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 June 30, 1997
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.)
2255 B. Queen Street, East, Suite 828, Toronto, ON M4E 1G3
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (519) 836-8016
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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 August 1, 1997 was
16,328,721, excluding treasury shares.
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Quarterly Report on Form 10-Q
For the Six Months Ended June 30, 1997
Table of Contents
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Item Page
Number PART I -FINANCIAL INFORMATION Number
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1 Financial Statements
Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
for the Three and Six Months Ended
June 30, 1997 and 1996 5
Consolidated Statements of Changes in
Shareholders' Equity for the
Period January 1, 1996 to June 30, 1997 6
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 9
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II -OTHER INFORMATION
1 Legal Proceedings 19
4 Submission of Matters to a Vote of Security Holders 19
6 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands of U. S. Dollars)
June 30, December 31,
---------------------------
1997 1996
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,865 $ 9,723
Accounts receivable, net of allowance
for doubtful accounts of $3,044
and $3,174, respectively 37,859 33,718
Inventories 21,806 21,534
Amounts due from affiliate 4,327 4,415
Prepaid and other 1,664 1,207
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Total current assets 71,521 70,597
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PROPERTY, PLANT AND EQUIPMENT-
at cost less accumulated depreciation
and amortization 10,086 10,091
PATENTS, TRADEMARKS AND LICENSES-
at cost less accumulated amortization 6,349 5,738
OTHER ASSETS 10,091 8,687
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TOTAL $ 98,047 $ 95,113
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See notes to consolidated financial statements.
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June 30, December 31,
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1997 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 11,863 $ 9,757
Accrued expenses:
Professional fees 699 2,222
Royalty payments 2,199 1,978
Employee related 4,825 5,985
Income taxes payable 1,578 1,508
Litigation settlements 1,959 3,310
Restructuring 307 1,402
Other 3,921 2,809
Current portion of capitalized lease
obligations 126 151
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Total current liabilities 27,477 29,122
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DEFERRED RENT 85 77
LINE OF CREDIT 11,158 9,638
CAPITALIZED LEASE OBLIGATIONS 34 93
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common shares, without par value,
200,000,000 shares authorized; 16,604,763 and
16,578,853 shares issued, respectively 84,534 84,460
Additional paid-in capital 13,906 13,906
Accumulated deficit (37,907) (41,655)
Less cost of 101,043 and 286,929 common
shares held in treasury, respectively (5) (1,085)
Unrealized gain on marketable securities 6,012 4,405
Accumulated currency translation adjustment (7,247) (3,848)
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Shareholders' equity 59,293 56,183
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TOTAL $ 98,047 $ 95,113
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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 Six Months
Ended June 30, Ended June 30,
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1997 1996 1997 1996
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REVENUES:
Product sales $ 26,392 $ 24,351 $ 51,110 $ 50,374
License fees and other 2,098 3,222
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Total revenues 28,490 24,351 54,332 50,374
COSTS AND EXPENSES:
Cost of products sold 9,699 8,502 17,988 18,355
Research and development 2,120 1,574 3,727 3,414
General and administrative 4,843 5,001 10,461 10,305
Sales and marketing 7,521 7,724 14,338 14,728
Foreign exchange (gain) loss (69) 715 (25) 724
Royalty expense 1,906 825 3,406 2,792
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Total costs and expenses 26,020 24,341 49,895 50,318
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Income From Operations 2,470 10 4,437 56
Interest income 40 245 89 309
Interest expense (327) (218) (612) (966)
Gain on asset disposals 13 4 (13) 4
Equity in loss of investee (79) (487)
Other income (27) 9 25 104
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Income (loss) before income taxes 2,169 (29) 3,926 (980)
Income taxes 80 145 178 303
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NET INCOME (LOSS) $ 2,089 $ (174) $ 3,748 $ (1,283)
================== ====================
Net income (loss) per
common share $ 0.12 $ (0.01) $ 0.22 $ (0.08)
================== ====================
Weighted average shares
outstanding (in thousands) 17,411 16,165 17,377 16,162
================== ====================
