1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File NO. 0-15242
DURAMED PHARMACEUTICALS, INC.
State of Incorporation - Delaware
IRS Employer I.D. No. 11-2590026
7155 East Kemper Road
Cincinnati, Ohio 45249
(513) 731-9900
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--------- ---------
Common Stock, $.01 par value per share:
Shares Outstanding as of September 30, 1995 8,054,209
Page 1 of 19 pages
2
DURAMED PHARMACEUTICALS, INC.
INDEX
Page
PART I. Financial Information
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 4
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Stockholders'
Equity (Capital Deficiency) . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 - 11
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 - 17
PART II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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3
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash $ 2,600 $ 2,900
Trade accounts receivable,
less allowance for doubtful
accounts: 1995 - $537,603
1994 - $504,850 9,674,146 5,249,101
Inventories 9,856,539 8,423,687
Prepaid expenses and other assets 1,100,795 1,318,573
Deferred taxes 2,463,000 2,463,000
----------- -----------
Total current assets 23,097,080 17,457,261
----------- -----------
Property, Plant and Equipment:
Land 1,000,000 1,000,000
Building and improvements 15,559,718 6,587,005
Equipment, furniture and
fixtures 14,693,275 12,177,615
Construction in progress -- 6,394,406
----------- -----------
Total 31,252,993 26,159,026
Less accumulated depreciation
and amortization 11,238,089 9,972,348
----------- -----------
Property, plant and
equipment - net 20,014,904 16,186,678
----------- -----------
Other Assets:
Deposits and other assets 484,583 764,300
Product agreement
marketing rights 997,200 997,200
Goodwill 99,556 158,401
Deferred taxes 1,438,000 1,438,000
----------- -----------
Total other assets 3,019,339 3,357,901
----------- -----------
Total Assets $46,131,323 $37,001,840
=========== ===========
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DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
Current Liabilities:
Accounts payable $ 5,026,938 $ 3,840,069
Accrued liabilities 5,038,917 5,209,179
Current portion of long-term debt and
other liabilities 10,641,423 10,916,074
------------ ------------
Total current liabilities 20,707,278 19,965,322
Long-term debt, less current portion 23,126,926 16,188,411
Other long-term liabilities 1,190,166 2,079,007
------------ ------------
Total liabilities 45,024,370 38,232,740
------------ ------------
Commitments and contingent liabilities -- --
Stockholders' Equity (Capital Deficiency)
Preferred stock Series B - authorized
500,000 shares, par value $.001;
74,659 shares issued and outstanding; 75 75
Common stock - authorized 50,000,000
shares, par value $.01; issued and
outstanding 8,054,209 and 7,968,108
shares in 1995 and 1994, respectively 80,541 79,680
Additional paid-in capital 25,946,720 25,567,765
Accumulated deficit (24,920,383) (26,878,420)
------------ ------------
Total Stockholders' Equity
(Net Capital Deficiency) 1,106,953 (1,230,900)
------------ ------------
Total Liabilities and Stockholders' Equity
(Net Capital Deficiency) $ 46,131,323 $37,001,840
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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5
DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
Net sales $13,153,352 $11,585,356 $38,767,746 $33,896,447
Cost of goods sold 7,502,238 5,955,369 22,220,189 18,582,623
----------- ----------- ----------- -----------
Gross profit 5,651,114 5,629,987 16,547,557 15,313,824
----------- ----------- ----------- -----------
Operating expenses:
Product development 1,270,016 517,433 3,253,950 1,267,062
Selling 1,063,665 752,743 2,892,274 2,086,843
General and administrative 2,239,904 2,042,413 6,423,515 5,744,580
----------- ----------- ----------- -----------
Total operating expenses 4,573,585 3,312,589 12,569,739 9,098,485
----------- ----------- ----------- -----------
Operating income 1,077,529 2,317,398 3,977,818 6,215,339
Interest expense 750,322 579,235 1,968,031 1,713,449
----------- ----------- ----------- -----------
Income before income taxes 327,207 1,738,163 2,009,787 4,501,890
Provision for income taxes 10,000 26,000 51,750 95,000
----------- ----------- ----------- -----------
Net income $ 317,207 $ 1,712,163 $ 1,958,037 $ 4,406,890
