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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission file number: 000-23265
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SALIX HOLDINGS, LTD.
(Exact name of Registrant as specified in its charter)
BRITISH VIRGIN ISLANDS 94-3267443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3600 WEST BAYSHORE ROAD, SUITE 205
PALO ALTO, CALIFORNIA 94303
(Address of principal executive offices,
including zip code)
(650) 856-1550
(Registrant's telephone number, including area code)
------------------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ ] NO [X]
The number of shares of the Registrant's Common Stock outstanding as
of October 31, 1997 was 10,118,173.
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SALIX HOLDINGS, LTD.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996.............. 1
Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 1997
and 1996 and for the Nine Months Ended
September 30, 1997 and 1996........................... 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1997
and 1996.............................................. 3
Notes to Condensed Consolidated Financial Statements.... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 6
PART II. OTHER INFORMATION
- -------- -----------------
Item 2. Changes in Securities and Use of Proceeds.................... 16
Item 6. Exhibits and Reports on Form 8-K............................. 16
Signatures.............................................................. 17
SALIX HOLDINGS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(EXPRESSED IN U.S. DOLLARS)
September 30, December 31,
1997 1996
-------------- -------------
ASSET
Current assets:
Cash and cash equivalents....................................... $ 3,044 $ 5,624
Accounts receivable............................................. 246 ---
Other current assets............................................ 164 79
-------- -------
Total current assets.......................................... 3,454 5,703
Property and equipment, net.......................................... 210 145
Other assets......................................................... 705 10
-------- -------
$ 4,369 $ 5,858
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 769 $ 667
Other current liabilities....................................... 774 43
Amount due licensor............................................. --- 555
-------- -------
Total current liabilities..................................... 1,543 1,265
Shareholders' equity:
Preferred stock, issuable in series, no par value;
5,000,000 shares authorized; none issued and outstanding. ---- ----
Common stock, no par value; 20,000,000 shares authorized;
7,118,173 shares and 6,858,173 shares issued and outstanding
at September 30, 1997 and December 31, 1996,
respectively.................................................. 14,544 13,194
Accumulated deficit............................................. (11,718) (8,601)
-------- -------
Shareholders' equity.......................................... 2,826 4,593
-------- -------
$ 4,369 $ 5,858
======== =======
The accompanying notes are an integral part of these financial statements.
1
SALIX HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(EXPRESSED IN U.S. DOLLARS)
Three months ended Nine months ended
September 30 September 30
--------------------------------- -------------------------------
1997 1996 1997 1996
--------------- --------------- -------------- --------------
Revenue :
Product revenue........................................ $ 216 $ -- $ 216 $ --
Revenue from collaborative agreements and other........ 1,800 124 1,821 508
------ ------- ------- -------
Total revenues....................................... 2,016 124 2,037 508
------ ------- ------- -------
Expenses:
Cost of products sold.................................. 389 -- 389 --
License fees........................................... 411 -- 461 50
Research and development............................... 1,183 615 2,498 1,652
General and administrative............................. 708 510 1,939 1,250
------ ------- ------- -------
Total expenses....................................... 2,691 1,125 5,287 2,952
------ ------- ------- -------
Loss from operations........................................ (675) (1,001) (3,250) (2,444)
------ ------- ------- -------
Interest income............................................. 46 74 168 119
Interest expense and other.................................. (13) -- (35) (173)
------ ------- ------- -------
Net loss............................................. $ (642) $ (927) $(3,117) $(2,498)
====== ======= ======= =======
Net loss per share.......................................... $(0.09) $(0.14) $(0.44) $(0.51)
====== ======= ======= =======
Shares used in computing net loss per share................. 7,118 6,850 7,023 4,868
====== ======= ======= =======
The accompanying notes are an integral part of these financial statements.
2
SALIX HOLDINGS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
(EXPRESSED IN U.S. DOLLARS)
Nine months ended
September 30
--------------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................................... $(3,117) $(2,498)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................................... 50 41
Deferred compensation........................................................... 287 ---
Changes in assets and liabilities:
Accounts receivable............................................................. (246) ---
Other current assets and other assets........................................... (780) (59)
Accounts payable and other current liabilities.................................. 833 (347)
Unearned revenue................................................................ ---- (487)
Amount due licensor............................................................. (555) ----
------- -------
Net cash used in operating activities........................................ (3,528) (3,350)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................... (115) (13)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock (net of offering costs)........................... 1,063 8,767
Proceeds from issuance of convertible secured debentures.......................... ---- 1,375
------- -------
Net cash provided by financing activities.................................... 1,063 10,142
------- -------
Net increase (decrease) in cash and cash equivalents................................... (2,580) 6,779
Cash and cash equivalents at beginning of period....................................... 5,624 188
------- -------
Cash and cash equivalents at end of period............................................. $ 3,044 $ 6,967
======= =======
Supplemental disclosure of cash flow information
Cash paid for interest............................................................ $ --- $ 13
======= =======
NONCASH FINANCING ACTIVITIES
Issuance of convertible debentures for promissory notes........................... $ --- $ 1,807
======= =======
Issuance of convertible debentures for interest on promissory
notes ......................................................................... $ --- $ 98
======= =======
Issuance of convertible debentures for amount due licensor........................ $ --- $ 100
======= =======
Issuance of common stock for convertible debentures............................... $ --- $ 3,380
======= =======
Issuance of common stock for interest on convertible
debentures ..................................................................... $ --- $ 123
======= =======
Issuance of common stock for preferred stock...................................... $ --- $ 845
======= =======
The accompanying notes are an integral part of these financial statements.
