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 September 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
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(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 November 3, 1995, there were 40,917,400 shares of common stock
outstanding.
Page 1 of 15 sequentially
numbered pages
-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 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
-2-
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 10,815,800 $ 11,681,900
Marketable securities 4,500,400 12,746,400
Accounts receivable, net 892,500 791,600
Interest receivable 72,600 124,100
Inventories 1,820,600 1,857,200
Other 1,271,500 774,300
----------------- ---------------
Total current assets 19,373,400 27,975,500
Property, plant and equipment at cost, less accumulated depreciation 6,612,000 6,488,800
----------------- ---------------
Total assets $ 25,985,400 $ 34,464,300
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related payroll taxes payable $ 1,433,700 $ 1,406,600
Accrued clinical grants payable 877,600 827,400
Accrued product manufacturing costs payable 120,200 732,300
Accrued marketing costs payable 261,100 301,700
Accrued professional fees payable 296,900 636,100
Accounts payable and other accrued liabilities 5,088,600 2,535,400
----------------- ---------------
Total current liabilities 8,078,100 6,439,500
Long-term liabilities:
Long-term debt 2,816,000 997,400
Provision for litigation -- 2,300,800
Other long-term liabilities 937,800 787,700
----------------- ---------------
Total long-term liabilities 3,753,800 4,085,900
----------------- ---------------
Total liabilities 11,831,900 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; 40,903,100
shares issued and outstanding at September 30, 1995, and 40,770,800 shares
issued and outstanding at December 31, 1994 204,500 203,900
Additional paid-in capital 130,752,500 128,323,100
Deficit accumulated during the development stage (117,209,400) (104,692,000)
Foreign currency translation adjustment 405,900 103,900
----------------- ---------------
Total stockholders' equity 14,153,500 23,938,900
----------------- ---------------
Total liabilities and stockholders' equity $ 25,985,400 $ 34,464,300
================= ===============
See accompanying notes.
-3-
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED PERIOD MAY 7, 1987
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30, (INCEPTION)
------------ -------------
THROUGH
1995 1995 1995 1994 SEPTEMBER 30, 1995
---- ---- ---- ---- ------------------
Revenues:
Net sales $ 2,271,500 $ 1,671,100 $ 6,631,800 $ 5,184,800 $ 23,061,000
Net investment income 256,600 335,000 926,400 897,200 24,753,300
Licensing, royalty and Other income 89,300 1,100 1,313,200 101,900 5,654,500
----------- ----------- ------------ ------------ ------------
2,617,400 2,007,200 8,871,400 6,183,900 53,468,800
Expenses:
Cost of sales 885,000 450,200 2,075,900 1,267,900 6,043,800
Selling, general and administrative
costs 4,662,100 3,182,100 10,548,600 10,520,500 71,615,200
Research and development costs 2,904,500 4,045,900 8,670,700 13,016,200 81,647,800
Provision for litigation -- -- -- -- 10,165,000
Interest expense 53,300 -- 93,600 -- 1,206,400
----------- ----------- ------------ ------------ ------------
8,504,900 7,678,200 21,388,800 24,804,600 170,678,200
----------- ----------- ------------ ------------ ------------
Net loss $ (5,887,500) $ (5,671,000) $ (12,517,400) $ (18,620,700) $(117,209,400)
=========== =========== ============ ============ ============
Net loss per share $ (0.14) $ (0.14) $ (0.31) $ (0.46)
=========== =========== ============ ============
Weighted average number of common shares 40,860,200 40,805,700 40,802,700 40,061,900
=========== =========== ============ ============
See accompanying notes.