=========== =========== =========== ===========
Earnings per average
common and common
equivalent share outstanding:
Primary $ .03 $ .16 $ .18 $ .43
=========== =========== =========== ===========
Fully Diluted $ .03 $ .16 $ .18 $ .42
=========== =========== =========== ===========
Weighted average number
of common and common
equivalent share outstanding:
Primary 10,682,257 10,405,731 10,696,225 10,209,396
=========== =========== =========== ===========
Fully Diluted 10,682,257 10,612,431 10,696,225 10,598,099
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30,
1995 1994
----------- -----------
Cash flows from operating activities:
Net income $ 1,958,037 $ 4,406,890
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,324,586 1,428,965
Recognition of deferred revenue (750,000) --
Provision for bad debts 46,079 99,509
Common stock contributed to employee benefits plan 142,929 112,449
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (4,457,798) (284,083)
(Increase) decrease in inventories (1,432,852) (1,889,188)
(Increase) decrease in prepaid expenses 217,778 124,910
Increase (decrease) in accounts payable 1,186,869 (1,375,510)
Increase (decrease) in other accrued liabilities (407,324) (614,172)
Other, net 9,790 (3,212)
----------- -----------
Net cash provided by (used for) operating activities (2,161,906) 2,006,558
Cash flows from investing activities:
Capital expenditures (4,346,659) (2,459,821)
Deposits (46,822) (259,529)
----------- -----------
Net cash (used for) investing activities (4,393,481) (2,719,350)
Cash flows from financing activities:
Net borrowings (repayments) under revolving lines of credit 6,270,230 (1,587,742)
Payments of long-term debt, including current maturities (5,408,148) (424,763)
Proceeds from long-term borrowings 5,456,118 2,512,103
Issuance of common stock 236,887 213,094
----------- -----------
Net cash provided by financing activities 6,555,087 712,692
Net increase (decrease) in cash and cash equivalents (300) (100)
Cash and cash equivalents at beginning of period 2,900 1,800
----------- -----------
Cash and cash equivalents at end of period $ 2,600 $ 1,700
=========== ===========
Supplemental cash flow disclosures:
Interest paid $ 2,006,169 $ 1,280,809
Income taxes paid $ 100,000 $ 42,000
The accompanying notes are an integral part of these consolidated financial
statements.
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DURAMED PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
(UNAUDITED)
Preferred Stock Common Stock Additional
---------------- -------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
---------------- --------- ------- ----------- ------------- ------------
Balance at December 31, 1994 74,659 $75 7,968,108 $79,680 $25,567,765 $(26,878,420) $(1,230,900)
Issuance of stock in connection
with the Company's 401(k)
Plan -- -- 8,559 86 142,843 -- 142,929
Stock options exercised net of
shares surrendered -- -- 77,542 775 236,112 -- 236,887
Net income for 1995 -- -- -- -- -- 1,958,037 1,958,037
------ --- --------- ------- ----------- ------------ ----------
Balance at September 30, 1995 74,659 $75 8,054,209 $80,541 $25,946,720 $(24,920,383) $ 1,106,953
====== === ========= ======= =========== ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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DURAMED PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Interim Financial Data
The accompanying unaudited consolidated 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. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and nine month periods
ended September 30, 1995 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1995. For further information,
refer to the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
Note 2: Earnings Per Share
The fully diluted and primary earnings per share calculations are computed using
weighted average common shares outstanding and common equivalent shares, which
include dilutive options, warrants and convertible preferred stock.
Note 3: Inventories
Components of inventories include:
September 30, December 31,
1995 1994
------------- ------------
Raw materials $4,006,218 $1,939,890
Work-in-process 379,139 498,975
Finished goods 5,471,182 5,984,822
---------- ----------
Total $9,856,539 $8,423,687
========== ==========
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DURAMED PHARMACEUTICALS, INC.