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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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Common Stock Additional
------------------- Paid-In
Shares Amount Capital
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December 31, 1995 16,688,931 $84,136 $13,906
Issued pursuant to employee
stock purchase plan 23,297 91
Exercise of employee stock options 15,900 50
Issued as stock compensation 281,925 1,692
Shares tendered to treasury
Retirement of treasury shares (431,200) (1,509)
Unrealized gain on marketable
securities
Net income
Foreign currency translation
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December 31, 1996 16,578,853 84,460 13,906
Issued pursuant to employee
stock purchase plan 14,624 104
Exercise of employee stock options 150,700 780
Retirement of treasury shares (185,886) (1,080)
Issued pursuant to class action
settlement 46,472 270
Unrealized gain on marketable
securities
Net income
Foreign currency translation
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June 30, 1997 16,604,763 $84,534 $13,906
==================================
Accumulated Treasury
Deficit Shares
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December 31, 1995 ($43,504) ($1,514)
Issued pursuant to employee
stock purchase plan
Exercise of employee stock options
Issued as stock compensation
Shares tendered to treasury (1,080)
Retirement of treasury shares 1,509
Unrealized gain on marketable
securities
Net income 1,849
Foreign currency translation
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December 31, 1996 (41,655) (1,085)
Issued pursuant to employee
stock purchase plan
Exercise of employee stock options
Retirement of treasury shares 1,080
Issued pursuant to class action
settlement
Unrealized gain on marketable
securities
Net income 3,748
Foreign currency translation
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June 30, 1997 ($37,907) ($5)
==================================
Unrealized Accumulated
Gain on Currency Total
Marketable Translation Shareholder'
Securities Adjustment Equity
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December 31, 1995 ($3,493) $49,531
Issued pursuant to employee
stock purchase plan 91
Exercise of employee stock options 50
Issued as stock compensation 1,692
Shares tendered to treasury (1,080)
Retirement of treasury shares
Unrealized gain on marketable
securities $4,405 4,405
Net income 1,849
Foreign currency translation (355) (355)
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December 31, 1996 4,405 (3,848) 56,183
Issued pursuant to employee
stock purchase plan 104
Exercise of employee stock options 780
Retirement of treasury shares
Issued pursuant to class action
settlement 270
Unrealized gain on marketable
securities 1,607 1,607
Net income 3,748
Foreign currency translation (3,399) (3,399)
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June 30, 1997 $6,012 ($7,247) $59,293
====================================
See notes to consolidated financial statements.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of U.S. Dollars)
Six Months Ended June 30,
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1997 1996
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OPERATING ACTIVITIES:
Net income (loss) $ 3,748 $ (1,283)
Adjustments to reconcile net
income (loss) to net
cash provided by (used in)
operating activities:
Depreciation 1,953 1,965
Amortization 390 153
Gain (loss) on sale of property
and equipment 13 (4)
Changes in working capital:
Accounts receivable (4,141) 2,180
Inventories (272) (2,194)
Prepaid expenses and other
assets (254) 1,978
Trade accounts payable 2,106 1,520
Accrued expenses (3,456) (5,115)
------------------------
Net cash provided by (used in)
operating activities 87 (800)
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INVESTING ACTIVITIES:
Additions to property and
equipment (2,085) (1,839)
Additions to patents and licenses (1,000) (4,374)
Proceeds from sale of property and
equipment 123 30
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Net cash (used in) investing
activities (2,962) (6,183)
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FINANCING ACTIVITIES:
Increase in borrowings under line
of credit 1,520
Reduction of other long-term
liabilities (76) (126)
Proceeds from issuance of common
shares 884 27
-------------------------
Net cash provided by (used in)
financing activities 2,328 (99)
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EFFECT OF EXCHANGE RATE CHANGES (3,311) 632
Net (Decrease) in Cash and Cash
Equivalents (3,858) (6,450)
Cash and Cash Equivalents at
Beginning of Period 9,723 15,771
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,865 $ 9,321
=============================================================
Supplemental Disclosure of Cash
Flow Information:
Cash paid for interest $612 $309
Cash paid for income taxes $408 $757
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Consolidated Statements of Cash Flows (Continued)
(In Thousands of U.S. Dollars)
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
During the six months ending June 30, 1997 and 1996, IMTC
retired $1,080 and $1,509, respectively, of shares held in
treasury.
