SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
* QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
* 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: 0-11749
SCIOS NOVA INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-3701481
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2450 Bayshore Parkway, Mountain View, California 94043
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 415-966-1550
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 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 * No ______
The number of shares outstanding of Registrant's Common Stock, $.001 par
value, on June 30, 1995 was 35,946,030.
SCIOS NOVA INC.
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Incorporated herein is the following financial information:
Consolidated Balance Sheets as of June 30, 1995 (unaudited) and December 31,
1994 (audited).
Consolidated Statements of Operations for the three month periods ended June
30, 1995 and June 30, 1994, and for the six month periods ended June 30,
1995 and June 30, 1994 (unaudited).
Consolidated Statements of Cash Flows for the six month periods ended June 30,
1995 and June 30, 1994 (unaudited).
Notes to Consolidated Financial Statements.
SCIOS NOVA INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
ASSETS
June 30, December 31,
1995 1994
(Unaudited)
Current assets:
Cash and cash equivalents $9,890 $29,674
Available-for-sale securities 15,951 22,441
Accounts receivable 3,693 3,529
Other receivables 59 70
Prepaid expenses 745 1,147
Total current assets 30,338 56,861
Available-for-sale securities, non-current 67,686 52,324
Investment in affiliates 1,974 --
Property and equipment, net 36,237 35,118
Other assets 1,705 1,793
_______ _______
TOTAL ASSETS $137,940 $146,096
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,514 $3,301
Other accrued liabilities 7,276 11,557
Deferred contract revenue 6,116 2,444
Current portion of long-term debt 636 617
Total current liabilities 15,542 17,919
Long-term debt 1,417 1,739
Stockholders' equity:
Preferred stock; $.001 par value; 20,000,000
shares authorized; issued and outstanding:
16,053 and 21,053, respectively -- --
Common stock; $.001 par value; 150,000,000
shares authorized; issued and outstanding:
35,946,030 and 35,283,200, respectively 36 35
Additional paid-in capital 396,592 391,745
Notes receivable (27) (27)
Unrealized gains (losses) on securities 609 (2,309)
Accumulated deficit (276,229) (263,006)
Total stockholders' equity 120,981 126,438
_______ _______
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $137,940 $146,096
See notes to consolidated financial statements.
SCIOS NOVA INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
(Unaudited) (Unaudited)
Revenues:
Product sales $9,672 $9,201 $21,557 $21,359
Co-promotion commissions 334 857 1,042 1,500
Research & development contracts 1,758 2,365 2,845 4,274
11,764 12,423 25,444 27,133
Costs and expenses:
Cost of goods sold 5,571 5,852 13,092 13,544
Research and development 7,761 8,958 14,725 17,626
Marketing, general and administration 4,346 4,633 8,923 8,241
Profit distribution to third parties 1,278 995 2,566 2,464
18,956 20,438 39,306 41,875
Loss from operations (7,192) (8,015) (13,862) (14,742)
Other income:
Investment income 1,409 1,244 2,379 2,556
Other income (expense), net 17 (189) 70 (191)
1,426 1,055 2,449 2,365
Equity in net loss of affiliates (832) (308) (1,810) (308)
Minority interests -- 464 -- 596
Net loss ($6,598) ($6,804) ($13,223) ($12,089)
Net loss per common share ($0.18) ($0.19) ($0.37) ($0.34)
Weighted average number of
common shares outstanding 35,691,268 35,202,241 35,438,934 35,167,010
See notes to consolidated financial statements.
SCIOS NOVA INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Six months ended
June 30,
1995 1994
(Unaudited)
Cash flows from operating activities:
Net loss $(13,223) $(12,089)
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 1,749 2,277
Deferred contract revenue 3,672 3
Other 1,658 (310)
Changes in assets and liabilities:
Accounts receivable (164) (520)
Other receivables 11 87
Prepaid expenses 402 622
Other assets 88 40
Accounts payable (1,787) (630)
Other accrued liabilities (2,307) (640)
Net cash used by operating activities (9,901) (11,160)
Cash flows from investing activities:
Payments for property and equipment, net (3,964) (2,447)
Sales of marketable securities 87,266 90,860
Purchases of marketable securities (93,220) (89,698)
Net cash used by investment activities (9,918) (1,285)
Cash flows from financing activities:
Issuance of common stock and collection
of notes receivable from stockholders, net 357 208
Debt repayments (322) (315)
Net cash provided (used) by financing activities 35 (107)
Net decrease in cash and cash equivalents (19,784) (12,552)
Cash and cash equivalents at beginning of period 29,674 13,587
Cash and cash equivalents at end of period $ 9,890 $ 1,035
Supplemental cashflow data:
Net unrealized securities gains (losses) $ 2,918 $ (1,639)
See notes to consolidated financial statements.
