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 June 30, 1995
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 1-10392
--------------------------------------------------------
U.S. Bioscience, Inc.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified on its charter)
Delaware 23-2460100
------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Bridge, One Hundred Front St., West Conshohocken, PA 19428
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 832-0570
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 ____
-----
As of August 8, 1995, there were 40,830,300 shares of common stock outstanding.
-1-
U.S. BIOSCIENCE, INC.
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in Stockholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II - Other Information
Item 4. Submission of Matters to a Vote of Securities Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
-2-
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 DECEMBER 31, 1994
------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 11,965,500 $ 11,681,900
Marketable securities 4,991,600 12,746,400
Accounts receivable, net 900,800 791,600
Interest receivable 85,100 124,100
Inventories 2,255,400 1,857,200
Other 968,800 774,300
---------------- ----------------
Total current assets 21,167,200 27,975,500
Property, plant and equipment at cost, less accumulated depreciation 6,772,700 6,488,800
---------------- ----------------
Total assets $ 27,939,900 34,464,300
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related payroll taxes payable $ 1,271,200 1,406,600
Accrued clinical grants payable 793,200 827,400
Accrued product manufacturing costs payable 376,400 732,300
Accrued marketing costs payable 376,500 301,700
Accrued professional fees payable 343,800 636,100
Accounts payable and other accrued liabilities 2,233,400 2,535,400
---------------- ----------------
Total current liabilities 5,394,500 6,439,500
Long-term liabilities:
Long-term debt 1,635,400 997,400
Provision for litigation 22,700 2,300,800
Other long-term liabilities 863,300 787,700
---------------- ----------------
Total long-term liabilities 2,521,400 4,085,900
---------------- ----------------
Total liabilities 7,915,900 10,525,400
Stockholders' equity:
Preferred stock, $.005 par value-5,000,000 shares authorized;
none issued -- --
Common stock, $.005 par value-100,000,000 shares authorized; 40,804,900
shares issued and outstanding at June 30, 1995, and 40,770,800 shares
issued and outstanding at December 31, 1994 204,000 203,900
Additional paid-in capital 130,647,400 128,323,100
Deficit accumulated during the development stage (111,321,900) (104,692,000)
Foreign currency translation adjustment 494,500 103,900
---------------- ----------------
Total stockholders' equity 20,024,000 23,938,900
---------------- ----------------
Total liabilities and stockholders' equity $ 27,939,900 34,464,300
================ ================
SEE ACCOMPANYING NOTES.
-3-
U.S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED PERIOD MAY 7, 1987
JUNE 30, JUNE 30, (INCEPTION)
------- ------- THROUGH
1995 1994 1995 1994 JUNE 30, 1995
---- ---- ---- ---- -------------
Revenues:
Net sales $ 2,160,100 $ 1,353,600 $ 4,360,300 $ 3,513,700 $ 20,789,500
Net investment income 290,400 313,200 669,800 562,200 24,496,700
Licensing, royalty and other income 1,161,500 100,800 1,223,900 100,800 5,565,200
------------- ----------- ----------- ----------- ------------
3,612,000 1,767,600 6,254,000 4,176,700 50,851,400
Expenses:
Cost of sales 448,800 323,500 1,190,900 817,700 5,158,800
Selling, general and administrative costs 2,639,100 3,739,400 5,886,500 7,338,400 66,953,100
Research and development costs 2,977,600 4,690,200 5,766,200 8,970,300 78,743,300
Provision for litigation -- -- -- -- 10,165,000
Interest expense 20,500 -- 40,300 -- 1,153,100
-------------- ----------- ------------ ------------- --------------
6,086,000 8,753,100 12,883,900 17,126,400 162,173,300
------------- ----------- ------------ ------------- -------------
Net loss $ (2,474,000)$ (6,985,500)$ (6,629,900)$ (12,949,700)$ (111,321,900)
============== ============ =========== ============== ===============
Net loss per share $ (0.06)$ (0.18)$ (0.16)$ (0.33)
============ ============ ============= ==============
Weighted average number of common shares 40,776,000 39,706,500 40,773,400 39,683,900
============ ============ ============ =============
See accompanying notes.