During the six months ended June 30, 1996, a subsidiary of
the Company, Specialist Diagnostics Limited ("SDL"), entered
voluntary liquidation. Therefore, its financial statements were
deconsolidated. As of June 30, 1997, the Company has an amount
due from SDL of $4,327.
Unpaid acquisition costs totalled $0 and $385 at June 30,
1997 and 1996, respectively.
See notes to consolidated financial statements.
-8-
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Notes to Consolidated Financial Statements
(In Thousands of U.S. Dollars)
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1. NATURE OF THE COMPANY AND BASIS OF PRESENTATION:
International Murex Technologies Corporation ("IMTC") has
many incorporated subsidiaries operating throughout the
world under the Murex name (the "Murex Group"). The Murex
Group develops, manufactures and markets medical diagnostic
products, licenses its technology 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").
Effective January 1, 1996, IMTC s United Kingdom ("UK")
operating business was restructured into two companies,
Murex Diagnostics Limited ("MDL") and Murex Biotech Limited
("MBL"). MDL retained the business encompassing the sale in
the UK of all of the Company's Hepatitis C ("HCV") products
and manufacturing of the HCV Serotyping test. All other MDL
business was sold to another of IMTC's UK subsidiaries, MBL.
MDL subsequently changed its name to Specialist Diagnostics
Limited ("SDL") and 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 then
ongoing patent litigation. Co-liquidators were appointed.
As of June 30, 1997 and December 31, 1996, IMTC and its
subsidiaries represented predominantly all of the creditors
of SDL. In the consolidated financial statements, the
subsidiary is assumed to be fully liquidated. Management
expects to ultimately receive net proceeds of $4,327 after
settlement of all liquidation costs, which is reflected as
of June 30, 1997 as amounts due from affiliates.
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, 1996, 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 six months ended June 30, 1997 are not
necessarily indicative of results expected for an entire
year.
-9-
2. INVENTORIES:
June 30, December 31,
1997 1996
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Raw materials and supplies . . $ 5,229 $ 5,911
Work in process . . . . . . . 5,830 5,244
Finished goods . . . . . . . . 10,747 10,379
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Total inventories . . . . . . $21,806 $21,534
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3. CONTINGENCIES:
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., alleging 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. The defendants answered denying the allegations in
the complaints. During 1996, the parties agreed to settle
all outstanding claims for $5.4 million, a portion of which
has been paid by IMTC into escrow held by the claims
administrator. In accordance with the Stipulation
Settlement Agreement, Edward J. DeBartolo, Jr. and the
Estate of Edward J. DeBartolo, Sr. each transferred 92,943
common shares of the Company's stock to the Company to be
used as their portion of the settlement. The claims
administrator is currently qualifying claimants.
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 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 Inland Revenue and that the
Company has sufficient tax loss carryforwards to offset any
tax charges. Therefore, the Company has not recorded a
provision for losses related to this matter.
4. RESTRUCTURING:
During September 1996, the Company recorded a restructuring
charge of $2,100. The restructuring was driven by the need
to reposition the Company for its movement into the patient
monitoring business. The worldwide 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. As of December 31, 1996, 35 employees left
the Company related to the restructuring plan, resulting in
actual payments of $698. As such, the remaining accrual at
December 31, 1996 was $1,402. The Company substantially
completed the restructuring during the six months ended June
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30, 1997, and $307 remained accrued at June 30, 1997 for
payments to former employees.
5. 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, 1996 and
the quarter and six months ended June 30, 1997.
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INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Form 10-Q for the Six Months Ended June 30, 1997
Part I - Financial Information
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts expressed in U.S. Dollars)
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, delays in product introductions,
changes in health care regulations and reimbursements, 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.
FINANCIAL CONDITION
During the quarter and six months ended June 30, 1997, the
Company continued its profitability, generated cash from
operations and maintained positive working capital.
Litigation and Technology Disputes
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.
