SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 12(g)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 12(g)
of the Securities Exchange Act of 1934
For the Transition Period from _____ to _____
Commission File Number 0-26144
International Murex Technologies Corporation
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(Exact name of registrant as specified in its charter)
Province of British Columbia, Canada N/A
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 Woodlawn Road West, Guelph, Ontario, Canada N1K 1B8
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 519-836-8440
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3075 Northwoods Circle, Norcross, Georgia USA 30071
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(Former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 12(g) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The number of common shares outstanding as of November 12, 1996 was
16,280,196 excluding treasury shares.
Page 1 of 20
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Quarterly Report on Form 10-Q
For the Nine Months Ended September 30, 1996
Table of Contents
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Item Page
Number PART I -- FINANCIAL INFORMATION Number
------ ------
1 Financial Statements
Consolidated Balance Sheets at
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1996 and 1995 5
Consolidated Statement of Changes in
Shareholders' Equity for the
Period January 1, 1995 to September 30, 1996 6
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 9
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II -- OTHER INFORMATION
1 Legal Proceedings 18
6 Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of U. S. Dollars)
September 30, December 31,
----------------------------
1996 1995
- ---------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,774 $ 15,771
Accounts receivable, net of allowance
for doubtful accounts of $2,847
and $3,410, respectively 32,640 34,836
Inventories 20,498 16,941
Amounts due from affiliate 3,600
Prepaid and other 2,247 2,851
-----------------------------
Total current assets 66,759 70,399
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PROPERTY, PLANT AND EQUIPMENT-
at cost less accumulated depreciation
and amortization 9,718 9,231
PATENTS, TRADEMARKS AND LICENSES-
at cost less accumulated amortization 5,114 229
OTHER ASSETS 3,007 5,889
----------------------------
TOTAL $ 84,598 $ 85,748
==========================================================================
See notes to consolidated financial statements.
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September 30, December 31,
-------------------------------
1996 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit $ 10 $ 44
Trade accounts payable 10,356 7,586
Accrued expenses:
Professional fees 3,640 2,502
Royalty payments 3,006 13,397
Employee related compensation 5,984 3,963
Income taxes payable 1,313 1,709
Litigation settlements 4,816 2,910
Accrued restructuring 2,100
Other 4,297 3,551
Current portion of capitalized lease
obligations 164 229
------------------------------
Total current liabilities 35,686 35,891
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DEFERRED RENT 130 80
CAPITALIZED LEASE OBLIGATIONS 154 246
SHAREHOLDERS' EQUITY
Common shares, without par value,
200,000,000 shares authorized; 16,270,662 and
16,688,931 shares issued, respectively 82,668 84,136
Additional paid-in capital 13,906 13,906
Accumulated deficit (43,495) (43,504)
Less cost of 101,043 and 532,243 common shares
held in treasury, respectively (5) (1,514)
Accumulated currency translation adjustment (4,446) (3,493)
------------------------------
Shareholders' equity 48,628 49,531
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TOTAL $ 84,598 $ 85,748
============================================================================
See notes to consolidated financial statements.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. Dollars, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ---------------------
1996 1995 1996 1995
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REVENUES:
Product sales $ 24,917 $ 20,683 $ 75,291 $ 68,206
---------------------- ---------------------
Total revenues 24,917 20,683 75,291 68,206
---------------------- ---------------------
COSTS AND EXPENSES:
Cost of products sold 8,556 6,937 26,911 21,788
Research and development 1,504 1,695 4,918 5,669
General and administrative 10,147 5,997 20,452 17,301
Sales and marketing 7,164 6,740 21,892 19,988
Foreign exchange loss (gain) 227 (154) 951 (936)
Royalty expense (5,916) 1,961 (3,124) 6,344
Restructuring expense 2,100 2,100
---------------------- ---------------------
Total costs and expenses 23,782 23,176 74,100 70,154