- 4 -
U. S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995 PERIOD MAY 7, 1987
------------------------------
(INCEPTION)
THROUGH
1995 1994 JUNE 30, 1995
------------ ------------ --------------
Change in Cash and Cash Equivalents
Cash flows used in operating activities:
Net loss $ (6,629,900) $ (12,949,700) $ (111,321,900)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 569,500 460,200 3,536,400
Compensation element of stock option grants 505,300 5,303,400
Loss on marketable securities 8,200 181,500 148,800
Change in accounts receivable (109,100) (373,500) (900,600)
Change in interest receivable 39,000 (24,500) (85,100)
Change in inventories (848,900) 347,900 (2,698,700)
Change in other current assets (100,700) (24,600) (843,200)
Change in current liabilities (1,110,700) (1,468,000) 5,247,400
Provision for litigation (36,800) (91,500) 10,022,700
Change in other long-term liabilities 40,300 52,800 1,145,700
------------ ------------ -------------
Total adjustments (1,549,200) (434,400) 20,876,800
------------ ------------ -------------
Net cash used in operating activities (8,179,100) (13,384,100) (90,445,100)
Cash flows provided by (used in) investing activities:
Proceeds from marketable securities matured and sold 9,767,400 371,948,300 3,098,974,300
Purchase of marketable securities (2,020,900) (347,169,500) (3,104,109,800)
Purchase of property, plant and equipment (309,900) (592,800) (9,627,500)
------------ ------------ -------------
Net cash provided by (used in) investing activities 7,436,600 24,186,000 (14,763,000)
Cash flows provided by financing activities:
Proceeds from issuance of common stock and from execise of stock options 83,100 264,500 115,548,000
Proceeds from loan 1,502,600 646,000 2,148,600
Proceeds from line of credit from affiliate -- 3,854,400
Prepayment of line of credit from affiliate -- (3,854,400)
------------- ------------ --------------
Net cash provided by financing activities 1,585,700 910,500 117,696,600
Foreign currency translation adjustment (559,600) 100,400 (523,000)
------------- ----------- --------------
Net increase (decrease) in cash and cash equivalents 283,600 11,812,800 11,965,500
Cash and cash equivalents-beginning of period 11,681,900 158,900
------------- ----------- -------------
Cash and cash equivalents-end of period $ 11,965,500 $ 11,971,700 $ 11,965,500
============= ============ ==============
Supplemental cash flow disclosure:
Interest paid to affiliate -- -- $ 1,005,800
See accompanying notes.
-5-
U.S BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 7, 1987 (INCEPTION) THROUGH JUNE 30, 1995
COMMON STOCK CLASS B STOCK ADDITIONAL ACCUM-
------------ -------------
NUMBER OF NUMBER OF PAID-IN ULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
-------- ------- --------- ---------- ------------ ----------
Issuance of shares for initial cash
contribution of capital ($.005
per share of common stock and $.005
per share of Class B stock) 9,000,000 $ 45,000 1,000,000 5,000 $ 1,000,000 $ -
Net loss for the period May 7,
1987 (inception) through December
31, 1987 - - - - - (1,030,500)
--------- ------- --------- ------- ------------ -----------
BALANCE AT DECEMBER 31, 1987 9,000,000 45,000 1,000,000 5,000 1,000,000 (1,030,500)
Net loss for the year ended
December 31, 1988 - - - - - (1,558,800)
--------- -------- --------- -------- ------------ -----------
BALANCE AT DECEMBER 31, 1988 9,000,000 45,000 1,000,000 5,000 1,000,000 (2,687,300)
Proceeds from exercise of stock
options 2,500 - - - 400 -
Compensation related to stock
options - - - - 305,900 -
Issuance of shares ($6.00 per
share, less costs) 2,500,000 12,500 - - 14,061,400 -
Conversion of class B stock to
common stock 1,000,000 5,000 (1,000,000) (5,000) - -
Net loss for the year ended
December 31, 1989 - - - - - (5,743,300)
--------- -------- --------- ------- ------------ -----------
BALANCE AT DECEMBER 31, 1989 12,502,500 62,500 - - 15,367,700 (8,330,800)
Proceeds from exercises of
stock options 285,600 1,400 - - 143,500 -
Compensation related to stock
options - - - - 269,000 -
issuance of shares ($9.00 per
share, less costs) 4,025,000 20,200 - - 33,009,700 -
Net loss for the year ended
December 31, 1990 - - - - - (4,924,900)
---------- ------- --------- ------ ----------- -----------
