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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission file number 0-23012
NEXSTAR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 84-1173453
(State of incorporation) (I.R.S. Employer Identification No.)
2860 Wilderness Place
Boulder, Colorado 80301
(Address of principal executive offices)
Registrant's telephone number: (303) 444-5893
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the registrant's Common Stock, par value $.01 per share,
outstanding as of April 30, 1998 was 27,516,881.
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NEXSTAR PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- March 31, 1998 and December 31, 1997.........................................3
Condensed Consolidated Statements of Operations -- Three Months Ended March 31, 1998 and 1997.........................4
Condensed Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1998 and 1997.........................5
Notes to Condensed Consolidated Financial Statements..................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................13
Item 2. Changes in Securities........................................................................................13
Item 6. Exhibits and Reports on Form 8-K.............................................................................13
SIGNATURES .............................................................................................................14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,602,000 $ 39,292,000
Marketable securities 11,949,000 24,997,000
Accounts receivable 36,047,000 34,623,000
Inventories 13,589,000 14,606,000
Prepaid expenses and other 3,773,000 3,872,000
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Total current assets 114,960,000 117,390,000
Property, plant and equipment, net of
accumulated depreciation and amortization 47,055,000 44,778,000
Patent and trademark costs, net of accumulated amortization 5,724,000 5,623,000
Other noncurrent assets 3,993,000 2,752,000
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Total assets $ 171,732,000 $ 170,543,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 4,549,000 $ 5,034,000
Accounts payable 5,999,000 5,237,000
Accrued compensation and employee benefits 3,491,000 4,338,000
Accrued litigation settlement and related expenses due within one year 1,734,000 1,273,000
Accrued interest payable 833,000 2,083,000
Other accrued expenses 5,618,000 4,037,000
Long-term obligations due within one year 4,856,000 5,445,000
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Total current liabilities 27,080,000 27,447,000
Accrued litigation settlement expenses due after one year 8,542,000 8,767,000
Long-term obligations due after one year 12,564,000 8,327,000
Convertible subordinated debentures 80,000,000 80,000,000
Commitments and contingencies
Stockholders' equity:
Common stock 275,000 274,000
Additional paid-in capital 216,293,000 216,159,000
Deferred compensation (127,000) (151,000)
Cumulative translation adjustment (428,000) (394,000)
Accumulated deficit (172,467,000) (169,886,000)
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Total stockholders' equity 43,546,000 46,002,000
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Total liabilities and stockholders' equity $ 171,732,000 $ 170,543,000
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</TABLE>
See notes to condensed consolidated financial statements.
3
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NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1998 1997
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<S> <C> <C>
Revenues:
Product revenues $ 23,517,000 $ 20,008,000
License fee 3,000,000 --
Royalties 686,000 --
Collaborative agreements and contracts 750,000 521,000
Interest income 730,000 338,000
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Total revenues 28,683,000 20,867,000
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Expenses:
Cost of goods sold 4,840,000 4,456,000
Research and development 13,310,000 12,757,000
Selling, general and administrative 11,156,000 12,827,000
Interest expense 1,695,000 524,000
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Total expenses 31,001,000 30,564,000
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Loss before provision for income taxes (2,318,000) (9,697,000)
Provision for income taxes 263,000 24,000
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Net loss $ (2,581,000) $ (9,721,000)
============ ============
Net loss per share $ (0.09) $ (0.37)
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Shares used in computing net loss per share 27,467,000 26,424,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
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NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,581,000) $ (9,721,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property, plant and equipment 2,437,000 2,405,000
Amortization of intangible assets 372,000 418,000
Compensation expense related to grant of options and sales of stock,
including amortization of deferred compensation 24,000 65,000
Other (68,000) 94,000
Changes in operating assets and liabilities:
Accounts receivable (1,333,000) (3,072,000)
Inventories 1,017,000 89,000
Prepaid expenses and other 99,000 (469,000)
Other noncurrent assets (1,987,000) 1,000
Accounts payable (1,411,000) (3,404,000)
Accrued compensation and employee benefits (847,000) (389,000)
Accrued interest (1,250,000) --
Accrued litigation settlement and related expenses 236,000 --
Other accrued expenses 1,524,000 (272,000)
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Net cash used in operating activities (3,768,000) (14,255,000)
INVESTING ACTIVITIES
Maturities of marketable securities, net 13,048,000 8,818,000
Additions to property, plant and equipment 1,314,000 (1,705,000)
Additions to patent costs (277,000) (426,000)
Deletions from (additions to) other noncurrent assets 550,000 (318,000)
------------ ------------
Net cash provided by investing activities 14,635,000 6,369,000
FINANCING ACTIVITIES
Proceeds from (payments on) short-term borrowings, net (485,000) 1,681,000
Proceeds from sale-leaseback transactions -- 1,313,000
Payments on capital lease obligations (823,000) (1,093,000)
Proceeds from issuance of long-term debt 2,881,000 15,668,000
Repayments on long-term debt (337,000) (765,000)
Proceeds from sale of common stock, net of offering costs 135,000 150,000
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Net cash provided by financing activities 1,371,000 16,954,000
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Net increase in cash and cash equivalents 12,238,000 9,068,000
Cash and cash equivalents at beginning of period 39,292,000 21,542,000
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Cash and cash equivalents at end of period $ 51,530,000 $ 30,610,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
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NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three-month period
ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
Certain reclassifications have been made to prior year amounts to
agree with the current year presentation.