Note 4: Debt and Other Long-Term Liabilities
September 30, December 31,
Debt 1995 1994
- ---- ------------- ------------
Revolving credit facility $11,985,399 $ 7,465,169
Term note 5,500,000 9,500,000
Term note (revolving) 1,750,000 --
Construction loan 5,500,000 4,504,671
Equipment loans 1,143,695 685,061
Note payable to State of Ohio 1,101,553 1,230,985
Industrial Revenue Bond -- 221,605
Convertible note 2,000,000 --
Installment notes payable 2,994,882 1,554,174
----------- -----------
31,975,529 25,161,665
Less amounts classified as current 8,848,603 8,973,254
----------- -----------
$23,126,926 $16,188,411
=========== ===========
Other Long-Term Liabilities
Abandoned facility obligation - net $ 1,732,986 $ 2,021,827
Deferred revenue 1,250,000 2,000,000
----------- -----------
2,982,986 4,021,827
Less amount classified as current 1,792,820 1,942,820
----------- -----------
$ 1,190,166 $ 2,079,007
=========== ===========
Debt
During 1995 the funds used by the Company in its operation have been primarily
provided through borrowings against its revolving credit facility, additional
extensions of credit granted by the Company's bank and funds received from the
issuance of a convertible debt security. Under the terms of the amended and
restated bank agreement dated December 31, 1994 two facilities were established,
a revolving credit facility with a maximum borrowing limit of $10,500,000 and a
term note in the amount of $9,500,000. These facilities, and the amendments
thereto, are collateralized by substantially all assets of the Company including
inventory, receivables and a mortgage interest on the manufacturing facility.
During the third quarter of 1995 the Company reorganized the terms of certain
borrowing arrangements with its bank which resulted in expanded borrowing
capacity.
The amended terms of the revolving credit facility permit the Company to borrow
up to $12,500,000 based upon eligible collateral ($12,105,168 as of September
30, 1995). The expressed intention of the Company and its bank is to review
quarterly the Company's financial condition and, if appropriate, extend the due
date of its revolving credit facility in order to maintain a fifteen month term.
In accordance with this, the bank has extended the term of the
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DURAMED PHARMACEUTICALS, INC.
revolving credit facility from September 30, 1996 to December 31, 1996. This
facility requires monthly interest payments at a rate of prime plus 1% (9.75% at
September 30, 1995).
The $9,500,000 term note, prior to the amendments finalized in the third quarter
of 1995, had required quarterly principal payments in the amount of $2,000,000
payable on the first day of March, June, September and December of 1995 with the
remaining balance due on March 31, 1996. Through June 30, 1995, two principal
payments totalling $4,000,000 had been made on the term note. The amendments to
the borrowing agreement extend the due date for the outstanding $5.5 million
balance of the term note to September 30, 1996. The bank also made available to
the Company an additional $3.0 million in new credit, in the form of a term note
which allows borrowings on a revolving basis and is also due on September 30,
1996. The Company, at its option, may choose to accelerate to December 31, 1995
repayment of the $4.0 million of term loan payments previously due in 1995 and
borrowings against the $3.0 million of new credit. The term note and the
$3.0 million in new credit both require monthly interest payments, and the
borrowings bear interest at the rates of prime plus 1% and prime plus 2%,
respectively. If the Company chooses not to accelerate repayment of these
borrowings, the amendment provides for additional monthly interest payments
commencing January 1, 1996 of $150,000 per month increasing to $250,000 per
month on July 1, 1996.
In consideration of the expanded borrowing arrangements, the Company granted to
the bank warrants to purchase 200,000 shares of common stock of the Company at
$18.125 per share.
The note payable to the State of Ohio is secured by the Company's manufacturing
facility. The loan bears interest at 7.5% and requires minimum monthly payments
of $20,394 and certain other payments as defined by the agreement. The final
payment of approximately $1,067,000, is due November 1, 1996. The State has
agreed to waive, through October 1, 1996, certain financial covenants which
require minimum levels of working capital and stockholders' equity. This debt
is personally guaranteed by a former officer and by a director.
During 1985, Hamilton County, Ohio issued Industrial Revenue Bonds in the amount
of $995,000, the proceeds of which were used by the Company to purchase new
machinery and equipment. The balance was paid in April 1995 with the proceeds
of a $185,000 bank note. The interest rate of the note is prime plus 1%. The
term of the note is three years and requires monthly payments of principal and
interest in the amount of $6,400.
The construction loan is a ten year $5.5 million facility which provided a
portion of the financing for the expansion of the Company's manufacturing
facility and is supported by a loan guaranty from Johnson & Johnson. Under the
terms of the construction loan, principal payments do not commence until the
occurrence of certain defined events or January 1, 1997, whichever occurs first.