---------------------- ---------------------
Income (Loss) From Operations 1,135 (2,493) 1,191 (1,948)
Interest income 138 251 447 781
Interest expense (92) (41) (1,058) (104)
Gain on asset disposals 74 27 78 69
Settlement of litigation (3,123)
Gain (loss) on liquidation
of investee 444 (43)
Other income (expense) 21 20 125 (123)
---------------------- ---------------------
Income (loss) before income taxes 1,720 (2,236) 740 (4,448)
Income tax expense (benefit) 428 (129) 731 842
---------------------- ---------------------
NET INCOME (LOSS) $ 1,292 $ (2,107) $ 9 $ (5,290)
====================== =====================
Net income (loss) per
common share $ 0.08 $ (0.13) $ 0.00 $ (0.32)
====================== =====================
Weighted average shares
outstanding (in thousands) 16,447 16,313 16,257 16,427
====================== =====================
See notes to consolidated financial statements.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of U.S. Dollars, except share data)
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Accumulated
Common Stock Additional Currency Total
---------------- Paid-In Accumulated Treasury Translation Shareholders'
Shares Amount Capital Deficit Shares Adjustment Equity
- ------------------------------------------------------------------------------------------------------------------------
January 1, 1995 16,778,646 $84,082 $13,906 ($36,894) ($5) ($4,585) $56,504
Issued pursuant to employee
stock purchase plan 17,375 54 54
Shares repurchased for treasury (1,509) (1,509)
Retirement of escrowed shares (107,144)
Issued in exchange for
subsidiary shares 54
Net (loss) (6,610) (6,610)
Foreign currency translation 1,092 1,092
---------- ------- ------- -------- ------ ------- -------
December 31, 1995 16,688,931 84,136 13,906 (43,504) (1,514) (3,493) 49,531
Issued pursuant to employee
stock purchase plan 12,731 40 40
Issued pursuant to employee
stock option plan 200 1 1
Retirement of treasury shares (431,200) (1,509) 1,509
Net income 9 9
Foreign currency translation (953) (953)
---------- ------- ------- -------- ------ ------- -------
September 30, 1996 16,270,662 $82,668 $13,906 ($43,495) ($5) ($4,446) $48,628
========== ======= ======= ======== ====== ======= =======
See notes to consolidated financial statements.
-6-
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. Dollars)
Nine Months Ended September 30,
-------------------------------
1996 1995
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OPERATING ACTIVITIES:
Net income (loss) $ 9 $ (5,290)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,243 3,239
Gain on sale of property and equipment (78) (69)
Changes in working capital:
Accounts receivable 2,196 (1,487)
Inventories (3,557) (1,006)
Prepaid expenses and other assets (108) 1,026
Trade accounts payable 2,770 (104)
Accrued expenses (2,871) 5,025
----------------------------
Net cash provided by (used in) operating
activities 1,604 1,334
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INVESTING ACTIVITIES:
Additions to property and equipment (3,537) (3,809)
Additions to patents and licenses (5,154) (101)
Proceeds from sale of property and equipment 154 232
----------------------------
Net cash (used in) investing activities (8,537) (3,678)
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FINANCING ACTIVITIES:
Increase in borrowings under line of credit 52
Reduction of other long-term liabilities (152) (318)
Proceeds from issuance of common shares 41 46
Repurchase of shares for treasury (1,121)
----------------------------
Net cash (used in) financing activities (111) (1,341)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (953) 959
Net (Decrease) in Cash and Cash Equivalents (7,997) (2,726)
Cash and Cash Equivalents at Beginning of Period 15,771 19,213
----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,774 $ 16,487
==============================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $447 $91
Cash paid for income taxes $1,127 $1,855
-7-
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Consolidated Statements of Cash Flows (Continued)
(In thousands of U.S. Dollars)
==========================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended September 30, 1996, IMTC retired $1,509
of shares held in treasury.
During the nine months ended September 30, 1996, a subsidiary of the
Company, Specialist Diagnostics Limited ("SDL"), entered voluntary
liquidation. Its financial statements were deconsolidated. As of September
30, 1996, IMTC and its subsidiaries represented the sole creditors,
therefore in the financial statements the subsidiary is assumed to be fully
liquidated, resulting in a receivable of $3,600. See Note 5 to the
consolidated financial statements.
