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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 JUNE 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-27628
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SUPERGEN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1841574
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
TWO ANNABEL LANE, SUITE 220, SAN RAMON, 94583
CALIFORNIA
(Address of principal executive offices) (Zip Code)
(925) 327-0200
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the registrant's Common Stock, $.001 par value,
outstanding as of August 9, 1999, was 22,977,697.
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TABLE OF CONTENTS
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1-- Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998............. 3
Consolidated Statements of Operations for the three and six month periods ended
June 30, 1999 and 1998.......................................................... 4
Consolidated Statements of Cash Flows for the six month periods ended June 30,
1999 and 1998................................................................... 5
Notes to Consolidated Financial Statements........................................ 6
Item 2-- Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 9
Item 3-- Quantitative and Qualitative Disclosures of Market Risk........................... 14
PART II OTHER INFORMATION
Item 2-- Changes in Securities and Use of Proceeds......................................... 15
Item 4-- Submission of Matters to a Vote of Security Holders............................... 16
Item 6-- Exhibits and Reports on Form 8-K.................................................. 16
SIGNATURES................................................................................................ 17
</TABLE>
2
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SUPERGEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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(UNAUDITED) (NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 13,690 $ 8,614
Marketable securities............................................................... 1,229 3,299
Accounts receivable, net............................................................ 1,086 712
Inventories......................................................................... 1,396 1,245
Due from related parties............................................................ 111 91
Prepaid loan commitment fee......................................................... 1,305 --
Prepaid expenses and other current assets........................................... 2,108 615
----------- ------------
Total current assets............................................................ 20,925 14,576
Property, plant and equipment, net.................................................... 2,775 2,939
Developed technology at cost, net..................................................... 1,145 1,266
Investment in preferred stock of related party........................................ 500 500
Due from related party................................................................ 450 450
Other assets.......................................................................... 123 62
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Total assets.................................................................... $ 25,918 $ 19,793
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................................ $ 3,112 $ 2,451
Accrued employee benefits........................................................... 488 524
----------- ------------
Total current liabilities....................................................... 3,600 2,975
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized; none outstanding..... -- --
Common stock, $.001 par value; 40,000,000 shares authorized; 22,392,199 and
20,969,953 shares issued and outstanding at June 30, 1999 and December 31, 1998,
respectively...................................................................... 22 21
Additional paid in capital.......................................................... 88,454 72,818
Accumulated other comprehensive loss................................................ (99) (128)
Accumulated deficit................................................................. (66,059) (55,893)
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Total stockholders' equity...................................................... 22,318 16,818
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Total liabilities and stockholders' equity...................................... $ 25,918 $ 19,793
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</TABLE>
See accompanying notes to consolidated financial statements
3
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SUPERGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED JUNE
JUNE 30, 30,
-------------------- ---------------------
1999 1998 1999 1998
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales............................................................ $ 1,424 $ 794 $ 2,340 $ 1,552
Operating expenses:
Cost of sales...................................................... 484 263 1,192 588
Research and development........................................... 3,675 2,263 6,795 5,038
Sales and marketing................................................ 1,234 804 2,466 1,447
General and administrative......................................... 821 802 1,641 1,938
--------- --------- ---------- ---------
Total operating expenses......................................... 6,214 4,132 12,094 9,011
--------- --------- ---------- ---------
Loss from operations................................................. (4,790) (3,338) (9,754) (7,459)
Interest income...................................................... 143 245 283 537
Amortization of prepaid loan commitment fee.......................... (652) -- (695) --
--------- --------- ---------- ---------
Net loss............................................................. $ (5,299) $ (3,093) $ (10,166) $ (6,922)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Basic net loss per share............................................. $ (0.25) $ (0.15) $ (0.48) $ (0.34)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Weighted average shares used in basic net loss per share
calculation........................................................ 21,585 20,364 21,325 20,300
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
4
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SUPERGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
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<S> <C> <C>
Operating activities:
