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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-3701481
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2450 BAYSHORE PARKWAY, MOUNTAIN VIEW, CALIFORNIA 94043
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(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 X No
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The number of shares outstanding of Registrant's Common Stock, $.001 par value,
on March 31, 1995 was 35,496,030.
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SCIOS NOVA INC.
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
1.
SCIOS NOVA INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
ASSETS
March 31, December 31,
1995 1994
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(Unaudited)
Current assets:
Cash and cash equivalents $8,062 $29,674
Available-for-sale securities 26,825 22,441
Accounts receivable 3,262 3,529
Other receivables 136 70
Prepaid expenses 1,092 1,147
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Total current assets 39,377 56,861
Available-for-sale securities, non-current 59,154 52,324
Investment in affiliates 2,806 --
Property and equipment, net 36,935 35,118
Other assets 1,713 1,793
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TOTAL ASSETS $139,985 $146,096
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,369 $3,301
Other accrued liabilities 7,790 11,557
Deferred contract revenue 2,267 2,444
Current portion of long-term debt 629 617
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Total current liabilities 12,055 17,919
Long-term debt 1,578 1,739
Stockholders' equity:
Preferred stock; $.001 par value; 20,000,000
shares authorized; issued and outstanding:
20,553 and 21,053, respectively -- --
Common stock; $.001 par value; 150,000,000
shares authorized; issued and outstanding:
35,496,030 and 35,283,200, respectively 35 35
Additional paid-in capital 396,593 391,745
Notes receivable (27) (27)
Unrealized losses on securities (616) (2,309)
Accumulated deficit (269,633) (263,006)
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Total stockholders' equity 126,352 126,438
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $139,985 $146,096
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See notes to consolidated financial statements.
2.
SCIOS NOVA INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
Three months ended
March 31,
1995 1994
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(Unaudited)
Revenues:
Product sales $11,885 $12,158
Co-promotion commissions 708 643
Research & development contracts 1,087 1,909
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13,680 14,710
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Costs and expenses:
Cost of goods sold 7,521 7,692
Research and development 6,964 8,668
Marketing, general and administration 4,577 3,608
Profit distribution to third parties 1,288 1,469
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20,350 21,437
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Loss from operations (6,670) (6,727)
Other income:
Investment income 1,421 1,336
Realized losses on securities (453) (24)
Other income (expense), net 53 (2)
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1,021 1,310
Equity in net loss of affiliates (978) --
Minority interests -- 132
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Net loss ($6,627) ($5,285)
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Net loss per common share ($0.19) ($0.15)
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Weighted average number of
common shares outstanding 35,349,500 35,140,454
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See notes to consolidated financial statements.
3.
SCIOS NOVA INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Three months ended
March 31,
1995 1994
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(Unaudited)
Cash flows from operating activities:
Net loss $(6,627) $(5,285)
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 871 1,156
Retirement of capital equipment 13 --
Deferred contract revenue (177) (117)
Equity in net loss of affiliates 978 --
Minority interests -- 374
Change in assets and liabilities:
Accounts receivable 267 (199)
Other receivables (66) 666
Prepaid expenses 55 (334)
Other assets 80 19
Accounts payable (1,932) (1,349)
Other accrued liabilities (1,969) 241
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Net cash used by operating activities (8,507) (4,828)
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Cash flows from investing activities:
Warrant exercise (166) --
Payments for property and equipment, net (3,614) (1,035)
Sales of marketable securities 41,870 54,700
Purchases of marketable securities (51,391) (56,806)
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Net cash used by investment activities (13,301) (3,141)
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Cash flows from financing activities:
Issuance of common stock and collection
of notes receivable from stockholders, net 357 40
Debt repayments (161) (172)
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Net cash provided (used) by financing activities 196 (132)
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Net decrease in cash and cash equivalents (21,612) (8,101)
Cash and cash equivalents at beginning of period 29,674 13,587
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Cash and cash equivalents at end of period $ 8,062 $ 5,486
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Supplemental cashflow data:
Net unrealized securities gains (losses) $ 1,692 $ (684)
Increase in investment in affiliates $ 3,618 --
See notes to consolidated financial statements.
4.
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 March 31, 1995 and
the Company's results of operations for the three-month periods ended
March 31, 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 March 31, 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. The Company's ownership in Guilford Pharmaceuticals Inc. ("Guilford")
declined from 62% to 29% as a result of Guilford's initial public offering
in 1994. Consequently, the Company adopted the equity method of accounting
for its investment in Guilford. During the first quarter of 1995, in
accordance with Staff Accounting Bulletin 5:H, the Company recorded an
increase in its proportionate share of Guilford's equity amounting to $3.6
million. Prior to the offering, the financial results of Guilford were
fully consolidated with those of the Company.
5.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OPERATING RESULTS
The net loss for the quarter ended March 31, 1995 was $6.6 million compared
to a net loss of $5.3 million in the corresponding quarter of 1994. The $1.3
million increase in the net loss was principally the result of the Company's
recognition of its proportionate share of the losses of Guilford and its
realized losses on the disposition of securities. The loss from operations of
$6.7 million for the first three months of 1995 was unchanged from the loss for
the corresponding period in 1994.
Total revenues for the three months ended March 31, 1995 declined to $13.7
million from 1994's revenue of $14.7 million. The decrease in revenues from
1994 to 1995 was the result of a $1.0 million milestone payment received from
Pfizer Inc in 1994.
Product sales were $11.9 million and $12.2 million for the three months
ended March 31, 1995 and 1994, respectively. The decline in sales was
principally due to an increase in product returns in 1995. Gross margins were
37% for the first quarter of both 1995 and 1994. Over time, competition from
generic drugs is expected to adversely affect sales volumes and product gross
margins.