3
SALIX HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. Organization and Basis of Presentation
--------------------------------------
Salix Holdings, Ltd. (the "Company") was incorporated in the British
Virgin Islands in December 1993 for the purpose of acquiring all of the
outstanding capital stock of Salix Pharmaceuticals, Inc., a California
corporation ("Salix"), and Glycyx Pharmaceuticals, Ltd., a Bermuda
corporation ("Glycyx"). Salix was incorporated in California in 1989 and
Glycyx was incorporated in Bermuda in 1992. The Company is developing new
pharmaceuticals, primarily focused in the area of gastrointestinal disease.
The Company conducts its business within one industry segment.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. These statements are stated
in United States dollars.
The accompanying unaudited condensed consolidated financial statements
include all adjustments (consisting only of normal recurring items) which, in
the opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. These financial statements
should be read in conjunction with the Management's Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere in this
10-Q and with the audited financial statements for the fiscal year ended
December 31, 1996 included in the Company's Registration Statement on Form S-
1, which the Securities and Exchange Commission declared effective on October
16, 1997. The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
These statements have been prepared in accordance with accounting
principles generally accepted in the United States. The application of these
principles conforms in all material respects with financial statements
prepared using accounting principles generally accepted in Canada. The
Company's Common Shares are traded in Canada on The Toronto Stock Exchange.
2. Net Loss Per Common Share
-------------------------
Net loss per common share is computed using the weighted-average number of
common shares outstanding during each year. Common equivalent shares are
excluded from the computation as their effect is antidilutive.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"). The Statement is
effective for both interim and annual financial statements for periods ending
after December 15, 1997. Under the Statement, primary earnings per share
("EPS") computed in accordance with Accounting Principle Board Opinion No. 25
will be replaced with a new simpler calculation called "basic EPS" and the
Company will be required to restate EPS amounts for all prior periods. Under
the new requirements, basic loss per share for the nine months ended
September 30, 1997 and 1996 would be unchanged from the reported loss per
share amounts.
3. Other Recent Accounting Pronouncements
--------------------------------------
FASB recently issued SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires the reporting of comprehensive income and its components in
a full set of general-purpose financial statements. SFAS No. 130 is
effective for annual and interim periods beginning after December 15, 1997.
The Company has not yet determined the impact of adopting SFAS No. 130.
4
SALIX HOLDINGS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
September 30, 1997
(Unaudited)
3. Other Recent Accounting Pronouncements -- (continued)
-----------------------------------------------------
FASB recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. This Statement is effective for financial
statements for periods beginning after December 31, 1997. The Company has
not yet determined whether it has any separately reportable business
segments.
4. License Revenue and Revenue from Collaborative Agreements
---------------------------------------------------------
In 1991 and 1992, the Company entered into collaborative agreements with a
partner covering pharmaceutical product development and marketing of Colazide
in the United States, parts of Europe and other territories. In
consideration for the rights granted, the partner agreed to pay the Company
specified licensing and milestone fees and to fund development up to a
specified amount. The Company recognized revenues of $1,821,000 and $508,000
in the nine-month periods ended September 30, 1997 and 1996, respectively,
under these agreements.
5. Commitments
-----------
In October 1996, the Company entered into a binding purchase order
commitment for inventory purchases aggregating $674,000 to be delivered in
1997. At September 30, 1997, inventory of approximately $249,000 had been
received against this commitment.
6. Shareholders' Equity
--------------------
In May 1996, the Company closed the initial public offering of its common
shares in Canada on The Toronto Stock Exchange. In connection with that
offering, the Company issued to the underwriters common share purchase
warrants, exercisable into 200,000 common shares at a price of Cdn $7.00.
All such purchase warrants were exercised in 1997 raising additional proceeds
to the Company of approximately Cdn $1,400,000 (U.S. $1,003,000).
In addition, an option for 60,000 shares of common stock was exercised in
February 1997.
7. Revenues from Significant Customer
----------------------------------
One customer represented all revenues during the nine-month periods ended
September 30, 1997 and 1996.
8. Subsequent Event
----------------
On October 16, 1997, the Company offered and sold 3,000,000 common shares
in an underwritten public offering of securities in Canada and the United
States at a price of Cdn $7.00 (U.S. $ 4.98) raising Cdn $19,635,000 (U.S.
$13,973,000) net of underwriting discounts and commissions.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements relating to future
events or the future financial performance of the Company, which involve risks
and uncertainties. The Company's actual results and the timing of certain
events could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
"Factors That May Affect Future Results" in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and in the section
entitled "Risk Factors" in the Company's Registration Statement on Form S-1,
File No. 333-33781, which was declared effective on October 16, 1997 by the
Securities and Exchange Commission, and elsewhere in, or incorporated by
reference into, this report. The following discussion should be read in
conjunction with the Company's Condensed Consolidated Financial Statements and
notes thereto included elsewhere in this report.
Unless otherwise indicated, all references to "dollars" or "$" refer to
United States dollars. The Company's Common Shares trade on The Toronto Stock
Exchange and are quoted in Canadian dollars.