Net loss............................................................................. $ (10,166) $ (6,922)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization...................................................... 377 214
Amortization of prepaid loan commitment fee........................................ 695 --
Expense related to stock options and warrants granted to non-employees............. 1,187 170
Changes in operating assets and liabilities:
Accounts receivable.............................................................. (374) (231)
Inventories...................................................................... (151) 17
Prepaid expenses and other assets................................................ (1,508) (463)
Accounts payable and other liabilities........................................... 625 3
Due from related parties......................................................... (20) (34)
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Net cash used in operating activities.................................................. (9,335) (7,246)
Investing activities:
Purchase of marketable securities.................................................... -- (5,138)
Sale of marketable securities........................................................ 2,053 1,076
Purchase of property and equipment................................................... (92) (567)
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Net cash provided by (used in) investing activities:................................... 1,961 (4,629)
Financing activities:
Issuance of common stock, net of issuance costs...................................... 12,450 179
---------- ----------
Cash provided by financing activities.................................................. 12,450 179
---------- ----------
Net increase (decrease) in cash and cash equivalents................................... 5,076 (11,696)
Cash and cash equivalents at beginning of period....................................... 8,614 23,326
---------- ----------
Cash and cash equivalents at end of period............................................. $ 13,690 $ 11,630
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</TABLE>
See accompanying notes to consolidated financial statements
5
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SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of SuperGen,
Inc. ("we", "SuperGen" or "the Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information on a
basis consistent with the audited financial statements for the year ended
December 31, 1998 and in accordance with the instructions to Form 10-Q. The
consolidated financial statements include the accounts of two wholly owned
subsidiaries, which are immaterial. The statements include all adjustments
(consisting of normal recurring accruals) which in our opinion are necessary for
a fair presentation of the results for the periods presented. The interim
results are not necessarily indicative of results that may be expected for the
full year.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 1998.
NOTE 2. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
Cash and cash equivalents include bank demand deposits, certificates of
deposit, investments in debt securities with maturities of three months or less
when purchased and an interest in money market funds which invest primarily in
U.S. government obligations and commercial paper. These instruments are highly
liquid and are subject to insignificant risk.
Investments in marketable securities consist of corporate or government debt
securities that have a readily ascertainable market value and are readily
marketable. We report these investments at fair value. We designate all debt
securities as available-for-sale, with unrealized gains and losses included in
equity.
The following is a summary of available-for-sale securities as of June 30,
1999 (in thousands):
<TABLE>
<CAPTION>
GROSS
AMORTIZED UNREALIZED ESTIMATED
COST LOSSES FAIR VALUE
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<S> <C> <C> <C>
U.S. corporate debt securities............................ $ 5,322 $ (4) $ 5,318
U.S. government debt securities........................... 204 -- 204
Marketable equity security................................ 167 (95) 72
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Total................................................... $ 5,693 $ (99) $ 5,594
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</TABLE>
<TABLE>
<CAPTION>
GROSS
AMORTIZED UNREALIZED ESTIMATED
COST LOSSES FAIR VALUE
----------- ------------- -----------
<S> <C> <C> <C>
Amounts included in cash and cash equivalents............. $ 4,293 $ -- $ 4,293
Marketable securities, current............................ 1,233 (4) 1,229
Amount included in other assets........................... 167 (95) 72
----------- --- -----------
Total................................................... $ 5,693 $ (99) $ 5,594
----------- --- -----------
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</TABLE>
6
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SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 2. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (CONTINUED)
Available-for-sale securities by contractual maturity are shown below (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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<S> <C> <C>
Debt securities:
Due in one year or less............................................ $ 5,522 $ 1,391
Due after one year through three years............................. -- 2,065
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5,522 3,456
Marketable equity security........................................... 72 26
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Total.............................................................. $ 5,594 $ 3,482
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</TABLE>
Realized gains and losses for the six months ended June 30, 1999 and 1998
were not material.
NOTE 3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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Raw material......................................................... $ 203 $ 210
Work in process...................................................... 661 511
Finished goods....................................................... 532 524
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$ 1,396 $ 1,245
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</TABLE>
NOTE 4. ACQUISITION OF SPARTA PHARMACEUTICALS, INC.
In January 1999, we executed an agreement to acquire Sparta Pharmaceuticals,
Inc. ("Sparta"), a biopharmaceutical company engaged in the business of
developing technologies and drugs for the treatment of a number of
life-threatening diseases, including cancer, cardiovascular disorders, chronic
metabolic diseases, and inflammation.