NOTE 2: INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
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<S> <C> <C>
Finished goods $ 4,079,000 $ 3,512,000
Work in process 6,635,000 8,161,000
Raw materials 2,875,000 2,933,000
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Total inventories $ 13,589,000 $ 14,606,000
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</TABLE>
NOTE 3: EARNINGS (LOSS) PER SHARE
Effective December 31, 1997, the Company adopted Financial
Accounting Standards Board ("FASB") Statement No. 128, "Earnings
Per Share" ("Statement No. 128"), which replaced the calculation
of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is
very similar to the previous fully diluted earnings per share.
Earnings per share amounts for all periods presented conform to
Statement No. 128.
The Company's basic and diluted net loss per share is computed
using the weighted average number of shares of common stock
outstanding. Common equivalent shares from stock options, warrants
and convertible securities are excluded from the computation of
diluted earnings per share as their effect is antidilutive. The
impact of Statement No. 128 on the calculation of net loss per
share for the three months ended March 31, 1998 and 1997 was not
material.
NOTE 4: REPORTING CHANGES
Effective January 1, 1998, the Company adopted FASB Statement No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("Statement No. 131"). Statement No. 131 establishes
standards for the way that public business enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports.
It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The
Company has reviewed its operations and does not believe that it
has any operating segments which are currently reportable.
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NOTE 5: COMMITMENTS AND CONTINGENCIES
In May 1996, the Company's Spanish subsidiary entered into an
agreement to borrow 500 million Spanish Pesetas with such
borrowing being secured by the subsidiary's accounts receivable.
In February 1997, the agreement was amended to increase the amount
that the subsidiary could borrow to 750 million Spanish Pesetas.
On April 1, 1998, the Company's Spanish subsidiary terminated the
loan as to new borrowings. On April 1, 1998, the outstanding
balance of the loan, which is due in May 1998, was 400 million
Spanish Pesetas ($2.5 million on April 1, 1998).
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, risks associated with the
following: reliance on a single product for a substantial portion of the
Company's revenues; general economic and business conditions, including
fluctuations in currency exchange rates; competition; technological advances;
ability to obtain rights to technology; ability to obtain and enforce patents;
ability to commercialize and manufacture products; results of clinical studies;
results of research and development activities; availability of qualified
personnel; changes in, or failure to comply with, governmental regulations;
ability to obtain adequate financing in the future; and other factors referenced
under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997. In particular, statements preceded by, followed by
or that include the words "expects," anticipates" and "plans" are or may
constitute forward-looking statements. The Company's stockholders and potential
investors should consider carefully these risks and uncertainties in evaluating
NeXstar Pharmaceuticals' financial condition and results of operations.
NeXstar Pharmaceuticals is an integrated biopharmaceutical company
engaged in the discovery, development, manufacture and marketing of proprietary
pharmaceutical products to treat life-threatening and other serious oncological,
hematological and infectious diseases.
