of and payment for such Shares (whether at the time of purchase or the
additional time of purchase, as the case may be), the Underwriters will acquire
valid and marketable title to such Shares free and clear of any claim, lien,
encumbrance, security interest, community property right, restriction on
transfer or other defect in title;
(b) such Selling Stockholder has and at the time of delivery of such
Shares (whether the time of purchase or the additional time of purchase, as the
case may be) will have full legal right, power and capacity, and any
authorization or approval required by law (other than those imposed by the Act
and the securities or blue sky laws of certain jurisdictions), to sell, assign,
transfer and deliver such Shares in the manner provided in this Agreement;
(c) this Agreement, such Selling Stockholder's Custody Agreement, by
and between Andrx Corporation, as custodian, and such Selling Stockholder (a
"Custody Agreement" and, together with similar custody agreements in connection
-----------------
with the transactions contemplated hereby, the "Custody Agreements"), such
------------------
Selling Stockholder's Power of Attorney and such Selling Stockholder's Lock-Up
Letter have been duly authorized, executed and delivered by or on behalf of such
Selling Stockholder and each is a legal, valid and binding agreement of such
Selling Stockholder enforceable in accordance with its terms;
(d) the execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not contravene
or conflict with, result in a breach of, or constitute a default under, or
require the consent of any other party to, the charter or by- laws, or other
organizational documents of such Selling Stockholder or any other agreement or
instrument to which such Selling Stockholder is a party or by which it is bound
or under which it is entitled to any right or benefit, any provision of
applicable law or any judgment, order, decree or regulation applicable to such
Selling Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the con-
<PAGE>
-14-
summation by such Selling Stockholder of the transactions contemplated in this
Agreement, except such as have been obtained or made and are in full force and
effect under the Securities Act, applicable state securities or blue sky laws
and from the NASD;
(e) when the Registration Statement becomes effective and at all times
subsequent thereto through the latest of the time of purchase, the additional
time of purchase or the termination of the offering of the Shares, the
Registration Statement and Prospectus and any supplements or amendments thereto
as such relate to such Selling Stockholder will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(f) such Selling Stockholder has duly and irrevocably authorized the
Representatives of the Selling Stockholders, on behalf of such Selling
Stockholder, to execute and deliver this Agreement and any other document
necessary or desirable in connection with the transactions contemplated hereby
and to deliver the Shares to be sold by such Selling Stockholder and receive
payment therefor pursuant hereto;
(g) such Selling Stockholder has not taken and will not take, directly
or indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares;
(h) the sale of such Selling Stockholder's Shares pursuant to this
Agreement is not prompted by any information concerning the Company which is not
set forth in the Prospectus;
(i) such Selling Stockholder does not have any registration or other
similar rights to have any equity or debt securities registered for sale by the
Company under the Registration Statement or included in the offering
contemplated by this Agreement, except for such rights as are described in the
Prospectus under "Shares Eligible for Future Sale"; no consent, approval or
waiver of such Selling Stockholder is required under any instrument or agreement
in connection with the offering, sale or purchase by the Underwriters of any of
the Shares, except for consents and waivers already given by such Selling
Stockholder;
(j) all information furnished by or on behalf of such Selling
Stockholder in writing expressly for use in the Registration Statement and
Prospectus is, and at the time of purchase and the additional time of purchase
will be, true, correct, and complete in all material respects, and does not, and
at the time of purchase and the additional time of purchase will not, contain
any untrue statement of a material fact or omit to state any material fact
necessary to make such information not misleading. Such Selling Stockholder
confirms as accurate the number of shares of Common Stock set forth opposite
such Selling Stockholder's name in the Prospectus under the caption "Principal
and Selling Stockholders" (both prior to and after giving effect to the sale of
the Shares); and
(k) such Selling Stockholder has not taken and will not take, directly
or indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
<PAGE>
-15-
5. Certain Covenants of the Company. The Company hereby agrees:
--------------------------------
(a) to furnish such information as may be required and otherwise to
cooperate in qualifying the Shares for offering and sale under the securities or
blue sky laws of such states and Canadian provinces as you may designate and to
maintain such qualifications in effect as long as required for the distribution
of the Shares; provided that the Company shall not be required to qualify as a
foreign corporation or to consent to the service of process under the laws of
any such state or province (except service of process with respect to the
offering and sale of the Shares); and to promptly advise you of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(b) to make available to the Underwriters in New York City, as soon as
practicable after the Registration Statement becomes effective, and thereafter
from time to time to furnish to the Underwriters, as many copies of the
Prospectus (or of the Prospectus as amended or supplemented if the Company shall
have made any amendments or supplements thereto after the effective date of the
Registration Statement) as the Underwriters may request for the purposes
contemplated by the Act; in case any Underwriter is required to deliver a
prospectus within the nine-month period referred to in Section 10(a)(3) of the
Act in connection with the sale of the Shares, the Company will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act;
(c) to advise you promptly and (if requested by you) to confirm such
advice in writing (i) when the Registration Statement has become effective and
when any post-effective amendment thereto becomes effective and (ii) if Rule
430A under the Act is used, when the Prospectus is filed with the Commission
pursuant to Rule 424(b) under the Act (which the Company agrees to file in a
timely manner under such rules);
(d) to advise you promptly, confirming such advice in writing, of any
request by the Commission for amendments or supplements to the Registration
Statement or Prospectus or for additional information with respect thereto, or
of notice of institution of proceedings for or the entry of a stop order
suspending the effectiveness of the Registration Statement and, if the
Commission should enter a stop order suspending the effectiveness of the
Registration Statement, to make every reasonable effort to obtain the lifting or
removal of such order as soon as possible; to advise you promptly of any
proposal to amend or supplement the Registration Statement or Prospectus
including by filing any documents that would be incorporated therein by
reference, to give you a reasonable opportunity to review any such amendment or
supplement and to file no such amendment or supplement to which you shall object
in writing;
(e) to file promptly all reports and any definitive proxy or
information statement required to be filed by the Company with the Commission in
order to comply with the Exchange Act subsequent to the date of the Prospectus
and for so long as the delivery of a prospectus is required in connection with
the offering or sale of the Shares, and to promptly notify you of such filing;
<PAGE>
-16-
(f) if necessary or appropriate, to file a registration statement
pursuant to Rule 462(b) under the Act;
(g) to furnish to you and, upon request, to each of the other
Underwriters for a period of five years from the date of this Agreement (i)
copies of any reports or other communications which the Company shall send to
its stockholders or shall from time to time publish or publicly disseminate,
(ii) copies of all annual, quarterly and current reports filed with the
Commission on Forms 10-K, 10-Q and 8-K, or such other similar form as may be
designated by the Commission, (iii) copies of documents or reports filed with
any national securities exchange on which any class of securities of the Company
is listed and (iv) such other information as you may reasonably request
regarding the Company, its Subsidiaries and ANCIRC, in each case as soon as such
communications, documents or information becomes available;
(h) to advise the Underwriters promptly of the happening of any event
known to the Company within the time during which a Prospectus relating to the
Shares is required to be delivered under the Act which would require the making
of any change in the Prospectus then being used, or in the information
incorporated therein by reference, so that the Prospectus would not include an
untrue statement of material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they are
made, not misleading, and, during such time, to prepare and furnish, at the
Company's expense, to the Underwriters promptly such amendments or supplements
to such Prospectus as may be necessary to reflect any such change and to furnish
you a copy of such proposed amendment or supplement before filing any such
amendment or supplement with the Commission;
(i) to make generally available to its security holders, and to
deliver to you, an earnings statement of the Company (which will satisfy the
provisions of Section 11(a) of the Act) covering a period of twelve months
beginning after the effective date of the Registration Statement (as defined in
Rule 158(c) of the Act) as soon as is reasonably practicable after the
termination of such twelve-month period but not later than , 2001;
(j) to furnish to its shareholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, shareholders' equity and cash flow of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
nationally recognized independent certified public accountants;
(k) to furnish to you five signed copies of the Registration
Statement, as initially filed with the Commission, and of all amendments thereto
(including all exhibits thereto and documents incorporated by reference therein)
and sufficient conformed copies of the foregoing (other than exhibits) for
distribution of a copy to each of the other Underwriters;
(l) to furnish to you as early as practicable prior to the time of
purchase and the additional time of purchase, as the case may be, but not later
than two business days prior thereto, a copy of the latest available unaudited
interim consolidated financial statements, if any, of the Company and its
Subsidiaries which have been read by the Company's independent certified public
accountants, as stated in their letter to be furnished pursuant to Section 8(c)
hereof;
<PAGE>
-17-
(m) to apply the net proceeds from the sale of the Shares in the
manner set forth under the caption "Use of Proceeds" in the Prospectus;
(n) to furnish to you, before filing with the Commission subsequent to
the effective date of the Registration Statement and during the period referred
to in paragraph (e) above, a copy of any document proposed to be filed pursuant
to Section 13, 14 or 15(d) of the Exchange Act;
(o) to maintain, at its expense, a registrar and transfer agent for
the Common Stock; and
(p) to use its best efforts to cause the Shares to be listed for
quotation on the NASDAQ.
