UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission File Number 0-8049
ended September 30, 1994
CIRCA PHARMACEUTICALS, INC.
Incorporated under the laws 11-1966265
of the State of New York (I.R.S.Employer Identification Number)
33 RALPH AVENUE, COPIAGUE, NEW YORK 11726
Telephone number (516) 842-8383
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 90days.
Yes x No
The number of shares of Common Stock, par value $.01 per
share, outstanding were 21,711,912 as of October 28, 1994.
CIRCA PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGES
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 1994
and December 31, 1993 1
Consolidated Statements of Operations for the three
and nine months ended September 30, 1994 and 1993 2
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1994 and 1993 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ITEM 1.
September 30, 1994 December 31, 1993
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $11,770,285 $ 2,410,819
Marketable securities 25,822,621 36,182,077
Securities held as collateral 6,921,951 5,000,000
Accounts receivable 636,587 638,242
Inventories 1,701,490 1,820,883
Other current assets 3,575,739 1,776,843
Total current assets 50,428,673 47,828,864
Property, plant and equipment, net 12,507,487 12,535,586
Investments in joint ventures,
equity 30,543,185 29,473,160
Securities held as collateral 3,694,188 9,147,156
Investments, cost 7,261,609
Other assets 1,898,171 3,424,519
$106,333,313 $102,409,285
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable and
accrued expenses $ 2,726,680 $ 5,102,659
Current portion of
legal settlements 7,111,837 7,909,339
Total current liabilities 9,838,517 13,011,998
Deferred joint venture liability 14,524,791 15,242,000
Legal settlements 3,844,343 7,603,845
Deferred income 1,833,329 2,520,830
Commitments and contingencies:
Shareholders' equity:
Preferred stock, par value $.01 per
share; authorized 10,000,000 shares;
none issued
Common stock, par value $.01 per share;
authorized - 70,000,000 shares; issued
and outstanding - 22,079,220 shares
in 1994 and 22,083,420 in 1993 220,792 220,834
Capital in excess of par value 62,490,714 62,570,547
Retained earnings 18,268,819 8,486,846
Unrealized holding gain 1,590,620
Less:
Treasury stock, cost (3,168,031) (3,168,031)
Unearned compensation-
stock awards (3,110,581) (4,079,584)
Total shareholders' equity 76,292,333 64,030,612
$106,333,313 $102,409,285
See accompanying notes to consolidated financial statements
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Net sales $ 1,320,178 $1,002,833 $3,515,676 $2,197,697
Operating costs
and expenses:
Cost of goods sold 643,951 771,731 2,048,763 1,698,574
Research
and development 2,274,747 881,405 5,394,346 2,990,961
Manufacturing
overhead 1,112,128 1,092,516 3,034,239 2,896,058
Selling and
administrative 1,916,306 2,400,656 4,868,953 7,868,000
Loss from
operations (4,626,954)(4,143,475)(11,830,625) (13,255,896)
Income from
joint ventures 6,222,984 5,526,175 17,264,307 17,216,738
Investment income 2,131,429 8,287,889 5,129,308 11,087,468
Partnership loss 942,000 7,644,000
Cost of legal
settlements 1,100,000 4,947,870
Other expenses,
net 18,555 971,712 671,017 1,405,727
Income before
taxes 3,708,904 6,656,877 9,891,973 1,050,713
Provision for
income taxes 110,000 110,000
Net income $ 3,598,904 $6,656,877$ 9,781,973 $ 1,050,713
Net income
per share $ 0.17 $ 0.30 $ 0.45 $ 0.05
Weighted average
shares
outstanding 21,711,745 22,110,595 21,711,312 22,125,864
See accompanying notes to consolidated financial statements
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1994 1993
Net cash used for operating
activities $ (14,122,971) $(17,728,407)
CASH FLOW FROM INVESTING ACTIVITIES:
Dividends received from
equity joint ventures 13,500,000 13,288,078
Decrease in marketable
securities and securities held
as collateral 14,895,006 5,688,590
Proceeds from sale of shares of
Marsam stock 3,335,249 9,089,744
Additions to property, plant
and equipment (1,006,646) (267,835)
(Increase) decrease in
investments, cost (7,261,609) 676,416
Payment of joint venture liability (8,000,000)
Net cash provided by investing
activities 23,462,000 20,474,993
CASH FLOW FROM FINANCING ACTIVITIES:
Exercise of stock options 20,437 7,864
Purchase and retirement of stock (550,000)
Net cash provided by (used for)
financing activities 20,437 (542,136)
Increase in cash and
cash equivalents 9,359,466 2,204,450
Cash and cash equivalents
at beginning of period 2,410,819 3,680,381
Cash and cash equivalents
at end of period $ 11,770,285 $ 5,884,831
See accompanying notes to consolidated financial statements
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying
unaudited consolidated financial statements contain all adjustments
(consisting principally of normal recurring adjustments) necessary
to present fairly the financial position of the Company as of
September 30, 1994 and the consolidated results of operations for
the three and nine months ended September 30, 1994 and 1993 and the
statements of cash flows for the nine months then ended. The
accompanying consolidated financial statements and related notes
should be read in conjunction with the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1993. The results
of operations for the three and nine months ended September 30,
1994 and 1993 are not necessarily indicative of the results to be
expected for the full year.
