1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------------
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE MONTH OF FEBRUARY, 2001
Galen Holdings Public Limited Company
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SEAGOE INDUSTRIAL ESTATE
CRAIGAVON
BT63 5UA
UNITED KINGDOM
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F [X] Form 40-F [ ]
(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934.)
Yes [ ] No [X]
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- .)
================================================================================
2
EXPLANATORY NOTE
I. PURPOSE OF FILING
The Purpose of this report on Form 6-K by Galen Holdings PLC is to make
public the unaudited financial statements, as listed in the accompanying index,
for Galen Holdings and its subsidiaries. These unaudited financial statements
have been prepared in accordance with United States generally accepted
accounting principles and are presented in U.S. dollars.
II. SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
February 14, 2001 Galen Holdings PLC
/s/ R. G. Elliott
-----------------------
Name: R. G. Elliott
Title: Chief Financial Officer
3
GALEN HOLDINGS PUBLIC LIMITED COMPANY
TABLE OF CONTENTS
PAGE NO.
--------
Part I Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of December 31, 2000 and September 30, 2000 2
Consolidated Statements of Operations for the Three Months Ended December 31,
2000 and 1999 3
Consolidated Statements of Comprehensive Income for the Three Months Ended
December 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for Three Months Ended December 31, 2000
and 1999 5
Notes to the Unaudited Consolidated Financial Statements 6 - 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II Other Information 19
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Forms 6-K or 8-K 19
1
4
GALEN HOLDINGS PUBLIC LIMITED COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
2000 2000
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 81,235 $ 113,671
Accounts receivable, net 40,363 44,877
Inventories 23,077 22,230
Deferred tax asset 7,000 7,000
Prepaid expense and other assets 7,097 5,982
------------- -------------
Total current assets 158,772 193,760
------------- -------------
Property, equipment, furniture and fixtures, net 123,076 118,677
Intangible assets, net 491,968 493,474
------------- -------------
Total assets $ 773,816 $ 805,911
============= =============
LIABILITIES
Current Liabilities:
Accounts payable $ 13,980 $ 13,305
Accrued and other liabilities 31,521 45,774
Current installments of long-term debt 15,135 47,146
Current installments of obligation under capital leases 470 525
Income taxes 6,530 3,567
Deferred consideration 6,085 7,000
------------- -------------
Total current liabilities 73,721 117,317
------------- -------------
Other Liabilities:
Long-term debt, excluding current installments 215,578 219,575
Long-term obligations under capital leases, excluding
current installments 369 445
Deferred income taxes 16,153 14,366
Other non-current liabilities 9,383 9,763
------------- -------------
Total liabilities 315,204 361,466
------------- -------------
Minority interest 239 176
SHAREHOLDERS' EQUITY
Ordinary shares, par value (pounds sterling) 0.10 per
share; 250,000,000 (September 30, 2000; 250,000,000)
shares authorized,161,527,758 shares issued and
outstanding at December 31, 2000, and 158,965,206
issued and outstanding at September 30, 2000 25,869 25,498
Additional paid-in capital 404,140 399,656
Retained earnings 44,902 42,568
Treasury stock (11,937) (11,950)
Accumulated other comprehensive loss (4,601) (11,503)
------------- -------------
Total shareholders' equity 458,373 444,269
------------- -------------
Total liabilities and shareholders' equity $ 773,816 $ 805,911
============= =============
See accompanying notes to unaudited consolidated financial statements.
2
5
GALEN HOLDINGS PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
2000 1999
------------------ ------------------
REVENUES
Product revenue $ 40,957 $ 19,967
Service revenue 19,842 15,194
------------------ ------------------
Total revenues 60,799 35,161
------------------ ------------------
OPERATING EXPENSES
Cost of sales 21,084 17,292
Selling, general and administrative 18,029 4,962
Research and development 2,617 2,374
Depreciation 2,003 1,580
Amortization 6,285 561
------------------ ------------------
Total operating expenses 50,018 26,769
------------------ ------------------
OPERATING INCOME 10,781 8,392
------------------ ------------------
OTHER INCOME (EXPENSE)
Interest income 1,727 3
Interest expense (7,571) (452)
------------------ ------------------
Total other income (expense) (5,844) (449)
------------------ ------------------
INCOME BEFORE TAXES & MINORITY INTEREST 4,937 7,943
------------------ ------------------
Provision for income taxes 2,546 2,680
Minority interest in earnings of subsidiaries 57 31
------------------ ------------------
NET INCOME $ 2,334 $ 5,232
================== ==================
NET INCOME PER ORDINARY SHARE:
Basic $ 0.02 $ 0.04
================== ==================
Diluted $ 0.01 $ 0.04
================== ==================
NET INCOME PER ADR:
Basic $ 0.06 $ 0.18
================== ==================
Diluted $ 0.06 $ 0.18
================== ==================
WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING: 155,128,233 118,757,206
Basic ================== ==================
159,333,888 119,084,253
Diluted ================== ==================
WEIGHTED AVERAGE EQUIVALENT ADRS OUTSTANDING: 38,782,058 29,689,302
Basic ================== ==================
39,833,472 29,771,063
Diluted ================== ==================
See accompanying notes to unaudited consolidated financial statements.