Interest is payable monthly based upon the prime rate.
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DURAMED PHARMACEUTICALS, INC.
The equipment line of credit is a $1.5 million facility provided by the
Company's bank for financing equipment which is collateralized by the assets
financed. The term of the facility is five years at an interest rate of prime
plus 1%.
The $2.0 million convertible note represents funds advanced from a joint
venture partner. The note bears interest at a variable rate approximating
prime rate + 3% (initially 12%), and matures on July 10, 1998. Upon the
occurrence of certain events, or at the option of the lender, the principal
amount of the note and accrued interest may be convertible to shares of Duramed
common stock.
Other long-term debt also includes facilities of varying amounts and terms which
are generally collateralized by the assets financed.
Other Long-Term Liabilities
The abandoned facility obligation represents the amounts due, net of sublease
income, under terms of a lease which extends through September 30, 1998. Due to
the Company's financial condition at the time, the Company was unable to meet
its commitments under the lease and vacated the facility in 1991. The facility
was sublet for a period of five years in 1992.
The $1,250,000 in deferred revenue represents the unamortized balance from the
$2.0 million cash received from Ortho-McNeil Pharmaceuticals Corporation
("Ortho-McNeil") pursuant to the terms of distribution and marketing agreements
entered into in 1994. This amount will be amortized over a period which matches
the performance of certain activities pursuant to the terms of the agreements.
As of September 30, 1995, $1.0 million of the deferred revenue is classified as
current.
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12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased $1,567,996 (14%) and $4,871,299 (14%) for the three month
and nine month periods ended September 30 as compared to the same periods in
1994. The increase in net sales was due primarily to increased sales volume for
certain of the Company's products and continued growth in sales of the
Ortho-McNeil products that the Company commenced marketing late in the fourth
quarter of 1994.
The gross margin percentage for the three and nine month periods ended
September 30, 1995 was 43%, compared to 49% and 45% for the same periods in
1994. The decrease in the gross margin percentage in 1995 is due primarily to
the product sales mix. There can be no assurance that, with the Company's
current product line, the present gross margin levels can be maintained if the
Company's products, particularly Methylprednisolone, should experience increased
competition.
The marketing agreement under which the Company distributed products
manufactured by Invamed Inc. ("Invamed") expired on December 31, 1994.
Invamed assumed responsibility for marketing its product line effective June
10, 1995. Subsequent to the termination of the agreement, the Company has
obtained most of the products previously supplied by Invamed from alternative
sources.
On September 12, 1995 the Company entered into a long-term product marketing
agreement with Royce Laboratories, Inc. ("Royce"). The agreement grants the
Company marketing rights to nine pharmaceutical products, which will be
distributed exclusively to a select group of warehousing drug chains under the
Duramed label and, non exclusively to the remaining trade classes. The Company
expects to begin marketing these products in the fourth quarter of 1995.
Product development expenditures are net of reimbursements received
from Schein Pharmaceutical, Inc. ("Schein") pursuant to the terms of a
contractual agreement in connection with the development of a new formulation
of conjugated estrogens tablets, the generic equivalent of the name brand
product Premarin(R). Product development expenses increased $752,583 (145%)
and $1,986,888 (157%) for the three and nine month periods ended September 30
as compared to the same periods in 1994. The increased product development
expenditures reflect the Company's expansion of its research and development
activities to pursue additional products. The Company plans to continue to
expand product development activities as its resources permit. Additionally,
product development expenditures during 1995 include pre-launch start up costs
associated with the Company's pending Abbreviated New Drug Application ("ANDA")
for conjugated estrogens. The Company continues to prepare for the launch of
conjugated estrogens; accordingly, as deemed appropriate, the Company will
increase spending levels throughout 1995.
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DURAMED PHARMACEUTICALS, INC.
The Company's selling expense was primarily comprised of expenses of the sales
and marketing staff and related activities. The increase in 1995 compared to
1994 is a result of personnel additions and expanded sales and marketing
activities.