OVERVIEW
The Company's principal focus is to identify and acquire gastrointestinal
products that have near-term commercial potential and to apply its product
development expertise to commercialize these products. The Company selects
products that it believes serve a gastrointestinal disease in need of new
treatments, have the potential for rapid regulatory approval, and are marketable
to a small group of specialized physicians. The Company believes this strategy
will reduce the expense, time and risk normally associated with pharmaceutical
development. The Company believes that its first two products, Colazide(R) and
-----------
rifaximin, will demonstrate the Company's ability to execute this strategy.
The Company has generated limited revenues to date from the sales of
products, and it has been unprofitable since inception. The Company expects to
continue to incur substantial and increasing losses and expects its operating
expenses to increase as the Company commences its Colazide commercialization
--------
efforts in the United Kingdom and, subject to regulatory approval, elsewhere in
Europe and continues its product development and clinical programs for other
products. The Company does not expect to achieve profitability on an annual
basis before 2000 at the earliest. As of September 30, 1997, the Company had
accumulated losses of approximately $11.7 million. Since 1992, the Company has
financed its operations principally through reimbursement payments, license fees
and milestone revenues, totaling approximately $15.8 million under collaborative
research and licensing agreements, and sales of equity and convertible debt
securities totaling approximately $14.2 million. Over the same period, the
Company has recorded expenses totaling $27.5 million, of which $18.5 million
were in research and development expenses and $1.2 million in license fees to
licensors. The Company's alliances with Astra AB ("Astra") and a division of
Menarini Pharmaceutical Industries s.r.l. ("Menarini") have allowed Salix to
fund the development of Colazide, to in-license other gastrointestinal products,
--------
and to help establish itself with a relatively small amount of outside capital.
The Company's collaborative research and licensing agreements provide for
payments in support of the Company's research activities, as well as additional
payments for licensing fees and upon the attainment of specified milestones.
Research reimbursements under these agreements are recorded when earned based on
contract costs incurred to date compared with total estimated contract costs.
License fees and milestone revenues are recognized according to contract terms.
Amounts received in advance of the applicable research activities are deferred
as unearned revenue. Amounts received which are refundable until the milestones
are achieved are deferred as advances from licensees until earned.
The Company licensed balsalazide from Biorex Laboratories Limited ("Biorex")
in exchange for participation in future milestone revenues and profits. The
Company will sell Colazide, the disodium salt of balsalazide, which is
--------
manufactured by third parties under contract with the Company, to its
distribution partners, Astra and Menarini, at a formula price. The Company
received approval in July 1997 to market Colazide in the United Kingdom for the
--------
treatment of acute ulcerative colitis. Astra launched Colazide commercially in
--------
October 1997 in the United
6
Kingdom. Commercial launches of Colazide are expected in other European
--------
countries by Astra and Menarini beginning in 1998, subject to receipt of
necessary regulatory approvals. The Company recognized its initial product
revenues from Astra's sales of Colazide this quarter and expects to recognize
--------
product revenues from sales of Colazide by Menarini in 1998. The selling price
--------
of Colazide to Astra outside the United Kingdom has not been determined, and the
--------
Company will be obligated to pay to Biorex, the original licensor of the
product, a portion of any gross profit on Colazide sales to Astra and Menarini
--------
outside the United States. In addition, the Company anticipates high initial
product launch costs due to the cost of scaling up manufacturing processes for
commercial distribution.
The Company's second product, rifaximin, is currently under development. The
Company obtained the rights to develop, make, use and sell rifaximin in Canada
and the United States from Alfa Wassermann S.p.A. ("Alfa Wassermann") in
exchange for future royalties and milestone payments. Under a separate
agreement, Alfa Wassermann will supply Salix with bulk active ingredient
rifaximin at a fixed price. If regulatory approvals are obtained, the Company
intends to establish its own direct sales force to market rifaximin. This
strategy for rifaximin represents the business model that the Company intends to
adopt for future product development and commercialization. Although the
creation of an independent sales organization will require a substantial
investment by the Company, the Company anticipates that the financial results
from rifaximin and future products will be more favorable to the Company than
those anticipated from the sale of Colazide by Astra and Menarini since the
Company has retained the distribution rights to rifaximin, whereas Astra and
Menarini have the distribution rights for Colazide. In the case of Colazide,
-------- --------
the Company granted exclusive distribution rights in certain territories in
exchange for funding needed to complete late-stage development of Colazide, to
--------
in-license other gastrointestinal products and to help establish the Company as
a viable gastrointestinal pharmaceutical company. The Company is currently
unable to provide a meaningful estimate of the investment required to create an
independent sales organization because such investment is dependent on a number
of contingencies, including receipt of necessary regulatory approvals and
developments with current and future strategic partners.
The Company intends to pursue regulatory approvals for two initial
indications for rifaximin, hepatic encephalopathy and antibiotic associated
colitis. The Company believes that a New Drug Application ("NDA") will not be
submitted for rifaximin for the hepatic encephalopathy indication prior to mid-
1998 and that The United States Food and Drug Administration ("FDA") approval
would not be obtained for at least one year after filing, if at all. The
submission of an NDA for rifaximin for the antibiotic associated colitis
indication is not expected to occur until at least 1999. The Company plans
further development of rifaximin for several other possible indications. The
Company plans to submit an application to the FDA seeking Orphan Drug Status for
rifaximin to treat hepatic encephalopathy. Orphan Drug Status, if granted, can
entail certain possible advantages in the testing and approval process for the
drug. See "Factors That May Affect Future Results." Should rifaximin be
designated Orphan Drug Status, costs incurred through submission of an NDA for
the hepatic encephalopathy indication may be expected to be significantly
reduced. Salix also intends to begin clinical trials using rifaximin to treat
antibiotic associated colitis in the near future with the full costs to be borne
by Salix.