The Company markets AmBisome, a liposomal formulation of amphotericin
B, for the treatment of life-threatening fungal infections and DaunoXome, a
liposomal formulation of the anticancer agent daunorubicin, which is used as a
first line therapy for the treatment of HIV-associated Kaposi's sarcoma. The
Company currently relies on sales of AmBisome in Europe for a substantial
majority of its product revenues and expects sales of AmBisome in Europe to
account for a majority of its revenues in 1998.
The Company is conducting Phase II clinical trials for MiKasome, the
Company's liposomal formulation of amikacin, a potent aminoglycoside antibiotic.
These trials are assessing the effect of MiKasome in patients with chronic
urinary tract infections and in patients with infections related to stable
cystic fibrosis. Additional Phase II clinical trials are planned for 1998 in the
U.S. and Europe in patients with hospital-acquired pneumonia. Pending results of
these trials, the Company anticipates beginning its first Phase III trial for
MiKasome in the first half of 1999.
Several of the Company's SELEX process-derived compounds (including
aptamer antagonists to vascular endothelial growth factor ("VEGF") and aptamers
which inhibit the activity of certain selectins) are in preclinical or early
preclinical development. The Company plans to file an Investigational New Drug
("IND") application in the U.S. in 1998 for its antagonist to VEGF for the
treatment of the most severe ("wet") form of age-related macular degeneration.
The timing of the IND application for the VEGF antagonist and the clinical
trials for MiKasome may be affected by many factors including, among others,
unanticipated delays; unexpected preclinical or clinical trial results, as
applicable; and difficulties in enrolling patients. There can be no assurance
that the Company will be able to meet the time schedule which it has established
for any of its products.
In connection with a majority of its European sales, the Company prices
its products in the currencies of the countries into which they are sold (the
"Payment Currencies"), and revenues in the past have been and in the future
could be adversely affected by currency fluctuations. A significant majority of
the Company's manufacturing costs are in U.S. Dollars. Therefore, any decline in
the value of the Payment Currencies relative to the U.S. Dollar is likely to
negatively impact gross margins for the Company's products since the Company's
manufacturing costs would stay approximately the same while its revenue in terms
of U.S. Dollars would decline. Sales in Germany, the U.K., Italy and Spain
together accounted for 56% of the Company's product revenues for the three
months ended March 31, 1998. The Company prices its products in each of these
four countries in the local currency.
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NeXstar Pharmaceuticals hedges certain of its foreign currency
exposures, with respect to its outstanding trade accounts receivable and
accounts payable, through the use of forward contracts. NeXstar Pharmaceuticals
does not currently enter into speculative foreign currency transactions and does
not write speculative options. In the future, the Company may begin currency
hedging in connection with anticipated revenues and expenses and may use options
in addition to forward contracts. Such hedging will be done solely for the
purpose of protecting the Company from foreign currency fluctuations. The
Company recognizes a gain or loss for each forward contract equal to the
difference between the contract rate and the market rate on each balance sheet
date which is recorded as a selling, general and administrative expense. At
present, no deferred accounting is used in connection with the Company's hedging
activities. Notwithstanding its hedging activities (which have not always
included fully hedging against potential gains or losses), the Company has in
the past recognized foreign exchange gains and losses. There can be no assurance
that significant gains or losses will not be incurred in the future.
RESULTS OF OPERATIONS
Three months ended March 31, 1998
PRODUCT REVENUES. Product revenues increased 18% to $23.5 million for
the three months ended March 31, 1998 from $20.0 million for the corresponding
period in 1997 primarily due to an increase in unit sales of AmBisome in
European markets. Gains from increased unit sales were offset by a reduction in
the average selling price (as calculated in U.S. Dollars) compared to the
corresponding periods of 1997, approximately half of which reduction was due to
the appreciation in the value of the U.S. Dollar compared to the European
currencies received in payment for the product. A significant majority of the
Company's product sales are in European currencies. Absent an increase in the
price of the Company's products throughout Europe or a general decline in the
value of the U.S. Dollar versus most leading European currencies, the continued
strength of the U.S. Dollar may significantly impact the Company's revenues as
denominated in U.S. Dollars. As a result of the U.S. approval of AmBisome in the
third quarter of 1997, the Company anticipates that a greater percentage of
sales during future periods will occur outside of Europe.
LICENSE FEE. During the three months ended March 31, 1998, the Company
recorded a $3 million milestone payment from Sumitomo Pharmaceuticals Co., Ltd.
related to AmBisome rights in Japan.