3
6
GALEN HOLDINGS PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS
ENDED
DECEMBER 31,
2000 1999
--------- ----------
NET INCOME $ 2,334 $ 5,232
--------- ----------
Other comprehensive income:
Foreign currency translation adjustment 6,902 (465)
--------- ----------
Other comprehensive income (loss) 6,902 (465)
--------- ----------
COMPREHENSIVE INCOME $ 9,236 $ 4,767
========= ==========
See accompanying notes to unaudited consolidated financial statements.
4
7
GALEN HOLDINGS PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,334 $ 5,232
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 2,003 1,580
Amortization of intangibles 6,285 561
Amortization of government grants (380) (530)
Stock compensation expense - 465
Minority interest 57 31
Changes in assets and liabilities:
Decrease (increase) in accounts receivable,
prepaid expense and other assets 3,399 (2,179)
Increase in inventories (847) (1,200)
Decrease in accounts payable, accrued
liabilities and other liabilities (1,624) (330)
Income taxes 4,750 1,689
Foreign exchange (gain) loss (522) 1,760
----------- -----------
Net cash provided by operating activities 15,455 7,079
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (4,488) (12,932)
Purchase of intangible assets - (153)
Deferred consideration and acquisition costs (12,954) -
----------- -----------
Net cash used in investing activities (17,442) (13,085)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt repayments, net (36,008) (2,539)
Payments under capital leases (131) (135)
Proceeds from share capital issue 4,788 60,173
Issue expenses - (869)
----------- -----------
Net cash (used in) provided by financing activities (31,351) 56,630
----------- -----------
Net (decrease) increase in cash and cash equivalents (33,338) 50,624
Cash and cash equivalents, beginning of period 113,671 10,459
Foreign exchange adjustment on cash and cash equivalents 902 -
----------- -----------
Cash and cash equivalents, end of period $ 81,235 $ 61,083
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
5
8
GALEN HOLDINGS PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in Thousands (Except per Share Amounts)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared in accordance with generally accepted accounting principles.
Certain information and footnote disclosure normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The statements should
be read in conjunction with the accounting policies and notes to the
consolidated financial statements included in Galen Holdings Public Limited
Company's ("Galen" or the "Company") 2000 Annual Report on Form 20-F.
Galen is a Northern Ireland public limited company based in Craigavon,
Northern Ireland and Rockaway, NJ, USA. The Company's financial statements
include the financial statements for Galen Holdings Public Limited Company
and all of its subsidiaries. The Company's financial statements are
prepared are in US dollars in conformity with United States generally
accepted accounting principles.
In the opinion of management, the financial statements reflect all
adjustments necessary for a fair statement of the operations for the
interim periods presented.
2. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally on the basis of first in, first out or standards that
approximate average cost.
DECEMBER 31, 2000 SEPTEMBER 30, 2000
----------------- ------------------
Finished goods $10,581 $10,222
Raw materials 12,496 12,008
---------- ----------
$23,077 $22,230
========== ==========
3. WARNER CHILCOTT SENIOR NOTES DUE 2008
Warner Chilcott, Inc ("WCI") at the time of its acquisition by Galen on
September 29, 2000 had $200,000 principal amount of 12-5/8% senior notes
outstanding. The notes were issued by WCI in February 2000 and are
unconditionally guaranteed by Warner Chilcott, plc, WCI's immediate parent.
Interest payments on the notes are due semi-annually in arrears on February
15th and August 15th. The notes are due in February 2008 and are redeemable
prior to maturity at the option of WCI, in whole or part, beginning in
February 2004 at redemption prices that decrease annually and range from
106.3125% to 100% of the principal amount of the notes plus accrued
interest. The indenture governing the notes limits Warner Chilcott, plc and
its subsidiaries' ability to incur or guarantee additional debt, as well as
to pay dividends or distributions on, or redeem or repurchase, capital
stock.
The indenture governing the notes provides that upon a change of control,
each note holder has the right to require WCI to repurchase their notes at
a price equal to 101% of the principal amount plus accrued interest.
Galen's acquisition of Warner Chilcott triggered the right of holders to
require the
6
9
GALEN HOLDINGS PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in Thousands (Except per Share Amounts)
repurchase of notes, notice of which had to be given to the Company by
December 1, 2000. Holders of $40,300 principal amount of the notes elected
to tender their notes under this provision and on December 13, 2000 Warner
Chilcott repurchased $40,300 principal amount of the notes for $40,700,
plus accrued interest.