6. Certain Covenants of the Company and the Selling Stockholders. The
-------------------------------------------------------------
Company and each of the Selling Stockholders agree with each Underwriter as
follows:
(a) the Company, in such proportions (aggregating 100%) as the number
of Shares to be sold by the Company bears to the total number of Shares or as
they otherwise may determine among themselves, will pay all expenses, fees and
taxes (other than any transfer taxes and fees and disbursements of counsel for
the Underwriters except as set forth under Section 7 hereof and (iii), (iv) or
(vi) below) in connection with (i) the preparation and filing of the
Registration Statement, each Preliminary Prospectus, the Prospectus, and any
amendments or supplements thereto, and the printing and furnishing of copies of
each thereof to the Underwriters and to dealers (including costs of mailing and
shipment), (ii) the registration, issuance, sale and delivery of the Shares by
the Company and the Selling Stockholders, (iii) the producing, word processing
and/or printing of this Agreement, any Agreement Among Underwriters, any dealer
agreements, any statements of information, each Custody Agreement, each Power of
Attorney, each Lock-Up Letter and any closing documents (including compilations
thereof) and the reproduction and/or printing and furnishing of copies of each
thereof to the Underwriters and (except closing documents) to dealers (including
costs of mailing and shipment), (iv) the qualification of the Shares for
offering and sale under state laws and the determination of their eligibility
for investment under state law as aforesaid (including the legal fees and filing
fees and other disbursements of counsel for the Underwriters) and the printing
and furnishing of copies of any blue sky surveys or legal investment surveys to
the Underwriters and to dealers, (v) any listing of the Shares on any securities
exchange or qualification of the Shares for quotation on NASDAQ and any
registration thereof under the Exchange Act, (vi) any filing for review of the
public offering of the Shares by the NASD and (vii) the performance of the
Company's and the Selling Stockholders' other obligations hereunder;
(b) for a period of 90 days after the date hereof, without the prior
written consent of BOA and Bear Stearns, the Company and the Selling
Stockholders will not issue, sell, offer or agree to sell, contract to sell,
grant any option to purchase or otherwise dispose of, directly or indirectly,
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock or warrants or other rights to purchase Common
Stock or any other securities of the Company that are substantially similar to
the Common Stock or, in the case of the Company, permit the registration under
the Act of any shares of Common Stock, except for the registration of the
Shares, the sales to
<PAGE>
-18-
the Underwriters pursuant to this Agreement, registrations on Form S-8 or any
successor form, and for issuances of Common Stock upon the exercise of
outstanding options, warrants and debentures upon issuances pursuant to the
Company's existing stock option plan; in the event that during this period, (i)
any shares are issued pursuant to the Company's existing stock option plan or
(ii) any registration is effected on Form S-8 or on any successor form, the
Company shall obtain the written agreement of such grantee or purchaser or
holder of such registered securities that, for a period of 90 days after the
date of this Agreement, such person will not, without the prior written consent
of BOA and Bear Stearns, offer for sale, sell, distribute, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, or exercise any
registration rights with respect to, any shares of Common Stock (or any
securities convertible into, exercisable for, or exchangeable for any shares of
Common Stock) owned by such person; and
(c) the Selling Stockholders will deliver to the Representative prior
to the time of purchase a properly completed and executed United States Treasury
Department Form W-9.
7. Reimbursement of Underwriters' Expenses. If the Shares are not
---------------------------------------
delivered for any reason other than the termination of this Agreement pursuant
to the first two paragraphs of Section 10 hereof or the default by one or more
of the Underwriters in its or their respective obligations hereunder, the
Company shall, in addition to paying the amounts described in Section 6(a)
hereof, reimburse the Underwriters for all of their out-of-pocket expenses,
including the fees and disbursements of their counsel.