Unpaid acquisition costs totaled $0 and $750 at September 30, 1996 and
1995, respectively.
During the nine months ended September 30, 1995, the Company entered
into capital lease obligations of approximately $53.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Notes to Consolidated Financial Statements
(In thousands of U.S. Dollars)
==========================================================================
1. NATURE OF THE COMPANY AND BASIS OF PRESENTATION:
International Murex Technologies Corporation ("IMTC") has many
separately incorporated subsidiaries operating throughout the world
generally under the name Murex Diagnostics (the "Murex Group"). The
Murex Group develops, manufactures and markets medical diagnostic
products and provides medical services for the screening, diagnosis
and monitoring of infectious diseases and other medical conditions.
(IMTC and the Murex Group are collectively referred to herein for
consolidated financial purposes only as the "Company".)
The accompanying financial statements include IMTC and its wholly-
owned, separately incorporated subsidiaries doing business in various
territories generally under the name Murex Diagnostics; Murex
Holdings Corporation ("MHC"), a Delaware corporation; MHC's majority
owned subsidiary Murex Corporation ("Murex"), a Delaware corporation;
and Murex's wholly owned subsidiaries. Subsequent to December 31,
1995, IMTC's United Kingdom ("UK") operating business was restructured
into two companies, Murex Diagnostics Limited ("MDL") and Murex
Biotech Limited ("MBL"). MDL subsequently changed its name to
Specialist Diagnostics Limited ("SDL") (see Note 5) and entered
voluntary liquidation. Co-liquidators have been appointed. As of
September 30, 1996, IMTC and its subsidiaries represented the sole
creditors, therefore, in the financial statements, the subsidiary is
assumed to be fully liquidated. IMTC, through its subsidiary MHC,
purchased additional shares of Murex from Murex's minority
shareholders from July 1993 through August 1995, bringing its total
ownership percentage to greater than 95%. During August 1995, Murex
was merged with MHC and MHC was merged with Murex Diagnostics, Inc.
The previous minority interest's portion of Murex's continued losses
in excess of their basis has not been recorded because management
considers that it is not currently realizable.
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X promulgated by the Securities and Exchange Commission.
Such financial statements do not include all disclosures required by
generally accepted accounting principles for annual financial
statement reporting purposes. However, there has been no material
change in the information disclosed in the Company's annual
consolidated financial statements dated December 31, 1995, except as
disclosed herein. Accordingly, the information contained herein
should be read in conjunction with such annual consolidated financial
statements and related disclosures. The accompanying financial
statements reflect, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of the results for the interim periods presented.
Results of operations for the quarter and nine months ended September
30, 1996 are not necessarily indicative of results expected for an
entire year.
-9-
2. INVENTORIES:
September 30, December 31,
1996 1995
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Raw materials and supplies . . . . . . . $5,529 $4,842
Work in process . . . . . . . . . . . . 4,704 4,292
Finished goods . . . . . . . . . . . . . 10,265 7,807
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Total inventories . . . . . . . . . . . $20,498 $16,941
======= ======
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3. CONTINGENCIES:
(a) HCV PATENT INFRINGEMENT: The Murex Group's business utilizes
newly developed technologies that include patents on processes
and devices. These types of technologies are the focal point for
the biotechnology industry. The ownership and patentability of
such processes or devices have become increasingly complex,
resulting in competitive claims of ownership within the industry.
Several subsidiaries of the Murex Group were involved in patent
infringement litigation in several countries against Chiron
Corporation ("Chiron") and Ortho Diagnostics Systems, Inc.
("Ortho") related to Chiron's hepatitis C ("HCV") test.
On August 27, 1996, the Company reached a worldwide agreement
with Chiron and Ortho concerning tests for HCV under which all
litigation between the parties permanently ceased.