At the time it issued the notes, WCI entered into a registration rights
agreement (the "Registration Rights Agreement") that requires WCI to offer
to exchange the outstanding notes for new notes registered under the
Securities Act of 1933, as amended (the "Exchange Offer"). The agreement
required that WCI consummate the Exchange Offer by August 14, 2000. The
registration statement for the exchange offer, filed with the SEC prior to
the date required by the Registration Rights Agreement, was not declared
effective by the SEC until February 1, 2001 mainly due to delays caused
by the completion of Galen's acquisition of Warner Chilcott. Under the
terms of the Registration Rights Agreement, beginning on July 15, 2000, an
additional 0.50% interest began to accrue on the notes in excess of the
stated 12-5/8% rate ("Additional Interest"). Beginning on October 15, 2000
the rate of Additional Interest increased to 1% and on January 15, 2001,
increased again to 1.50%. On February 1, 2001 the registration statement
for the exchange offer was declared effective and, as a result, effective
February 1, 2001 this Additional Interest stopped accruing.
4. ACQUISITION
On September 29, 2000, Galen acquired all of the outstanding shares and
share equivalents of Warner Chilcott, plc through a scheme of arrangement
under the laws of the Republic of Ireland. Galen issued 2.5 Galen ordinary
shares for each of Warner Chilcott's outstanding ordinary shares. All of
Warner Chilcott's outstanding share options and warrants were converted at
the same ratio into options and warrants to acquire Galen shares. The total
acquisition price of $325,500 consisted of (i) $282,800 in respect of
31,698,554 Galen shares valued at $8.9225 (the average closing price of
Galen shares for the five days before and after the announcement of the
transaction on May 4, 2000) issued in exchange for the 12,680,812
outstanding shares of Warner Chilcott, (ii) $31,200 representing the fair
market value of Galen share options and warrants issued in exchange for
Warner Chilcott options and warrants, and (iii) $11,500 of acquisition
costs. The Warner Chilcott transaction has been accounted for as a
purchase. The Warner Chilcott transaction closed on September 29, 2000, the
last business day of the Company's fiscal year.
The following unaudited pro forma information presents the results of
operations for the Company assuming the following events were completed as
of October 1, 1999: (i) Galen's acquisition of Warner Chilcott (ii) Warner
Chilcott's acquisition of three branded products from Bristol-Myers Squibb
(Ovcon(R) 35, Ovcon(R) 50 and Estrace(R) Cream), (iii) the issuance of
$200,000 principal amount of senior notes by Warner Chilcott to finance the
acquisition of the products, (iv) the repurchase of $40,300 principal
amount of the senior notes issued by Warner Chilcott triggered by Galen's
acquisition of Warner Chilcott and (v) the elimination of Warner Chilcott's
marketing agreement with Schering Plough Corporation. Unaudited pro forma
consolidated results after giving effect to the other businesses acquired
during the periods presented would not have been materially different from
the reported pro forma results for either period.
7
10
GALEN HOLDINGS PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in Thousands (Except per Share Amounts)
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional
amortization expense as a result of goodwill, increased interest expense on
acquisition debt and related adjustments. They do not purport to be
indicative of the results of operations that actually would have resulted
had the transactions occurred as of October 1, 1999, or of future results
of operations of the consolidated entities.
THREE MONTHS ENDED DECEMBER 31,
2000 1999
(actual) (pro forma)
-------------- -------------
Revenue $ 60,799 $ 62,264
Net income (loss) $ 2,334 $ (256)
Net income (loss) per ADR - Basic $ 0.06 $ (0.01)
Net income (loss) per ADR - Diluted $ 0.06 $ (0.01)
Weighted aver ADR equivalent - Basic 38,782,058 37,613,940
Weighted aver ADR equivalent - Diluted 39,833,472 37,613,940
5. NET INCOME PER ADR AND ORDINARY SHARE
Basic net income per ADR and ordinary share is based on the income
available to ordinary shareholders divided by the weighted average number
of ordinary shares and equivalent ADRs outstanding during the period.
Diluted income per share is computed by adjusting the weighted average
number of ordinary shares and equivalent ADRs outstanding during the period
for potentially dilutive rights to acquire ordinary shares or ADRs that
were outstanding during the period. The dilution attributable to rights to
acquire shares is computed using the treasury stock method and depends upon
the market price of the Company's shares during the period.
The following table sets forth the computation for basic and diluted net
income per ADR and ordinary share:
THREE MONTHS ENDED
DECEMBER 31,
2000 1999
--------------- ---------------
Numerator for basic and diluted net income
per ordinary share and ADR $ 2,334 $ 5,232
=============== ===============
Weighted average number of ordinary shares
(basic) 155,128,233 118,757,206
Effect of dilutive stock options/warrants 4,205,655 327,047
--------------- ---------------
Weighted average number of ordinary shares
(diluted) 159,333,888 119,084,253
Basic net income per ordinary share $ 0.02 $ 0.04
=============== ===============
Diluted net income per ordinary share $ 0.01 $ 0.04
=============== ===============
Weighted average number of equivalent ADRs
(basic) 38,782,058 29,689,302
Effect of dilutive stock options/warrants 1,051,414 81,761
--------------- ---------------
Weighted average number of equivalent ADRs
(diluted) 39,833,472 29,771,063
Basic net income per ADR $ 0.06 $ 0.18
=============== ===============
Diluted net income per ADR $ 0.06 $ 0.18
=============== ===============
8
11
GALEN HOLDINGS PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in Thousands (Except per Share Amounts)
6. CONTINGENCIES
The Company is involved in various legal proceedings of a nature considered
normal to its business including patent litigation, product liability and
other matters. In the event of the adverse outcome of these proceedings,
resulting liabilities are either covered by insurance, established reserves
or, in the opinion of management, would not have a material adverse effect
on the financial condition or results of operations of the Company.