SCIOS NOVA INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Accounting Policies
The unaudited consolidated financial statements of Scios Nova Inc.
("Scios Nova" or the "Company") reflect, in the opinion of management, all
adjustments, consisting only of normal and recurring adjustments, necessary
to present fairly the Company's financial position at June 30, 1995 and the
Company's results of operations for the three- and six- month periods ended
June 30, 1995 and 1994. Interim-period results are not necessarily
indicative of results of operations or cash flows for a full-year period.
These financial statements and the notes thereto should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1994.
The year-end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". All marketable securities at
June 30, 1995 were deemed by management to be available for sale and
therefore are reported at fair value with net unrealized gains or losses
reported in stockholders' equity.
2. On May 25, 1995, the Company was served with three complaints filed
in the U.S. District Court for the Northern District of California by three
stockholders. The actions were filed against the Company and Richard Casey,
its Chairman and Chief Executive Officer, on behalf of the individual
plaintiffs and on behalf of other purchasers of the Company's stock during
the period from October 6, 1993 to May 2, 1995. The complaints allege
violations of federal securities laws, claiming that the defendants issued
a series of false and misleading statements, including filings with the
Securities and Exchange Commission, regarding the Company and clinical trials
involving one of its products, AURICULIN [registered trademark] anaritide.
The complaints seek unspecified compensatory and punitive damages, attorneys
fees and costs. Discovery has not yet commenced. The Company believes it
has meritorious defenses and intends to defend the lawsuits vigorously. The
ultimate outcome of this action cannot presently be determined. Accordingly,
no provision for any liability or loss that may result from adjudication or
settlement thereof has been made in the accompanying consolidated financial
statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating Results
The net loss for the quarter ended June 30, 1995 was $6.6 million
compared to a net loss of $6.8 million in the corresponding quarter of 1994.
For the six-month periods ended June 30, 1995 and 1994, the net losses were
$13.2 million and $12.1 million, respectively. The increase in net loss
between the six-month periods was primarily due to a reduction in research
and development contract revenues. A $1.5 million increase in equity in net
loss of affiliates from 1994 to 1995 was offset by a $1.5 million reduction
in research and development and general and administration expenses
attributable to the Company's affiliate, Guilford Pharmaceuticals ("Guilford").
Total revenues for the three months ended June 30, 1995 declined to
$11.8 million from $12.4 million in the corresponding period of 1994 due to
reductions in co-promotion commissions and contract revenues. The decrease
in co-promotion commissions resulted from a lowering of the Company's
expectations for year-over-year sales growth of HALDOL [registered trademark]
Decanoate, a product co-promoted with McNeil Pharmaceutical ("McNeil").
Contract revenues declined because a final $0.8 million payment was received
in 1994 from E. Merck related to the termination of a license under the
Company's basic fibroblast growth factor ("bFGF") program. The decreases in
co-promotion commissions and contract revenues were partly offset by an
increase in product sales from psychiatric products under license from
SmithKline Beecham Corporation (the "SB Products"). Product sales were $9.7
million and $9.2 million for the three months ended June 30, 1995 and 1994,
respectively. Gross margins increased to 42% from 36% for the quarters
ending June 30, 1995 and 1994, respectively, as a result of a reduction in
Medicaid rebate expense and a shift towards a higher margin product mix.
For the six months ended June 30, 1995 and June 30, 1994, total
revenues were $25.4 million and $27.1 million, respectively. The year-to-
year revenue decrease resulted from the second quarter declines in
co-promotion commissions and contract revenues noted above, and from a first
quarter 1994 milestone payment from Pfizer Inc for the Company's
insulinotropin product. Product sales for the six months ended June 30, 1995
and 1994 were $21.6 million and $21.4 million, respectively. Gross margins
of 39% and 37% for the six months ended June 30, 1995 and 1994, respectively,
improved year-over-year because of a higher margin product mix. Despite the
short-term improvement, margins are expected to decline over time as a result
of generic drug competition.
For both the three- and six-month periods, the decline in revenues
from 1994 to 1995 was offset by a reduction in costs and expenses. Total
costs and expenses for the three months ended June 30, 1995 were $19.0
million versus $20.4 million for the same period in 1994. Spending for
research and development declined to $7.8 million from $9.0 million and for
marketing, general and administration to $4.3 million from $4.6 million for
the three-month periods ended June 30, 1995 and 1994, respectively. The
declines resulted from the closure of the Company's Baltimore, Maryland
research and development facility in the fourth quarter of 1994 and from a
reduction in Guilford expenses resulting from the Company's adoption of the
equity method of accounting for its Guilford investment. The increase in
profit distribution to third parties to $1.3 million for the three months
ended June 30, 1995 from $1.0 million for the corresponding period in 1994
was a result of higher 1995 margins on the sales of the SB Products.