-4-
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 PERIOD MAY 7, 1987
------------------------------------
(INCEPTION)
THROUGH
1995 1994 SEPTEMBER 30, 1995
---------- ---------- ------------------
Change in Cash and Cash Equivalents
Cash flows used in operating activities:
Net loss $(12,517,400) $ (18,620,600) $ (117,209,400)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 875,900 725,500 3,842,800
Compensation element of stock option grants -- 711,600 5,303,400
Loss on marketable securities -- 215,600 140,600
Change in accounts receivable (100,900) (321,800) (892,400)
Change in interest receivable 51,500 (85,500) (72,600)
Change in inventories (97,900) 464,200 (1,947,700)
Change in other current assets (435,600) 63,400 (1,178,100)
Change in current liabilities 1,145,900 (2,383,800) 7,504,000
Provision for litigation (59,500) (98,000) 10,000,000
Change in other long-term liabilities 97,100 76,900 1,202,500
----------- ------------ --------------
Total adjustments 1,476,500 (631,900) 23,902,500
----------- ------------ --------------
Net cash used in operating activities (11,040,900) (19,252,500) (93,306,900)
Cash flows provided by (used in) investing activities:
Proceeds from marketable securities matured and sold 12,754,200 454,141,000 3,101,961,100
Purchase of marketable securities (4,508,200) (429,538,000) (3,106,597,100)
Purchase of property, plant and equipment (624,800) (719,000) (9,942,400)
----------- ------------ --------------
Net cash provided by (used in) investing activities 7,621,200 23,884,000 (14,578,400)
Cash flows provided by financing activities:
Proceeds from issuance of common stock and from exercise of stock options 188,700 405,200 115,653,600
Proceeds from loan 2,841,700 646,000 3,487,700
Proceeds from line of credit from affiliate -- -- 3,854,400
Repayment of line of credit from affiliate -- -- (3,854,400)
----------- ------------ --------------
Net cash provided by financing activities 3,030,400 1,051,200 119,141,300
Foreign currency translation adjustment (476,800) 89,700 (440,200)
----------- ------------ --------------
Net increase (decrease) in cash and cash equivalents (866,100) 5,772,400 10,815,800
Cash and cash equivalents-beginning of period 11,681,900 158,900 --
----------- ------------ --------------
Cash and cash equivalents-end of period $ 10,815,800 $ 5,931,300 $ 10,815,800
=========== ============ ==============
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 SEPTEMBER 30, 1995
COMMON STOCK CLASS B STOCK
------------ -------------
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
------------ ---------- ----------- -----------
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
Net loss for the period May 7, 1987
(inception) through December 31, 1987 -- -- -- --
------------ ---------- ----------- -----------
Balance at December 31, 1987 9,000,000 45,000 1,000,000 5,000
Net loss for the year ended December 31, 1988 -- -- -- --
------------ ---------- ----------- -----------
Balance at December 31, 1988 9,000,000 45,000 1,000,000 5,000
Proceeds from exercise of stock options 2,500 -- -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($6.00 per share, less
costs) 2,500,000 12,500 -- --
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 -- -- -- --
------------ ---------- ----------- -----------
Balance at December 31, 1989 12,502,500 62,500 -- --
Proceeds from exercise of stock options 285,800 1,400 -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($9.00 per share, less
costs) 4,025,000 20,200 -- --
Net loss for the year ended December 31, 1990 -- -- -- --
------------ ---------- ----------- -----------
Balance at December 31, 1990 16,813,300 84,100 -- --
Proceeds from exercise of stock options 500,700 2,500 -- --
Compensation related to stock options -- -- -- --
Issuance of shares ($28.50 per share, less
costs) 2,300,000 11,500 -- --
Issuance of shares for a 2 for 1 stock
dividend 19,614,000 98,000 -- --
Net loss for the year ended December 31, 1991 -- -- -- --
------------ ---------- ----------- -----------
Balance at December 31, 1991 39,228,000 196,100 -- --
Proceeds from exercise of stock options 264,400 1,400 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1992 -- -- -- --
------------ ---------- ----------- -----------
Balance at December 31, 1992 39,492,400 197,500 -- --
Proceeds from exercise of stock options 106,500 500 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1993 -- -- -- --