The agreement grants the Company, as well as its affiliates, a
license to sell HCV Serotyping tests worldwide and licenses other
HCV tests in selected countries excluding North America, European
Economic Community members and Japan. The license under this
agreement carries a guaranteed minimum royalty for seven years.
The agreement also grants to the Chiron-Ortho joint business
rights to the Murex Sample Addition Monitor ("SAM(TM)")
technology and an option to sell the Company's HCV Serotyping
test.
The agreement provides Chiron the opportunity to acquire the
Company's HCV immunoassay business in the event the Company
receives an offer to purchase 50% or more of the combined voting
power of the Company's then outstanding securities, or if the
Company's Board of Directors approves a merger, or the sale of
all or substantially all of the Company's assets. If Chiron does
not exercise this option the Company is entitled to transfer its
rights and licenses under this agreement described above.
(b) ABBOTT PATENT INFRINGEMENT: On July 2, 1996, Murex Diagnostics
Corporation ("MDC"), a subsidiary of the Company, filed a patent
infringement suit against Abbott Laboratories ("Abbott") in the
Northern District Court of Georgia, seeking injunctive relief
against Abbott and damages for infringement of a patent held by
MDC for a particle bound binding component immunoassay. The suit
-10-
alleges that two Abbott systems, the Abbott IMx(TM) Immunoassay
and the Abbott AxSYM(TM) System, infringe one or more claims of
the Company's patent. Preliminary motions have been filed.
(c) UNITED KINGDOM TAX DISPUTES: During October 1995, Her Majesty's
Customs and Excise Tax required MDL to pay approximately $900 in
Value Added Tax ("VAT") related to its central cost allocation
agreements with its subsidiaries. Management believed this
assessment was incorrect and lodged an appeal. During February
1996, a preliminary hearing was held and the judge ruled that
this case must be heard by a UK Tribunal. In July 1996, the UK
Tribunal ruled in the Company's favor and this assessment has
been withdrawn. In addition to receiving a refund of the $900
assessment, the Company is entitled to compound interest and
expenses related to defending its position.
During 1995, the UK Inland Revenue questioned the tax basis of
inventory, accounts receivable and property, plant and equipment
related to the 1992 purchase of assets from The Wellcome
Foundation Limited ("Wellcome".) If the Inland Revenue is
successful in its argument, a tax charge of up to $4.2 million
could arise. Management believes it has meritorious defenses
against the claims of the Inland Revenue and, therefore, has not
recorded a provision for losses related to this matter.
(d) CLASS ACTIONS: Four class action lawsuits were instituted on
behalf of all persons who had purchased IMTC's securities between
May 21, 1992 and August 19, 1992 against IMTC, two executive
officers of IMTC, and Messrs. Edward J. DeBartolo, Sr. (now
deceased) and Edward J. DeBartolo, Jr., in the Southern District
of Texas, Houston Division. In January 1993, the class actions
were voluntarily transferred to the United States District Court,
Eastern District of New York. The complaints alleged that the
defendants omitted and/or misrepresented material facts about
IMTC which resulted in artificially inflating the market price of
IMTC's securities permitting, in part, Messrs. DeBartolo, Sr. and
DeBartolo, Jr. to sell their IMTC securities in violation of the
federal and Texas securities laws. One further action alleged
violations of insider trading rules under the federal securities
laws. The defendants answered denying the allegations in the
complaints. On May 2, 1995, IMTC announced an agreement among
the parties to settle all outstanding claims for $5.4 million, a
portion of which is to be paid by IMTC. The settlement agreement
was preliminarily approved by the court in June 1996, with the
final hearing scheduled for November 1996. IMTC has accrued costs
related to this settlement, including its portion of the
settlement payment.