BALANCE AT DECEMBER 31, 1990 16,813,300 84,100 - - 48,789,900 (13,255,500)
Proceeds from exercises of
stock options 500,700 2,500 - - 3,349,600 -
Compensation related to stock
options - - - - 1,038,900 -
Issuance of shares ($28.50 per
share, less costs) 2,300,000 11,500 - - 61,444,300 -
Issuance of shares for a 2 for
1 stock dividend 19,614,000 95,000 - - (96,000) -
Net loss for the year ended
December 31, 1991 - - - - - (6,540,100)
---------- -------- --------- ------- ------------ -----------
BALANCE AT DECEMBER 31, 1991 30,228,000 196,100 - - 114,624,700 (19,795,800)
Proceeds from exercise of
stock options 254,400 1,400 - - 1,335,400 -
Compensation related to stock
options - - - - 1,452,400 -
Net loss for the year ended
December 31, 1992 - - - - - (20,225,800)
----------- -------- ---------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 1992 39,492,400 197,500 - - 117,313,500 (40,021,400)
Proceeds from exercise of
stock options 106,500 500 - - 614,300 -
Compensation related to stock
options - - - - 906,900 -
Net loss for the year ended
December 31, 1993 - - - - - (40,829,800)
Foreign currency translation
adjustment - - - - - -
----------- -------- ---------- ------ ------------ -----------
BALANCE AT DECEMBER 31, 1993 39,958,900 196,000 - - 118,834,700 (80,851,000)
Proceeds from exercise of
stock options 75,300 400 - - 404,900 -
Class action settlement 1,098,000 5,500 - - 7,753,200 -
Compensation related to stock
options - - - - 1,330,300 -
Net loss for the year ended
December 31, 1994 - - - - - (24,041,000)
Foreign currency translation
adjustment _ - - - - -
----------- -------- ---------- ------ ------------- ------------
BALANCE AT DECEMBER 31, 1994 40,770,800 203,900 - - 126,323,100 (104,692,000)
Proceeds from exercise of
stock options 34,100 200 - - 83,000 -
Class action settlement - - - - 2,241,200 -
Net loss for the six months ended
June 30, 1995 - - - - - (6,629,900)
Foreign currency translation
adjustment - - - - - -
----------- -------- ---------- ------ ------------- ------------
Balance At December 31, 1995
(Unaudited) 40,804,900 $ 204,100 - - $ 130,647,300 $(111,321,900)
=========== ======== ========== ====== ============= ============
TOTAL
STOCK-
OTHER HOLDERS'
EQUITY EQUITY
---------- --------
Issuance of shares for initial cash
contribution of capital ($.005
per share of common stock and $.005
per share of Class B stock) $ - $ 1,050,000
Net loss for the period May 7,
1987 (inception) through December
31, 1987 - (1,030,500)
--------- -----------
BALANCE AT DECEMBER 31, 1987 - 19,500
Net loss for the year ended
December 31, 1988 - (1,556,800)
-------- -----------
BALANCE AT DECEMBER 31, 1988 - (1,537,300)
Proceeds from exercise of stock
options - 400
Compensation related to stock
options - 305,900
Issuance of shares ($6.00 per
share, less costs) - 14,073,900
Conversion of class B stock to
common stock - -
Net loss for the year ended
December 31, 1989 - (5,743,300)
-------- -----------
BALANCE AT DECEMBER 31, 1989 - 7,099,600
Proceeds from exercises of
stock options - 144,900
Compensation related to stock
options - 269,000
issuance of shares ($9.00 per
share, less costs) - 33,029,900
Net loss for the year ended
December 31, 1990 - (4,924,900)
-------- -----------
BALANCE AT DECEMBER 31, 1990 - 35,618,500
Proceeds from exercises of
stock options - 3,352,100
Compensation related to stock
options - 1,038,900
Issuance of shares ($28.50 per
share, less costs) - 61,455,800
Issuance of shares for a 2 for
1 stock dividend - -
Net loss for the year ended
December 31, 1991 - (6,540,100)
-------- -----------
BALANCE AT DECEMBER 31, 1991 - 94,925,200
Proceeds from exercise of
stock options - 1,337,800
Compensation related to stock
options - 1,452,400
Net loss for the year ended
December 31, 1992 - (20,225,800)
-------- -----------
BALANCE AT DECEMBER 31, 1992 - 77,489,800
Proceeds from exercise of
stock options - 814,800
Compensation related to stock
options - 906,900
Net loss for the year ended
December 31, 1993 - 40,629,800)
Foreign currency translation
adjustment (291,800) (291,800)
-------- -----------
BALANCE AT DECEMBER 31, 1993 (291,800) 38,089,900
Proceeds from exercise of
stock options - 405,300
Class action settlement - 7,758,700
Compensation related to stock