The increase in general and administrative expenses in 1995 compared to 1994 is
due primarily to increased compensation expense as a result of additional staff
positions, and increased expense levels necessary to provide the administrative
support required to execute the Company's business plan and support the
increased business level. Additionally, the Company has incurred legal and
consulting costs associated with responding to various issues in connection
with its pending ANDA for conjugated estrogens.
Interest expense increased in 1995 compared to 1994, due primarily to interest
expense associated with the $5.5 million construction loan which financed a
portion of the expansion of the Company's manufacturing facility. In the first
quarter of 1995, during the construction phase, interest of $94,000 was
capitalized. For the three and nine month periods ended September 30, 1995 the
Company recorded interest expense of $142,000 and $285,000, respectively,
related to these borrowings.
The 1995 tax provision represents alternative minimum tax; no regular income tax
provision is required due to the offset of taxable income by the carryforward of
net operating losses.
The Company expects that its product development and operating expenses during
the remainder of 1995 will continue to increase over 1994 levels. To the extent
that these increases are not offset by revenue increases, operating results will
be adversely affected. The Company is discussing several potential business
development opportunities which could provide additional product revenues.
However, it is not certain when these revenues would be available. Accordingly,
the Company's reported income for the remaining quarter of 1995 may be less than
for the comparable quarter of 1994.
Liquidity and Capital Resources
As explained in the 1994 10-K under "Item 1. Business -- Business and
Regulatory Environment Background," audits of the Company's ANDAs in 1990 and
1991 resulted in the withdrawal of all of the Company's ANDAs except those for
Methylprednisolone and Isoniazid. As a result of the substantially reduced
revenue levels and charges incurred due to product recalls and related
inventory write-offs, the Company's financial base was nearly exhausted.
From that time through much of 1993, the Company's efforts were focused on
three primary pursuits: (1) continued execution of a plan to, at a minimum,
generate sufficient cash flows to meet current obligations exclusive of bank
debt and related interest, (2) seeking other sources of
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DURAMED PHARMACEUTICALS, INC.
revenue and (3) continuing discussions with potential sources of capital in an
effort to secure the resources needed to fund the Company's recovery.
Additionally, the Company's product development efforts were focused primarily
on development of a new formulation for conjugated estrogens products under the
agreement with Schein.
With improving sales and operating results commencing in 1993, the Company's
operating plan was modified to address the needs of the expanded product
development, sales and marketing, and general corporate activities required for
long-term success.
During 1995 the funds used by the Company in its operations have been primarily
provided through borrowings against its revolving credit facility and additional
extensions of credit granted by the Company's bank and funds received from the
issuance of a convertible debt security. Under the terms of the amended and
restated bank agreement dated December 31, 1994 two facilities were established,
a revolving credit facility and a term note in the amount of $9,500,000. The
expressed intention of the Company and its bank is to review quarterly the
Company's financial condition and, if appropriate, extend the due date of the
revolving credit facility in order to maintain a fifteen month term and the
long-term status of this facility. In accordance with this, the bank has
extended the term of the revolving credit facility from September 30, 1996 to
December 31, 1996. Through June 30, 1995, the Company made two principal
payments totalling $4.0 million on the term note. See Note F of Notes to
Consolidated Financial Statements in the 1994 10-K for additional information
related to the Company's obligations.
During the third quarter of 1995 the Company reorganized the terms of certain
borrowing arrangements with its bank which resulted in expanded borrowing
capacity. As part of this arrangement, the bank has agreed to extend the due
date to September 1996 on the $5.5 million in remaining term loan payments that
were scheduled for 1995 and March 31, 1996, and to increase the maximum limit
of the Company's revolving credit facility by $2,000,000 to $12,500,000 based
upon eligible collateral ($12,105,168 as of September 30, 1995). Additionally,
the bank has agreed to make an additional $3.0 million of credit available to
the Company on a short term basis. The additional $3.0 million bears an
interest rate of prime plus 2%. Commencing January 1, 1996 additional monthly
interest payments are required, initially at $150,000 per month and increasing
to $250,000 per month if the $3.0 million of new credit and the $4.0 million of
loan payments previously due in 1995 have not been repaid by that time. In
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DURAMED PHARMACEUTICALS, INC.
consideration of this expanded borrowing arrangement, the Company granted the
bank warrants to purchase 200,000 shares of common stock of the Company at the
then current market price of $18.125.