(e) OTHER MATTERS: In August 1992, Allen F. Campbell, as trustee for
two trusts, instituted an action against IMTC, Murex, an
executive officer of IMTC, Mr. DeBartolo, Jr., and others in the
District Court for Montgomery County, Texas. In January 1993,
the Court transferred the action to the U.S. District Court,
Northern District of Texas, and dismissed the other defendants
from the proceedings. The plaintiffs sought substantial damages,
and other relief, including rescission of certain transactions,
based upon, among other charges, alleged subrogation rights to
receive payments due under certain promissory notes payable by
Murex to Mr. DeBartolo, Jr., and alleged violations of state
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securities and corporation laws and common law fraud. A similar
suit was filed in Gwinnett County, Georgia in June 1994. On
March 24, 1995, the parties entered into a settlement agreement
whereby Allen F. Campbell, et al, dismissed both actions with
prejudice, released all parties and relinquished all shares of
stock held in Murex in return for payments over four years.
Reserves have been recorded for such payments.
In November 1992, Deacon Barclays de Zoete Wedd Limited
("DBZW")filed a lawsuit in Ontario, Canada against IMTC alleging
that IMTC has refused or neglected to pay a contractual fee to
DBZW for its assistance in the 1992 purchase of the diagnostics
division of Wellcome. The plaintiff sought payment of
approximately $1 million plus expenses. On April 12, 1996 the
parties agreed to settle all outstanding claims against each
other in return for payment by IMTC of approximately $750 during
1996. At September 30, 1996, all amounts had been paid. The
Company had accrued $750 as a cost of the acquisition during
1992.
4. INNOGENETICS AGREEMENT
During February 1996, Murex Diagnostics Corporation ("MDC") entered
into an exclusive distribution, development and license agreement with
Innogenetics N.V. ("Innogenetics") to develop and market gene probe
products for tissue typing, genetics, microbial species detection
(viral, bacterial and fungal), and mutation identification as part of
a diagnostic and patient monitoring strategy. Under the terms of the
agreement, MDC will pay $5.9 million during 1996 and $1.6 million
during 1997 to Innogenetics for the rights to distribute certain
Innogenetics' products for 15 years. MDC will also pay Innogenetics a
royalty of 10% of the Murex Group's net sales of Innogenetics'
products. Also under this agreement, MDC is to fund agreed-upon
research and development programs, beginning in 1998 and for each of
the following 13 years, in an amount equal to 20% of the Murex Group's
net sales of Innogenetics' products. MDC is continuing to negotiate
with current Innogenetics' distributors to expedite the transfer of
business.
5. RESTRUCTURING, RENAMING, AND VOLUNTARY LIQUIDATION OF MUREX
DIAGNOSTICS LIMITED
During the first quarter of 1996, one of IMTC's UK subsidiaries, MDL
was restructured to maximize tax and operational efficiencies. MDL
retained the business encompassing the sale in the UK of all HCV
products and the manufacturing of the HCV Serotyping test. All other
MDL business was sold to another of IMTC's UK subsidiaries, MBL.
Subsequent to the restructuring, MDL was renamed SDL. SDL entered
voluntary liquidation following the British High Court ruling that an
interim cash security of $9.3 million be posted by SDL relating to its
ongoing patent litigation with Chiron and Ortho (see Note 3 (a)). Co-
liquidators have been appointed. As of September 30, 1996, IMTC and
its subsidiaries represented the sole creditors, therefore in the
consolidated financial statements the subsidiary is assumed to be
fully liquidated.
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6. RESTRUCTURING ACCRUAL
During September 1996, the Company recorded a restructuring charge of
$2.1 million before tax. The restructuring was driven by the need to
reposition the Company for its movement into the patient monitoring
business. The world-wide plan will result in personnel reductions of
approximately 50 people from various functions. The restructuring
provision consists predominantly of estimated costs for employee
severance and other benefits.
7. RECONCILIATION OF CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("CANADIAN GAAP" AND U.S. GAAP")
There were no differences between Canadian GAAP and U.S. GAAP during
the year ended December 31, 1995 and the quarter and nine months ended
September 30, 1996.
8. SUBSEQUENT EVENT
On November 12, 1996, the Company entered into a three year $15
million asset-based line of credit facility which is collateralized by
the accounts receivable and inventory of its U.S., U.K., and Barbados
subsidiaries. This line of credit bears interest at LIBOR plus 2.5% or
prime.