7. INCOME TAXES
Galen operates in two primary tax jurisdictions, the United Kingdom and the
United States. The majority of Galen's taxable income for the periods
presented is derived from the United Kingdom.
In connection with the acquisition of Warner Chilcott on September 29,
2000, the Company acquired U.S. federal income tax net operating loss carry
forwards. Subject to a valuation allowance, the Company recorded a deferred
tax asset in respect of these loss carry forwards. If, in the future, the
realization of this acquired deferred tax asset becomes more likely than
not, any reduction of the associated valuation allowance will be allocated
to reduce the amount of goodwill recorded at the time of purchase.
9
12
GALEN HOLDINGS PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in Thousands (Except per Share Amounts)
8. CONSOLIDATING SCHEDULE
Following are consolidating schedules reflecting Balance Sheet and
Statement of Operations information for the Company as of December 31,
2000, and for the three months ended December 31, 2000:
OTHER |
GALEN WARNER SUBSIDIARY ELIMINATION |
HOLDINGS PLC CHILCOTT PLC (1) COMPANIES ENTRIES CONSOLIDATED | WCI (2)
------------ ---------------- --------- ------- ------------ | -------
December 31, 2000 |
BALANCE SHEET DATA: |
ASSETS |
|
Cash and cash equivalents $ 2,960 $ 29,290 $ 48,985 $ - $ 81,235 | $ 19,364
Accounts receivable, net - 6,811 33,552 - 40,363 | 5,742
Inventories - 6,993 16,084 - 23,077 | 6,993
Other assets 294 1,445 12,358 - 14,097 | 1,436
-------------- ------------- ------------- ---------- ---------- | ----------
Total current assets 3,254 44,539 110,979 - 158,772 | 33,535
-------------- ------------- ------------- ---------- ---------- | ----------
Long-term assets - 438,944 176,100 - 615,044 | 229,480
Investment in subsidiaries 326,134 - - (326,134) - | -
-------------- ------------- ------------- ---------- ---------- | ----------
Total assets $ 329,388 $ 483,483 $ 287,079 $(326,134) $773,816 | $263,015
============== ============= ============= ========== ========== | ==========
|
LIABILITIES AND EQUITY |
Current liabilities $ 11,443 $ 20,396 $ 41,882 $ - $ 73,721 | $ 21,370
Senior notes - 165,173 - - 165,173 | 156,975
Other long-term liabilities - - 76,310 - 76,310 | -
Inter-company accounts (103,032) (334) 103,366 - - | (10,371)
|
Minority interest - - 239 - 239 | -
|
Shareholders' equity 420,977 298,248 65,282 (326,134) 458,373 | 95,041
-------------- ------------- ------------- ---------- ---------- | ----------
Total liabilities and |
shareholders' equity $ 329,388 $ 483,483 $ 287,079 $(326,134) $773,816 | $263,015
============== ============= ============= ========== ========== | ==========
|
THREE MONTHS ENDED |
DECEMBER 31, 2000 |
STATEMENT OF OPERATIONS DATA: |
REVENUES |
Product revenue $ - $ 26,532 $ 14,425 $ - $ 40,957 | $ 26,012
Service revenue - - 19,842 - 19,842 | -
-------------- ------------- ------------- ---------- ---------- | ----------
Total revenues - 26,532 34,267 - 60,799 | 26,012
-------------- ------------- ------------- ---------- ---------- | ----------
|
OPERATING EXPENSES |
Cost of goods sold - 5,527 15,708 (151) 21,084 | 4,092
SG&A - 9,415 8,463 151 18,029 | 9,349
Research and development - - 2,617 - 2,617 | -
Depreciation - 73 1,930 - 2,003 | 73
Amortization - 5,767 518 - 6,285 | 3,361
-------------- ------------- ------------- ---------- ---------- | ----------
Total operating expenses - 20,782 29,236 - 50,018 | 16,875
-------------- ------------- ------------- ---------- ---------- | ----------
|
Interest income (expense), net 25 (5,412) (457) - (5,844) | (8,490)
Provision for income taxes - 1,338 1,208 - 2,546 | 1,338
Minority interest in earnings |
of subsidiaries - - 57 - 57 | -
-------------- ------------- ------------- ---------- ---------- | ----------
NET INCOME (LOSS) $ 25 $ (1,000) $ 3,309 $ - $ 2,334 | $ (691)
============== ============= ============= ========== ========== | ==========
(1) Represents the consolidated position and results of Warner Chilcott, plc and
its subsidiaries, including Warner Chilcott, Inc.
(2) Represents the stand-alone position and results of Warner Chilcott, Inc.
excluding adjustment for the effect of certain push down accounting entries
associated with Galen's acquisition of Warner Chilcott.