On August 10, 1999, the stockholders of Sparta approved the merger with
SuperGen. On the effective date of the merger, Sparta will become a wholly-owned
subsidiary of SuperGen. Sparta stockholders will receive approximately 430,000
shares of our common stock and 220,000 warrants to purchase our common stock at
approximately $18 per share in exchange for all shares of Sparta common and
preferred stock that they own. The exact number of shares of our common stock,
warrants, and the warrant exercise price will be determined by reference to the
average closing price of our common stock over the 30 trading days immediately
preceding the completion of the merger.
The transaction will be accounted for under the purchase method of
accounting. We believe the purchase price will be approximately $9.4 million
(subject to finalization of acquisition costs) of which at least 75% will be
expensed as in-process research and development.
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SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 5. STOCKHOLDERS' EQUITY
On May 26, 1999, we issued 1,000,000 shares of registered common stock to
HSBC James Capel Canada, Inc., an institutional investor, for net proceeds
totaling $9,764,000. On June 7, 1999, we issued 170,000 shares of registered
common stock to The Pharmaceutical/Medical Technology Fund, L.P. and 30,000
shares of registered common stock to Strategic Healthcare Investment Fund Ltd.
The net proceeds from these two institutional investors totaled $2,080,000.
These three transactions reflected discounts of approximately thirty seven
percent to the market price of our stock at the transaction dates. These
discounts resulted from prior discussions with the investors and the selling
prices per share were based on a negotiated average market price. We believe
that the selling prices were reasonable in light of the volatility of our stock
price, the magnitude of the transactions, and our capital needs.
On August 9, 1999, we issued 463,600 shares of registered common stock to
the SMALLCAP World Fund, Inc., an institutional investor. As part of this
transaction, we also issued to the investor three-year warrants to purchase
231,800 shares of our common stock at a price of $18.00 per share. We also
granted registration rights in connection with these warrants. The net proceeds
from this transaction totaled $7,106,000. Including the value of the warrants
issued, this transaction reflected a discount of approximately twenty five
percent to the market price of our stock at the transaction date. We believe
that the selling price was reasonable in light of the volatility of our stock
price, the magnitude of the transactions, and our capital needs. In connection
with this transaction, we issued to the placement agent 25,498 unregistered
five-year warrants to purchase our common stock at $18.00 per share.
NOTE 6. COMPREHENSIVE LOSS
For the three months ended June 30, 1999 and 1998, total comprehensive
losses amounted to $5,309,000 and $3,097,000, respectively. For the six months
ended June 30, 1999 and 1998, total comprehensive losses amounted to $10,138,000
and $6,961,000, respectively.
NOTE 7. BASIC NET LOSS PER SHARE
We compute basic net loss per share by dividing our net loss by the weighted
average number of shares outstanding during each period. The exercise of options
and warrants is not assumed since the result would be antidilutive.
NOTE 8. LINE OF CREDIT AGREEMENT
In April 1999, we entered into a line of credit agreement with a local bank
to borrow up to $3 million, secured by our $5 million certificate of deposit at
that bank. Interest accrues at the bank's prime rate and is payable monthly. The
certificate of deposit matures on September 1, 1999, and any unpaid principal
amounts advanced under the line of credit are also due on that date. At June 30,
1999, no amounts were outstanding against this line of credit.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE
FORWARD-LOOKING STATEMENTS REPRESENT OUR EXPECTATIONS OR BELIEFS CONCERNING
FUTURE EVENTS AND INCLUDE STATEMENTS, AMONG OTHERS, REGARDING:
- - THE ADEQUACY OF OUR EXISTING CAPITAL RESOURCES
- - THE TIMING AND PROGRESS OF THE DEVELOPMENT OF OUR PROPOSED PRODUCTS,
- - FILING FOR AND RECEIVING REGULATORY APPROVALS,
- - ACQUIRING ADDITIONAL PRODUCTS AND TECHNOLOGIES,
- - ANTICIPATING THE MARKET OPPORTUNITIES FOR OUR EXTRA AND PROPRIETARY PRODUCTS,
- - MARKETING CURRENT AND PROPOSED PRODUCTS TO HOSPITAL BUYING GROUPS AND OTHERS,
- - DEVELOPING PARTNERSHIP RELATIONSHIPS,
- - INCURRING OPERATING EXPENSES AND LOSSES AND REQUIRING ADDITIONAL CAPITAL.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF A VARIETY OF FACTORS, INCLUDING THOSE
SET FORTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--FACTORS AFFECTING FUTURE OPERATING RESULTS" AND ELSEWHERE
IN THIS REPORT.