-13-
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Form 10-Q for the Nine Months Ended September 30, 1996
Part I - Financial Information
__________________________________________________________________________
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts expressed in U.S. Dollars)
FINANCIAL CONDITION
During the three and nine months ended September 30, 1996, IMTC and
the Murex Group (collectively referred to herein for consolidated financial
purposes only as the "Company"), earned income from operations and
maintained positive working capital.
Litigation and Technology Disputes
As discussed in the Note 3 to the consolidated financial statements,
IMTC and several of the Murex Group have been involved in several lawsuits,
including technology patent issues, which have now been settled. The
Company is not presently the defendant in any material judicial proceeding.
As discussed in Note 3, the Company has remaining obligations related to
these matters, which have been accrued in the consolidated financial
statements. The Company continues to defend one UK Inland Revenue claim and
is vigorously pursuing its patent infringement suit against Abbott
Laboratories, both of which are discussed below. For more complete
information refer to Note 3 of the consolidated financial statements.
On July 2, 1996, Murex Diagnostics Corporation ("MDC"), a subsidiary
of the Company, filed a patent infringement suit against Abbott
Laboratories seeking injunctive relief against Abbott and damages for
infringement of a patent held by MDC for a particle bound binding component
immunoassay. The suit alleges that two Abbott systems, the Abbott IMx
Immunoassay and the Abbott AxSYM System, infringe one or more claims of the
patent.
During 1995, the UK Inland Revenue questioned the tax basis of
inventory, accounts receivable and property, plant and equipment related to
the 1992 purchase of assets from Wellcome. If the Inland Revenue is
successful in its argument, a tax charge of up to $4.2 million could arise.
Management believes it has meritorious defenses against the claims of the
Inland Revenue and, therefore, has not recorded a provision for losses
related to this matter.
Liquidity and Capital Resources
The Company has sufficient cash resources and adequate working capital
to carry on its current business and meet existing capital requirements.
The Company earned income from operations during the quarter and nine
months ended September 30, 1996. Working capital totaled $31,073,000 at
September 30, 1996. On November 12, 1996, the Company entered into a three
year $15 million asset-based line of credit facility which is
collateralized by the accounts receivable and inventory of its U.S., U.K.
-14-
and Barbados subsidiaries. This line of credit bears interest at LIBOR plus
2.5% or prime.
The Company's working capital and capital requirements will depend
upon numerous factors, the results of research and development, the levels
of resources devoted to the establishment and expansion of marketing and
manufacturing, technological developments, and the timing and costs of
obtaining approvals for new products. Depending on the outcome of these
factors, the Company may need to raise additional funds in the future for
use to fund acquisitions, complete products in development, and for general
purposes. There are no assurances that such funds will be available on
favorable terms, if at all.
As discussed in Note 3 of the consolidated financial statements, IMTC
had agreed to settle the class action and Campbell litigations during the
first quarter of 1995. These settlements will result in future payments of
approximately $2,800,000, which amounts have been accrued.
On April 12, 1996, the parties in Deacon Barclays de Zoete Wedd
litigation agreed to settle all outstanding claims against each other in
return for payment by IMTC of approximately $750,000 during 1996. At
September 30, 1996, all amounts had been paid. The Company had accrued
$750,000 as a cost of the acquisition during 1992.
During the first quarter of 1995, IMTC commenced a stock repurchase
program to acquire up to 5% of its outstanding common shares. Pursuant to
the program, IMTC purchased shares until January 1996 in the open market
and through other transactions, subject to share availability at prices
deemed appropriate. IMTC purchased 431,200 shares prior to the termination
of this program.
During February 1996, MDC entered into an exclusive distribution,
development and license agreement with Innogenetics to develop and market
gene probe products for tissue typing, genetics, microbial species
detection (viral, bacterial and fungal), and mutation identification as
part of a diagnostic and patient monitoring strategy. Under the terms of
the agreement, MDC will pay $5.9 million during 1996 and $1.6 million
during 1997 to Innogenetics for the rights to distribute certain
Innogenetics' products for 15 years. MDC will also pay Innogenetics a
royalty of 10% of the Murex Group's net sales of Innogenetics' products.