IMTC and several subsidiaries of the Murex Group were
involved in several lawsuits, including technology patent issues,
which were settled during 1996. The Company is not presently the
defendant in any material judicial proceeding. The Company is
vigorously pursuing its patent infringement suit in which the
Company is the plaintiff against Abbott Laboratories ("Abbott"),
and continues to defend one UK Inland Revenue Claim, both of
which are discussed below.
On July 2, 1996, a subsidiary of IMTC, Murex Diagnostics
Corporation ("MDC"), filed a patent infringement suit against
Abbott 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(TM) Immunoassay and the Abbott AxSYM System,
infringe one or more claims of MDC s patent. Abbott has answered
the complaint and the parties are now actively engaged in
discovery.
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
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that the Company has sufficient tax loss carryforwards to offset
any tax charges. Therefore, the Company 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 over the next twelve months and
beyond. Cash and working capital totaled $5.9 million and $44.0
million, respectively at June 30, 1997. For the six months ended
June 30, 1997, the Company generated cash from operations.
On November 12, 1996, the Company entered into a three year,
$15 million asset-based line of credit facility with Bank of
America, which is collateralized by the accounts receivable and
inventory of its United States ("US"), UK and Barbados
subsidiaries. Based on the value of the collateral, the
borrowings outstanding of $11,158,000 and a letter of credit
outstanding of $832,000, there was $504,000 unused and available
under this credit facility as of June 30, 1997. The credit
facility was drawn upon for, among other things, payments
associated with the Innogenetics alliance, working capital and
ongoing business activities. The Company has an interest rate
swap agreement with the lender that fixed the interest rate at
8.9% for a notional principal amount of $8.0 million.
The Company's working capital and capital requirements will
depend upon numerous factors including: 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.
The Company anticipates that its current capital resources,
availability under its line of credit facility, and anticipated
profitability will enable it to maintain planned operations over
the next twelve months and beyond.
Management Outlook
The key to the Company's 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 the Murex Group
will successfully add a significant number of new products to its
product line.
Management believes that strategic ventures and licensing
arrangements position the Company for the future and play an
important role in the achievement of management's corporate
objectives. The strategic ventures, licensing transactions and
Murex Group product innovations discussed below are examples of
the Company's recent successes of capitalizing on the Company's
world-wide distribution network and product technologies.
During February 1996, MDC entered into an exclusive
distribution, development and license agreement with Innogenetics
N.V. ("Innogenetics") to develop and market gene probe products
for the monitoring of patients and the classification of viral
-13-
diseases. Under the terms of the agreement, MDC paid $5.9
million during 1996 and $1.6 million during 1997 to Innogenetics
for the exclusive rights to distribute Innogenetics' LiPA
products, excluding HCV, for 15 years. MDC will also pay
Innogenetics a royalty of 10% of the Murex Group's net sales of
Innogenetics' products. This strategic alliance with Innogenetics
has provided the Murex Group with exclusive rights to the
Murex/Innogenetics LiPA HIV-1 Reverse Transcriptase ("HIV-1 RT")
monitoring test. This test simultaneously detects wild-type and
HIV mutations associated with the reverse transcriptase drugs
AZT, ddI, ddC and 3TC. The Company launched the test world-wide,
except in the US and France where the product is distributed for
research use only, late in the second quarter of 1997. In the
US, Murex Diagnostics, Inc. ("MDI") has had discussions with the
Food and Drug Administration but has not yet filed an application
for the licensing of the test.
The reverse transcriptase drugs AZT, ddI, ddC and 3TC are
currently being utilized, separately and in combination, to treat
HIV patients. Resistance to the drugs occurs as virus mutations
develop that may eventually cause the drug, or combination of
drugs, to become ineffective against the virus. The
Murex/Innogenetics LiPA HIV-1 RT test is the first rapid assay
to identify HIV mutant strains.
Resistant mutations occur with all the approved HIV
therapies. Therefore, it is critical to monitor the development
of mutations so therapies can be appropriately combined and
adjusted. The new HIV-1 RT test provides crucial information
relating to the development of resistance to individual and
combination therapy. By obtaining resistance information,
physicians can avoid using drugs that may not be effective,
thereby improving patient care and eliminating the expense of
unnecessary and ineffective therapy. In addition, a physician
may utilize resistance information prior to starting or changing
therapy by screening a patient for the presence of existing drug
resistant mutations.