OVERVIEW
We are an emerging pharmaceutical company dedicated to the acquisition,
rapid development and commercialization of products for the treatment of
life-threatening diseases, particularly cancer. We seek to minimize the time,
expense, and technical risk associated with drug commercialization by
identifying, acquiring, and developing pharmaceutical compounds in the later
stages of development, rather than committing significant resources to the
research phase of drug discovery.
We are focusing our existing and proposed commercialization efforts on two
drugs, Nipent-Registered Trademark- and rubitecan (formerly known as RFS 2000).
We are currently marketing Nipent-Registered Trademark- in the United States
for the treatment of hairy cell leukemia. We are also conducting clinical trials
of Nipent-Registered Trademark- to seek FDA approval to expand its use for the
treatment of additional forms of leukemia. Rubitecan is a drug compound in the
late stage of clinical development. Clinical studies indicate it has the
potential to treat a variety of solid tumors such as pancreatic, breast, lung,
colorectal, ovarian, and prostate cancers and hematological disorders.
We are also developing our product line of enhanced generic anticancer drugs
using our Extra proprietary drug delivery technology. This technology,
consisting of a delivery system incorporating the active ingredient
cyclodextrin, has the following properties:
- The form of a ready to inject, stable solution that increases the ease and
safety of administration.
- Increased shelf life, facilitating multiple doses from a single vial.
- Less susceptibility to ulceration at the injection site due to shielding
properties of the Extra formulation. The drug is released only upon
circulation within the bloodstream.
Our Extra technology is protected by a combination of exclusive and
non-exclusive licenses and related patents. These patents were issued between
1991 and 1998. The licenses pertaining to the Extra platform generally are
effective for the terms of the related patents.
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We seek to expand our portfolio of anticancer drugs through the acquisition
of products and product candidates, or companies owning such products or
candidates, which complement our portfolio and provide us with market
opportunities. In January 1999, we executed an agreement to acquire Sparta
Pharmaceuticals, Inc. ("Sparta"), a biopharmaceutical company engaged in the
business of developing technologies and drugs for the treatment of a number of
life-threatening diseases, including cancer, cardiovascular disorders, chronic
metabolic diseases, and inflammation.
On August 10, 1999, the stockholders of Sparta approved the merger with
SuperGen. On the effective date of the merger, Sparta will become a wholly-owned
subsidiary of SuperGen. Sparta stockholders will receive approximately 430,000
shares of our common stock and 220,000 warrants to purchase our common stock at
approximately $18 per share in exchange for all shares of Sparta common and
preferred stock that they own. The exact number of shares of our common stock,
warrants, and the warrant exercise price will be determined by reference to the
average closing price of our common stock over the 30 trading days immediately
preceding the completion of the merger.
The transaction will be accounted for under the purchase method of
accounting. We believe the purchase price will be approximately $9.4 million
(subject to finalization of acquisition costs) of which at least 75% will be
expensed as in-process research and development.
We also have non-oncology programs in the large market areas of anemias and
other blood cell disorders, obesity/diabetes and autoimmune diseases. We intend
to seek partnerships with larger drug companies for the development and
marketing of these non-oncology drug candidates.
We incorporated in March 1991, as a California corporation and changed our
state of incorporation to Delaware on November 3, 1997. Our executive offices
are located at Two Annabel Lane, Suite 220, San Ramon, California 94583, and our
telephone number at that address is (925) 327-0200.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30,
1998.
Net sales were $1,424,000 in the second quarter of 1999 compared to $794,000
in the second quarter of 1998. The increase was due to higher sales volumes of
Nipent-Registered Trademark- and to a lesser extent, to sales of mitomycin,
which commenced in June 1998. Gross margins were 66% in 1999 compared to 67% in
1998. We are in the early stages of Nipent-Registered Trademark- sales and
manufacturing and current margins may not be indicative of future margins due to
possible variations in average selling prices and manufacturing costs.