8. Conditions of Underwriters' Obligations. The several obligations of
---------------------------------------
the Underwriters hereunder are subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Stockholders on the
date hereof and at the time of purchase and at the additional time of purchase,
as the case may be), the performance by the Company and the Selling Stockholders
of their obligations hereunder and the following additional conditions
precedent:
(a) The Company shall furnish to you at the time of purchase and at
the additional time of purchase, as the case may be, an opinion of Broad and
Cassel, special counsel for the Company, addressed to the Underwriters and dated
the time of purchase or the additional time of purchase, as the case may be,
with reproduced copies for each of the other Underwriters and in form and
substance satisfactory to Cahill Gordon & Reindel, counsel for the Underwriters,
stating that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Florida, with full corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement and the Prospectus, to execute and deliver this
Agreement and each Custody Agreement and to issue, sell and deliver
the Shares as herein contemplated;
(ii) the Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business,
<PAGE>
-19-
except for such jurisdictions where the failure to so qualify or to be
in good standing would not, individually or in the aggregate, result
in a Material Adverse Change;
(iii) each of the Subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its respective jurisdiction of incorporation with full
corporate power and authority to own, lease and operate its respective
properties and to conduct its respective business as described in the
Registration Statement and the Prospectus; each Subsidiary and ANCIRC
is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a Material
Adverse Effect; other than the Subsidiaries and ANCIRC, the Company
does not own or control, directly or indirectly, any corporation,
association or other entity; all of the outstanding shares of capital
stock of each of the Subsidiaries and ANCIRC have been duly authorized
and validly issued, are fully paid and non-assessable and, except,
with regard to ANCIRC, as otherwise stated in the Registration
Statement, are owned by the Company, in each case subject to no
security interest, other encumbrance or adverse claim; to the best of
such counsel's knowledge, no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligation into shares of capital stock or ownership
interests in the Company, its Subsidiaries or ANCIRC are outstanding,
except as otherwise stated in the Registration Statement;
(iv) the Company, its Subsidiaries and ANCIRC are each duly
qualified or licensed by each jurisdiction in which they conduct their
respective businesses and in which the failure, individually or in the
aggregate, to be so licensed or qualified could have a Material
Adverse Effect and the Company, its Subsidiaries and ANCIRC are each
duly qualified, and are each in good standing, in each jurisdiction in
which they own or lease real property or maintain an office and in
which such qualification is necessary;
(v) each of this Agreement and each Custody Agreement have
been duly authorized, executed (or in the case of the Custody
Agreements acknowledged) and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms;
(vi) the Shares to be purchased by the Underwriters from the
Company have been duly authorized and, when issued and delivered to
and paid for by the Underwriters, will be duly and validly authorized
and issued and fully paid and non-assessable;
(vii) the Company has an authorized capitalization as set
forth in the Registration Statement and the Prospectus; the issued and
outstanding shares of capital stock of the Company (including the
Common Stock owned by the Selling Stockholders) have been duly and
validly authorized and issued, and are fully paid, nonassessable and
free
<PAGE>
-20-
of statutory and contractual preemptive rights, resale rights, rights
of first refusal and similar rights (except as otherwise described in
the Registration Statement); there are no authorized or outstanding
options, warrants, preemptive rights, rights of first refusal or other
rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company or
any of its Subsidiaries other than those accurately described in the
Prospectus; the certificates for the Shares are in due and proper form
and the holders of the Shares will not be subject to personal
liability by reason of being such holders;
(viii) the capital stock of the Company, including the
Shares, conforms to the description thereof contained in the
Registration Statement and Prospectus;
(ix) the Registration Statement, the Prospectus and each
amendment or supplement to the Registration Statement and the
Prospectus (except as to the financial statements and schedules and
other financial and statistical data contained or incorporated by
reference therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of
the Act;
(x) the Registration Statement has become effective under
the Act and, to the best of such counsel's knowledge, no stop order
proceedings with respect thereto are pending or threatened under the
Act and any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424 under the Act has been made in the manner
and within the time period required by such Rule 424;
(xi) The statements (i) in the Prospectus under the captions
"Description of Capital Stock", "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and
Capital Resources", "Business -- Cybear -- Cybear Tracking Stock",
"Business -- Legal Proceedings", "Shares Eligible for Future Sale" and
"Underwriting" and (ii) in Item 14 and Item 15 of the Registration
Statement, insofar as such statements constitute matters of law,
summaries of legal matters, the Company's charter or by-law
provisions, documents or legal proceedings, or legal conclusions, has
been reviewed by such counsel and fairly present and summarize, in all
material respects, the matters referred to therein;
(xii) no approval, authorization, consent or order of or
filing with any national, state or local governmental or regulatory
commission, board, body, authority or agency is required in connection
with the issuance and sale of the Shares or the consummation by the
Company of the transactions as contemplated hereby other than
registration of the Shares under the Act (except such counsel need
express no opinion as to any necessary qualification under the state
securities or blue sky laws of the various jurisdictions in which the
Shares are being offered by the Underwriters);
(xiii) the execution (or in the case of the Custody
Agreements, the acknowledgment), delivery and performance of this
Agreement and each Custody Agreement by
<PAGE>
-21-
the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not conflict with, or result in
any breach of or constitute a default under (nor constitute any event
which with notice, lapse of time or both would result in any breach of
or constitute a default under), any provisions of the charter or
by-laws of the Company, any of its Subsidiaries or ANCIRC or under any
provision of any license, indenture, mortgage, deed of trust, bank
loan, credit agreement or other evidence of indebtedness, or any
lease, contract or other agreement or instrument to which the Company,
any of its Subsidiaries or ANCIRC is a party or by which any of them
or their respective properties may be bound or affected, or under any
federal, state, local or foreign law, regulation or rule or any
decree, judgment or order applicable to the Company, any of its
Subsidiaries or ANCIRC;
(xiv) to the best of such counsel's knowledge, neither the
Company, any of its Subsidiaries nor ANCIRC is in breach of, or in
default under (nor has any event occurred which with notice, lapse of
time or both would result in any breach of or constitute a default
under), its respective charter or bylaws (or, in the case of ANCIRC,
the JV Documentation) or in the performance or observance of any
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, bank loan or credit agreement or
other evidence of indebtedness, or any lease, contract or other
agreement or instrument to which the Company, any of its Subsidiaries
or ANCIRC is a party or by which any of them or any of their
properties may be bound or affected, or under any federal, state,
local or foreign law, regulation or rule or any decree, judgment or
order applicable to the Company, any of its Subsidiaries or ANCIRC;
(xv) to the best of such counsel's knowledge, there are no
contracts, licenses, agreements, leases or documents of a character
which are required to be filed as exhibits to the Registration
Statement or to be summarized or described in the Prospectus which
have not been so filed, summarized or described;
(xvi) to the best of such counsel's knowledge, there are no
actions, suits, claims, investigations or proceedings pending,
threatened or contemplated to which the Company, any of its
Subsidiaries or ANCIRC is subject or of which any of their respective
properties is subject, at law or in equity, or before or by any
federal, state, local or foreign governmental or regulatory
commission, board, body, authority or agency, which are required to be
described in the Prospectus but are not so described;
(xvii) the documents incorporated by reference in the
Registration Statement and Prospectus, when they were filed (or, if an
amendment with respect to any such document was filed, when such
amendment was filed) with the Commission, complied as to form in all
material respects with the Act or the Exchange Act (except as to the
financial statements and schedules and other financial and statistical
data contained or incorporated by reference therein, as to which such
counsel need express no opinion);
<PAGE>
-22-
(xviii) the Company will not, upon consummation of the
transactions contemplated by this Agreement, be an "investment
company," or a "promoter" or "principal underwriter" for a "registered
investment company," as such terms are defined in the Investment
Company Act of 1940, as amended;
(xix) except as disclosed in the Prospectus under the
caption "Shares Eligible for Future Sale," to the best knowledge of
such counsel, there are no persons with registration or other similar
rights to have any equity or debt securities registered for sale under
the Registration Statement or included in the offering contemplated by
this Agreement, other than the Selling Stockholders, except for such
rights as have been duly waived;
(xx) such counsel has participated in conferences with
officers and other representatives of the Company, representatives of
the independent public accountants of the Company and representatives
of the Underwriters at which the contents of the Registration
Statement and Prospectus were discussed and, although such counsel is
not passing upon and does not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or Prospectus (except as and to the extent
stated in subparagraphs (vi) and (vii) above), on the basis of the
foregoing nothing has come to the attention of such counsel that
causes them to believe that the Registration Statement or any
amendment thereto at the time such Registration Statement or amendment
became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus or any supplement thereto at the date of such Prospectus or
such supplement, and at all times up to and including the time of
purchase or additional time of purchase, as the case may be, contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and schedules and
other financial and statistical data included in the Registration
Statement or Prospectus).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of Florida or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the time of purchase or the additional time of purchase, as the case may
be, shall be satisfactory in form and substance to the Underwriters, shall
expressly state that the Underwriters may rely on such opinion as if it were
addressed to them and shall be furnished to the Representative) of other counsel
of good standing whom they believe to be reliable and who are satisfactory to
counsel for the Underwriters; provided, however, that such counsel shall further
state that they believe that they and the Underwriters are justified in relying
upon such opinion of other counsel, and (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company and
public officials.