The broadening of the Company's focus into the world-wide
emerging diagnostics monitoring market, which management expects
to exceed $1 billion by the year 2000, should support revenue
growth in the coming years. The Innogenetics distribution,
developing and licensing agreement gives the Murex Group access
to the rapidly growing gene probe market for monitoring patients
and the classification of viral diseases. The monitoring market
directly complements the Company's existing markets of screening
and diagnosis and also leverages its worldwide marketing and
distribution network. The diagnostic monitoring market includes
tests that among other applications, assess a patient through the
course of a disease or infection, monitor various forms of anti-
viral therapies and monitor conditions associated with
transplants. In contrast, screening and diagnosis tests are used
to indicate whether a patient is, or is not, carrying a disease
or infection. In patient use, screening and diagnosis tests are
usually only required to be administered once while monitoring
tests are usually administered numerous times.
Patient monitoring has become an important and critical
element of patient care and treatment. The Murex Group believes
it can capture a significant portion of this emerging market by
strategically positioning itself in key segments of the market
including AIDS therapy, organ transplantation and other immune
compromised conditions.
-14-
In addition to the agreement above, during May 1997, the
Company licensed its trademarked Sample Addition Monitor (SAM(TM))
technology to Innogenetics. The color-coded SAM technology will
be utilized in Innogenetics enzyme immunoassay products (EIA)
with the first being Innogenetics HIV Ag assay. Developed by
Murex s internal research and development, SAM s color-coded
reagents change color in each testing step of an assay. The
technology assists clinicians in ensuring that samples have been
added and the testing procedure has been conducted correctly. The
Company's SAM technology is utilized in selected Murex products
and it has been licensed by a number of large healthcare
companies, including Chiron Corporation.
Effective June 1997, Genelabs Diagnostics SA of Geneva,
Switzerland, ("Genelabs") appointed MDC to handle distribution of
its diagnostics products in Europe and South America. The move is
expected to benefit hospitals and laboratories in terms of
product availability and technical support, and expand the supply
of Genelabs specialty tests for the diagnosis of infectious
diseases and immunological disorders to new areas of need.
Agreements made between the two companies, which are exclusive or
co-exclusive depending on the country, provide for the sale of
viral confirmatory tests including, Western Blots for Human T-
Cell Lymphotropic Virus ("HTLV"), Human Immunodeficiency Virus
("HIV"), Epstein-Barr Virus ("EBV") and cytomegalovirus ("CMV"),
Autoblot 36 and Western Blot instrumentation, as well as
Hepatitis E Elisa.
Effective February 1997, the Murex Group and Digene
Corporation ("Digene") entered into a five year agreement to work
together to create a direct European sales operation for Digene's
sexually transmitted disease diagnostics business. Digene will
sell its Hybrid Capture human papilloma virus ("HPV") DNA test
directly in selected European markets using the Company's
existing distribution infrastructure in exchange for selling
service fees and a percentage of Digene HPV sales. All other
Digene products exclusively sold by Murex in Europe will not be
affected by this transaction. Additionally, Digene will make
fixed payments over the next two years.
During January 1997, MDC entered into a 10 year, worldwide
Original Equipment Manufacturer ("OEM") distribution agreement
with Eurogenetics N.V. ("Eurogenetics"). Pursuant to the terms of
the agreement, the Murex Group will distribute Eurogenetics
mircotitre plate EIA kits for rubella, toxoplasmosis, CMV,
chlamydia, herpes and beta-2 microglobulin.
The Company's worldwide marketing and distribution
capabilities motivate companies such as Innogenetics, Genelabs,
Digene and Eurogenetics to partner with the Company in licensing
agreements and product development and thereby contribute to the
flow of new and creative products. The Company's alliances
provide the Murex Group with access to technology, strengthen and
extend the Company's monitoring market strategy and allow the
Company to further penetrate its existing markets in blood
screening and clinical diagnostics. Throughout 1997 and beyond,
the Company will actively seek out acquisitions, strategic
business alliances and other opportunities that will support the
Company's future.