10
13
GALEN HOLDINGS PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dollars in Thousands (Except per Share Amounts)
Consolidating statement of operations information for the comparative
period of three months ended December 31, 1999 is not presented, as it is
not meaningful. Galen's acquisition of Warner Chilcott did not occur until
September 2000.
9. SEGMENT INFORMATION
The Company's business is classified into two reportable segments for
internal financial reporting purposes: Pharmaceutical Products and
Pharmaceutical Services. For all periods presented, the Pharmaceutical
Products segment includes the development, manufacture and promotion of
prescription pharmaceutical products in the UK, North America and Ireland
and the provision of specialized development and manufacturing services to
other pharmaceutical companies. The Pharmaceutical Services segment
provides technology-based research and development services to the
pharmaceutical industry. These services include the design, manufacture,
packaging and worldwide distribution of patient packs for clinical trials,
interactive voice response system support to permit the more efficient
management of the clinical trial process and "bench-to-pilot scale"
specialty chemical design and synthesis services for research-based
pharmaceutical companies.
The following represents selected information for the Company's operating
segments for the periods indicated:
(a) CONTRIBUTION BY BUSINESS ACTIVITY
PHARMACEUTICAL PHARMACEUTICAL
PRODUCTS SERVICES TOTAL
-------------- -------------- -------------
Three Months Ended December 31, 2000
- ------------------------------------
Revenue $ 40,957 $ 19,842 $ 60,799
Cost of sales 10,927 10,157 21,084
Operating expenses 17,088 3,558 20,646
Depreciation & amortization 6,855 1,433 8,288
-------------- -------------- -------------
Total operating expenses 34,870 15,148 50,018
-------------- -------------- -------------
Operating income $ 6,087 $ 4,694 $ 10,781
-------------- -------------- -------------
THREE MONTHS ENDED DECEMBER 31, 1999
- ------------------------------------
Revenue $ 19,967 $ 15,194 $ 35,161
Cost of sales 8,986 8,306 17,292
Operating expenses 4,710 2,626 7,336
Depreciation & amortization 1,108 1,033 2,141
-------------- -------------- -------------
Total operating expenses 14,804 11,965 26,769
-------------- -------------- -------------
Operating income $ 5,163 $ 3,229 $ 8,392
-------------- -------------- -------------
11
14
GALEN HOLDINGS PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
Dollars in Thousands (Except per Share Amounts)
(B) GEOGRAPHICAL ANALYSIS
THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------
REVENUE OPERATING INCOME
2000 1999 2000 1999
----------- --------- ---------- -----------
United Kingdom $ 23,809 $ 27,684 $ 3,664 $ 6,650
North America 36,525 7,030 7,128 1,819
All other 465 447 (11) (77)
----------- --------- ---------- -----------
$ 60,799 $ 35,161 $ 10,781 $ 8,392
----------- --------- ---------- -----------
Revenue is attributed to geographic area based on the location in which the sale
originated.
12
15
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate
to analyses and other information which are based on forecasts of future
results and estimates of amounts not yet determinable. These statements
also relate to our future prospects, developments and business strategies.
These forward-looking statements are identified by their use of terms and
phrases, such as "anticipate", "believe", "could", "estimate", "expect",
"intend", "may", "plan", "predict", "project", "will", and similar terms
and phrases, including references to assumptions. However, these words are
not the exclusive means of identifying such statements. These statements
are subject to significant risks and uncertainties, including those
identified in our 2000 Annual Report on Form 20-F filed with the
Securities and Exchange Commission on January 25, 2001 and our other
filings with the Commission, which may cause actual results to differ
materially from those discussed in such forward-looking statements. We do
not undertake to update our forward-looking statements to reflect future
events or circumstances.
The following discussion should be read in conjunction with the
consolidated unaudited financial statements and notes thereto, appearing in
Item 1 of this Form 6-K.
OVERVIEW
Galen Holdings PLC is an integrated pharmaceutical company based in
Northern Ireland. We develop, manufacture and supply branded prescription
pharmaceutical products in the UK, Ireland and, with the September 2000
acquisition of Warner Chilcott, in the United States. We produce a wide
range of prescription medicines in a number of therapeutic areas and
develop novel drug formulations and delivery systems, including a range of
applications for our intravaginal ring, or IVR, technology. We also provide
a range of pharmaceutical services to pharmaceutical companies in both
Europe and the United States.
Our pharmaceutical products business, which includes our research and
development activities, focuses on the analgesia, gastroenterology,
respiratory, anti-infectives and women's healthcare therapeutic areas.
Through this business we develop, manufacture and market prescription
medicines to healthcare professionals in these areas. In addition we
manufacture and supply intravenous and other sterile solutions primarily
for human use.