options - 1,330,300
Net loss for the year ended
December 31, 1994 - (24,041,000)
Foreign currency translation
adjustment 395,700 395,700
-------- ----------
BALANCE AT DECEMBER 31, 1994 103,900 23,838,900
Proceeds from exercise of
stock options - 53,200
Class action settlement - 2,241,200
Net loss for the six months ended
June 30, 1995 - (6,629,900)
Foreign currency translation
adjustment 390,600 390,600
-------- -----------
Balance at June 30, 1995
(Unaudited) $ 494,500 $ 20,024,000
======== ==========
See accompanying notes.
-6-
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
The company is a pharmaceutical company established to develop and
market drugs, principally chemotherapeutic drugs, for treating patients with
cancer and allied diseases. For accounting purposes, the company is considered a
"development stage enterprise." Through June 30, 1995, the company's revenues
have been derived principally from investment income, product sales of
Hexalen(R) and NeuTrexin(R), licensing fees for rights to develop and market
certain products principally in Europe and Japan and contract development
activities. Expenses incurred have been primarily for the development of its
drugs and related therapies, marketing and sales activities, and corporate
organizational and administrative activities.
2. SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INFORMATION -- The financial information for the three and
six month periods ended June 30, 1995 and 1994, and the period from May 7, 1987
(inception) through June 30, 1995 included herein is unaudited. The accompanying
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to interim periods. Such
information includes all adjustments, consisting of adjustments of a normal and
recurring nature, which, in the opinion of the company, are necessary for a fair
presentation of the company's consolidated financial position and the results of
its operations and cash flows.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of U.S. Bioscience, Inc. and its wholly owned subsidiaries,
USB Pharma B.V., and USB Pharma Ltd. All significant intercompany accounts and
transactions are eliminated in consolidation.
INVENTORIES -- Inventories are stated at the lower of cost (first in,
first out) or fair value. Inventories consist of:
June 30, December 31,
1995 1994
---------- ------------
Raw materials $ 208,800 $ 38,100
Work-in-process 1,799,800 1,597,100
Finished goods 246,800 222,000
---------- ----------
Total $2,255,400 $1,857,200
========== ==========
PROPERTY, PLANT AND EQUIPMENT -- Buildings, furniture, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Buildings, furniture and equipment are depreciated by the
straight-line method over their useful lives. Leasehold improvements are
depreciated by the straight-line method over the shorter of their useful lives
or the life of the lease. All assets are depreciated under accelerated methods
for federal income tax purposes.
-7-
Property, plant and equipment consists of:
June 30, December 31,
1995 1994
----------------- --------------
Land, buildings, and leasehold improvements $2,196,400 $2,026,900
Equipment, furniture and fixtures 8,090,000 7,428,800
Accumulated depreciation (3,513,700) (2,966,900)
----------------- --------------
Property, plant and equipment, net $6,772,700 $6,488,800
================= ==============
Additionally, all information should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and Notes to Financial Statements
included in the company's Annual Report on Form 10-K for the year ended December
31, 1994. Operating results for the three and six month periods ended June 30,
1995 are not necessarily indicative of the results that may be obtained for the
entire year.
-8-
U.S. BIOSCIENCE, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
GENERAL
Operations for the six months ended June 30, 1995, consisted primarily
of the commercial marketing of Hexalen(R) and NeuTrexin(R) in the United States,
the preparation of and follow-up activities on regulatory filings for Ethyol(R)
in the United States, Canada and Europe, continuing clinical trials and product
development of Ethyol, NeuTrexin and Hexalen, and business development
activities in the United States, Canada and Europe.