An additional important element of the Company's plan has been the continued
support of its unsecured creditors. At September 30, 1995, the Company owed
approximately $1,855,193 to certain unsecured creditors relating to outstanding
balances prior to 1992. The Company has been making progress payments toward
the outstanding obligations to these unsecured creditors and intends to continue
periodic payments as the Company's resource level permits. At present, this
program is progressing successfully but there can be no assurance that creditor
support will continue.
The increase in inventories and trade payables as of September 30, 1995 results
primarily from product purchases from Ortho-McNeil, and procurement of raw
materials for the Company's conjugated estrogens products.
The increase in the accounts receivable balance as of September 30, 1995 is
attributable to higher overall sales and particularly strong sales in the latter
part of the quarter.
As discussed in Note B of Notes to Consolidated Financial Statements in the 1994
10-K, the Company's agreement with Schein for the development, manufacture and
marketing of a new formulation of conjugated estrogens tablets provides for
project financing by Schein and, if the project is successful, participation by
both firms in the marketing and distribution of the products.
FDA approval is required for Duramed to market conjugated estrogens. On
September 27, 1994, the Company filed with the FDA an ANDA for the .625 mg
strength of conjugated estrogens. This product is formulated and designed to
meet the conjugated estrogens product composition standards and bioequivalency
guidance established by the FDA in 1991.
Since 1991, Wyeth-Ayerst, a Division of American Home Products
("Wyeth-Ayerst"), the manufacturer of the brand name product Premarin(R), has
made several submissions to the FDA requesting changes in the FDA's 1991
conjugated estrogens product composition standards and bioequivalency guidance.
Among other things, Wyeth-Ayerst requested that the FDA change the product
composition standards for conjugated estrogens by requiring the generic version
to include a specific equine estrogenic substance, delta8,9 dehydroestrone
sulfate (Delta8,9 DHES). In response to each submission, the FDA determined
that the information submitted by Wyeth-Ayerst was insufficient to justify
changes in the standards or guidance. In so responding, the FDA let stand the
1991 product composition standards, which established Delta8,9 DHES as an
impurity and not a necessary ingredient.
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DURAMED PHARMACEUTICALS, INC.
On November 30, 1994, Wyeth-Ayerst filed a Citizen Petition with the FDA which
reiterates some of its earlier arguments and again requests that the FDA require
the inclusion of Delta8,9 DHES in generic conjugated estrogens. On July 27-28,
1995, the FDA's Fertility and Maternal Health Drugs and Generic Drugs Advisory
Committees met to address this issue. The outcome of this meeting was a
unanimous vote by the advisory committees that there is insufficient data to
assess whether any individual component (including Delta8,9 DHES) or combination
of components other than estrone sulfate and equilin sulfate need to be present
to achieve clinical safety and efficacy in conjugated estrogens.
Duramed believes that the conclusions of the Advisory Committees reaffirm
the product composition standards for conjugated estrogens established
by the FDA in 1991, and that the FDA review of the Company's ANDA is
continuing. In support of its position, on October 6, 1995 the Company filed
with the Food and Drug Administration (FDA) an extensive response to the
Citizen Petition filed late last year by Wyeth-Ayerst. Duramed 's filing
includes scientific and medical data, as well as the opinions of renowned
experts, who all conclude that Delta8,9 DHES has no impact on the safety or
efficacy of conjugated estrogens and should not be a required component in
generic pharmaceutical equivalent dosages to Premarin(R). Duramed further
believes that its conjugated estrogens product as filed meets the current
product composition standards and bioequivalency guidance established by the
FDA in 1991. At this time, the Company is unable to determine when or if it
will obtain FDA approval to market the .625 mg strength product. If approval
is obtained and the product is successfully manufactured and marketed, the
Company believes the product will have a substantial positive effect on the
Company's operating results and financial condition. Work on other conjugated
estrogens strengths is continuing and results to date are encouraging.