The decline in revenues period-to-period was offset by a decline in costs
and expenses. Total costs and expenses for the period ended March 31, 1995 were
$20.4 million versus $21.4 million for the same period in 1994. Research and
development spending declined from $8.7 million in the first quarter of 1994 to
$7.0 million in 1995 as a result of the closing of the Baltimore research and
development facility in the fourth quarter of 1994. Marketing, general and
administrative spending of $4.6 million and $3.6 million for the three-month
periods ended March 31, 1995 and 1994, respectively, increased year-to-year
primarily because of higher sales and marketing spending.
Other income decreased to $1.0 million in the quarter ended March 31, 1995
from $1.3 million in the comparable quarter of 1994. The reduction from 1994 to
1995 was principally due to losses realized on the sale of securities in the
first quarter of 1995. The equity in the net loss of affiliates of $1.0 million
in 1995 is the Company's proportional share of Guilford's losses. The $0.1 of
minority interest in 1994 was the minority owners share of Guilford losses when
Guilford's results were fully consolidated.
6.
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 level of sales of products under
license from SmithKline Beecham Corporation ("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 for HALDOL-Registered Trademark-
Decanoate. 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.
LIQUIDITY AND CAPITAL RESOURCES
Combined cash, cash equivalents and marketable securities (both current and
non-current) totaled $94 million at March 31, 1995, a decrease of $10.4 million
from December 31, 1994. The decrease was principally attributable to $8.5
million to fund operating activities and $3.6 million for capital acquisitions
which were partially offset by a $1.7 million unrealized gain on marketable
securities resulting from a change in market interest rates during the quarter.
Capital spending of $3.6 million included $3.1 million for the purchase of the
Baltimore research and development facility pursuant to an option contained in
the lease. During 1995, the Company will lease the facility and/or sell it.
In March 1995, the Company leased an additional 27,000 square feet of
office and lab space near its Mountain View headquarters. The Company expects
to spend approximately $0.5 million on capital improvements to this facility in
the second quarter of 1995. Additional spending to add manufacturing capacity
at this location may be undertaken later in the year, if warranted by research
and development project progress.
The $2.8 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 $1.8 million increase in net property and equipment balances from
December 31, 1994 to March 31, 1995 is principally due to the purchase of the
Baltimore facility, offset in part by the write-off of surplus equipment sold
during the quarter.
The decrease in accounts payable of $1.9 million during the quarter was the
result of payment of year-end 1994 accruals.
7.
The decrease in other accrued liabilities of $3.8 million from December 31,
1994 to March 31, 1995 was the result of reductions in the Baltimore
restructuring reserve of $1.8 million, accrued compensation of $1.7 million and
accrued clinical trial costs of $0.3 million. Of the $1.8 million change in the
restructuring reserve, severance and related costs accounted for 34%, asset
write-downs 49%, facility carrying costs 12% and chemical disposal and other
expenses 5%. The asset write-downs of $0.9 million were non-cash expenses.
The increase in additional paid-in capital of $4.8 million is 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 losses on securities of $0.6 million at March 31, 1995
represent the difference between the cost and market value of the Company's
marketable securities at quarter end. The $1.7 million decrease from December
31, 1994 to March 31, 1995 resulted from a reduction in market interest rates
which took place during the quarter.
The Company's cash resources of $94 million at March 31, 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,
regulatory approval and product introduction efforts. In January 1995, the
Company completed patient enrollment in its Phase III double-blind clinical
study of AURICULIN-Registered Trademark- anaritide for the treatment of acute
renal (kidney) failure. Results of the study are expected to be available in
the second quarter of 1995. Actions taken by the Company based on its analysis
of such results can be expected to have a significant effect on the Company's
future operating results. 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 licensed by the
Company.
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.
8.
SCIOS NOVA INC.
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Assignment of Lease dated March 22, 1995 for premises
located at 820 West Maude Avenue, Sunnyvale, California.
10.2 Special Warranty Deed of Improvements dated February 24,
1995 from Rouse-Teachers Properties, Inc. ("RTP") to the
registrant and Assignment of Ground Lease dated February
22, 1995 from RTP to the registrant.
10.3 Lease Agreement dated January 20, 1995 between the
registrant and PDL-RTKL Associates, a Maryland General
Partnership.
11.1 Computation of Per Share Earnings for the three-month
periods ended March 31, 1995 and March 31, 1994.
(b) Reports on Form 8-K
None
9.
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: April 28, 1995 RICHARD L. CASEY
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Richard L. Casey
Chairman of the Board, President and Chief
Executive Officer
Date: April 28, 1995 W. VIRGINIA WALKER
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W. Virginia Walker
Vice President of Finance and Administration
(Principal Financial Officer)
10.
INDEX TO EXHIBITS
SCIOS NOVA INC.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 1995
Exhibit Description Method of Filing
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10.1 Assignment of Lease dated March 22, 1995 Filed herewith electronically
for premises located at 820 West Maude
Avenue, Sunnyvale, California.
10.2 Special Warranty Deed of Improvements Filed herewith electronically
dated February 24, 1995 from Rouse-
Teachers Properties, Inc. ("RTP") to
the registrant and Assignment of Ground
Lease dated February 22, 1995 from RTP
to the registrant.
10.3 Lease Agreement dated January 20, 1995 Filed herewith electronically
between the registrant and PDL-RTKL
Associates, a Maryland General Partnership.
11.1 Computation of Per Share Earnings for the Filed herewith electronically
three-month periods ended March 31, 1995
and March 31, 1994.
11.