Foreign currency translation adjustment -- -- -- --
------------ ---------- ----------- -----------
Balance at December 31, 1993 39,598,900 198,000 -- --
Proceeds from exercise of stock options 75,300 400 -- --
Class Action Settlement 1,096,600 5,500 -- --
Compensation related to stock options -- -- -- --
Net loss for the year ended December 31, 1994 -- -- -- --
Foreign currency translation adjustment -- -- -- --
------------ ---------- ----------- -----------
Balance at December 31, 1994 40,770,800 203,900 -- --
Proceeds from exercise of stock options 132,300 600 -- --
Class Action Settlement -- -- -- --
Net loss for the six months ended September
30, 1995 -- -- -- --
Foreign currency translation adjustment -- -- -- --
------------ ---------- ----------- -----------
Balance at September 30, 1995 40,903,100 $ 204,500 -- $ --
============ ========== =========== ===========
TOTAL
ADDITIONAL ACCUM- STOCK-
PAID-IN ULATED OTHER HOLDERS'
CAPITAL DEFICIT 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) $ 1,000,000 $ -- $ -- $ 1,050,000
Net loss for the period May 7, 1987
(inception) through December 31, 1987 -- (1,030,500) -- (1,030,500)
-------------- ----------- --------- ------------
Balance at December 31, 1987 1,000,000 (1,030,500) -- 19,500
Net loss for the year ended December 31, 1988 -- (1,556,800) -- (1,556,800)
-------------- ----------- --------- ------------
Balance at December 31, 1988 1,000,000 (2,587,300) -- (1,537,300)
Proceeds from exercise of stock options 400 -- -- 400
Compensation related to stock options 305,900 -- -- 305,900
Issuance of shares ($6.00 per share, less
costs) 14,061,400 -- -- 14,073,900
Conversion of class B stock to common stock -- -- -- --
Net loss for the year ended December 31, 1989 -- (5,743,300) -- (5,743,300)
-------------- ----------- --------- ------------
Balance at December 31, 1989 15,367,700 (8,330,600) -- 7,099,600
Proceeds from exercise of stock options 143,500 -- -- 144,900
Compensation related to stock options 269,000 -- -- 269,000
Issuance of shares ($9.00 per share, less
costs) 33,009,700 -- -- 33,029,900
Net loss for the year ended December 31, 1990 -- (4,924,900) -- (4,924,900)
-------------- ----------- --------- ------------
Balance at December 31, 1990 48,789,900 (13,255,500) -- 35,618,500
Proceeds from exercise of stock options 3,349,600 -- -- 3,352,100
Compensation related to stock options 1,038,900 -- -- 1,038,900
Issuance of shares ($28.50 per share, less
costs) 61,444,300 -- -- 61,455,800
Issuance of shares for a 2 for 1 stock
dividend (98,000) -- -- --
Net loss for the year ended December 31, 1991 -- (6,540,100) -- (6,540,100)
-------------- ----------- --------- ------------
Balance at December 31, 1991 114,524,700 (19,795,600) -- 94,925,200
Proceeds from exercise of stock options 1,336,400 -- -- 1,337,800
Compensation related to stock options 1,452,400 -- -- 1,452,400
Net loss for the year ended December 31, 1992 -- (20,225,800) -- (20,225,800)
-------------- ----------- ---------- ------------
Balance at December 31, 1992 117,313,500 (40,021,400) -- 77,489,600
Proceeds from exercise of stock options 614,300 -- -- 614,800
Compensation related to stock options 906,900 -- -- 906,900
Net loss for the year ended December 31, 1993 -- (40,629,600) -- (40,629,600)
Foreign currency translation adjustment -- -- (291,800) (291,800)
-------------- ----------- ---------- -----------
Balance at December 31, 1993 118,834,700 (80,651,000) (291,800) 38,089,900
Proceeds from exercise of stock options 404,900 -- -- 405,300
Class Action Settlement 7,753,200 -- -- 7,758,700
Compensation related to stock options 1,330,300 -- -- 1,330,300
Net loss for the year ended December 31, 1994 -- (24,041,000) -- (24,041,000)
Foreign currency translation adjustment -- -- 395,700 395,700
-------------- ----------- --------- ----------
Balance at December 31, 1994 128,323,100 (104,692,000) 103,900 23,938,900
Proceeds from exercise of stock options 188,200 -- -- 188,800
Class Action Settlement 2,241,200 -- -- 2,241,200
Net loss for the six months ended September
30, 1995 -- (12,517,400) -- (12,517,400)
Foreign currency translation adjustment -- -- 302,000 302,000
-------------- ------------- ---------- -----------
Balance at September 30, 1995 $ 130,752,500 $(117,209,400) $ 405,900 $ 14,153,500
============== ============= ========== ===========