The company, in January 1995, following the December 1994 meeting of
the Oncologic Drug Advisory Committee of the FDA which withheld recommendation
for the U.S. approval of Ethyol, a selective cytoprotective agent developed by
the company, went through an internal restructuring and downsizing in an effort
to reduce expenditures so as to preserve financial resources for its research,
product development and commercial objectives. This restructuring resulted in a
reduction in the company's staff and expenditures and a reprioritization of
research efforts focusing on near-term projects, which management believes may
be capable of providing additional revenues. A one-time restructuring charge of
$600,000, principally to cover severance payments, was charged to results of
operations in the first quarter of 1995.
The U.S. Food and Drug Administration's Oncologic Drugs Advisory
Committee on June 9, 1995 recommended that the FDA approve Ethyol. The committee
voted 8 to 0 that the FDA approve Ethyol, at least under an accelerated approval
mechanism, for the reduction of cumulative renal injury associated with
cisplatin chemotherapy for treatment of ovarian cancer. The FDA will make the
final determination regarding the approval of Ethyol for commercial sale in the
United States, including whether an approval would be unconditional or under the
accelerated mechanism. The company will work with the FDA to determine final
labelling for Ethyol. Accelerated approval can be granted for new drugs to treat
serious or life-threatening illnesses that provide meaningful therapeutic
benefit to patients over existing treatments. Drugs approved under the
accelerated approval mechanism are subject to post-marketing study requirements.
No assurances can be given that the FDA will approve Ethyol either
unconditionally or under the accelerated mechanism.
The company received regulatory approval for Ethyol in several
European countries in late 1994 and early 1995, and its marketing partner for
European territories Scherico Ltd., an affiliate of Schering-Plough Corporation
("Scherico"), launched Ethyol in Germany and the United Kingdom in April and May
1995, respectively and plans to begin sales and marketing efforts in other
European countries where regulatory approvals have been received and as soon as
local pricing and reimbursement approvals are granted.
The company believes that its expenditures for research and
development, marketing, capital equipment and facilities will continue to exceed
revenues as a result of (i) seeking U.S. regulatory approval for Ethyol and
further clinical trials and regulatory approvals for Ethyol, NeuTrexin and
Hexalen, (ii) the marketing of Hexalen and NeuTrexin and marketing preparation
for its other drugs particularly Ethyol in Europe where the company has received
regulatory approval and shares initial profits and losses with its marketing
partner, Scherico, (iii) expansion of clinical and preclinical testing of drug
compounds, including expanded indications for existing drugs and (iv)
development and enhancement of manufacturing and analytical capabilities.
-9-
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995
Product sales increased to $2,160,100 in the three month period ended
June 30, 1995 from $1,353,600 in the prior year period. The increase is
attributable to increases in NeuTrexin and Hexalen sales in the United States
and the initial shipments of Ethyol to Scherico for use in Europe.
Net investment income decreased to $290,400 in the second quarter of
1995 as compared to $313,200 in the corresponding 1994 period due to a reduction
in interest income of $124,200 due to the smaller average portfolio balance in
the 1995 period. This decrease was largely offset by a net gain of $6,900
realized in the 1995 period as compared to a loss of $94,500 incurred in the
prior year period. Licensing, royalty and other income increased to $1,161,500
in the three month period ended June 30, 1995 from $100,800 in the 1994 period
principally due to a one-time fee received from an affiliate of Eli Lilly and
Company for product distribution rights in Canada for Hexalen, NeuTrexin and
Ethyol, and increased contract manufacturing and analytical services revenues.
Cost of sales, which consists of product manufacturing, testing,
delivery and royalty expenses, increased due to the increase in sales. As a
percentage of sales, cost of sales in the three month period decreased to 21%
from 24% in the prior year period due principally to lower product returns of
NeuTrexin reflecting the normalization of wholesaler inventories following the
January 1994 launch of the product in the United States. In addition, higher
margins on U.S. sales of Hexalen and NeuTrexin reflect trade price increases.
These favorable movements were partly offset by the sale of Ethyol to Scherico
at approximately cost of manufacture. Sales of Ethyol to Scherico will generate
positive returns to the company if and when the product achieves profitability
as defined in the company's agreement with Scherico.