During June 1997, the Company sold TTP Corporation ("TTP"),
a wholly-owned subsidiary of MDC, to Shield Diagnostics Group
plc. ("Shield"). TTP owned the intellectual property and other
rights to ten products used for the diagnosis of thyroid
dysfunction and the measurement of cardiovascular/blood
coagulation degradation products. TTP's assays are targeted to a
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specific segment of the diagnostics industry that is not a part
of the Company's long-term strategy of focusing on the screening,
diagnosis and monitoring of infectious diseases. Therefore, the
divestiture of TTP is an element of the Murex Group's overall
plan that will allow the Company to focus its resources on the
infectious disease diagnostics monitoring market. The Company
will continue to manufacture and sell the TTP product line
acquired by Shield for a period of three years, pursuant to a
purchase commitment. This will provide Shield security regarding
availability of the products while they are being integrated into
Shield s business as well as permit Shield to utilize the Murex
Group s worldwide distribution network.
MDC completed a non-exclusive, out-licensing transaction
during the second quarter of 1994 by licensing to Abbott certain
technology acquired as part of the 1992 acquisition of the
diagnostics division of Wellcome. For the six months ended June
30, 1997, MDC accrued $700,000 of pro-rata excess minimum royalty
revenue for 1997. The underlying revenue stream associated with
this licensing agreement has been growing at approximately 40%
per year. It continues to remain strong and growing and the
Company expects the minimum royalty levels to continue to be
exceeded until the expiration of the patent in the year 2004.
Therefore, beginning in 1998, the Company anticipates receiving
at least $3 million per year from this licensing arrangement.
Recent Murex Group product innovations, such as SAM(TM), and
tests for HTLV, syphilis and E-Coli, should contribute to future
sales growth. These new and enhanced products, created through
the Company's in-house research and development endeavors,
strengthened the Company's broad line of well-established
virology and bacteriology products and allowed the Company to
enter new markets in targeted areas around the world.
In addition to relying on research and development and
licensing of core technologies, management's operation strategy
also focuses on quality, customer service, reducing costs and
improving cash flows.
-16-
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RESULTS OF OPERATIONS
Total revenues for the quarter and six months ended June 30,
1997 were $28,490,000 and $54,332,000, respectively, compared to
$24,351,000 and $50,374,000 for the prior year periods. Product
sales increased by $2,041,000 and $736,000 to $26,392,000 and
$51,110,000 for the quarter and six months ended June 30, 1997
and 1996, respectively. In accordance with Company's 1996
agreement with Chiron Corporation ("Chiron"), the Company ceased
selling its HCV products, excluding HCV Serotyping, as of June
30, 1997 in Italy, France and several other European countries
where sales of HCV have been minor. Sales of these products have
been gradually decreasing in the affected countries since the
agreement with Chiron was reached. Nonetheless, product sales for
the quarter ended June 30, 1997 were marginally increased as
customers in the affected countries stocked up on the Company's
HCV products. The net increases in product sales represents
actual increases using a constant currency basis of $3,328,000
and $3,189,000 and negative foreign exchange impacts of
$1,287,000 and $2,453,000 for the three and six month periods,
respectively. The negative foreign exchange effect is due to the
relative strength of the US Dollar, the reporting currency of the
Company, during the first six months of 1997 as compared to the
first six months of 1996. Translation from the various
functional currencies to the US Dollar caused a decrease in the
Dollar equivalent product sales revenue. License fees and other
revenues increased to $2,098,000 and $3,222,000 for the quarter
and six months ended June 30, 1997, respectively from zero in the
previous year.
The license fees and other revenues represent royalties
resulting from Abbott exceeding the minimum royalty level as
defined in the 1994 agreement, the fixed payments made by Digene
in accordance with the February 1997 agreement, and the sale of
certain technologies during June 1997 to Shield. The technologies
sold to Shield are targeted to a specific segment of the
diagnostics industry that is not part of the Company's long-term
strategy of focusing on the screening and monitoring of
infectious diseases.