<PAGE>
-23-
(b) The Selling Stockholders shall furnish to you at the time of
purchase and at the additional time of purchase, as the case may be, an opinion
of , counsel for the Selling Stockholders, addressed to the Underwriters
and dated the time of purchase or the additional time of purchase, as the case
may be, with reproduced copies for each of the other Underwriters and in form
and substance satisfactory to Cahill Gordon & Reindel, counsel for the
Underwriters, stating that:
(i) this Agreement, each Custody Agreement, each Power of
Attorney and each Lock-Up Letter have been duly authorized, executed
and delivered by or on behalf of, and is a valid and binding agreement
of, each Selling Stockholder party to such agreement;
(ii) each Selling Stockholder has full legal right, power
and capacity, and has obtained any authorization or approval required
by law (other than those imposed by the Act and the securities or blue
sky laws of certain jurisdictions), to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder in the
manner provided in this Agreement;
(iii) the execution and delivery by such Selling Stockholder
of, and the performance by such Selling Stockholder of its obligations
under, the Underwriting Agreement and its Custody Agreement, its Power
of Attorney and the Lock-Up Letter will not contravene or conflict
with, result in a breach of, or constitute a default under, the
charter or by-laws, partnership agreement, trust agreement or other
organizational documents, as the case may be, of such Selling
Stockholder, or, to the best of such counsel's knowledge, violate or
contravene any provision of applicable law or regulation, or violate,
result in a breach of or constitute a default under the terms of any
other agreement or instrument to which such Selling Stockholder is a
party or by which it is bound, or any judgment, order or decree
applicable to such Selling Stockholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Stockholder;
(iv) delivery of certificates for the Shares by each Selling
Stockholder pursuant hereto will pass valid and marketable title
thereto to the Underwriters, free and clear of any claim, lien,
encumbrance, security interest, community property right, restriction
on transfer or other defect in title;
(v) each of the Representatives of the Selling Stockholders
has been duly authorized by each Selling Stockholder to execute and
deliver on behalf of such Selling Stockholder this Agreement and any
other document necessary or desirable in connection with the
transactions contemplated thereby and to deliver the Shares to be sold
by such Selling Stockholder and receive payment therefor;
(vi) to the best of such counsel's knowledge, the statements
in the Prospectus under the caption "Principal and Selling
Stockholders" insofar as such statements con-
<PAGE>
-24-
stitute a summary of the matters referred to therein present fairly
the information called for with respect to such matters;
(vii) assuming that the Underwriters purchase the Shares
which are sold by such Selling Stockholder pursuant to this Agreement
for value, in good faith and without notice of any adverse claim, the
delivery of such Shares pursuant to this Agreement will pass good and
valid title to such Common Shares, free and clear of any security
interest, mortgage, pledge, lien or other claim;
(viii) to the best of such counsel's knowledge, no consent,
approval, authorization or other order of, or registration or filing
with, any court or governmental authority or agency, is required for
the consummation by such Selling Stockholder of the transactions
contemplated in the Underwriting Agreement, except as required under
the Securities Act, applicable state securities laws, and from the
NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of Florida or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the time of purchase or the additional time of purchase, as the case may
be, shall be satisfactory in form and substance to the underwriters, shall
expressly state that the Underwriters may rely on such opinion as if it were
addressed to them and shall be furnished to the Representative) of other counsel
of good standing whom they believe to be reliable and who are satisfactory to
counsel for the Underwriters; provided, however, that such counsel shall further
state that they believe that they and the Underwriters are justified in relying
upon such opinion of other counsel, and (B) as to matters of fact, to the extent
they deem proper, on certificates of the Selling Stockholders and public
officials.
(c) The Company shall furnish to you at the time of purchase an
opinion of King & Spalding, special regulatory counsel for the Company,
addressed to the Underwriters and dated the time of purchase, with reproduced
copies for each of the other Underwriters and in form and substance satisfactory
to counsel for the Underwriters, stating that:
The statements under the captions "Risk Factors -- Our
business is subject to substantial litigation which could expose us to
unfavorable claims", "Risk Factors -- 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",
"Risk Factors -- We only have a limited number of commercialized
products and these and other products typically have declining
revenues over their product life", "Risk Factors -- The stringent
governmental regulation in our business subjects us to a costly and
time consuming approval process for our products", "Risk Factors -- We
face uncertainties related to clinical trials which could result in
delays in product development and commercialization", "Risk Factors --
Decreases in healthcare reimbursements could limit our ability to sell
our products or decrease our revenues", "Risk Factors -- Restrictive
FDA regula-
<PAGE>
-25-
tions govern the manufacturing and distribution of our products",
"Risk Factors - - 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", "Business --
Product Development and Commercialization", "Business -- Patent
Litigation and Proprietary Rights" and "Business -- Government
Regulation" (collectively the "Regulatory Portion") in the
------------------
Registration Statement and the Prospectus, to the extent that the
reflect matters of law, summaries of law or regulations, or regulatory
status, are correct in all material respects, subject to the
qualifications set forth therein;
(i) Nothing has come to the attention of such
counsel that would lead such counsel to believe that the
Regulatory Portion, (a) at the time the Registration
Statement became effective, included an untrue statement of
a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading or (b) as of the date of the
Prospectus and as of the time of purchase or the additional
time of purchase, as the case may be, includes an untrue
statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading;
(ii) Nothing has come to the attention of such
counsel that would lead such counsel to believe that any of
the representations and warranties of the Company contained
in Sections 3(t), (u), (v), (w), (x), (y), (z) of this
Agreement are not true and correct; and
(iii) The Company's ANDAs with respect to the
generic versions of Prilosec, Naprelan, Tiazac, Wellburtin
SR, Zyban, K-Dur, Claritin D-24 and Depakote are in proper
form and have been properly filed with the FDA and accepted
for filing by the FDA.
In rendering such opinion, such counsel may rely as to
factual matters upon certificates or written statements from officers
of the Company or upon certificates of public officials.