RESULTS OF OPERATIONS
Three Month and Nine Month Periods Ended September 30, 1997 and 1996
--------------------------------------------------------------------
Revenues for the three months ended September 30, 1997 included the Company's
initial revenues from Colazide product sales of $216,000 and milestone revenues
--------
of $1.8 million relating to the approval of Colazide in the United Kingdom and
--------
the filing of the NDA for Colazide in the United States. All significant
--------
revenues for the nine months ended September 30, 1997 were recognized in the
third quarter. The Company expects no other significant milestones revenues
until at least 1998, subject to regulatory approvals in Europe and the United
States. Future levels of revenues from product sales are uncertain and are
subject to market acceptance of Colazide in the United Kingdom and regulatory
--------
approvals and successful commercial launches by the Company's distribution
partners, Astra and Menarini, in Europe and the United States. Revenues for the
three months and nine months ended September 30, 1996 were comprised primarily
of revenue recognized from collaborative agreements for product development of
Colazide.
- --------
7
Operating expenses were $2.7 million and $1.1 million for the three months
ended September 30, 1997 and 1996, respectively, and $5.3 million and $3.0
million for the nine months ended September 30, 1997 and 1996, respectively.
The increase in operating expenses is a result of increases in all expense
categories as noted below.
The Company recognized its first cost of products sold related to initial
product sales in the three months ended September 30, 1997 of $0.4 million.
Prior to this quarter the Company had no product revenues. Initial costs of
products are expected to remain high due to the cost of scaling up manufacturing
processes for commercial distribution.
License fees were $0.4 million for the three months ended September 30, 1997.
There were no license fees for the corresponding period in 1996. License fees
were $0.4 million and $0.1 million for the nine months ended September 30, 1997
and 1996, respectively. License fees paid relate primarily to payments made to
Biorex under the terms of the Colazide license agreement which calls for the
--------
Company to share certain milestone revenues with Biorex.
Research and development expense was $1.2 million and $0.6 million for the
three months ended September 30, 1997 and 1996, respectively, and $2.5 million
and $1.7 million for the nine months ended September 30, 1997 and 1996,
respectively. The increase in research and development expenses is due primarily
to increased regulatory affairs activities for the preparation of the NDA filing
in the United States and to a one time non-cash charge recognized in the third
quarter of 1997 of $0.3 million relating to modification of the terms of an
existing employee stock option arrangement. Research and development expense is
expected to increase significantly as additional clinical trials for Colazide
--------
and rifaximin are initiated.
General and administrative expenses were $0.7 million and $0.5 million for
the three months ended September 30, 1997 and 1996, respectively, and $1.9
million and $1.3 million for the nine months ended September 30, 1997 and 1996,
respectively. The increase is due mainly to the addition of key personnel and
the increased administrative costs related to becoming a public company in
Canada. Costs related to the public offering completed in October 1997 have
been recorded in other assets as incurred and will be offset against the
offering proceeds in equity.
Interest income for the three months period decreased to $46,000 from $74,000
in 1996 due to the decreasing cash reserves after the Company's initial public
offering in May 1996. Interest expense for the nine months ended September 30,
1997 decreased to $35,000 from $173,000 in 1996, and interest income increased
from $119,000 to $168,000 due primarily to interest income derived from the
Company's initial public offering in Canada and the conversion of outstanding
debentures as a result of the public offering. See "Liquidity and Capital
Resources".
The net losses for the three months ended September 30, 1997 and 1996 were
$0.6 million versus $0.9 million, respectively. The Company incurred net losses
of $3.1 million and $2.5 million for the nine months ended September 30, 1997
and 1996, respectively.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $5.6 million for United States income tax purposes. These
carryforwards will expire in varying amounts through 2011. As the Company adds
new investors, utilization of the current loss carryforwards may be limited if,
under United States Internal Revenue Code Section 382, a change in ownership is
deemed to have occurred within the three most recent fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed product development, operations and
capital expenditures primarily from funding arrangements with collaborative
partners and from public and private sales of debt and equity securities.
As of September 30, 1997, the Company had approximately $3.0 million in cash
and cash equivalents. The decrease of $2.6 million from December 31, 1996 was
due primarily to cash used in operating activities of $3.5 million partially
offset by cash provided by financing activities of $1.1 million from issuance of
Common Shares upon exercise of warrants. Capital expenditures for the remainder
of 1997 are not expected to be material.
8
On October 16, 1997, the Company offered and sold 3,000,000 common shares in
an underwritten public offering of securities in Canada and the United States at
a price of Cdn $7.00 (U.S. $ 4.98) raising Cdn $19,635,000 (U.S. $13,973,000)
net of underwriting discounts and commissions. The offering in the United
States was made pursuant to a Registration Statement on Form S-1 (File No. 333-
33781) that was declared effective by the Securities and Exchange Commission on
October 16, 1997.
As of September 30, 1997, the Company had no long term obligations. The
Company has non-cancelable purchase order commitments for inventory purchases of
$0.4 million.
The Company's purchases of raw materials and its product sales to its
European distribution partners are denominated in Pounds Sterling. Translation
into the Company's reporting currency, the United States dollar, has not
historically had a material impact on the Company's financial position.