ROYALTIES. During the three months ended March 31, 1998, the Company
received royalties of $686,000 in connection with the sale of AmBisome in the
U.S. following the third quarter 1997 approval of AmBisome by the U.S. Food and
Drug Administration. This amount will increase if the amount of sales of
AmBisome in the U.S. increases.
COLLABORATIVE AGREEMENTS AND CONTRACTS. Collaborative agreement and
contract revenues increased to $750,000 for the three months ended March 31,
1998 compared to $521,000 for the corresponding period of 1997. The increase was
due in part to Schering A.G., in February 1997, agreeing to increase its annual
funding to the Company to $2.4 million from $1.0 million in connection with a
collaborative research agreement first entered into in 1993. Collaborative
agreement and contract revenue fluctuations are generally the result of changes
in the number of funded research projects as well as the timing and performance
of contract benchmarks.
INTEREST INCOME. Interest income increased to $730,000 for the three
months ended March 31, 1998 compared to $338,000 for the corresponding period of
1997. Interest income generally fluctuates as a result of the average amount of
cash available for investment and prevailing interest rates.
COST OF GOODS SOLD. Cost of goods sold was $4.8 million, or 21% of
product revenues, for the three months ended March 31, 1998, compared to $4.5
million, or 22% of product revenues, for the corresponding period of 1997. The
increase in cost of goods sold was primarily due to increased sales of the
Company's products. The decrease in cost of goods sold as a percentage of
product revenue was primarily due to a reduction in the average manufacturing
cost of the products sold by the Company. The decrease was partially offset by a
reduction in the average revenue per vial of product sold due in part to
increased sales of AmBisome to Fujisawa USA, Inc. ("Fujisawa") at cost in
connection with the October 1, 1997 sales launch of AmBisome in the U.S.
Pursuant to an agreement between the two firms, the Company and Fujisawa
co-promote AmBisome in the United States and the Company sells AmBisome to
Fujisawa at cost for sale in the U.S. In addition, the Company receives 20% of
the gross profits from all U.S. sales. As the Company's sales of AmBisome to
Fujisawa increase as a percentage of total AmBisome sales, the cost of goods
sold as a percentage of revenues is expected to increase. Cost of
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goods sold consists primarily of raw materials, allocations of overhead, labor
and equipment costs and charges associated with services provided by outside
vendors.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 4% to $13.3 million for the three months ended March 31, 1998 compared
to $12.8 million for the corresponding period of 1997. The increase in research
and development expenses is primarily attributable to increased costs related to
toxicity studies and clinical studies for MiKasome. For the three months ended
March 31, 1998, $664,000 of research and development expenses were sponsored by
third parties compared to $488,000 for the corresponding period in 1997.
Research and development expenses consist primarily of salaries and benefits for
scientific, regulatory, quality control and pilot manufacturing personnel,
consultants, supplies, occupancy costs and depreciation of laboratory equipment
and facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 13% to $11.2 million for the three months
ended March 31, 1998 compared to $12.8 million for the corresponding period of
1997. The decrease was primarily related to a decrease in litigation expenses
due to the settlement in August 1997 of patent litigation between the Company
and The Liposome Company, Inc. ("TLC") related to whether AmBisome infringed
TLC's patents because of the manner in which it is freeze dried and a credit
recorded in connection with the settlement of a fully reserved outstanding loan
due to the Company from a biotechnology firm. During the three months ended
March 31, 1997, patent litigation expenses were $2.1 million. The decrease was
partially offset by accounting charges recorded in connection with the
settlement with TLC. In the settlement agreement between TLC and the Company
(the "Settlement Agreement"), the Company is required to make payments beginning
in 1998 based on AmBisome sales over the next several years. Because the
payments are subject to certain minimum and maximum payments, the Company
recorded accounting charges in 1997 of $10.0 million, which represented the net
present value of all future minimum payments it is required to make. Beginning
in 1998, the Company is recording an amortization expense each quarter related
to the difference between all future minimum payments and the expense recorded
in 1997. In addition, beginning in 1998, the Company is expensing the difference
between the minimum and maximum payments, if any. The Company does not expect
the difference between its future minimum and maximum payments to TLC to be
material. The Company recognized a foreign exchange loss of $54,000 for the
three months ended March 31, 1998 compared to a loss of $38,000 for the
corresponding period in 1997.