(d) The Company shall furnish to you at the time of purchase an
opinion of Hedman, Gibson & Costigan, special patent counsel for the Company,
addressed to the Underwriters and dated the time of purchase, with reproduced
copies for each of the other Underwriters and in form and substance satisfactory
to Cahill Gordon & Reindel, counsel for the Underwriters, stating that:
(i) The statements under the captions "Risk
Factors -- Our business is subject to substantial litigation
which could expose us to unfavorable claims", "Risk Factors
-- We depend on our patents and trade secrets and our future
success is dependent on our ability to protect these trade
secrets and not infringe on the rights of others", and
"Business -- Patent Litigation and Proprietary Rights" in
the Registration Statement and the Prospectus, to the extent
that they reflect matters of law, summaries of law or
regulations, or patent status, are correct in all material
respects, subject to the qualifications set forth therein;
and such counsel do not know of any statutes, legal and
<PAGE>
-26-
governmental proceedings, contracts and other documents
relating to the Company's, its Subsidiaries' and ANCIRC's
patents and patent applications required to be described in
the Prospectus that are not described as required;
(ii) The Company's patent applications prepared by
such counsel have been properly prepared and filed on behalf
of the Company, its subsidiaries and ANCIRC and, to the best
of such counsel's knowledge, the Company's, its
Subsidiaries' and ANCIRC's other patent applications have
been properly prepared and filed on behalf of the Company,
its Subsidiaries and ANCIRC; except as set forth in the
Prospectus, each of the patents issued therefrom and the
applications are held by the Company, its Subsidiaries and
ANCIRC and to the best of such counsel's knowledge, no other
entity or individual has any right or claim in any of the
Company's, its Subsidiaries' and ANCIRC's patents, patent
applications or any patent to be issued therefrom by virtue
of any contract, license or other agreement known to such
counsel, such counsel has no knowledge that the Company, its
Subsidiaries and ANCIRC lacks or will be unable to obtain
any rights or licenses to use all patents, patent rights and
Intangibles necessary to conduct the business now or
proposed to be conducted by the Company, its Subsidiaries
and ANCIRC, as the case may be, as described in the
Prospectus, and such counsel is unaware of any facts which
form a basis for a finding of unenforceability or invalidity
of any of the patents, patent rights or other Intangibles
owned by licensed to or used by the Company, its
Subsidiaries and ANCIRC, as the case may be;
(iii) To the best of such counsel's knowledge, the
Company, its Subsidiaries and ANCIRC owns or possesses
sufficient or adequate rights to use all material patents
necessary for the conduct of its business as described in
the Prospectus;
(iv) Except as set forth in the Prospectus, to the
best of such counsel's knowledge, (A) the Company, its
Subsidiaries and ANCIRC has conducted its business without
infringement of any patents, patent rights or other
Intangibles of others and (B) the Company, its Subsidiaries
and ANCIRC has not received any notice of any claim of
infringement or violation of or conflict with rights or
claims of others with respect to any patents, patent rights
or other Intangibles owned by, licensed to or used by the
Company, its Subsidiaries and ANCIRC; and such counsel is
not aware of any research or licensing agreements, royalty
arrangements, patents, patent rights or Intellectual
Property of others which are infringed by the Company's, its
Subsidiaries' and ANCIRC products or processes;
(v) Except as set forth in the Prospectus, to the
best of such counsel's knowledge, there is not pending or
threatened any action, suit or proceeding to which the
Company, its Subsidiaries or ANCIRC is a party, before or by
any court or governmental agency or body, relating to
patents or patent rights or patent applications;
<PAGE>
-27-
(vi) Nothing has come to the attention of such
counsel which leads such counsel to believe that any of the
claims in U.S. Patent Nos. , which are owned by the Company,
are invalid over any issued patents known to such counsel;
(vii) The Company, the Subsidiaries and ANCIRC are
listed in the records of the United States Patent and
Trademark Office as the holder of record of each of the
patents listed opposite its name on Schedule D attached
----------
hereto (the "Patents") and each of the patent applications
-------
listed on such Schedule D (the "Applications") and to such
------------
counsel's knowledge, the Company, the Subsidiaries and
ANCIRC, are listed in the records of the appropriate foreign
office as the sole holder of record of each of the foreign
Patents and foreign Applications listed on said Schedule D
under such person's name. Such counsel knows of no claims of
third parties to any ownership interest or lien with respect
to any of the Patents or Applications. To such counsel's
knowledge, none of the Applications has been rejected;
(viii) Nothing has come to the attention of such
counsel that would lead such counsel to believe that any of
the representations and warranties of the Company contained
in Section 3(r) of this Agreement are not true and correct;
and
(ix) Such counsel have reviewed the Registration
Statement and Prospectus, and any further amendments or
supplements thereto made by the Company prior to the Closing
Date, and insofar as they concern patents or patent rights,
or other Intangibles or patent applications, such counsel
have no reason to believe that either any part of the
Registration Statement, when such part became effective,
contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
that the Prospectus and any amendment or supplement thereto,
as of the date thereof, on the date of filing thereof with
the Commission, and at the Closing Date, included an untrue
statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not
misleading.
(e) You shall have received from Arthur Andersen LLP letters dated,
respectively, the date of this Agreement and the time of purchase and additional
time of purchase, as the case may be, and addressed to the Underwriters (with
reproduced copies for each of the Underwriters) in the forms approved by BOA and
Bear Stearns, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered according
to Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect to the audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus (and the
Representative shall have received additional conformed copies of such
accountants' letter for each of the several Underwriters).
(f) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the favorable opinion of Cahill
Gordon & Reindel, counsel for the Un-
<PAGE>
-28-
derwriters, dated the time of purchase or the additional time of purchase, as
the case may be, in form and substance satisfactory to the Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of
the Company, counsel for the Company, representatives of the
independent public accountants of the Company and representatives of
the Underwriters at which the contents of the Registration Statement
and Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Registration Statement and Prospectus, on the basis of the
foregoing (relying as to materiality to a large extent upon the
opinions of officers and other representatives of the Company), no
facts have come to the attention of such counsel which lead them to
believe that the Registration Statement or any amendment thereto at
the time such Registration Statement or amendment became effective
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its
date or any supplement thereto as of its date contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no
comment with respect to the financial statements and schedules and
other financial and statistical data included in the Registration
Statement or Prospectus).
(g) No amendment or supplement to the Registration Statement or
Prospectus, including documents deemed to be incorporated by reference therein,
shall be filed prior to the time the Registration Statement becomes effective to
which you object in writing.
(h) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) under the Act, at or before 5:00 P.M., New York City time, on the
date of this Agreement, unless a later time (but not later than 5:00 P.M., New
York City time, on the second full business day after the date of this
Agreement) shall be agreed to by the Company, the Representatives of the Selling
Stockholders and you in writing or by telephone, confirmed in writing; provided,
however, that the Company, the Representatives of the Selling Stockholders and
you and any group of Underwriters, including you, who have agreed hereunder to
purchase in the aggregate at least 50% of the Firm Shares may from time to time
agree on a later date.
(i) Prior to the time of purchase or the additional time of purchase,
as the case may be, (i) no stop order with respect to the effectiveness of the
Registration Statement shall have been issued under the Act or proceedings
initiated or threatened under Section 8(d) or 8(e) of the Act; (ii) the
Registration Statement and all amendments thereto, or modifications thereof, if
any, shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and (iii) the Prospectus and all amendments or
supplements thereto, or modifications thereof, if any, shall not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they are made, not misleading.
<PAGE>
-29-
(j) Between the time of execution of this Agreement and the time of
purchase or the additional time of purchase, as the case may be, (i) no material
and unfavorable change, financial or otherwise (other than as referred to in the
Registration Statement and Prospectus), in the business, condition or prospects
of the Company, its Subsidiaries and ANCIRC taken as a whole shall occur or
become known and (ii) no transaction which is material and unfavorable to the
Company shall have been entered into by the Company, any of its Subsidiaries or
ANCIRC.
(k) The Company will, at the time of purchase or additional time of
purchase, as the case may be, deliver to you a certificate of two of its
executive officers to the effect that the representations and warranties of the
Company as set forth in this Agreement are true and correct as of each such
date, that the Company shall perform such of its obligations under this
Agreement as are to be performed at or before the time of purchase and at or
before the additional time of purchase, as the case may be, and the conditions
set forth in paragraphs (i) and (j) of this Section 8 have been met.
(l) You shall have received signed letters, dated the date of this
Agreement, from each of the directors and officers of the Company and the
Management Selling Stockholders to the effect that such persons shall not sell,
offer or agree to sell, contract to sell, grant any option to purchase or
otherwise dispose of, directly or indirectly, any shares of Common Stock of the
Company or securities convertible into or exchangeable or exercisable for Common
Stock or warrants or other rights to purchase Common Stock for a period of 90
days after the date of the Prospectus without BOA's and Bear Stearns' prior
written consent.
(m) The Shares shall have been approved for inclusion on NASDAQ,
subject only to notice of issuance at or prior to the time of purchase or the
additional time of purchase, as the case may be.
(n) The Company and the Selling Stockholders shall have furnished to
you such other documents and certificates as to the accuracy and completeness of
any statement in the Registration Statement and the Prospectus as of the time of
purchase and the additional time of purchase, as the case may be, as you may
reasonably request.