Selling, general and administrative costs for the three month period
ended June 30, 1995 decreased to $2,639,100 from $3,739,400 in the year ago
period. The decrease of $1,100,300 was achieved principally due to the internal
restructuring noted above. Decreases in marketing expenditures of $924,000 and
personnel costs of $241,200 were the primary contributors to the reduced overall
expenditure level.
Research and development costs for the three months ended June 30,
1995 were $2,977,600 compared to $4,690,200 in the corresponding 1994 period.
The decrease was principally due to the capitalization of manufacturing costs
related to commercial product production undertaken at the company's Nijmegen,
The Netherlands sterile products facility. In the 1994 period all operating
costs of this facility were charged to results of operations as the activities
undertaken during that period were related to the start-up and validation of the
facility. During the 1995 period, commercial production was the major activity
and accordingly operating expenditures were transferred to inventory. This
resulted in an expense reduction of $962,500 in the second quarter. In addition,
consistent with the company's internal restructuring, decreases in expenses in
personnel costs ($456,900), outside services ($128,400), travel ($32,300) and
office related and general ($68,500) were also achieved.
The net loss for the three months ended June 30, 1995 was $2,474,000
or $0.06 per share compared to $6,985,500 or $0.18 per share in the 1994 period.
SIX MONTHS ENDED JUNE 30, 1995
Product sales for the six month period ended June 30, 1995 were
$4,360,300 compared to $3,513,700 for the six month period ended June 30, 1994.
The increase is attributable to an increase in United States and international
Hexalen sales, and initial shipments of Ethyol to Scherico for use in Europe.
-10-
Net investment income increased to $669,800 for the six month period
ended June 30, 1995 as compared to $562,200 in the six month period ended June
30, 1994, due principally to a $56,700 gain on the portfolio as compared to a
$277,400 loss in the prior year. Interest income declined by $226,500 in the
1995 period due to a lower portfolio balance.
Licensing, royalty and other income increased to $1,223,900 in the
first six months of 1995 as compared to $100,800 in the first half of 1994 due
principally to the one-time payment for distribution rights in Canada noted
above and increased contract manufacturing and analytical services revenue.
Cost of sales, as a percentage of product sales, increased to 27% of
product sales in 1995 from 23% of product sales in 1994 due principally to the
sale of Ethyol to Scherico which was approximately at cost of manufacture. As
noted above, sales of Ethyol to Scherico will generate positive returns to the
company if and when the product achieves profitability as defined by the
company's agreement with Scherico. This unfavorable movement was partly offset
by higher U.S. margins on Hexalen and NeuTrexin reflecting an increased trade
prices and lower NeuTrexin returns.
Selling, general and administrative costs for the six month period
ended June 30, 1995 decreased to $5,886,500 from $7,338,400 in the year ago
period. The $1,451,900 decrease was achieved despite the inclusion of a $600,000
provision for the estimated cost of the internal restructuring noted above.
Decreases in marketing expenditures of $1,348,300, personnel costs of $99,100,
travel of $94,000, and facility related expenses of $71,200 were primary
contributors to the reduced overall expenditure level.
Research and development costs for the first half of 1995 were
$5,766,200 compared to $8,970,300 in the corresponding 1994 period. The $3.2
million decrease is due to the capitalization of manufacturing expenses with the
start of commercial production noted above ($1,333,800) and lower personnel
costs ($1,173,200), reduced professional and outside services expenses
($208,600) and travel costs ($92,400) consistent with the internal
restructuring. In addition, lower research and product development expenditures
of $385,000 are reflective of the completion and scale-down of several
development programs.
The net loss for the six months ended June 30, 1995 was $6,629,900 or
$0.16 per share compared to $12,949,700 or $0.33 per share in the 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the company has financed operations principally
through the sale of equity capital, investment income, sales of Hexalen and
NeuTrexin and revenues received through sublicensing its drugs. As of June 30,
1995, the company's cash, cash equivalents and marketable securities totaled
$16,957,100. The company's investment portfolio consists of securities issued by
the U.S. Government or its agencies and investment grade corporate debt
instruments.