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 September 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 nine
month periods ended September 30, 1995 and 1994, and the period from May 7, 1987
(inception) through September 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:
September 30, December 31,
1995 1994
------------- ------------
Raw materials $ 405,200 $ 38,100
Work-in-process 1,122,300 1,597,100
Finished goods 293,100 222,000
---------- ----------
Total $1,820,600 $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:
September 30, December 31,
1995 1994
------------- --------------
Land, buildings, and leasehold improvements $ 2,124,500 $ 2,026,900
Equipment, furniture and fixtures 8,286,700 7,428,800
Accumulated depreciation (3,799,200) (2,966,900)
-------------- -------------
Property, plant and equipment, net $ 6,612,000 $ 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 nine month periods ended September
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 nine months ended September 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, Hexalen, and FddA, and
business development activities in the United States and Europe.
In January 1995, the company, 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. On October 9, 1995 the
company received an "approvable" letter from the FDA for Ethyol. The letter
states that Ethyol is approvable to reduce the cumulative nephrotoxicity (kidney
toxicity) of cisplatin in patients undergoing treatment with cisplatin-based
chemotherapy for advanced ovarian cancer. The issuing of an approvable letter is
generally the FDA's final step before granting a company permission to market a
new product. The company has submitted its response to the approvable letter to
the FDA, however, no assurances can be given that the FDA will issue final
approval of Ethyol.
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 the second
quarter of 1995, in France in the third quarter of 1995, and plans to begin
sales and marketing efforts in other European countries when regulatory
approvals and, if necessary, local pricing and reimbursement approvals, are
received. The company is actively engaged in exploring alternatives for the
commercial launch of Ethyol in the United States. Ethyol is under regulatory
review in Canada, where Eli Lilly has marketing rights to the product.
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 SEPTEMBER 30, 1995
Product sales increased to $2,271,500 in the three month period ended
September 30, 1995 from $1,671,100 in the prior year period. The increase is
attributable to increases in NeuTrexin and Hexalen sales in the United States
and shipments of Ethyol to Scherico, a Schering-Plough subsidiary, for use in
Europe.
Net investment income decreased to $256,600 in the third quarter of 1995 as
compared to $335,000 in the corresponding 1994 period due to a reduction in
interest income of $189,000 resulting from the smaller average portfolio balance
in the 1995 period. This decrease was largely offset by a net gain of $15,500
realized in the 1995 period as compared to a loss of $95,100 incurred in the
prior year period.
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 increased to 39% from 27% in the
prior year period due principally to 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 months ended
September 30, 1995 increased to $4,662,100 from $3,182,100 in the year ago
period. The increase of $1,480,000 was the result of the accrual of $2,341,000
for the company's share of Ethyol European launch expenses through June 1995.
This accrual is partly offset by a reduction in U.S. marketing expenditures of
$510,000, lower consulting expenses of $295,400 and reduced personnel costs of
$155,300 resulting from the internal restructuring noted above.
Research and development costs for the three months ended September 30,
1995 were $2,904,500 compared to $4,045,900 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 operating costs of
this facility were principally 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 $589,700 in the third
quarter. In addition, consistent with the company's internal restructuring,
decreases in expenses in personnel costs ($419,500), professional services
($176,000), travel ($31,700) and product development ($51,200) were also
achieved.
The net loss for the three months ended September 30, 1995 was $5,887,500
or $0.14 loss per share compared to $5,671,000 or $0.14 loss per share in the
1994 period.