Additionally, the Company's net assets denominated in currencies other than the
functional currency have not exposed the Company to material risk associated
with fluctuations in currency rates. Given these facts, the Company has not
considered it necessary to use foreign currency contracts or other derivative
instruments to manage changes in currency rates.
The Company has sustained continuing operating losses and expects to incur
substantial and increasing losses until product approvals are obtained and
product revenues reach a sufficient level to support ongoing operations. The
Company believes that the net proceeds from the recently completed offering,
together with the Company's cash reserves at September 30, 1997 and the cash
flow from operations, should be sufficient to satisfy the cash requirements of
the Company's product development programs through at least 1998. The Company's
actual cash requirements may vary materially from those now planned because of a
number of factors, including the results of research and development activities,
FDA and foreign regulatory processes, establishment of and change in
relationships with strategic partners, technological advances by the Company and
other pharmaceutical companies, the terms of the Company's collaboration
arrangements with strategic partners, and the status of competitive products.
The Company anticipates that it will need to raise additional funds in the form
of debt or equity financing to fund future licensing, development, and
commercialization of new products. The Company may also enter into collaborative
arrangements with corporate partners that could provide the Company with
additional funding in the form of equity, debt, licensing, milestone and/or
royalty payments. There can be no assurance that the Company will be able to
enter into such arrangements or raise any additional funds on terms favorable to
the Company.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report, including this Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements and
other prospective information relating to future events. These forward-looking
statements and other information are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results or
anticipated results, including the following:
Dependence on Currently Licensed Products; Uncertainty of Regulatory Approval
-----------------------------------------------------------------------------
of Company's Products. The Company's future success will depend, among other
- ---------------------
factors, on its ability to in-license, develop, and commercialize new
pharmaceutical products. The Company currently licenses two pharmaceutical
products, balsalazide and rifaximin, and the Company's prospects over the next
three to five years are substantially dependent on regulatory approval and
successful commercialization of these products. The Company has in-licensed
certain rights to balsalazide and rifaximin in certain markets from Biorex and
Alfa Wassermann, respectively. In addition, the Company has entered into
agreements relating to the development, commercialization, manufacture, and
marketing of Colazide, the disodium salt of balsalazide, with Astra and
--------
Menarini.
Development, manufacture, and marketing of both balsalazide and rifaximin are
subject to extensive regulation by governmental authorities in the United States
and other countries. Neither drug has been approved by the FDA for use in the
United States. In June 1997, the Company submitted a NDA to the FDA relating to
Colazide as a therapy for acute ulcerative colitis. The NDA was accepted for
- --------
filing by the FDA in August 1997 and is subject to a detailed substantive
review. The Company believes that the FDA approval to market Colazide will not
--------
be obtained before mid-1998, if at all. The NDA can be approved only if the FDA
determines that the NDA contains substantial evidence from clinical trials that
the drug is safe and effective for its intended use. There can be no assurance
that the results of the Company's preclinical or clinical studies, including its
United States Phase III
9
clinical testing in combination with the results from a European Phase III
safety and efficacy study, will demonstrate, to the FDA's satisfaction,
substantial evidence that the drug is safe and effective. If clinical data, in
addition to that filed in the NDA, is requested from the Company to support
approval of Colazide, such a request is likely to delay significantly any
--------
pending review and approval of the product, if approval is granted at all. If
regulatory approval of Colazide or any other product is granted, such approval
--------
will be limited to those disease states and conditions for which the product has
been shown to be safe and effective, as demonstrated to the FDA's satisfaction
through well controlled clinical studies. Furthermore, approval may entail
ongoing requirements for post-marketing studies. Even if such regulatory
approval is obtained, a marketed product, promotional activities for the
product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections. In addition, identification of
certain side effects after a drug is on the market or the occurrence of
manufacturing problems could cause subsequent withdrawal of approval,
reformulation of the drug, additional preclinical testing or clinical trials and
changes in labeling of the product.
In July 1997, the Medicines Control Agency in the United Kingdom approved
Colazide as a treatment for acute ulcerative colitis in the United Kingdom, and
- --------
the Company and its partners, Astra and Menarini, are in the process of seeking
approvals in other member countries of the European Union through a mutual
recognition procedure. There can be no assurance that Colazide will receive
--------
approval from the FDA or from regulatory agencies in any member country of the
European Union other than the United Kingdom. Even if such approvals are
ultimately received, there can be no assurance as to the timing of such
approvals or market acceptance of Colazide for the approved indications.
--------
With respect to rifaximin, Alfa Wassermann is currently conducting a clinical
trial in Spain relating to the drug as a therapy for hepatic encephalopathy.
The Company has not yet reviewed the protocol for this trial, has not audited
the data collection procedures, and has not determined that such study is being
conducted in accordance with Good Clinical Procedures. There can be no
assurance that the clinical trial for rifaximin currently being performed by
Alfa Wassermann will demonstrate that the drug is safe and effective for the
indication tested, that such clinical trial will support the filing of an NDA
for rifaximin as a therapy for hepatic encephalopathy, that in the event an NDA
is filed with the FDA, the Company will be successful in obtaining regulatory
approval in the United States, or that the Company will obtain regulatory
approval for rifaximin from authorities in any other jurisdiction. The Company
believes that an NDA will not be filed for rifaximin prior to mid-1998 and that
FDA approval for rifaximin will not be obtained for at least one year after
filing, if at all.