During the first six months of 1995, net cash used in operations
amounted to $8,179,100 principally due to the net loss discussed above under
"Results of Operations" and a decrease in current liabilities. Until such time
as one or more of the company's additional products receive regulatory approval
and sales or other revenue from approved products and other sources exceed
expenditures, the company's cash position will continue to be reduced due
principally to expenditures in research, product development, marketing, selling
and administrative activities. Failure to obtain regulatory approvals on
products currently in development and to achieve significant sales will have a
material adverse effect on the company. Additionally, the level of future
product sales will also depend on several factors, including product acceptance,
market penetration, competitive products, the performance of the company's
licensees and distributors and the healthcare system existing in each market
where the company's products are or may become commercially available.
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The company's capital expenditures were $309,900 in the first half of
1995 and total $9,627,500 since inception. In April 1993, the company purchased
a sterile products production facility in The Netherlands. Validation work and
pilot production on this new facility progressed through 1994 and manufacturing
expenditures are expected to further increase in 1995 as commercial quantities
of NeuTrexin and Ethyol are produced, subject to U.S. regulatory approval. The
facility received regulatory approval for product manufacture and distribution
from the Dutch regulatory authority in June 1994. A Dutch Guilder mortgage loan,
currently equivalent to approximately $750,000 relating to this facility was
obtained in May 1994. The purchase price for this facility was $2,250,000 and
approximately $2,480,000 in capital improvement have been made since its
purchase to make the facility operational. Further improvements estimated at
$350,000 are planned in the second half of 1995.
In April 1993, the company received $500,000 from the Commonwealth of
Pennsylvania's Machinery and Equipment Loan Fund program (MELF), which provides
financing for companies expanding employment in the Commonwealth. The loan will
amortize over a seven-year term and bears interest at a rate of 2% per annum. In
June 1995, the company established an approximately $1,000,000 credit line from
an international financial institution. This line of credit is denominated in
Dutch Guilders, currently bears an annual interest rate of 5.56% and is utilized
by the company's subsidiary, USB Pharma B.V., located in The Netherlands, for
funding working capital requirements. As of June 30, 1995 approximately $512,000
of this credit line has been utilized. The credit line is guaranteed by U.S.
Bioscience, Inc. and collateralized by a portion of the company's marketable
securities portfolio. The company, also in June 1995, received a term loan from
its principle bank in the amount of $1,000,000. This loan will amortize over
four years, bears an annual interest rate of 7.06% and is collateralized by a
portion of the company's marketable securities portfolio.
The company's future liquidity and capital requirements are dependent
upon several factors, including, but not limited to the time and cost required
to develop its products; the time and cost to obtain regulatory approvals; the
time and cost required to manufacture and market its products; its success in
generating revenues from sales; obtaining the rights to additional commercially
viable compounds; its ability to enter into sublicenses or distribution
agreements for marketing certain of its drugs; its dependence on sublicense and
distribution arrangements for sales of its products; competitive technological
developments; additional government-imposed regulation and control; and changes
in healthcare systems which affect reimbursement, pricing or availability of
drugs. The above factors may also affect realization of certain assets currently
held by the company. These principally include investments in plant and
equipment and inventory.
The company is hopeful that its products currently under regulatory
review will, in the near future, receive regulatory approval and generate
sufficient sales to provide meaningful cash resources. However, no assurance can
be given that regulatory approval will be obtained in a timely manner, if ever,
or that the company will have adequate financial resources to commercialize its
products when approved or that product sales, if any, will be sufficient to
cover operating expenses. The company is considering alternative means of
commercializing it products, including but not limited to, seeking a corporate
partner to co-promote its products, licensing arrangements, or other
arrangements which will facilitate product sales and company revenues. No
assurances can be given that the company will be successful in obtaining such
arrangements, or if such arrangements are obtained, that they will provide
sufficient revenues to cover operating expenses.
If further regulatory approvals and additional sources of revenue are
not obtained, the company believes its cash and marketable securities as of June
30, 1995 were sufficient to cover operating expenses for less than one year. To
extend its current financial resources, the company has instituted programs to
reduce expenditures. As noted above, the company initiated an internal
restructuring in January 1995 in an effort to reduce expenditures and has
reduced its staff from 165 individuals at January 1, 1994 to 112 at June 30,
1995. However, no assurance can be given that these measures will be successful
in reducing expenditures to the degree necessary to allow the company to reach
its regulatory and commercial objectives and eventual profitability. While the
company has explored additional sources of funds through private and public
equity
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markets, to date the company has not been able to arrange for such financing on
terms acceptable to the company. Although the company continues to explore
additional sources of financing, there can be no assurance that the company's
financing efforts will be successful.