2. The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities as of January 1, 1994, and at
September 30, 1994, the Company's investment securities have been
classified as "available-for-sale," with an unrealized holding gain
included as a separate component of shareholders' equity in the
amount of $1,590,620. If the Company had adopted SFAS No. 115 at
December 31, 1993, the unrealized holding gain in shareholders'
equity would have been approximately $12,200,000 at that date.
3. The Company sold shares of its investment in Marsam
Pharmaceuticals Inc. common stock during the nine months ended
September 30, 1994 and 1993, and recorded gains of $2,749,163 and
$7,942,959, respectively. At September 30, 1994, the Company owned
378,843 shares of Marsam common stock with a market value of
$5,209,091, included in marketable securities.
4. Components of inventories are summarized as follows:
September 30, December 31,
1994 1993
Raw Material $ 273,250 $ 132,841
Work in process 227,426 67,207
Finished goods 1,200,814 1,620,835
$1,701,490 $1,820,883
5. The Company recognized income from Somerset
Pharmaceuticals, Inc., of $16,783,298 and $16,594,861 for the nine
month period ended September 30, 1994 and 1993, respectively, and
$6,122,987 and $5,331,174 for the quarter ended September 30, 1994
and 1993, respectively. In addition, the Company recognized income
from American Triumvirate Insurance Company of $542,009 and
$621,877 for the nine month period ended September 30, 1994 and
1993, respectively, and $160,997 and $195,001 for the quarter ended
September 30, 1994 and 1993, respectively.
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The following unaudited aggregate information is
provided for unconsolidated investments, accounted for utilizing
the equity method:
September 30,
1994 1993
Net revenues $81,239,000 $83,452,000
Gross profits $70,305,000 $73,289,000
Net income $30,746,000 $30,571,000
6. As of September 30, 1994, the Company had commitments
to third parties of approximately $3,200,000 for research and
development projects to be expended over the next three years.
7. Net income per share is based on the weighted average
number of common shares and equivalents outstanding for each
period. The effect of stock options was less than 3% of the
weighted average shares outstanding in 1994 and 1993,and
accordingly was excluded from earnings per share.
8. For the nine month period ended September 30, 1994,
the Company has provided $110,000 for income taxes. Pretax income
includes income which is excluded income for tax purposes, with
90% of remaining taxable income offset by the Company'snet
operating loss carryforward. At September 30, 1994, the Company's
net operating loss carryforward, for federal income tax purposes,
was approximately $76,000,000, which, if not utilized, will begin
to expire in the year 2006.
9. On July 11, 1994, the Company and Andrx Corporation
(Andrx) announced the signing of an agreement to jointly develop,
manufacture and market at least six controlled release generic
pharmaceutical products. The Company also acquired an equity
interest in Andrx by payment of $6,000,000, included in the
consolidated balance sheet as investments, cost. The Company may
acquire further equity interest in Andrx by exercising certain
warrants. The joint venture, which will develop generic
pharmaceuticals for world-wide markets utilizing Andrx's controlled
release technology, will address products that have current sales
in excess of $1 billion.