The Company expects that a significant portion of its potential revenues for
the next few years will depend on regulatory approval and sales of these
products. Failure to obtain regulatory approvals, delays in obtaining
regulatory approvals, obtaining regulatory approvals for Colazide or rifaximin
--------
in only limited markets or for limited uses, or lack of market acceptance for
either product, to the extent regulatory approvals are obtained, would have a
material adverse effect on the Company's business, financial condition, and
results of operations.
Limited Operating History; History of Operating Losses; Expectation of Future
-----------------------------------------------------------------------------
Losses. The Company has only a limited history of operations consisting
- ------
primarily of development of its products and sponsorship with third parties of
research and clinical trials. The Company has had no earnings to date and has
not realized any material operating revenues from product sales, either directly
by the Company or indirectly through its development and distribution partners.
Substantially all of the Company's revenues to date have been derived from
milestone payments from the Company's collaborative partners related to the
development of Colazide. As of September 30, 1997, the Company had incurred
cumulative losses since inception of approximately $11.7 million. Furthermore,
the Company currently expects operating losses to continue at least through 1999
and to increase from current levels prior to 1999 as the Company continues to
develop Colazide and rifaximin. The Company's future operating performance will
depend on the timing of regulatory approvals of Colazide and rifaximin,
particularly the timing of FDA approval, and if such approvals can be obtained,
will also depend on market acceptance.
Dependence on Collaborative Partners. The initial commercialization of
------------------------------------
Colazide in the United Kingdom and, to the extent regulatory approval is
obtained, in other countries in which the Company has commercial rights to
Colazide is entirely dependent on Astra and Menarini, in their respective
territories. Under its agreements with Astra, the Company has granted Astra
exclusive rights to distribute and sell Colazide on a worldwide basis with the
--------
exception of Italy, Spain, Portugal, and Greece, where the Company has granted
exclusive distribution rights to Menarini, and with the the exception of Japan,
Taiwan, and Korea, where the Company does not have rights to
10
Colazide. Although Astra has agreed to use its best endeavors to promote,
- --------
market, and sell Colazide in its exclusive markets, there are no specified
financial thresholds that must be achieved for Astra to maintain its
exclusivity. The Company's agreements with Astra provide for, with respect to
Europe, a term of 15 years and, with respect to the United States, a term ending
on the later to occur of the expiration date of the last expiring patent and the
date 9 years from the first commercial launch date of Colazide but, in either
--------
event, the agreements may be terminated earlier by either party upon the
occurrence of specified events, including a material breach.
The Company's agreements with Astra require Astra to accomplish the
commercial launch of Colazide in any jurisdiction within 90 days of receipt of
--------
regulatory approval in that jurisdiction, subject to a 90 day cure period during
which period Astra has the opportunity to accomplish the commercial launch
without triggering Salix's rights to terminate the agreement or amend it to make
Astra's right non-exclusive. The Company received marketing approval for
Colazide in the United Kingdom from the Medicine Controls Agency in July 1997
- --------
and the Company and Astra have announced the commercial launch of Colazide in
--------
the United Kingdom in October 1997, based on a selling price set by Astra.
Following regulatory approval of Colazide in each country in Europe where Astra
--------
has exclusive distribution rights, the Company and Astra must agree on the
Colazide sales price for such country, which may be less than the selling price
in the United Kingdom. The agreed sales price for Colazide will directly affect
--------
the Company's revenues because the parties' agreement obligates Astra to
purchase Colazide from the Company, and the Company to supply Colazide to Astra,
--------
at a transfer price equal to a percentage of Astra's selling price. The Company
does not anticipate significant margins from Colazide sales by Astra in the
--------
United Kingdom or in continental Europe, where pricing has not yet been
determined. In addition, while the Company has been advised by both Astra and
Menarini that they intend to seek approval in other European countries through
the mutual recognition procedures of the European Union (the "EU"), the decision
as to which approvals to seek, the order in which to seek them and the
responsibility to complete the approval process lies with Astra and Menarini.
There can be no assurance that the Company will be able to negotiate
acceptable collaborative arrangements in the future, or that its current or
future collaborative arrangements, including the agreements with Astra or
Menarini, will be successful or will not be terminated by the other party.
Although the Company believes that parties to any collaborative arrangements
would have an economic motivation to succeed in performing their contractual
responsibilities, the amount and timing of resources to be devoted to these
activities in most instances will not be within the control of the Company.
Failure of the Company and its collaborative partners to develop, commercialize,
manufacture or market products, including Colazide, would have a material
--------
adverse effect on the Company's business, financial condition, and results of
operations.
Dependence on Third Parties for Manufacturing. The Company currently does
---------------------------------------------
not manufacture its potential pharmaceutical products, including Colazide and
--------
rifaximin, and, therefore, is dependent on contract manufacturers for the
production of such products for development and commercial purposes. In the
event that the Company is unsuccessful in obtaining or retaining third-party
manufacturing or if the Company's manufacturers experience production
difficulties, delays or disruptions or fail to comply with regulatory
requirements, the Company may not be able to obtain adequate supplies of
products in a timely fashion or at acceptable quality, quantity, timing or
prices, or to commercialize its potential products as planned. The Company's
initial product, Colazide, has never been manufactured in commercial quantities.