Research and development expenses in the second quarter of 1999 were
$3,675,000 compared to $2,263,000 in the same period in 1998. The increased
expense was primarily due to increased manufacturing and clinical costs
associated with the expansion of rubitecan trials into broad Phase III status
and the corresponding increase in the research and development staff.
Sales and marketing expenses were $1,234,000 in the second quarter of 1999
compared to $804,000 in the same period in 1998. This change was primarily due
to advertising and related costs to support Nipent-Registered Trademark- sales
and the costs associated with the expansion of the sales and professional
services staff.
General and administrative expenses were $821,000 in the second quarter of
1999, compared to $802,000 in the same period in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net sales were $2,340,000 in the first six months of 1999 compared to
$1,552,000 in the same period in 1998. The increase was due to higher sales
volumes of Nipent-Registered Trademark- and to a lesser extent, to sales of
mitomycin, which commenced in June 1998. Gross margins were 49% in 1999 compared
to 62% in 1998. The decline in gross margin was due primarily to a larger
percentage of Nipent-Registered Trademark- units sold in 1999 at a lower unit
selling price under a supply agreement for sale outside North America. We are in
the early
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stages of Nipent-Registered Trademark- sales and manufacturing and current
margins may not be indicative of future margins due to possible variations in
average selling prices and manufacturing costs.
Research and development expenses in the first six months of 1999 were
$6,795,000 compared to $5,038,000 in the same period in 1998. The increased
expense was primarily due to increased manufacturing and clinical costs
associated with the expansion of rubitecan trials into broad Phase III status
and the corresponding increase in the research and development staff.
Sales and marketing expenses were $2,466,000 in the first six months of 1999
compared to $1,447,000 in the same period in 1998. This change was primarily due
to advertising and related costs to support Nipent-Registered Trademark- sales,
including approximately $375,000 for a Nipent-Registered Trademark- symposium we
held in February 1999, and the costs associated with the expansion of the sales
and professional services staff.
General and administrative expenses were $1,641,000 in the first six months
of 1999, compared to $1,938,000 in the same period in 1998. The decrease was due
principally to lower costs relating to investor relations, legal services, and
information systems consulting.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and marketable securities totaled $14.9 million
at June 30, 1999 compared to $11.9 million at December 31, 1998.
The net cash used in operating activities of $9.3 million in the first six
months of 1999 primarily reflected the net loss for the period of $10.2 million,
partially offset by non-cash charges of approximately $1.8 million related to
stock options and warrants granted to non-employees, and amortization of prepaid
loan commitment fees.
We believe that our current cash, cash equivalents, and investments in debt
securities, together with the ability to borrow up to $5 million under a secured
promissory note executed in March 1999, will satisfy our cash requirements at
least through December 31, 1999. Our primary planned uses of cash during that
period are:
- Funding operations;
- Conducting clinical testing of rubitecan, Nipent-Registered Trademark- and
product candidates;
- Marketing for expanded indications for Nipent-Registered Trademark- that
may be developed; and
- Continuing other research and development programs.
On May 26, 1999, we issued 1,000,000 shares of registered common stock to
HSBC James Capel Canada, Inc., an institutional investor for net proceeds
totaling $9,764,000. On June 7, 1999, we issued 170,000 shares of registered
common stock to The Pharmaceutical/Medical Technology Fund, L.P. and 30,000
shares of registered common stock to Strategic Healthcare Investment Fund Ltd.
The net proceeds from these two institutional investors totaled $2,080,000.
These three transactions reflected discounts of approximately thirty seven
percent to the market price of our stock at the transaction dates. These
discounts resulted from prior discussions with the investors and the selling
prices per share were based on a negotiated average market price. We believe
that the selling prices were reasonable in light of the volatility of our stock
price, the magnitude of the transactions, and our capital needs.
On August 9, 1999, we issued 463,600 shares of registered common stock to
the SMALLCAP World Fund, Inc., an institutional investor. As part of this
transaction, we also issued to the investor three-year warrants to purchase
231,800 shares of our common stock at a price of $18.00 per share. We also
granted registration rights in connection with these warrants. The net proceeds
from this transaction totaled $7,106,000. Including the value of the warrants
issued, this transaction reflected a discount of approximately twenty five
percent to the market price of our stock at the transaction date. We believe
that the selling price was reasonable in light of the volatility of our stock
price, the magnitude of the
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transactions, and our capital needs. In connection with this transaction, we
issued to the placement agent 25,498 unregistered five-year warrants to purchase
our common stock at $18.00 per share.