(o) The Selling Stockholders will at the time of purchase and the
additional time of purchase, as the case may be, deliver to you a certificate of
the Representatives of the Selling Stockholders to the effect that the
representations and the warranties of the Selling Stockholders as set forth in
this Agreement are true and correct as of each such date.
(p) Between the time of execution of this Agreement and the time of
purchase or the additional time of purchase, as the case may be, there shall not
have occurred any downgrading, nor shall any notice or announcement have been
given or made of (i) any intended or potential downgrading or (ii) any review or
possible change that does not indicate an improvement, in the rating accorded
any securities of or guaranteed by the Company or any Subsidiary by any
"nationally recognized statistical rating organization," as that term is defined
in Rule 436(g)(2) under the Act.
9. Effective Date of Agreement; Termination. This Agreement shall
----------------------------------------
become effective (i) if Rule 430A under the Act is not used, when you shall have
received notification of the ef-
<PAGE>
-30-
fectiveness of the Registration Statement, or (ii) if Rule 430A under the Act is
used, when the parties hereto have executed and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be subject
to termination in the absolute discretion of you or any group of Underwriters
(which may include you) which has agreed to purchase in the aggregate at least
50% of the Firm Shares, if, since the time of execution of this Agreement or the
respective dates as of which information is given in the Registration Statement
and Prospectus, (y) there has been any material adverse and unfavorable change,
financial or otherwise (other than as referred to in the Registration Statement
and Prospectus), in the operations, business, condition or prospects of the
Company and its Subsidiaries taken as a whole, which would, in your judgment or
in the judgment of such group of Underwriters, make it impracticable to market
the Shares, or (z) there shall have occurred any downgrading, or any notice
shall have been given of (i) any intended or potential downgrading or (ii) any
review or possible change that does not indicate an improvement, in the rating
accorded any securities of or guaranteed by the Company or any Subsidiary by any
"nationally recognized statistical rating organization," as that term is defined
in Rule 436(g)(2) under the Act or, if, at any time prior to the time of
purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange, the American Stock Exchange or the NASDAQ shall have
been suspended or limitations or minimum prices shall have been established on
the New York Stock Exchange, the American Stock Exchange or the NASDAQ, or if a
banking moratorium shall have been declared either by the United States or New
York State authorities, or if the United States shall have declared war in
accordance with its constitutional processes or there shall have occurred any
material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on the
financial markets of the United States as, in your judgment or in the judgment
of such group of Underwriters, to make it impracticable to market the Shares.
If you or any group of Underwriters elects to terminate this Agreement
as provided in this Section 9, the Company, the Representatives of the Selling
Stockholders and each other Underwriter shall be notified promptly by letter or
telegram.
If the sale to the Underwriters of the Shares, as contemplated by this
Agreement, is not carried out by the Underwriters for any reason permitted under
this Agreement or if such sale is not carried out because the Company or the
Selling Stockholders, as the case may be, shall be unable to comply with any of
the terms of this Agreement, the Company or the Selling Stockholders, as the
case may be, shall not be under any obligation or liability under this Agreement
(except to the extent provided in Sections 6(a), 7 and 11 hereof), and the
Underwriters shall be under no obligation or liability to the Company and the
Selling Stockholders under this Agreement (except to the extent provided in
Section 11 hereof) or to one another hereunder.
10. Default by Underwriters and by Selling Stockholders. (a) Subject
---------------------------------------------------
to Sections 8 and 9, if any Underwriter shall default in its obligation to take
up and pay for the Firm Shares to be purchased by it hereunder (otherwise than
for reasons sufficient to justify the termination of this Agreement under the
provisions of Section 9 hereof) and if the aggregate number of Firm Shares which
all Underwriters so defaulting shall have agreed but failed to take up and pay
for does not exceed 10% of
<PAGE>
-31-
the total number of Firm Shares, the non-defaulting Underwriters shall take up
and pay for (in addition to the number of Firm Shares they are obligated to
purchase pursuant to Section 1 hereof) the number of Firm Shares agreed to be
purchased by all such defaulting Underwriters, as hereinafter provided. Such
Shares shall be taken up and paid for by such non- defaulting Underwriter or
Underwriters in such amount or amounts as you may designate with the consent of
each Underwriter so designated or, in the event no such aggregate designation is
made, such Shares shall be taken up and paid for by all non-defaulting
Underwriters pro rata in proportion to the aggregate number of Firm Shares set
opposite the names of such non-defaulting Underwriters in Schedule A.
Without relieving any defaulting Underwriter from its obligations
hereunder, the Company and the Selling Stockholders agree with the non-
defaulting Underwriters that they will not sell any Firm Shares hereunder unless
all of the Firm Shares are purchased by the Underwriters (or by substituted
Underwriters selected by you with the approval of the Company or selected by the
Company with your approval).
If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or you shall have the right
to postpone the time of purchase for a period not exceeding five business days
in order that any necessary changes in the Registration Statement and Prospectus
and other documents may be effected.
The term Underwriter as used in this Agreement shall refer to and
include any Underwriter substituted under this Section 10 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
If the aggregate number of Shares which the defaulting Underwriter or
Underwriters agreed to purchase exceeds 10% of the total number of Shares which
all Underwriters agreed to purchase hereunder, and if neither the non-defaulting
Underwriters nor the Company shall make arrangements within the five business
day period stated above for the purchase of all the Shares which the defaulting
Underwriter or Underwriters agreed to purchase hereunder, this Agreement shall
be terminated without further act or deed and without any liability on the part
of the Company to any non-defaulting Underwriter and without any liability on
the part of any non-defaulting Underwriter to the Company. Nothing in this
paragraph, and no action taken hereunder, shall relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
(b) If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Firm Shares to be sold and delivered by such
Selling Stockholders at the time of purchase pursuant to this Agreement, then
the Underwriters may at their option, by written notice from BOA and Bear
Stearns to the Company and the Selling Stockholders, either (i) terminate this
Agreement without any liability on the part of any Underwriter or, except as
provided in Sections 6(a), 7 and 11 hereof, the Company or the Selling
Stockholders, or (ii) purchase the shares which the Company and the other
Selling Stockholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Shares to be sold and delivered by such Selling
Stockholders pursuant to this Agreement at the time of purchase or the
addi-
<PAGE>
-32-
tional time of purchase, then the Underwriters shall have the right, by written
notice from BOA and Bear Stearns to the Company and the Selling Stockholders, to
postpone the time of purchase or the additional time of purchase, as the case
may be, but in no event for longer than seven days in order that the required
changes, if any, to the Registration Statement and the Prospectus or other
documents or arrangements may be effected.