Total costs and expenses for the six-month period ended June 30, 1995
were $39.3 million versus $41.9 million for the same period in 1994. Research
and development spending declined to $14.7 million in the first half of 1995
from $17.6 million in 1994 as a result of savings from the closure of the
Baltimore research and development facility and the change in accounting for
Guilford. Marketing, general and administrative spending increased to $8.9
million from $8.2 million for the six-month periods ended June 30, 1995 and
1994, respectively, primarily because of higher sales and marketing spending.
Other income increased to $1.4 million in the quarter ended June 30,
1995 from $1.1 million in the comparable quarter of 1994. The increase was
principally due to lower royalty expenses in 1995 because of lower contract
revenue and a net gain on sales of securities in 1995 versus a net loss for the
same period in 1994. The equity in the net loss of affiliates of $0.8
million in 1995 is the Company's proportional share of Guilford's losses.
The increase from $0.3 million in the corresponding 1994 period was due to the
change in accounting for the Company's investment in Guilford. The $0.5 of
minority interest in 1994 was the minority owners' share of Guilford losses
incurred prior to the Company's adoption of the equity method of accounting
for Guilford.
For both six-month periods ended June 30, 1995 and 1994, other income
was $2.4 million. Higher rental income and lower royalty expenses in the
first half of 1995 offset a decrease in investment income versus the
comparable period in 1994. The increase in equity in net loss of affiliates to
$1.8 million in 1995 from $0.3 million in 1994, and the reduction in minority
interest over the same periods, were the result of the change in accounting
for Guilford.
Scios Nova's operating results have fluctuated from period to period
and are expected to continue to fluctuate in the future as a result of, among
other things: the outcome and timing of clinical trials and the regulatory
approval process; the timing and composition of funding under the Company's
collaborative research and development agreements; the continuation or renewal
of existing collaborations by Scios Nova's partners; the level of sales of SB
Products, which face increasing price pressure from competitive generic drugs
and from government and private cost-control initiatives; and the level of
commissions resulting from the Company's 1993 co-promotion agreement with
McNeil for HALDOL [registered trademark] Decanoate, which may be affected by
increased competition from other products. In addition, because the Company
participates in a highly dynamic industry, the Company's common stock price may
also experience significant volatility as a result of industry developments as
well as fluctuations resulting from the status of the Company's research,
development and clinical prospects.
During the quarter, the Company announced the results of a Phase III
clinical trial of its AURICULIN [registered trademark] anaritide product in
the treatment of acute renal failure ("ARF"). The Company's primary
objective in this study was to determine if AURICULIN decreased the need for
dialysis in patients diagnosed with ARF. The analysis of the results revealed
that AURICULIN did not decrease the need for dialysis in the total patient
population. AURICULIN did, however, have a positive clinical benefit in
patients with a particular form of ARF called oliguria (patients producing very
low levels of urine). As a result, if the Company elects to seek marketing
approval for AURICULIN in the treatment of oliguric ARF, further clinical
trials and associated product development expenses will be necessary. Thus,
the Company will not meet the previously anticipated filing date for an
application for marketing approval in the United States.
Liquidity and Capital Resources
Combined cash, cash equivalents and marketable securities (both
current and non-current) totaled $93.5 million at June 30, 1995, a decrease of
$10.9 million from December 31, 1994. The decrease was principally
attributable to $9.9 million to fund operating activities and $4.0 million for
capital acquisitions, which was partially offset by $2.9 million of unrealized
gains on marketable securities resulting from a change in market interest rates
during the six-month period. Capital spending of $4.0 million included $3.1
million for the purchase of the Company's former Baltimore research and
development facility pursuant to an option contained in the lease. The Company
is currently seeking to lease-out and/or sell the facility.
The $2.0 million increase in investment in affiliates reflects the
write-up of the Company's equity investment in Guilford as a result of
Guilford's 1994 public stock offering, reduced by the Company's proportional
share of Guilford's losses since the offering.
The $1.1 million increase in net property and equipment balances
from December 31, 1994 to June 30, 1995 was principally due to the purchase of
the Baltimore facility, offset in part by the sale and write-off of surplus
equipment and by on-going depreciation expense.
The decrease in accounts payable of $1.8 million during the six-
month period ended June 30, 1995 was the result of payment of year-end 1994
accruals.
The decrease in other accrued liabilities of $4.3 million from
December 31, 1994 to June 30, 1995 was the result of reductions in the
Baltimore restructuring reserve of $2.2 million and accrued expenses of $2.1
million. Of the $2.2 million change in the restructuring reserve, severance
and related costs accounted for 30%, asset write-downs 47%, facility carrying
costs 17% and chemical disposal and other expenses 6%. The asset write-downs of
$1.0 million were non-cash expenses.