No assurances can be given that the Company, or its manufacturing partners, will
be able to manufacture Colazide (or other future developed products) in
commercial quantities that would enable the Company to meet its business
objectives. Under the terms of the Company's distribution agreements with Astra
and Menarini, the obligations of such companies to purchase product will
terminate under certain circumstances in which the Company is unable or
unwilling to adequately supply them with product. In such circumstances, Astra
or Menarini, as the case may be, is granted a temporary license to manufacture
Colazide. Under certain situations, such manufacturing licenses may become
permanent, in which case the Company's revenues from the arrangements could be,
depending on the circumstances, severely reduced or eliminated. Moreover,
contract manufacturers that the Company may use must adhere to current Good
Manufacturing Practices, which are regulations strictly enforced by the FDA
through its facilities inspection program. If these facilities cannot pass a
pre-approval plant inspection, the likelihood of the FDA's pre-market approval
of Colazide will be adversely affected. Certain material manufacturing changes
that may occur after approval are also subject to FDA review and approval. There
can be no assurance that the FDA or other regulatory agencies will approve the
processes or the facilities by which any of the Company's products may be
manufactured. In addition, if the facilities cannot pass regular post-approval
inspections, manufacturing and distribution may be disrupted, recalls of
distributed products may be necessary, and other sanctions could be applied. Any
disruption in the supply in
11
manufacturing and marketing of the Company's proposed products would have a
material adverse effect on the Company's business, financial condition, and
results of operations.
Dependence on In-Licensing and Acquisition of New Products for Future Growth.
----------------------------------------------------------------------------
Whether or not Colazide or rifaximin receives regulatory approvals and is
--------
successfully marketed, the Company's ability to grow in the future will depend
on its success in in-licensing or acquiring additional pharmaceutical products.
The Company seeks to in-license or acquire pharmaceutical products that have
been developed beyond the initial discovery phase and for which late-stage human
clinical data is already available. There can be no assurance that such
pharmaceutical products will be available on attractive terms for in-licensing
or acquisition by the Company.
Uncertainty of Market Acceptance. The Company's future success will depend
--------------------------------
in part on its ability to develop and commercialize new products, including
Colazide and rifaximin, or new formulations of or indications for current
- --------
products. Assuming the Company can successfully develop such products and
obtain regulatory approvals, their future success will depend upon their
acceptance by the medical community and third-party payors as useful and cost-
effective. Market acceptance will depend upon several factors, including the
establishment of the safety, effectiveness, patient tolerance, and cost of the
Company's products relative to those of competitors. The Company and its
collaborative partners may be required to engage in extensive advertising,
educational programs or other means to market its products. Failure of any of
the Company's products to achieve market acceptance would have a material
adverse effect on the Company's business, financial condition, and results of
operations.
Lack of Sales and Marketing Experience. The Company has no experience
--------------------------------------
marketing and selling its products either directly or through distributors. The
Company's sales and marketing strategy for Colazide relies on its third-party
--------
distributors, Astra and Menarini, to whom the Company has granted exclusive
marketing rights. There can be no assurance that either Astra or Menarini will
market Colazide successfully in any country in which they have exclusive rights.
--------
The Company intends to establish its own direct sales force for the purpose of
achieving direct sales of rifaximin and other future products. There can be no
assurance that the Company's marketing and direct sales efforts will be
successful.
Dependence on Exclusive Licenses. The Company's rights to balsalazide and
--------------------------------
rifaximin are derived from its license agreements with Biorex and Alfa
Wassermann, respectively. The Company's rights under these licenses are subject
to early termination by Biorex or Alfa Wassermann, as the case may be, under
certain circumstances, including material breach by the Company, the bankruptcy
or insolvency of the Company, the Company's failure to satisfy its manufacturing
obligations under its agreements with distribution partners and, in the case of
rifaximin, the Company's failure to commence the marketing of products within a
specified period after their regulatory approval. In the event that Biorex or
Alfa Wassermann terminate their respective license agreements, the Company would
have no further rights to utilize their respective patents or trade secrets to
manufacture and market products based on balsalazide or rifaximin, as the case
may be. The Company's licenses for balsalazide and rifaximin provide that the
Company's royalty obligations may extend beyond the expiration date of the
underlying patents, which could have a material adverse effect on the Company's
business, financial condition, and results of operations in the event a generic
version of balsalazide or rifaximin, as the case may be, were introduced. In
addition, the Company's license agreement with Alfa Wassermann also provides
that the Company may not promote, distribute or sell any antibiotic products
that compete with rifaximin in its licensed territory (the United States and
Canada) for a period of five years after the first commercial sale of rifaximin
under the agreement, thereby limiting the Company's ability to in-license,
develop, or market such products.