11. Indemnity and Contribution. (a) The Company and the Selling
--------------------------
Stockholders jointly and severally agree to indemnify, defend and hold harmless
each Underwriter, its partners, directors and officers, and any person who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, and such person's partners, directors and officers and
the successors and assigns of all of the foregoing persons from and against any
loss, damage, expense, liability or claim (including the reasonable cost of
investigation) which, jointly or severally, any such Underwriter or any such
person may incur under the Act, the Exchange Act, the common law or otherwise,
insofar as such loss, damage, expense, liability or claim arises out of or is
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or in the Registration Statement as
amended by any post-effective amendment thereof by the Company) or in a
Prospectus (the term "Prospectus" for the purpose of this Section 11 being
deemed to include any Preliminary Prospectus, the Prospectus and the Prospectus
as amended or supplemented by the Company), or arises out of or is based upon
any omission or alleged omission to state a material fact required to be stated
in either such Registration Statement or Prospectus or necessary to make the
statements made therein not misleading, except insofar as any such loss, damage,
expense, liability or claim arises out of or is based upon any untrue statement
or alleged untrue statement of a material fact contained in and in conformity
with information furnished in writing by or on behalf of any Underwriter through
you to the Company expressly for use with reference to such Underwriter in such
Registration Statement or such Prospectus or arises out of or is based upon any
omission or alleged omission to state a material fact in connection with such
information required to be stated in such Registration Statement or Prospectus
or necessary to make such information not misleading; provided, however, that no
-------- -------
Selling Stockholder shall be responsible, either pursuant to this indemnity or
as a result of any breach of this Agreement, for losses, expenses, liability or
claims arising out of or based upon such untrue statement or omission or
allegation thereof based upon information furnished by any party other than such
Selling Stockholder and, in any event, no Selling Stockholder shall be
responsible, either pursuant to this indemnity or as a result of any breach of
this Agreement, for losses, expenses, liability or claims for an amount in
excess of the proceeds to be received by such Selling Stockholder (before
deducting expenses) from the sale of Shares hereunder.
If any claim, suit, action, proceeding, investigation or inquiry
(together, a "Proceeding") is brought against an Underwriter or any such person
----------
in respect of which indemnity may be sought against the Company or any Selling
Stockholder pursuant to the foregoing paragraph, such Underwriter or such person
shall promptly notify the Company and the Representatives of the Selling
Stockholders in writing of the institution of such Proceeding and the Company or
such Selling Stockholder, as the case may be, shall assume the defense of such
Proceeding, including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses; provided, however, that
-------- -------
the omission to so notify the Company or the Representative of the Selling
Stockholders shall not relieve the Company or any Selling Stockholder from any
liability which the Company may have to any
<PAGE>
-33-
Underwriter or any such person or otherwise. Such Underwriter or such person
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
Underwriter or of such person unless the employment of such counsel shall have
been authorized in writing by the Company or such Selling Stockholder in
connection with the defense of such Proceeding or the Company or such Selling
Stockholder shall not have, within a reasonable period of time in light of the
circumstances, employed counsel to have charge of the defense of such Proceeding
or such indemnified party or parties shall have reasonably concluded that there
may be defenses available to it or them which are different from, additional to
or in conflict with those available to the Company or such Selling Stockholder
(in which case the Company or such Selling Stockholder shall not have the right
to direct the defense of such Proceeding on behalf of the indemnified party or
parties), in any of which events such fees and expenses shall be borne by the
Company or such Selling Stockholder, as the case may be, and paid as incurred
(it being understood, however, that the Company or such Selling Stockholder
shall not be liable for the expenses of more than one separate counsel (in
addition to any local counsel) in any one Proceeding or series of related
Proceedings in the same jurisdiction representing the indemnified parties who
are parties to such Proceeding). The Company or such Selling Stockholder shall
not be liable for any settlement of any such Proceeding effected without its
written consent, but if settled with the written consent of the Company or such
Selling Stockholder, the Company or such Selling Stockholder agrees to indemnify
and hold harmless any Underwriter and any such person from and against any loss
or liability by reason of such settlement. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second sentence of this paragraph, then the
indemnifying party agrees that it shall be liable for any settlement of any
Proceeding effected without its written consent if (i) such settlement is
entered into more than 60 business days after receipt by such indemnifying party
of the aforesaid request, (ii) such indemnifying party shall not have reimbursed
the indemnified party in accordance with such request prior to the date of such
settlement and (iii) such indemnified party shall have given the indemnifying
party at least 30 days' prior notice of its intention to settle. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened Proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such Proceeding and does not include an admission
of fault, culpability or a failure to act, by or on behalf of such indemnified
party.
(b) Each Underwriter severally and not jointly agrees to indemnify,
defend and hold harmless the Company, its directors and officers, each Selling
Stockholder and any person who controls the Company or any Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
and each such person's directors and officers from and against any loss, damage,
expense, liability or claim (including the reasonable cost of investigation)
which, jointly or severally, the Company, any Selling Stockholder or any such
person may incur under the Act, the Exchange Act or common law or otherwise,
insofar as such loss, damage, expense, liability or claim arises out of or is
based upon any untrue statement or alleged untrue statement of a material fact
contained in and in conformity with information furnished in writing by or on
behalf of such Underwriter through you to the Company expressly for use with
reference to such Underwriter in the Registration Statement (or in the
Registration Statement as amended by any post-effective amendment thereof by the
Company) or in a
<PAGE>
-34-
Prospectus, or arises out of or is based upon any omission or alleged omission
to state a material fact in connection with such information required to be
stated in such Registration Statement or such Prospectus or necessary to make
such information not misleading.
If any Proceeding is brought against the Company, any Selling
Stockholder or any such person in respect of which indemnity may be sought
against any Underwriter pursuant to the foregoing paragraph, the Company, such
Selling Stockholder or such person shall promptly notify such Underwriter in
writing of the institution of such Proceeding and such Underwriter shall assume
the defense of such Proceeding, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all fees and expenses;
provided, however, that the omission to so notify such Underwriter shall not
- -------- -------
relieve such Underwriter from any liability which such Underwriter may have to
the Company, any Selling Stockholder or any such person or otherwise. The
Company, such Selling Stockholder or such person shall have the right to employ
its own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of the Company, such Selling Stockholder or such person
unless the employment of such counsel shall have been authorized in writing by
such Underwriter in connection with the defense of such Proceeding or such
Underwriter shall not have, within a reasonable period of time in light of the
circumstances, employed counsel to have charge of the defense of such Proceeding
or such indemnified party or parties shall have reasonably concluded that there
may be defenses available to it or them which are different from or additional
to or in conflict with those available to such Underwriter (in which case such
Underwriter shall not have the right to direct the defense of such Proceeding on
behalf of the indemnified party or parties, but such Underwriter may employ
counsel and participate in the defense thereof but the fees and expenses of such
counsel shall be at the expense of such Underwriter), in any of which events
such fees and expenses shall be borne by such Underwriter and paid as incurred
(it being understood, however, that such Underwriter shall not be liable for the
expenses of more than one separate counsel (in addition to any local counsel) in
any one Proceeding or series of related Proceedings in the same jurisdiction
representing the indemnified parties who are parties to such Proceeding). No
Underwriter shall be liable for any settlement of any such Proceeding effected
without the written consent of such Underwriter, but if settled with the written
consent of such Underwriter, such Underwriter agrees to indemnify and hold
harmless the Company, any Selling Stockholder and any such person from and
against any loss or liability by reason of such settlement. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second sentence of this paragraph, then the
indemnifying party agrees that it shall be liable for any settlement of any
Proceeding effected without its written consent if (i) such settlement is
entered into more than 60 business days after receipt by such indemnifying party
of the aforesaid request, (ii) such indemnifying party shall not have reimbursed
the indemnified party in accordance with such request prior to the date of such
settlement and (iii) such indemnified party shall have given the indemnifying
party at least 30 days' prior notice of its intention to settle. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened Proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement (x) includes
an unconditional release of such indemnified party from all liability on claims
that are the subject matter of such Proceeding and (y) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of the indemnified party.