PART I - FINANCIAL INFORMATION
CIRCA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
10. On July 8, 1994, the Company announced a preliminary
settlement of civil antitrust claims brought against it in a class
action pending in the U.S. District Court in Maryland with respect
to the sale of generic Dyazide. Under the settlement agreement,
the Company will pay $1,350,000 into a settlement fund for the
benefit of class plaintiffs, and will issue $2,500,000 of coupons
permitting the class of former customers to purchase products from
the Company at a predetermined discount from market prices. The
settlement agreement was accepted by the class of plaintiffs, and
on October 28, 1994, implementation was approved by the court. At
December 31, 1993, the Company provided for the estimated cost of
outstanding litigation which included the cost of this settlement.
In the case entitled Cliff Westfall, et al. v. Circa
Pharmaceuticals, Inc., et al. pending in the Circuit Court for the
County of Oakland, State of Michigan, the plaintiffs' motion for
class certification was denied. The case was settled on October
14, 1994 for $30,000.
Based upon the information it presently possesses, the
Company believes that the outcome of all pending litigation will
not have a material adverse effect on the Company's consolidated
financial position.
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CIRCA PHARMACEUTICALS, INC.
ITEM 2.
Results of Operations
Three Month Period Ended September 30, 1994
The Company reported net income of $3,599,000 for the
three month period ended September 30, 1994, compared to net income
of $6,657,000 for the same period in 1993. The primary reason
for the decrease in net income in the 1994 period was a decrease in
investment income of $6,157,000 offset by the absence of a $942,000
loss recognized from the partnership with Rhone-Poulenc Rorer (RPR)
and a $1,100,000 legal settlement, both incurred during the third
quarter of 1993. Income in 1994 was primarily attributable to
$6,123,000 of income from Somerset Pharmaceuticals, Inc.
(Somerset), a 50% owned joint venture.
Net sales were $1,320,000 during the third quarter of
1994, compared to $1,003,000 for the same period in 1993. Cost of
goods sold as a percentage of net sales decreased from 77% in 1993
to 49% in the 1994. The increase in sales and gross profit from
1993 to 1994 was primarily due to royalty income of $356,000, which
began January 1, 1994, for the sale of Dilacor XR, which is being
marketed by RPR.
Research and development expenses were $2,275,000 in
1994, compared to $881,000 in 1993, representing an increase of
$1,394,000. The primary reason for the increase was the Company's
expansion of its research and development program following the
rehabilitation by the FDA in April 1993. The Company is committed
to expanding its research and development program through both
internal efforts and joint venture arrangements with other
companies. Manufacturing overhead was $1,112,000 in 1994, compared
to $1,093,000 in 1993. These costs are expected to be absorbed by
the manufacturing process as new products are introduced into the
system through product approvals obtained from the Company's
internal research and development programs, as well as increased
activity in contract manufacturing and joint venture projects with
other companies. Selling and administrative expenses were
$1,916,000 in 1994, compared to $2,401,000 in 1993, representing a
decrease of $485,000 or 20%. The decrease was primarily
attributable to a reduction in legal expenses as a significant
portion of pending litigation was resolved in 1993.
Investment income was $2,131,000 in 1994 as compared
to $8,288,000 in 1993, representing a decrease of $6,157,000. In
the third quarter of 1994, the Company recognized a gain of
$1,586,000 on the sale of shares of its investment in Marsam
Pharmaceuticals Inc. common stock as compared to $6,808,000 in the
1993 quarter.
Other expenses, net were $19,000 in 1994, as compared
to $972,000 in 1993, representing a decrease of $953,000. The
decrease is attributable to the recording of reserves on the
realization of certain assets in the third quarter of 1993.
For the nine months ended September 30, 1994, the
Company has provided $110,000 for income taxes. Pretax income
includes income which is excluded for tax purposes, with 90% of the
remaining taxable income offset by the Company's net operating loss
carryforward. At September 30, 1994, the Company's net operating
loss carryforward, for federal income tax purposes, was
approximately $76,000,000, which, if not utilized, will begin to
expire in the year 2006.