Our product research and development business focuses on the development of
proprietary drug delivery applications and technologies. We have a pipeline
of several proprietary products in development for the women's healthcare
market including a number using the IVR drug delivery system that is
designed to deliver a consistent dose of a range of medicines over extended
periods of time. The IVR's mechanism of drug delivery demonstrates a number
of benefits, including pharmacokinetic and patient-compliance superiority,
over current methods. The IVR is capable of releasing one or more drugs at
a constant rate, eliminating the variations of levels of drug in the blood,
which fluctuations are associated with traditional forms of drug delivery
such as tablets and transdermal patches. The IVR system is effective for up
to three months and can be inserted and removed by the patient.
13
16
Our pharmaceutical services business provides a range of technology-based
research and development services to the worldwide pharmaceutical industry.
Services which we provide through this business include the design, supply
and distribution of clinical trial materials internationally, drug
reconciliation services and the design, programming and implementation of
computer-based interactive voice response systems to permit the more
efficient management of the clinical trial process. We also offer
"bench-to-pilot scale" specialty chemical design and synthesis services for
research-based pharmaceutical businesses.
HISTORY AND DEVELOPMENT
Galen was founded in 1968 by Dr. Allen McClay as a prescription
pharmaceutical sales and marketing operation.
Initially we focused on branded pharmaceutical products in the UK and
Ireland. Our products were developed and manufactured for us by third
parties. In 1987, we began to develop and manufacture our own products when
our Craigavon, Northern Ireland facility became operational. We added to
our pharmaceutical products business with the 1988 acquisition of Ivex, a
sterile solutions business. In 1989 we began our involvement with the IVR
drug delivery vehicle, first as a manufacturer and later as a developer of
the IVR controlled-release technology. In 1999, we broadened our UK product
portfolio with the acquisition of the Bartholomew Rhodes group of
companies. We extended our pharmaceutical products business into the United
States on September 29, 2000 when we acquired Warner Chilcott, a marketer
of branded prescription pharmaceutical products focused on niches of the US
market; particularly women's health.
We have also built an international services business providing a range of
technology-based offerings to research oriented pharmaceutical companies.
We started this business in response to what we saw as an unmet need for
highly specialized services to more efficiently manage clinical trials. In
1989, we formed a business unit in Craigavon to address those needs -
Clinical Trial Services, or CTS. In 1997, to meet the global requirements
of our customer base, we expanded our clinical trial services business into
the United States with the opening of a CTS facility in Audubon,
Pennsylvania. We have also acquired other complementary businesses to
broaden our capabilities and further develop CTS's customer bases
including:
- the 1999 acquisition of the drug reconciliation business of J Dana
Associates, Inc.,
- the 1999 acquisition of Interactive Clinical Technologies, Inc., and
- the 2000 acquisition of Applied Clinical Concepts, Inc. and the related
Pharmacy Division of the Duke Clinical Research Institute.
Today our services business includes a chemical synthesis group, which
provides custom chemical design through QuChem Limited, a company in which
we acquired a 76% interest in 1997, and chemical synthesis services
provided through SynGal, which we formed in 1996 and which commenced
commercial operation in 1998.
Looking ahead, we expect to continue to invest in facilities to support the
expansion of both our pharmaceutical products and services businesses. In
the near-term, we are planning the addition of a distribution facility in
Craigavon to support CTS's European business, the construction of
additional laboratory space in Craigavon to accommodate the growth in
demand for custom
14
17
chemistry services, and the building of a new production facility in Ardee,
Republic of Ireland to meet future pharmaceutical product production
requirements.
We completed our initial public offering of shares in July 1997 when we
listed our ordinary shares on the London Stock Exchange. In September 1997
we listed our ordinary shares on the Irish Stock Exchange. On September 29,
2000 we acquired Warner Chilcott and simultaneously listed our ordinary
shares, represented by American Depositary Receipts, or ADRs, on the Nasdaq
National Market System. Each Galen ADR currently represents underlying
ownership of four ordinary shares of Galen.
RECENT DEVELOPMENTS
As of September 30, 2000 Warner Chilcott had senior notes outstanding
totaling $200.0 million in principal amount. Our acquisition of Warner
Chilcott triggered the right of each holder of the notes to require
Warner Chilcott to repurchase their notes at 101% of the principal
amount of notes presented for repurchase. On December 13, 2000 we
repurchased, through our Warner Chilcott subsidiary, $40.3 million
principal amount of the senior notes for $40.7 million, plus accrued
interest. Warner Chilcott used cash on hand to fund the repurchase.
As we announced on January 23, 2001, we received an approvable letter from
the UK Committee on Safety of Medicines for our first IVR based product for
hormone replacement therapy. The application, which was the subject of this
approvable letter, will be used to deliver estradiol (estrogen) for the
relief of post-menopausal symptoms. We anticipate to receive authorization
to begin marketing the IVR in the UK during 2001. We plan to submit the
estradiol IVR through the European Union Mutual Recognition Procedure to
gain marketing approval throughout Europe for this application of the IVR.
RESULTS OF OPERATIONS
Three months ended December 31, 2000 and 1999
Our first quarter total revenues of $60.8 million increased from $35.2
million, or 73%, as compared to the prior year period. This increase
reflected growth in both our pharmaceutical products business and our
pharmaceutical services business. Underlying growth in both segments was
offset, to some extent, by an 11% depreciation of the UK pound against the
US dollar for the current quarter compared to the same quarter in the
previous year.