<PAGE>
-35-
(c) If the indemnification provided for in this Section 11 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 11 or insufficient to hold an indemnified party harmless in respect of
any losses, damages, expenses, liabilities or claims referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, damages, expenses, liabilities or claims (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and of the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, damages, expenses,
liabilities or claims, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other shall be deemed to be in the same
respective proportions as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Stockholders and the total underwriting discounts
and commissions received by the Underwriters bear to the aggregate public
offering price of the Shares. The relative fault of the Company and the Selling
Stockholders on the one hand and of the Underwriters on the other shall be
determined by reference to, among other things, whether the untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
relates to information supplied by the Company, by the Selling Stockholders or
by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, damages,
expenses, liabilities and claims referred to in this subsection shall be deemed
to include any legal or other fees or expenses reasonably incurred by such party
in connection with investigating, preparing to defend or defending any
Proceeding.
(d) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
11 were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in subsection (c)
above. Notwithstanding the provisions of this Section 11, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by such Underwriter and distributed to
the public were offered to the public exceeds the amount of any damage which
such Underwriter has otherwise been required to pay by reason of such untrue
statement or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 11 are several in proportion to their respective
underwriting commitments and not joint.
(e) The indemnity and contribution agreements contained in this
Section 11 and the covenants, warranties and representations of the Company and
the Selling Stockholders contained in this Agreement shall remain in full force
and effect regardless of any investigation made by or on behalf of any
Underwriter, its partners, directors or officers or any person (including each
partner, officer or
<PAGE>
-36-
director of such person) who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, or by or on behalf of
the Company, its directors or officers, any Selling Stockholder or any person
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, and shall survive any termination of this Agreement or
the issuance and delivery of the Shares. The Company, each Selling Stockholder
and each Underwriter agree promptly to notify each other of the commencement of
any Proceeding against it and, in the case of the Company, against any of the
Company's officers or directors in connection with the issuance and sale of the
Shares, or in connection with the Registration Statement or Prospectus.
12. Notices. Except as otherwise herein provided, all statements,
-------
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
Bank of America Securities LLC, 9 West 57th Street, New York, NY 10019,
Attention: Syndicate Department and, if to the Company, shall be sufficient in
all respects if delivered or sent to the Company at the offices of the Company
at 4001 Southwest 47th Avenue, Fort Lauderdale, Florida 33314, Attention: Scott
Lodin, Esq., and, if to any of the Selling Stockholders, shall be sufficient in
all respects if delivered or sent to the Representatives of the Selling
Stockholders at , Attention: .
13. Governing Law; Construction. This Agreement and any claim,
---------------------------
counterclaim or dispute of any kind or nature whatsoever arising out of or in
any way relating to this Agreement ("Claim"), directly or indirectly, shall be
-----
governed by, and construed in accordance with, the laws of the State of New
York, without regard to principles of conflicts of law thereof. The Section
headings in this Agreement have been inserted as a matter of convenience of
reference and are not a part of this Agreement.
14. Submission to Jurisdiction. Except as set forth below, no Claim
--------------------------
may be commenced, prosecuted or continued in any court other than the courts of
the State of New York located in the City and County of New York or in the
United States District Court for the Southern District of New York, which courts
shall have jurisdiction over the adjudication of such matters, and the Company
consents to the jurisdiction of such courts and personal service with respect
thereto. The Company hereby consents to personal jurisdiction, service and venue
in any court in which any Claim is brought by any third party against BOA, Bear
Stearns or any indemnified party. Each of BOA, Bear Stearns and the Company (on
its behalf and, to the extent permitted by applicable law, on behalf of its
stockholders and affiliates) waives all right to trial by jury in any Claim
(whether based upon contract, tort or otherwise). The Company agrees that a
final judgment in any such Claim brought in any such court shall be conclusive
and binding upon the Company and may be enforced in any other courts to the
jurisdiction of which the Company is or may be subject, by suit upon such
judgment.
15. Parties at Interest. The Agreement herein set forth has been and
-------------------
is made solely for the benefit of the Underwriters, the Company, the Selling
Stockholders and, to the extent provided in Section 11 hereof, the controlling
persons, directors and officers referred to in such section, and their
respective successors, assigns, heirs, personal representatives and executors
and administrators. No other person, partnership, association or corporation
(including a purchaser, as such purchaser, from any of the Underwriters) shall
acquire or have any right under or by virtue of this Agreement.
<PAGE>
-37-
16. General Provisions. This Agreement constitutes the entire
------------------
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, undertakings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in two or
more counterparts, each one of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement may not be amended or modified unless in writing by all of the parties
hereto, and no condition herein (express or implied) may be waived unless waived
in writing by each party whom the condition is meant to benefit. The section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification and contribution provisions of Section 11, and is fully informed
regarding said provisions. Each of the parties hereto further acknowledges that
the provisions of Section 11 hereto fairly allocate the risks in light of the
ability of the parties to investigate the Company, its affairs and its business
in order to assure that adequate disclosure has been made in the Registration
Statement, any Preliminary Prospectus and the Prospectus (and any amendments and
supplements thereto), as required by the Act and the Exchange Act.
17. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Underwriters and the Company and their successors and assigns and any successor
or assign of any substantial portion of the Company's and any of the
Underwriters' respective businesses and/or assets.
18. Partial Unenforceability. The invalidity or unenforceability of
------------------------
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
[SIGNATURE PAGES FOLLOW]
<PAGE>
[LETTERHEAD OF BROAD AND CASSEL]
April 26, 2000
Andrx Corporation
4001 Southwest 47th Avenue
Fort Lauderdale, Florida 33314
Re: Andrx Corporation (the "Company")
Registration Statement On Form S-3
Ladies and Gentlemen:
You have requested our opinion with respect to the 6,054,184 shares
(including 52,500 over-allotment shares) offered by the Company and 2,398,316
shares (including 1,050,000 over-allotment shares) offered by certain selling
shareholders (collectively, the "Shares") of the Company's common stock, par
value $.001 per share (the "Common Stock"), included in the Registration
Statement on Form S-3 (the "Form S-3") filed with the U.S. Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Securities Act").
As counsel to the Company, we have examined the original or certified
copies of such records of the Company, and such agreements, certificates of
public officials, certificates of officers or representatives of the Company and
others, and such other documents as we deem relevant and necessary for the
opinions expressed in this letter. In such examination, we have assumed the
genuineness of all signatures on original documents, and the conformity to
original documents of all copies submitted to us as conformed or photostatic
copies. As to various questions of fact material to such opinions, we have
relied upon statements or certificates of officials and representatives of the
Company and others.
Based on, and subject to the foregoing, we are of the opinion that the
Shares of Common Stock being registered in the Form S-3 shall, upon such
issuance as described in the Form S-3, be duly and validly issued and fully paid
and nonassessable.
In rendering this opinion, we advise you that members of this Firm are
members of the Bar of the State of Florida, and we express no opinion herein
concerning the applicability or effect of any laws of any other jurisdiction,
except the securities laws of the United States of America referred to herein.
<PAGE>
Andrx Corporation
Page 2
This opinion has been prepared and is to be construed in accordance with
the Report on Standards for Florida Opinions, dated April 8, 1991, as amended
and supplemented, issued by the Business Law Section of The Florida Bar (the
"Report"). The Report is incorporated by reference into this opinion.
We hereby consent to the filing of this opinion as an exhibit to the Form
S-3. We also consent to the use of our name under the caption "Legal Matters"
in the Prospectus constituting part of the Form S-3. In giving such consent, we
do not thereby admit that we are included within the category of persons whose
consent is required under Section 7 of the Securities Act, or the rules and
regulations promulgated thereunder.
Very truly yours,
/s/ Broad and Cassel
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BROAD AND CASSEL