NINE MONTHS ENDED SEPTEMBER 30, 1995
Product sales for the nine month period ended September 30, 1995 were
$6,631,800 compared to $5,184,800 for the nine month period ended September 30,
1994. The increase is attributable to an increase in United States and
international Hexalen and NeuTrexin sales, and shipments of Ethyol to Scherico
for use in Europe.
Net investment income increased to $926,400 for the nine month period ended
September 30, 1995 as compared to $897,200 in the nine month period ended
September 30, 1994, due to a $72,300 gain on the portfolio as compared to a
$372,500 loss in the prior year, coupled with a decline of $415,500 in interest
income in the 1995 period due to a lower portfolio balance.
-10-
Licensing, royalty and other income increased to $1,313,200 in the first
nine months of 1995 as compared to $101,900 in the first nine months of 1994 due
principally to the one-time payments for distribution rights in Canada and
Europe and increased contract manufacturing and analytical services revenue.
Cost of sales, as a percentage of product sales, increased to 31% of
product sales in 1995 from 25% 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. These costs were partly offset by higher U.S.
margins on Hexalen reflecting an increased trade price and lower product returns
on Hexalen and NeuTrexin.
Selling, general and administrative costs for the nine month period ended
September 30, 1995 increased to $10,548,600 from $10,520,500 in the year ago
period. The $28,100 increase is the net result of the accrual of $2,341,000 for
the company's share of the European Ethyol launch expenses noted above and lower
expenditures in U.S. marketing of $1,857,800, reduced personnel related expenses
of $254,400, reduced facility cost of $137,500 and lower travel expenses of
$52,500. The expense reductions were achieved principally as a result of the
company's January 1995 internal restructuring.
Research and development costs for the first nine months of 1995 were
$8,670,700 compared to $13,016,200 in the corresponding 1994 period. The $4.3
million decrease is due to the capitalization of manufacturing expenses with the
start of commercial production noted above ($1,923,500), lower personnel costs
($1,623,700), reduced professional and outside services expenses ($391,400) and
reductions in travel costs ($112,300) consistent with the internal
restructuring. In addition, lower research and product development expenditures
of $442,800 are reflective of the completion and scale-down of several
development programs.
The net loss for the nine months ended September 30, 1995 was $12,517,400
or $0.31 loss per share compared to $18,620,700 or $0.46 loss 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 September
30, 1995, the company's cash, cash equivalents and marketable securities totaled
$15,316,200. 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 nine months of 1995, net cash used in operations amounted
to $11,040,900 principally due to the net loss discussed above under "Results of
Operations" partly offset by an increase 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 of the
company's products 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.
The company's capital expenditures were $624,800 in the first nine months
of 1995 and total $9,942,400 since inception. In April 1993, the company
purchased a sterile products production facility in The
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Netherlands. Validation work and pilot production on this new facility
progressed through 1994 and manufacturing expenditures have further increased in
1995 as commercial quantities of NeuTrexin and Ethyol were produced. 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 $700,000 relating to this facility
was obtained in May 1994. The purchase price for this facility was $2,250,000
and approximately $2,730,000 in capital improvement have been made since its
purchase to make the facility operational.
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 September 30, 1995
approximately $476,000 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 has also received a term
loan from its principle bank in the amount of $2,400,000. 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
September 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 119 at
September 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 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.
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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 the second quarter of 1995, in France in the third quarter of 1995
and intends to launch Ethyol in several additional European markets when
regulatory and pricing 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 based on an
operating plan for 1996 which the company expects to receive in the near future.
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 in Europe will be financially successful. However, no assurance can be
given that the company will not incur 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. As noted above the company accrued $2.3
million in the third quarter of 1995 for its share of net launch expenses
related to its agreement with Scherico for the initial period through June 1995.
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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.
Not applicable
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 provided 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.
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/A
since the beginning of the quarter ended September 30,
1995:
Date of Report Items Covered
-------------- -------------
July 20, 1995 5
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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: November 13, 1995 By: /s/ Robert I. Kriebel
---------------------------
Robert I. Kriebel
Senior Vice President
Finance and Administration
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