Revenue from pharmaceutical products was $41.0 million, an increase of 105%
from $20.0 million in the previous year, primarily reflecting the impact of
the acquisition of Warner Chilcott in September 2000.
Revenue from pharmaceutical services was $19.8 million, an increase of 31%
over the first quarter in fiscal 2000 reflecting growth in both our
clinical trial services and custom chemical synthesis business units.
Clinical Trial Services, or CTS, showed growth of 29% over the previous
year reflecting continued significant growth in our ICTI business since its
acquisition in 1999 and continuing growth in our CTS business in both the
US and Europe. Chemical Synthesis Services, or CSS, revenues grew by 50%
over the corresponding quarter, albeit from a relatively small base. This
reflects continuing growth in demand from research-driven pharmaceutical
companies for these specialty services.
15
18
Gross profit more than doubled from $17.9 million to $39.7 million due to
both the increase in revenues and higher margins. The increase in gross
profit margin from 50.8% to 65.3% was primarily due to the impact of the
acquisition of Warner Chilcott which recorded a gross margin of 79.2%.
Warner Chilcott margins were reduced by a one-time charge of $1.4 million
associated with the step up of inventory valuation at September 30, 2000 as
a result of the acquisition by Galen. This charge had no cash impact and
will not be repeated in future periods. Gross margins in the services
business improved due to a more favorable mix of higher margin clinical
trials service revenue and higher margins in the chemical synthesis
services business due to higher revenues on a relatively steady cost base.
Selling, general and administrative expenses of $18.0 million increased
$13.0 million compared to the $5.0 million incurred in the first quarter of
fiscal 2000. Three factors accounted for the majority of the increased
costs: (1) $9.6 million of operating expenses relating to the new Warner
Chilcott business, (2) $2.6 million of additional operating expenses in our
pharmaceutical products business consisting primarily of increased selling
expenses in the UK and Ireland associated with the expansion of the UK and
Ireland sales force from 60 representatives to 115 to support the launch of
Regurin(R) and the anticipated launch of the estradiol intravaginal ring,
and (3) $0.8 million increased operating expenses in the pharmaceutical
services business to support the increase in revenues.
Research and development costs were $2.6 million compared to $2.4 million
in the first quarter of fiscal 2000. This increase reflected the
integration of the Galen and Warner Chilcott research and development teams
and the continuing clinical activity associated with the development of our
intravaginal ring drug delivery technology and other development
programs. The clinical program to enable a New Drug Application to be
submitted to the FDA neared completion during the quarter. This involved
completion of a Phase III efficacy and safety trial and execution of a
pivotal Phase I study. We continue to focus on product development projects
with near-term revenue potential and relatively low funding requirements
including, for example, line extensions of our branded products and
potential drugs which could be delivered by means of the IVR.
Depreciation of $2.0 million increased from $1.6 million last year
reflecting our recent capital investment program, particularly in the
pharmaceutical services area. Amortization of intangible assets increased
substantially to $6.3 million from $0.6 million in the corresponding
quarter in the previous year. This increase was primarily as a result of
the acquisition of Warner Chilcott.
Investment income for the quarter grew to $1.7 million for the quarter as
compared to virtually zero in the comparative quarter as we had greater
levels of funds available for investment. Interest expense increased to
$7.6 million compared to $0.5 million. This was primarily the result of the
interest expense related to the $200.0 million senior subordinated notes
acquired as part of the Warner Chilcott transaction. The full $200.0
million amount was in place for most of the quarter until the redemption of
$40.3 million in mid December as a result of the change of control
provision of the note indenture.
Taxes on income decreased to $2.5 million from $2.7 million in the first
quarter of fiscal 2000. We operate mainly in two tax jurisdictions, the
United Kingdom and the United States. The statutory rate in the UK for the
current quarter was 30% as compared to 30.5% in fiscal 2000. In the US the
federal statutory rate was 35% in both quarters. Our effective tax rate was
51% for the quarter compared to 34% in the same quarter in the previous
year. The high effective tax rate in the current
16
19
quarter is due to the amortization charge for goodwill associated with
the acquisition of Warner Chilcott which is not deductible for UK or US
tax purposes.
The net result of the items discussed above was that we reported a $2.3
million net profit for the quarter compared to a net profit of $5.2 million
in the corresponding quarter. Our net income per ADR was $0.06 compared to
$0.18 in fiscal 2000, both on a basic and diluted basis. The weighted
average number of equivalent ADRs outstanding increased by 9.1 million
primarily due to the placing of 1.5 million ADR equivalents in November
1999 and the issuance of 7.9 million ADR equivalents as consideration for
Warner Chilcott in September 2000. The exercise of options and warrants,
associated with the Warner Chilcott transaction, also contributed to the
increase in weighted average equivalent ADRs outstanding.