As noted above, Scherico, the company's European distributor for its
cytoprotective agent, Ethyol, has launched the product in Germany and the United
Kingdom in April and May 1995, respectively and intends to launch Ethyol in
several additional European markets when regulatory approvals have been
received. Under the terms of its agreement with Scherico, the company will share
in operating profits/losses generated from marketing and sales of Ethyol in
Germany, United Kingdom, Spain, Italy and France (the "Major Markets") for a
period of up to two years from November 23, 1994, the date of approval of Ethyol
in the United Kingdom. The company's exposure to operating losses, if any,
generated from the Major Markets is limited to approximately $4 million for
1995. A limit on operating losses, if any, attributable to the Major Markets for
1996 will be established later in 1995 based on an operating plan for 1996. The
company will share in operating profits, if any, generated from sales of Ethyol
in the other countries in the European Territories outside the Major Markets in
which Ethyol is launched by Scherico, but is not exposed to operating losses, if
any, generated in such countries. Profits or losses under the agreement with
Scherico are affected by the same uncertainties noted in the preceding
paragraphs. The company is hopeful that the launch of its drug product Ethyol
will be financially successful in Europe. However, no assurance can be given
that the company will not be exposed to losses under this agreement and will at
the time its share of such losses is due and payable, have the financial
resources to meet its obligation. No share of operating profits or losses
derived from the company's agreement with Scherico were reflected in the
company's results of operations for the January to June 1995 period.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 19, 1995 the company held its annual meeting of stockholders.
At the meeting, the stockholders voted on the election of the eight members of
the company's Board of Directors. The vote "FOR" and "WITHHELD" for each
candidate was as follows:
Number of Votes Number of Votes
--------------- ---------------
Name of Nominee FOR Nominee WITHHELD for Nominee
--------------- ----------- --------------------
Robert L. Capizzi 33,872,810 457,250
Paul Calabresi 33,873,633 456,427
Robert I. Kriebel 33,860,858 469,202
Douglas J. MacMaster 33,871,232 458,828
Allen Misher 33,869,305 460,755
Philip S. Schein 33,865,666 464,394
Jonah Shacknai 33,778,210 551,850
Betsey Wright 33,825,680 504,380
Item 5. Other Information.
On May 19, 1995, the company adopted a Preferred Stock Purchase Rights
Plan (the "Rights Plan") designed to protect company stockholders in the event
of takeover actions that would deny them the full value of their investment.
The Rights Plan provides for a dividend distribution of one right for each share
of the company's Common Stock to holders of record at the close of business on
May 29, 1995. The rights will become exercisable only in the event, with
certain exceptions, a person or group of related persons accumulates 15 percent
or more of the company's outstanding voting stock, or if a party announces an
offer to acquire 30 percent or more of the company's voting stock. The rights
will expire on May 29, 2005. Each right will entitle the holder to buy one one-
hundredth of a share of a new series of preferred stock at a price of $15. In
addition, upon the occurrence of certain events, holders of the rights will be
entitled to purchase either company stock or shares in an "acquiring entity" at
half of market value.
The company generally will be entitled to redeem the rights at one-
tenth of one cent ($.001) per right at any time until the tenth day following
the acquisition by any person or group of related persons of 15 percent or more
of the company's outstanding voting stock. The foregoing description of the
Rights Plan is qualified in its entirety by reference to the information set
forth in the company's Registration Statement on Form 8-A relating to the rights
filed with the Securities and Exchange Commission on June 7, 1995 and as amended
on Form 8-K/A on July 20, 1995.
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Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Not applicable.
b. The company has filed the following report on Form 8-K
since the beginning of the quarter ended June 30, 1995:
Date of Report Items Covered
-------------- -------------
June 7, 1995* 5
*Amend by 8K/A - July 20, 1995
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
U.S. BIOSCIENCE, INC.
Date: August 11, 1995 By: /s/ Robert I. Kriebel
-------------------------------
Robert I. Kriebel
Senior Vice President
Finance and Administration
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