We continue to actively consider future contractual arrangements that would
require significant financial commitments. If we experience currently
unanticipated cash requirements, we could require additional capital in 1999.
We may seek such additional funding through public or private financings or
collaborative or other arrangements with third parties. We may not be able to
obtain additional funds on acceptable terms, if at all. See "Factors Affecting
Future Operating Results."
FACTORS AFFECTING FUTURE OPERATING RESULTS
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING
SUPERGEN. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT
WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF
OPERATIONS OR CASH FLOWS COULD BE ADVERSELY AFFECTED. IN THOSE CASES, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE.
WE HAVE INCURRED LOSSES AND MAY NEVER ACHIEVE SIGNIFICANT REVENUES OR
PROFITABLE OPERATIONS. We have incurred cumulative losses of $66.1 million from
our inception through June 30, 1999. These losses included non-cash charges of
$7.5 million for the acquisition of in-process research and development. We have
not achieved profitability and expect to continue to incur substantial operating
losses at least through 2000. Substantially all of our revenues have come from
sales of Nipent-Registered Trademark-, and we expect this trend to continue for
some time. Nipent-Registered Trademark- revenues were $2.1 million for the first
six months of 1999, $2.7 million in 1998, $1.5 million in 1997 and $225,000 in
1996. All of these revenues resulted from commercial sales. We will need to
successfully market Nipent-Registered Trademark- for other indications and bring
other proprietary products to market to become profitable. Our ability to become
profitable will also depend upon a variety of other factors, including the
following:
- The price, volume and timing of sales of products.
- The mix between Nipent-Registered Trademark- sales in the United States
and those under a supply agreement with Warner-Lambert Company for sales
outside North America.
- Variations in gross margins of our products, which may be affected by
sales mix and competitive pricing pressures.
- Regulatory approvals of new products or expanded labeling of existing
products.
- Changes in the level of our research and development, including the timing
of any expansion of clinical trials. Clinical trials include the testing
of drug compounds upon human subjects.
- Acquisitions of products or technology.
Our long-term success will also be affected by expenses, difficulties and
delays frequently encountered in developing and commercializing new
pharmaceutical products, competition, and the burdensome regulatory environment
in which we operate. We cannot be certain that we will ever achieve significant
revenues or profitable operations.
OUR PROPOSED PROPRIETARY PRODUCTS WILL REQUIRE SIGNIFICANT ADDITIONAL
DEVELOPMENT. Our proposed proprietary products are in the development rather
than the research stage. However, we must significantly develop all of our
proposed products before we can market them. Although we believe that the
results of our early stage clinical studies support further development of our
proposed proprietary products, the results we have obtained to date do not
necessarily indicate results of further testing, including controlled
12
<PAGE>
human clinical testing. All of the potential proprietary products that we are
currently developing require extensive clinical testing before we can submit any
regulatory application for their commercial use.
In contrast to our proposed proprietary products,
Nipent-Registered Trademark- and our generic version of mitomycin have been
approved for commercial use and we began sales of these drugs in 1996 and 1998,
respectively.
OUR BUSINESS COULD SUFFER IF WE ARE UNABLE TO SUCCESSFULLY DEVELOP OUR
GENERIC PRODUCTS AND EXTRA PRODUCTS BASED ON GENERIC PRODUCTS BECAUSE THE
PATENTS FOR THE UNDERLYING DRUGS DO NOT EXPIRE. We plan to develop and market
several generic and Extra drugs, some of which are currently protected by one or
more patents. If the existing United States patent protection for these drugs is
maintained or extended, it is unlikely that we will be able to market our own
generic and Extra versions of those drugs. We do not believe it is financially
prudent to proceed with substantial development efforts for generic or Extra
drugs if we do not know if or when existing patent protection will cease.
WE WILL NEED ADDITIONAL FUNDING WHICH MAY NOT BE READILY AVAILABLE. We
expect that we will need substantial additional funding. Our business, results
of operations and cash flows will be adversely affected if we fail to obtain
adequate funding in a timely manner.