The gross profit on total revenues increased to 66.9% from
63.6% for the six months ended June 30, 1997 compared to the same
period in 1996. Innogenetics products are now predominately being
sold via the Company's direct sales-force in lieu of distributors
and efficiencies are being achieved through higher volumes in the
factories, therefore gross profit on product sales for the six
months ended June 30, 1997 increased to 64.8% from 63.6% for
1996. The cost of products sold was $9,699,000 and $17,988,000
for the quarter and six months ended June 30, 1997 from
$8,502,000 and $18,355,000 in the comparable prior year periods.
Total costs and expenses, excluding cost of products sold,
of $16,321,000 and $31,907,000 for the quarter and six months
ended June 30, 1997 reflect net changes of $482,000 and $(56,000)
over the quarter and six months ended June 30, 1996. Research
and development costs for the quarter and six months ended June
30, 1997 increased by $546,000 and $313,000 to $2,120,000 and
$3,727,000. The increase in research and development expenditures
is a result of the Company's strategy of developing innovative
products for its distribution networks, as well as continuously
-17-
improving existing products. General and administrative costs for
the quarter and six months ended June 30, 1997 were $4,843,000
and $10,461,000 as compared to $5,001,000 and $10,305,000 for the
comparable prior year periods. Sales and marketing expenses of
$7,521,000 and $14,338,000 reflect a $203,000 and $390,000
decrease over the quarter and six months ended June 30, 1996.
The decreases are a result of the Company's cost control measures
and restructuring efforts.
Interest expense was $327,000 and $612,000 compared to
$218,000 and $966,000 for the quarters and six months ended June
30, 1997 and 1996, respectively. The Company currently has access
to capital at favorable rates via the line of credit with Bank of
America. During the quarter ended June 30, 1997, the Company
increased the amount borrowed, resulting in a corresponding
increase in interest expense. In the prior year, the Company
factored its Italian receivables to fund the agreement with
Innogenetics. The equity in loss of investee represents SDL's net
loss for the quarter and six months ended June 30, 1996.
-18-
INTERNATIONAL MUREX TECHNOLOGIES CORPORATION
Form 10-Q for the Six Months Ended June 30, 1997
Part II - Other Information
-------------------------------------------------------------------
ITEM 1 - LEGAL PROCEEDINGS
See Note 3 to the financial statements for information
regarding current legal proceedings.
ITEM 4 - SUMMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. The Annual General Meeting of Shareholders was held on May
13, 1997.
2. The following persons were elected as Directors of the
Company for the ensuing year:
C. Robert Cusick Thomas L. Gavan, M.D.
The Honorable J. Trevor Eyton Hartland M. MacDougall
Norbert Gilmore, PhD, M.D. Jay A. Lefton, Esq.
Stanley E. Read, PhD, M.D. Victor A. Rice
F. Michael P. Warren, Q.C.
3. The following matters were voted upon at the meeting:
a. Election of Directors:
For Withheld
C. Robert Cusick 12,543,660 49,717
J. Trevor Eyton 12,536,660 56,717
Thomas L. Gavan 12,544,160 49,217
Norbert Gilmore 12,543,185 50,192
Jay A. Lefton 12,541,860 51,517
Hartland MacDougall 12,537,905 55,472
Stanley E. Read 12,543,185 50,192
Victor A. Rice 12,542,155 51,222
F. Michael P. Warren 12,544,160 49,217
b. To appoint Deloitte & Touche, LLP as Auditors of the
Company for 1997:
For Withheld
12,537,430 55,947
c. To approve Amendments to the Employee Stock Purchase
Plan:
For Against
12,231,946 361,431
-19-
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
2. Reports on Form 8-K
None
-20-
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: August 4, 1997 By: /s/ C. Robert Cusick
----------------- -------------------------------
C. Robert Cusick, Vice Chairman
President & CEO
Date: August 4, 1997 By: /s/ Steve Ramsey
----------------- -------------------------------
Steve Ramsey, Vice President
& CFO
-21-
EXHIBIT INDEX
Exhibit Description
------- -----------
11 Statement Regarding Computation of
Per Share Earnings
27 Financial Data Schedule