Also under this agreement, MDC shall fund agreed-upon research and
development programs, beginning in 1998 and for each of the following 13
years under this agreement, in an amount equal to 20% of the Murex Group's
net sales of Innogenetics' products.
The Company anticipates that its current capital resources and the
line of credit discussed in Note 8 of the consolidated financial statements
will enable it to maintain planned operations for the foreseeable future
subject to management's ability to acquire new technologies and continue
innovations to reduce the impact of the loss of certain HCV sales. The
various subsidiaries in the Murex Group plan to continue to utilize their
assets, the anticipated profitable financial results of operations and the
proceeds from the Abbott licensing agreement to provide access to
additional working capital financing and to obtain equipment lease
financing, as and when required. The United States operating subsidiary
established a $1 million working capital line of credit in early 1995. As a
condition of the line of credit described in Note 8, this facility is no
longer available.
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Management Outlook
The litigation problems discussed above did have a significant impact
on the Company's overall operations in the past. With the final resolution
of these matters as described in Note 3 of the consolidated financial
statements, management is positioned to concentrate on the progress of the
overall business and operations of the Murex Group. The key to growth is
the ability to identify new needs in the marketplace, and to expeditiously
meet these needs through access to appropriate innovations and
technologies, and to rapidly incorporate them into the Murex Group's
product line. However, there can be no assurance that Murex Group will
successfully add a significant number of new products to its product line.
The Innogenetics distribution, development and licensing agreement
discussed above gives the Murex Group access to the rapidly growing gene
probe market for monitoring patients and the identification of viral and
bacterial mutations and species. The DNA probe technology provided by
Digene under the 1993 and 1994 agreements has yielded a new CMV product
which may contribute to future earnings. Recent Murex Group product
innovations, such as SAM, serotyping and the new product HTLV should also
contribute to future sales growth.
In addition to relying on research and development and licensing of
core technologies, management's operation strategy will focus on quality,
customer service, reducing costs and improving cash flows.
This report contains or refers to forward-looking information
including future revenues, products, and income and is based upon current
expectations that involve a number of business risks and uncertainties.
Among the factors that could cause actual results to differ materially from
any forward-looking statement include, but are not limited to,
technological innovations of competitors, changes in health care
regulations, litigation claims, changes in foreign economic conditions or
currency translation product acceptance or changes in government regulation
of the Company's products, as well as other factors discussed in other
Securities and Exchange Commission filings for the Company.
__________________________________________________________________________
RESULTS OF OPERATIONS
Product sales for the quarter and nine months ended September 30, 1996
were $24,917,000 and $75,291,000 versus $20,683,000 and $68,206,000 for the
comparable prior year periods. The increase in product sales during the
first nine months of 1996 was a result of the newly-acquired Innogenetics'
product line, growth of sales in Eastern Europe, South America and
Southeastern Asia and the acquisition of the Company's Canadian
distributor. These increases were partially offset by unfavorable foreign
exchange rates. As a result of the Chiron and Ortho settlement, sales of
the Company's HCV products, excluding the HCV Serotyping tests will be
discontinued in Italy, France and Spain effective June 30, 1997. However,
management believes that this settlement will not result in a decrease in
worldwide sales of its HCV products in 1997.
Gross profit on product sales for the nine months ended September 30,
1996 was 64.3% compared with 68.1% for 1995. Cost of products sold grew
$5,123,000 because of increased sales, increased use of direct
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distributors, especially for the newly-acquired Innogenetics' products,
which caused an erosion of the Company's gross profit margin and increased
product sales of purchased-in products which have lower gross profit
margins. Margins should significantly improve as the Innogenetics sales by
direct distributors are replaced with direct Company sales which produce
stronger margins.