We believe that our current cash, cash equivalents and marketable
securities, together with the ability to borrow up to $5 million under a secured
promissory note will be adequate to fund operations and capital expenditures at
least through December 31, 1999. However, if we experience unanticipated cash
requirements during this period, we could require additional funds much sooner.
We may receive funds from the sale of equity securities or the exercise of
outstanding warrants and options to acquire common stock. However, those
fundings may not occur, or if they occur, they may not be on terms favorable to
us. Also, the dilutive effect of those fundings could adversely affect our
results per share.
OUR BUSINESS WILL SUFFER IF WE FAIL TO OBTAIN REGULATORY APPROVALS IN A
TIMELY MANNER, IF AT ALL. The United States Food and Drug Administration and
comparable agencies in foreign countries impose substantial requirements for the
introduction of new pharmaceutical products through lengthy and detailed
clinical testing procedures, sampling activities and other costly and
time-consuming compliance procedures. We have obtained marketing approval for
Nipent-Registered Trademark- and our internally developed generic version of
mitomycin and approval of sources of bulk drugs for our Extra and generic
products. However, we have not yet received marketing approval for any of our
internally developed proprietary products. Our proprietary drugs and Extra drugs
may require substantial clinical trials and FDA review as new drugs. Our generic
drugs require both approval of the bulk source of the drug and FDA approval of
their final formulation.
We cannot predict with certainty if or when we might submit for regulatory
review those products currently under development. Once we submit our potential
products for review, the FDA or other regulatory agencies may not approve any of
our pharmaceutical products on a timely basis or at all. For example, we
initially believed that the FDA would abbreviate the approval process for our
Extra products. However, the FDA is reviewing Mito Extra, our first Extra
product submission, as a new drug. Sales of our products outside the United
States will be subject to regulatory requirements governing clinical trials and
marketing approval. These requirements vary widely from country to country and
could delay the introduction of our products in those countries.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR
INTELLECTUAL PROPERTY. Our business will be harmed if competitors develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets, if our trade secrets are disclosed or if we
cannot effectively protect our rights to unpatented trade secrets.
We actively seek patent protection for our proprietary products and
technologies. We have a number of United States patents and also have licenses
to or assignments of numerous issued United States patents. However, litigation
may be necessary to protect our patent position, and we cannot be certain that
13
<PAGE>
we will have the required resources to pursue the necessary litigation or
otherwise to protect our patent rights. Our efforts to protect our patents may
fail. In addition to pursuing patent protection in appropriate cases, we also
rely on trade secret protection for unpatented proprietary technology. However,
trade secrets are difficult to protect.
There has been, and we believe that there will continue to be, significant
litigation in the pharmaceutical industry regarding patent and other
intellectual property rights. If we become involved in any litigation, it could
consume a substantial portion of our resources, regardless of the outcome of the
litigation.
IF WE LOSE THE SERVICES OF CERTAIN KEY EMPLOYEES, OUR BUSINESS WILL BE
HARMED. Our success is dependent on key personnel, including Dr. Rubinfeld, our
President and Chief Executive Officer, and members of our senior management and
scientific staff. To successfully expand our operations, we will need to attract
and retain additional, highly skilled individuals, particularly in the areas of
clinical administration, manufacturing and finance. We compete with other
companies for the services of existing and potential employees. We believe our
compensation and benefits packages are competitive for our geographical region
and our industry group. However, we may be at a disadvantage to the extent that
potential employees may favor larger, more established employers.
IMPACT OF THE YEAR 2000 ISSUE
As is more fully described in our annual report on Form 10-K, we converted
to new accounting software in 1998 and that software properly recognizes dates
beyond December 31, 1999. Our assessment of the risks associated with Year 2000
are unchanged from that described in the 1998 annual report. We are continuing
to develop a contingency plan to address a worst case Year 2000 scenario and
plan to complete this plan by the end of the third quarter of 1999.
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Due to the short-term nature of our interest bearing assets, we believe that
our exposure to interest rate market risk is not significant.
14
<PAGE>
SUPERGEN, INC.