INTEREST EXPENSE. Interest expense increased to $1.7 million for the
three months ended March 31, 1998 from $524,000 for the corresponding period of
1997. The increase was primarily due to interest payable under the $80 million
of 6 1/4% Convertible Subordinated Debentures due 2004, on which interest was
payable from July 31, 1997 and additional borrowings in connection with several
equipment lease arrangements.
NET LOSS. The Company reported a net loss of $2.6 million, or $0.09 per
share, for the three months ended March 31, 1998, compared to a net loss of $9.7
million, or $0.37 per share, for the corresponding period of 1997.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities
position at March 31, 1998 was $61.6 million compared to $64.3 million on
December 31, 1997. The $2.7 million decrease in cash and cash equivalents and
marketable securities position was primarily the result of the following:
<TABLE>
<S> <C>
Net cash used in operating activities $ (3,768,000)
Additions to property, plant and equipment (614,000)
Payments on short-term borrowings, net (485,000)
Payments on capital lease obligations (823,000)
Proceeds from issuance of long-term debt 2,881,000
Repayments on long-term debt (337,000)
Proceeds from sale of common stock, net 135,000
Other 273,000
------------
$ (2,738,000)
============
</TABLE>
The Company invests its cash and cash equivalents and marketable
securities in interest-bearing investment grade securities.
The Company's accounts receivable balance at March 31, 1998 was $36.0
million as compared to $34.6 million on December 31, 1997. Payment practices
vary significantly between countries and increased sales in countries in which
payments tend to be slower, often as a result of the pace at which governmental
entities reimburse the Company's customers, have in the past increased and in
the future may increase the average length that accounts receivable are
outstanding and may increase the financial risk of certain of the Company's
customers. In certain countries, in particular Greece, Italy and Spain, in which
payments have been slow, the amount of accounts receivable owed to the Company
is significant. The Company continually seeks improvement in its collection
process to maximize its cash flow from product sales in a timely manner.
As of March 31, 1998, the Company's inventory value was $13.6 million
compared to $14.6 million as of December 31, 1997.
For the three months ended March 31, 1998, the Company had $2.9 million
in proceeds from facilities improvement and capital equipment financing
transactions. As of March 31, 1998, $2.5 million was available under agreements
relating to the financing of manufacturing equipment, general laboratory and
scientific equipment, office equipment, furniture and fixtures and facilities
improvements.
In September 1997, the Company entered into a $10 million unsecured
line of credit (the "Credit Agreement") with a financial institution. As of
March 31, 1998, the Company had borrowings of $2.0 million under the Credit
Agreement with an average interest rate of 8.25%. The Credit Agreement, which
includes a foreign exchange facility, terminates on September 1, 1998. Under the
terms of the Credit Agreement, the Company is required to maintain certain
financial ratios and there are limitations on the Company's ability to incur
additional debt or to engage in certain significant transactions.
In May 1996, the Company's Spanish subsidiary entered into an agreement
to borrow 500 million Spanish Pesetas with such borrowing being secured by the
subsidiary's accounts receivable. In February 1997, the agreement was amended to
increase the amount that the subsidiary could borrow to 750 million Spanish
Pesetas. On April 1, 1998, the Company's Spanish subsidiary terminated the loan
as to new borrowings. On April 1, 1998, the outstanding balance of the loan,
which is due in May 1998, was 400 million Spanish Pesetas ($2.5 million on April
1, 1998).
The Company believes that in the future it may be advisable to augment
its cash in order to fund all of its activities, including potential product
acquisitions. Therefore, the Company will consider raising cash whenever market
conditions are favorable. Such capital may be raised through additional public
or private financing, as well as collaborative relationships, borrowings and
other available sources. In addition, in the course of its business, the Company
evaluates products and technologies held by third parties which, if acquired,
could result in the development of product candidates by the Company or which
complement technologies currently being developed by the Company. The Company
expects from time to time to be involved in discussions with other entities
concerning the Company's potential acquisition of rights to additional
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pharmaceutical products. In the event that the Company acquires such products or
third-party technologies, the Company may find it necessary or advisable to
obtain additional funding.