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CIRCA PHARMACEUTICALS, INC.
(Continued)
ITEM 2.
Results of Operations
Nine Month Period Ended September 30, 1994
The Company reported net income of $9,782,000 for the
nine month period ended September 30, 1994, compared to net income
of $1,051,000 for the same period in 1993. The primary reason
for the increase in net income in the 1994 period was the absence
of a $7,644,000 loss recognized from the partnership with RPR and
$4,948,000 in legal settlements, both incurred during the 1993
period offset by a decrease in investment income of $5,958,000.
Income in 1994 was primarily attributable to joint venture income
from Somerset of $16,783,000.
Net sales were $3,516,000 during the 1994 period,
compared to $2,198,000 for the same period in 1993. The sales
increase from 1993 to 1994 was primarily due to royalty income of
$717,000, which began January 1, 1994, for the sale of Dilacor XR
and the marketing of a transdermal patch for the 1994 period versus
only seven months in the 1993 period, when such sales commenced.
Cost of goods sold as a percentage of net sales decreased from 77%
in 1993 to 58% in 1994. The increase in gross profit from 1993 to
1994 was primarily due to royalty income.
Research and development expenses were $5,394,000 in
1994, compared to $2,991,000 in 1993, representing an increase of
$2,403,000. The primary reason for the increase was the Company's
expansion of its research and development program following the
rehabilitation by the FDA in April 1993. Manufacturing overhead
was $3,034,000 in 1994, compared to $2,896,000 in 1993,
representing an increase of $138,000. Selling and administrative
expenses were $4,869,000 in 1994, compared to $7,868,000 in 1993,
representing a decrease of $2,999,000. The decrease was primarily
attributable to a reduction in legal expenses as a significant
portion of pending litigation was resolved in 1993.
Investment income was $5,129,000 in 1994 as compared
to $11,087,000 in 1993, representing a decrease of $5,958,000. In
the 1994 and 1993 periods, the Company recognized gains of
$2,749,000 and $7,943,000, respectively, on the sale of shares of
its investment in Marsam Pharmaceuticals Inc. common stock.
Other expenses, net were $671,000 in 1994, as compared
to $1,406,000 in 1993, representing a decrease of $735,000. The
decrease is attributable to the recording of reserves on the
realization of certain assets in the 1993 period.
PART I - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CIRCA PHARMACEUTICALS, INC.
(Continued)
Liquidity and Capital Resources
Working capital increased from $34,800,000 at December
31, 1993 to $40,600,000 at September 30, 1994. The increase of
$5,800,000 was primarily attributable to $13,500,000 of
dividends received from Somerset and $1,600,000 of unrealized
holding gain included in shareholders' equity, resulting from the
Company's adoption of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities. In addition, the Company received
$3,300,000 from the sales of Marsam Pharmaceuticals Inc.
common stock and $400,000 from other marketable securities. These
increases were offset by the investment of $6,000,000 in Andrx
Corporation, other investments totalling $1,300,000 and working
capital used for operating activities.
At September 30, 1994, the Company had commitments of
approximately $3,200,000 to third parties for research and
development, which will be expended over the next three years and
be funded through current working capital. Primary sources of
working capital for 1994 will continue to be dividends received
from Somerset, proceeds from sales of marketable securities and
income earned on other marketable securities. The Company
anticipates that its existing capital resources are sufficient to
meet its requirements based on its current business plans.
PART II - OTHER INFORMATION
CIRCA PHARMACEUTICALS, INC.
Item 1. Legal Proceedings
See Part 1, Item 1, Note 10
Item 6. Exhibit and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1994.
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.
CIRCA PHARMACEUTICALS, INC.
DATE: November 2, 1994 /s/Melvin Sharoky, M.D.
Melvin Sharoky, M.D., President and
Chief Executive Officer
DATE: November 2, 1994 /s/Thomas P. Rice
Thomas P. Rice, Executive Vice
President
Chief Operating and
Financial Officer