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 13, 1996, we commenced our initial public offering (the "IPO") of
4,025,000 units, which included the underwriter's over-allotment option of
525,000 units at a public offering price of $6.00 per unit. A unit consisted of
one share of Common Stock $0.001 par value per share, and a warrant to purchase
one share of Common Stock at $9.00. We commenced the IPO pursuant to a
registration statement on Form S-B (file no. 333-476 LA) filed with the
Securities and Exchange Commission. Of the units registered, 4,024,302 were
sold. Paulson Investment Company was the managing underwriter of the IPO.
Aggregate gross proceeds from the IPO (prior to deduction of underwriting
discounts and commissions and expenses of the offering and any exercises of the
warrants) were $24,146,000. All of the shares registered for the exercise of the
warrants have not yet been sold. There were no selling stockholders in the IPO.
We paid total expenses of $2,615,000 in connection with the IPO consisting
of underwriting discounts, commissions and expenses of $1,992,000 and other
expenses of approximately $623,000. The net proceeds from the IPO through June
30, 1999, including subsequent exercises of warrants to purchase common stock,
were $23,424,000.
From March 13, 1996, the effective date of the registration statement, to
June 30, 1999, (the Company's fiscal 1999 second quarter end), the approximate
amount of net proceeds used were:
<TABLE>
<S> <C>
Construction of plant, building and facilities.............. $1,246,000
Purchase and installation of machinery and equipment........ 295,000
Purchase of real estate..................................... 744,000
Working capital used in operations.......................... 16,862,000
Repurchase of common stock.................................. 3,557,000
Purchase of equity investment............................... 500,000
Acquisition of developed technology......................... 220,000
</TABLE>
None of such payments consisted of direct or indirect payments to directors,
officers, owners of more than 10% of the outstanding stock of the Company or
affiliates of the Company, with the exception of:
- The payment to repurchase common stock, which was made to a stockholder
that, immediately prior to the repurchase, owned more than 10% of our then
outstanding common stock; and
- Payments to directors and officers as compensation for services provided.
15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 5, 1999. The
results of the voting were as follows:
Proposal 1: Election of the Board of Directors of the Company.
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES WITHHELD
- ---------------------- ------------ --------------
<S> <C> <C>
Joseph Rubinfeld 17,062,203 94,150
Denis Burger 17,059,003 97,350
Lawrence J. Ellison 17,031,389 124,964
Julius A. Vida 17,037,521 118,832
Daniel Zurr 17,058,503 97,850
</TABLE>
Proposal 2: Amendment of the Company's Amended and Restated 1998 Stock Option
Plan to increase the number of shares reserved for issuance by
600,000 shares to 3,850,000 shares.
<TABLE>
<S> <C>
Votes For:....... 16,283,236
Votes Against:... 71,469
Votes
Abstaining:...... 153,648
Broker
Non-Votes:....... --
</TABLE>
Proposal 3: Ratification of Ernst & Young LLP as the independent auditors of
the Company for the fiscal year ending December 31, 1999.
<TABLE>
<S> <C>
Votes For:....... 17,100,075
Votes Against:... 12,570
Votes
Abstaining:...... 43,708
Broker
Non-Votes:....... --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No.
27.1 Financial Data Schedule--electronic filing only.
(b) No reports were filed on Form 8-K during the quarter for which this report
is filed.
16
<PAGE>
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.
<TABLE>
<S> <C> <C>
SUPERGEN, INC.
Date: August 13, 1999 By: /s/ JOSEPH RUBINFELD
-----------------------------------------
Joseph Rubinfeld, Ph.D.
CHIEF EXECUTIVE OFFICER, PRESIDENT,
AND DIRECTOR (PRINCIPAL EXECUTIVE
OFFICER AND PRINCIPAL FINANCIAL OFFICER)
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
SuperGen, Inc. June 30, 1999 Consolidated Financial Statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,690
<SECURITIES> 1,229
<RECEIVABLES> 1,096
<ALLOWANCES> 10
<INVENTORY> 1,396
<CURRENT-ASSETS> 20,925
<PP&E> 3,863
<DEPRECIATION> 1,088
<TOTAL-ASSETS> 25,918
<CURRENT-LIABILITIES> 3,600
<BONDS> 0
0
0
<COMMON> 88,476
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,918
<SALES> 2,340
<TOTAL-REVENUES> 2,340
<CGS> 1,192
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,166)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,166)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