The Company's future capital requirements will be substantial and will
depend on, and could increase as a result of, many factors, including progress
of the Company's research, drug discovery and development programs; whether the
Company acquires interests in products currently held by third parties; the
results and costs of preclinical and clinical testing of the Company's products,
if developed; the time and costs involved in obtaining regulatory approvals; the
costs involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; the Company's success in entering into
collaborative agreements; changes in collaborative research relationships; the
costs associated with potential commercialization of its products, if any,
including the development of additional manufacturing, marketing and sales
capabilities; the cost and availability of third-party financing for capital
expenditures; and administrative and legal expenses. In particular, the Company
expects to have significant cash requirements in the near future as a result of,
but not limited to, increased clinical studies, which are required in order to
obtain approvals and expand the indications and markets for the Company's
products. There can be no assurance that additional or sufficient financing will
be available, or, if available, that it will be available on acceptable terms.
If additional funds are raised by issuing equity securities of the Company,
dilution to then existing stockholders may result. If adequate funds are not
available, the Company may be required to significantly curtail one or more of
its research and development programs or commercialization efforts or obtain
funds through arrangements with collaborative partners or others on less
favorable terms than might otherwise be available.
It is the Company's belief that the costs to the Company as a result of
the computer programming issue involving the year 2000 will be nominal, but no
assurance can be given that there will not be some unforeseen issue, in
particular, in connection with third parties' computer systems, that may
materially affect the Company's operations.
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<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company believes that there will continue to be
significant litigation in the pharmaceutical industry regarding
patents and other intellectual property rights, but cannot predict
the likelihood of it being involved in any disputes. Any new
litigation could consume a substantial portion of the Company's
resources regardless of the outcome of such litigation.
Both the Company and certain of its competitors have filed
oppositions against each other as to patents granted by the European
Patent Office and patents granted by the Japanese Patent Office. The
Liposome Company, Inc. ("TLC") and the University of California each
has patents or patent applications relating to active drug loading
techniques that the owners could claim are used in the manufacture of
products such as DaunoXome. The Company has opposed the grant of a
European and a Japanese patent owned by TLC and is involved in an
interference proceeding with a U.S. patent application owned by the
University of California relating to such loading technology.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11.1 Statement Re: Computation of Earnings Per Share.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter
ended March 31, 1998.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXSTAR PHARMACEUTICALS, INC.
Dated: May 13, 1998 By: /s/ PATRICK J. MAHAFFY
-----------------------------
Patrick J. Mahaffy
President and Chief
Executive Officer
Dated: May 13, 1998 By: /s/ MICHAEL E. HART
-----------------------------
Michael E. Hart
Vice President and Chief Financial
Officer
(Principal Financial Officer and
Principal Accounting Officer)
14
<PAGE> 15
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
11.1 Statement Re: Computation of Earnings Per Share.
27.1 Financial Data Schedule.
<PAGE> 1
EXHIBIT 11.1
NEXSTAR PHARMACEUTICALS, INC.
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1998 1997
------------ -----------
<S> <C> <C>
Net loss $ (2,581,000) $(9,721,000)
============ ===========
Applicable common shares:
Weighted average shares outstanding during
the period 27,467,000 26,424,000
============ ===========
Net loss per common share $ (0.09) $ (0.37)
============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 49,602,000
<SECURITIES> 11,949,000
<RECEIVABLES> 37,149,000
<ALLOWANCES> 1,102,000
<INVENTORY> 13,589,000
<CURRENT-ASSETS> 114,960,000
<PP&E> 85,217,000
<DEPRECIATION> 38,162,000
<TOTAL-ASSETS> 171,732,000
<CURRENT-LIABILITIES> 27,080,000
<BONDS> 92,564,000
0
0
<COMMON> 275,000
<OTHER-SE> 43,271,000
<TOTAL-LIABILITY-AND-EQUITY> 171,732,000
<SALES> 23,517,000
<TOTAL-REVENUES> 28,683,000
<CGS> 4,840,000
<TOTAL-COSTS> 4,840,000
<OTHER-EXPENSES> 24,466,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,695,000
<INCOME-PRETAX> (2,318,000)
<INCOME-TAX> 263,000
<INCOME-CONTINUING> (2,581,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,581,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