The increase in deferred contract revenue of $3.7 million was
principally due to a payment from Kaken Pharmaceutical Company, Ltd.
associated with achieving future milestones in the commercialization of the
Company's FIBLAST -TM- bFGF product in Japan.
The increase in additional paid-in capital of $4.8 million was the
result of the write-up of the Company's equity investment in Guilford,
incentive compensation stock payments and proceeds from the exercise of
employee stock options.
The unrealized gain on securities of $0.6 million at June 30, 1995
represents the difference between the cost and market value of the Company's
marketable securities on that date. The $2.9 million increase from December
31, 1994 to June 30, 1995 was the result of a reduction in market interest
rates which took place during the first six months of the year.
The Company's cash resources of $93.5 million at June 30, 1995,
together with revenues from product sales, collaborative agreements and
interest income, will be used to fund current and new clinical trials for
proprietary products under development, to support continuing research and
development programs and for other general purposes. The Company believes its
cash resources will be sufficient to meet its operating and capital
requirements for at least the next two years.
The Company has experienced net operating losses since its inception
and expects to continue to incur losses for at least several more years. The
Company's ability to achieve and sustain profitability will depend upon a
number of factors, particularly the success and timeliness of its product
development, clinical trial, regulatory approval and product introduction
efforts. Other contributing factors will be the Company's success in
developing new revenue sources to support research and development programs and
its success in marketing and promoting the SB Products, HALDOL Decanoate and
any other third-party products that may be in-licensed by the Company.
In May, 1995, the Company and its Chairman and Chief Executive
Officer, Richard Casey were named in three complaints filed by certain
stockholders on behalf of purchasers of the Company's common stock in the
United States District Court for the Northern District of California alleging
violations of federal securities laws. The Company believes it has
meritorious defenses and intends to defend the lawsuit vigorously. While the
outcome of the actions cannot be predicted with certainty, management does not
believe the outcome will have a material adverse impact on the Company's
financial position or results of operations. For additional information, see
footnote 2 in the Notes to Consolidated Financial Statements.
The Company may need to seek additional funding to support future
operations, including the commercialization of products currently under
development. Potential funding sources include collaborative arrangements
and additional public or private financings, including additional equity
financings. There can be no assurances that such additional funding, if
required, can be obtained on reasonable terms.
SCIOS NOVA INC.
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 9, 1995.
(a) The following individuals were elected directors of the
Company, each to serve until a successor is elected:
Total Vote For Total Vote Withheld
Name Each Director From Each Director
Richard L. Casey 29,923,134 940,971
Myron Du Bain 30,473,344 390,761
William F. Miller, Ph.D. 30,499,666 364,439
Donald E. O'Neill 29,906,683 957,422
Robert W. Schrier, M.D. 30,501,869 362,236
Solomon H. Snyder, M.D. 29,278,903 1,585,202
Eugene L. Step 30,501,582 362,523
(b) The following matter was approved by stockholder vote, with
votes cast as indicated:
Ratification of the selection of Coopers & Lybrand as the
Company's independent auditors for fiscal year 1995:
Votes cast for: 30,678,263
Votes cast against: 83,309
Abstentions: 100,533
Broker Non-Votes: 2,000
Broker non-votes were not relevant to the foregoing matters.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Statement regarding computation of per share earnings for the
three months ended June 30, 1995 and June 30, 1994.
11.2 Statement regarding computation of per share earnings for the
six months ended June 30, 1995 and June 30, 1994.
(b) Reports on Form 8-K
1. Report on Form 8-K, dated May 5, 1995 (pursuant to Item 5)
regarding the Company's announcement of preliminary results of
its Phase III clinical study of AURICULIN [registered
trademark] anaritide for the treatment of acute renal
(kidney) failure.
2. Report on Form 8-K, dated June 8, 1995 (pursuant to Item 5)
regarding three complaints filed by three stockholders against
the Company and Richard L. Casey, Chairman and Chief
Executive Officer, pursuant to which the plaintiffs seek to
represent a class of persons who purchased the Company's
Common Stock between October 6, 1993 and May 2, 1995.
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.
SCIOS NOVA INC.
Date: August 11, 1995 /S/ RICHARD L. CASEY
Richard L. Casey
Chairman of the Board, President and Chief
Executive Officer
Date: August 11, 1995 /S/ W. VIRGINIA WALKER
W. Virginia Walker
Vice President of Finance and Administration
(Principal Financial Officer)
INDEX TO EXHIBITS
SCIOS NOVA INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1995
Exhibit Description Method of Filing
11.1 Statement regarding computation of per share Filed electronically herewith
earnings for the three months ended June 30,
1995 and June 30, 1994.
11.2 Statement regarding computation of per share Filed electronically herewith
earnings for the six months ended June 30,
1995 and June 30, 1994.