On October 10, 1995 the Company announced that it had signed a letter of intent
to acquire Hallmark Pharmaceuticals, Inc. ("Hallmark"), a privately held
pharmaceutical development company headquartered in Somerset, New Jersey. The
letter of intent calls for Duramed to issue shares of common stock in payment
for Hallmark. The exact number of shares will depend on the future market
price of Duramed's stock, but the resulting ownership dilution of current
shareholders on a fully diluted basis is not expected to exceed 10 percent. The
proposed acquisition is subject to the negotiation and execution of a
definitive merger agreement to contain customary representations, warranties
and conditions, including approval by the Boards of Directors of Hallmark and
Duramed as well as Hallmark's shareholders, the obtaining of any required
regulatory approvals or third party consents; and appropriate financing
Hallmark recently received FDA approval to market Captopril, the generic
equivalent to brand name product Capoten(R) after expiration of the patent
exclusivity period for that product. Hallmark has granted Duramed the
exclusive rights to market this product. The Company believes that the patent
exclusivity period will expire on February 13, 1996 and presently the Company
plans to introduce the product at that time.
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DURAMED PHARMACEUTICALS, INC.
While the products which are expected to be marketed under the Royce
and Hallmark agreements will increase the breath of the Company's product
line, the Company's current product line is limited and the Company's current
operating results are heavily dependent on the performance of its
Methylprednisolone product. If the Company receives approval of its ANDA for
the .625 mg strength of conjugated estrogens, and successfully manufactures and
markets the product, the resulting favorable financial impact is expected to be
significant. Additionally, the Company has an agreement with Invamed for the
marketing rights to Verapamil S.R.(R) which has been formulated and will be
manufactured by Invamed, if an ANDA is filed and FDA approval is obtained. The
availability of this product could also significantly improve the Company's
operating results. However, in the case of both conjugated estrogens and
Verapamil S.R.(R), FDA approval is not assured.
The Company has an aggressive business plan that includes significant capital
requirements for equipment and facility which will be required if it is to
carry out the planned substantial expansion of its research and development
capabilities, and to pursue other planned corporate projects designed to foster
long-term growth. In the absence of sufficient internally generated funds, the
additional capital required to execute the Company's business plan must come
from other sources. The Company is currently exploring financing alternatives
with respect to its capital requirements. At this time, the Company cannot
determine the outcome of these discussions or whether it will result in a
substantial dilution of the ownership interest of the Company's current
stockholders. As a result, the Company's expanded future plans must remain
uncertain.
On September 16, 1994 the Company's common stock was approved for re-listing on
The Nasdaq Stock Market ("Nasdaq"). Although the Company does not currently
meet the tangible net assets requirement for Nasdaq listing, an exception has
been granted contingent upon the Company meeting the listing requirements as of
September 30, 1995. The Company did not meet the tangible net asset
requirement for Nasdaq listing as of September 30, 1995 and intends to petition
Nasdaq for an extension to its listing exception. While the Company believes
it will be successful with its petition, there is no assurance that Nasdaq will
grant the exception. If the Company's securities should cease to be quoted on
Nasdaq they should continue to be quoted in the over-the-counter market.
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DURAMED PHARMACEUTICALS, INC.
PART II - OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibit:
10.1 First Amendment to Amended and Restated Loan and Security
Agreement dated August 22, 1995 between the Company and The
Provident Bank.
10.2 Second Amendment to Amended and Restated Loan and Security
Agreement dated September 30, 1995 between the Company and
The Provident Bank.
10.3 Promissory note of $3.0 million dated August 22, 1995
between the Company and The Provident Bank.
10.4 Promissory note of $2.0 million dated September 30, 1995
between the Company and The Provident Bank.
10.5 Warrant for the purchase of 200,000 shares of common stock
between the Company and The Provident Bank
(11) Statement re:Computation of Earnings Per Share
(27) Financial Data Schedule*
(b) Reports on Form 8-K:
On October 10, 1995 the Company filed a Current Report on Form 8-K
announcing the signing of a letter of intent to acquire Hallmark
Pharmaceuticals, Inc.
__________________
*Contained only in electronic filing with Securities and Exchange Commission.
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SIGNATURES
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.
DURAMED PHARMACEUTICALS, INC.
Dated: November 14, 1995 by: /s/ E. Thomas Arington
----------------- --------------------------------
E. Thomas Arington
President, Chairman of the Board
Chief Executive Officer
Dated: November 14, 1995 by: /s/ Timothy J. Holt
----------------- --------------------------------
Timothy J. Holt
Senior Vice President - Finance,
Treasurer, Chief Financial Officer
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