We believe that normalized earnings should be considered together with, but
not as a substitute for, other measures of financial performance reported
in accordance with generally accepted accounting principles. In our
calculation of normalized earnings we add back the expenses associated with
all intangible assets (including specifically identified intangible assets
and goodwill). We believe that normalized earnings provides a useful
measure of our ability to generate cash from our operating activities.
Normalized earnings per ADR equivalent rose by 16% on a diluted basis. The
following table provides a comparison of our normalized earnings in dollar
terms and also per ADR for each quarter.
(US $S IN 000S EXCEPT PER ADR
AMOUNTS)
FOR THE QUARTERS ENDED DECEMBER 31 2000 1999
---------------- ------------------
Reported net income $ 2,334 $ 5,232
Amortization of intangible assets 6,285 561
---------------- ------------------
Normalized earnings $ 8,619 $ 5,793
================ ==================
Weighted average equivalent ADRs
outstanding:
Basic 38,782,058 29,689,302
Diluted 39,833,472 29,771,063
Normalized earnings per ADR
---------------- ------------------
Basic $ 0.22 $ 0.20
================ ==================
Diluted $ 0.22 $ 0.19
================ ==================
LIQUIDITY AND CAPITAL RESOURCES
There was a positive cash flow from operating activities for the period of
$15.5 million compared to a cash inflow of $7.1 million in the same quarter
last year. This was the result of higher earnings before interest, tax,
depreciation and amortization of intangibles in the quarter. EBITDA for the
quarter was $19.0 million compared to $10.5 million last year. This
positive result was offset to some extent by interest expense of $1.7
million paid in connection with the redemption on December 13, 2000 of
$40.3 million principal amount of the Warner Chilcott senior notes.
The cash inflow from operations was offset by the use of $4.5 million cash
to purchase fixed assets and for deferred consideration of $1.0 million as
part of the acquisition of Applied Clinical Concepts Inc. and acquisition
costs of $11.9 million relating to Warner Chilcott.
The major cash outflow during the quarter was the payment of $40.7 million
to redeem $40.3 million of principal amount of 12 5/8% senior notes due
2008 issued by Warner Chilcott, Inc. This was
17
20
triggered by our acquisition of Warner Chilcott. Under the terms of the
indenture governing the senior notes, holders of the notes had the right to
require us to repurchase the notes for redemption at 101% of par value plus
accrued interest.
We ended the quarter with $81.2 million of cash on hand as compared with
$113.7 million at September 30, 2000. We intend to fund our future
liquidity needs, including capital expenditures and dividend payments,
through a combination of cash generated from operations, cash balances on
hand and availability under bank credit facilities. At December 31, 2000 we
had $32.3.million of availability under committed credit facilities with
several banks. We generally expect to fund repayments of indebtedness with
other indebtedness. In the event that we pursue significant acquisitions,
we may be required to raise additional funds through the issuance of debt
or equity securities.
INFLATION
Inflation had no material impact on our operations during the three months
ended December 31, 2000.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which we are exposed are:
- interest rates on debt; and
- foreign exchange rates.
Interest rates
We manage debt and overall financing strategies centrally using a
combination of short and long term loans with either fixed or variable
rates. Currently we do not hedge exposure to interest rate fluctuations
through the use of derivative instruments.
Foreign exchange
Most of the revenues generated and expenses incurred during the three
months ended December 31, 2000 and 1999 were denominated in the functional
currency of the country in which they were generated. To the extent that we
have expanded and continue to expand our operations in the United States,
revenues and expenses will continue to be generated in the local currency.
We intend to use local currency cash flows to pay similarly denominated
expenses to the extent available, although we cannot be certain that we
will be able to implement this strategy.
We had no foreign currency option contracts at December 31, 2000. To date,
we have not extensively used foreign currency hedging transactions because
our exposure to foreign exchange fluctuations has been limited. Capital
investment in the United States has been funded by US dollar borrowings as
a hedge against foreign currency movements. We intend to use foreign
currency hedging more extensively in the future, but cannot give assurances
that the use of such instruments will effectively limit our exposure.
18
21
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are involved in litigation relating to claims arising out of our
operations in the normal course of business, including product liability
claims. In the opinion of management, the litigation in which we are
currently involved, individually and in aggregate, is not material to our
business, financial condition or results of operations. There have been no
significant developments in proceedings since we filed our 2000 Annual
Report on Form 20-F with the Securities and Exchange Commission, and we
have not become involved in any additional material proceedings.
ITEM 6 EXHIBITS AND REPORTS ON FORM 6-K OR 8-K
(a) EXHIBITS - THE FOLLOWING EXHIBIT IS FILED WITH THIS DOCUMENT:
None.
(b) REPORTS ON FORMS 6-K OR 8-K:
On October 24, 2000 we filed a Form 8-K, dated October 23, 2000, which
contained as exhibits copies of slides used as part of our presentation
in an investor conference on October 23, 2000.
On November 11, 2000 we filed a Form 6-K, dated November 2000, which
contained as exhibits the financial statements as of September 30, 2000
and for the three and nine months September 30, 2000 of our wholly owned
subsidiary, Warner Chilcott, plc.
19