Total costs and expenses, excluding cost of products sold, of
$15,226,000 and $47,189,000 for the quarter and nine months ended September
30, 1996, respectively, reflect a net decrease of $1,013,000 and $1,177,000
over the quarter and nine months ended September 30, 1995. General and
administrative expenses have increased $4,150,000 and $3,151,000 from the
quarter and nine months ended September 30, 1995, respectively, to
$10,147,000 and $20,452,000 for the corresponding 1996 periods. These
increases are due to legal, employee compensation and other expenses
associated with settling the Company's HCV patent litigation during the
third quarter of 1996. Sales and marketing expenses of $7,164,000 and
$21,892,000 reflect increases of $424,000 and $1,904,000 over the third
quarter and first nine months of 1995. This increase was a result of
increased presence by the Murex Group in the German, Eastern European,
African, Middle Eastern and South American markets. Furthermore, the
Company is preparing to launch several new products, including a test for
HIV reverse transcriptase mutations. Foreign exchange loss was $227,000
and $951,000 for the quarter and nine months ended September 30, 1996,
respectively, versus gains of $154,000 and $936,000 reported for the
comparable prior year periods. The 1996 foreign exchange losses were caused
predominately by the strengthening of the British pound in relation to U.S.
and German currencies as well as the weakening of the South African rand.
The 1995 foreign exchange gain was a result of the weakening of the Italian
Lira versus other European currencies. The Company's Italian subsidiary
billed other European customers in their local currencies. As the Lira
weakened against these currencies, the Italian subsidiary recognized a gain
on its receivables from its European customers. As a result of the
settlement with Chiron and Ortho, a reversal was made to royalty accruals
made in prior years, which produced a $5.9 million net credit to royalty
expense. During September 1996, the Company recorded a restructuring
charge of $2.1 million before tax. The restructuring was driven by the need
to reposition the Company for its movement into the patient monitoring
business. The world-wide plan will result in personnel reductions of
approximately 50 people from various functions. The restructuring provision
consists predominantly of estimated costs for employee severance and other
benefits.
Interest expense increased $51,000 and $954,000 from the third quarter
and first nine months of 1995 to $92,000 and $1,058,000 for the quarter and
nine months ended September 30, 1996, respectively, due to the factoring of
Italian receivables to fund the agreement with Innogenetics. The gain
(loss) on liquidation of investee represents SDL's net loss for the quarter
and nine months ended September 30, 1996, net of the estimated gain upon
ultimate liquidation. As of September 30, 1996, IMTC and its subsidiaries
represented the sole creditors of SDL, therefore, in the financial
statements the subsidiary is assumed to be fully liquidated. The net effect
of this assumed liquidation was a $444,000 gain.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Form 10-Q for the Nine Months Ended September 30, 1996
Part II - Other Information
___________________________________________________________________________
ITEM 1 - LEGAL PROCEEDINGS
See Note 3 to the consolidated financial statements for information
regarding the settlement of the Chiron and Ortho litigation and current
legal proceedings.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
Exhibit 10 Agreement among Chiron Corporation, Johnson &
Johnson/Ortho Diagnostics Systems, Inc. and
International Murex Technologies Corporation dated
August 27, 1996. (Without Exhibits)
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
2. Reports on Form 8-K
None
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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 on its behalf by the
undersigned, thereunto duly authorized.
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
(Registrant)
Date: November 14, 1996 By: /s/ C. Robert Cusick
----------------------- -------------------------------
C. Robert Cusick, Vice Chairman
and Chief Financial Officer
Date: November 14, 1996 By: /s/ Jill A. Gilmer
----------------------- -------------------------------
Jill A. Gilmer, Secretary
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EXHIBIT INDEX
Exhibit Description
------- -----------
10 Agreement among Chiron Corporation, Johnson
& Johnson/Ortho Diagnostics Systems, Inc. and
International Murex Technologies Corporation
dated August 27, 1996. (Without Exhibits)
11 Statement Regarding Computation of Per Share
Earnings
27 Financial Data Schedule