Patents and Proprietary Rights; Expiration of Patents. Because of the
-----------------------------------------------------
substantial length of time and expense associated with bringing new products
through development and regulatory approval to the marketplace, the
pharmaceutical industry places considerable importance on obtaining patent and
trade secret protection for new technologies, products and processes. Because
the Company's strategy is to in-license or acquire pharmaceutical products which
typically have been discovered and initially researched by others, such products
may have limited or no remaining patent protection due to the time elapsed since
their discovery. The patents for the Colazide composition of matter and method
--------
of treating ulcerative colitis with Colazide expire in July 2001 in the United
--------
States, February 2002 in the United Kingdom, May 2002 in France, July 2001 in
Italy, and April 2002 in Germany. The patents for the method of treating colon
cancer using Colazide expire in January 2014 in the United States and, assuming
--------
patents issue from pending applications, in January 2015 in various countries in
Europe, Asia, and North America. The patents for the rifaximin composition of
matter (also covering the process of making rifaximin and
12
using rifaximin to treat gastrointestinal infectious diseases) expire in May
2001 in the United States and Canada. The patents for the process of making
rifaximin expire in April 2005 in both the United States and Canada. Patents for
the use of rifaximin for H. pylori infections expire in June 2013 in the United
---------
States and February 2014 in Canada. Although the Company believes it may be
granted extensions of up to five years in certain circumstances, based on patent
term restoration procedures established in Europe and in the United States under
the Waxman-Hatch Act for products that have received regulatory approval, there
is no assurance that such extensions will be granted. The Company has filed
applications for use patents for additional indications using balsalazide and
related chemical substances. There can be no assurance that any patents will be
issued. There can be no assurance that competitors will not develop products
based on the same active ingredients for marketing as soon as the applicable
patents expire or at any time thereafter or that competitors will not design
around existing patents. Sales of such generic versions could have an adverse
effect on the Company's business, financial condition, and results of
operations. The Company's success will depend in part on its ability to obtain
United States and foreign patent protection for its products and processes,
preserve its trade secrets, and operate without infringing on the proprietary
rights of third parties. There can be no assurance that patents will issue with
respect to, or that the claims allowed will provide sufficient protection to,
the Company's present or future technology.
There can be no assurance that any other patents will be issued on any of the
Company's patent applications or on patent applications licensed from third
parties. Moreover, there can be no assurance that claims allowed in the patents
or patent applications are or will be sufficiently broad to protect the
Company's technology or that the patents will provide protection against
competitive products or otherwise be commercially valuable.
Furthermore, as with any pharmaceutical company, the Company's patent and
other proprietary rights are subject to uncertainty. The Company's patent or
other proprietary rights related to its products might conflict with current or
future rights of others. For instance, there is no assurance that the use of
the Company's technology will not infringe the patent rights of others. For the
same reasons, the products of others could infringe the patent or other
proprietary rights of the Company. Litigation or patent interference
proceedings, either of which could result in substantial cost to the Company,
may be necessary to enforce any patents issued to and other proprietary rights
of the Company or to determine the scope and validity of other parties'
proprietary rights. The defense and prosecution of patent and intellectual
property claims are both costly and time-consuming, even if the outcome is
favorable to the Company. Any adverse outcome could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties, or require the Company to cease selling its products.
In addition to patent protection, the Company also relies on trade secrets,
proprietary know-how and technological advances which it seeks to protect, in
part, through confidentiality agreements with its collaborative partners,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets and proprietary know-how will not otherwise
become known or be independently developed by others.
There can be no assurance that the Company will be able to obtain a license
to any third-party technology that it may require to conduct its business or
that, if obtainable, such technology can be licensed at a reasonable cost.
Failure by the Company to obtain a license to any technology that it may require
to commercialize its technologies or products will have a material adverse
effect on the Company. In addition, there can be no assurance that others will
not independently develop substantially equivalent proprietary information or
obtain access to the Company's know-how, or that others will not be issued
patents which prevent the manufacture or sale of Company products or require
licensing and the payment of significant fees or royalties by the Company in
order for it to be able to carry on its business. Litigation, which could
result in substantial cost to the Company, may be necessary to enforce or defend
the Company's patents or proprietary rights.
Intense Competition. Competition in the pharmaceutical industry is intense
-------------------
and characterized by extensive research efforts and rapid technological
progress. The Company believes that there are numerous pharmaceutical and
biotechnology companies, both public and private and including large well-known
pharmaceutical companies, as well as academic research groups throughout the
world engaged in research and development efforts with respect to pharmaceutical
products targeted at gastrointestinal diseases and conditions addressed by the
Company's current and potential products. In particular, the Company is aware of
products in research or development by competitors that address the diseases
being targeted by the Company's products. There can be no assurance that
developments by others will not render the Company's current and potential
products obsolete or non-competitive. Competitors
13
may be able to complete the development and regulatory approval process sooner
and, therefore, market their products earlier than the Company. Many of the
Company's competitors have substantially greater financial, marketing and
personnel resources and development capabilities than the Company. For example,
many large, well capitalized companies already offer products in the United
States and Europe that target the proposed indications for Colazide, including
--------
mesalamine (SmithKline Beecham plc, Dr. Falk Pharma GmbH, Pharmacia & Upjohn,
Inc., Solvay S.A., The Procter & Gamble Company, and Hoechst Marion Roussel,
Inc.), sulfasalazine (Pharmacia & Upjohn, Inc.), and olsalazine (Pharmacia &
Upjohn, Inc.). Technological developments by competitors, earlier regulatory
approval for marketing competitive products, or superior marketing capabilities
possessed by competitors could adversely affect the commercial potential of the
Company's products, including Colazide, and could have a material adverse effect
--------
on the Company's business, financial condition, and results of operations. In
addition, manufacturers of generic drugs may seek to compete directly with the
Company's products in the absence of effective patent protection or non-patent
exclusivity protection.
Currency Fluctuations. A significant portion of the Company's business is
---------------------
conducted in currencies other than the United States dollar. Foreign currency
transaction gains and losses arising from normal business operations are
credited to or charged against earnings in the period incurred. As a result,
fluctuations in the value of the currencies in which the Company conducts its
business relative to the United States dollar have caused and will continue to
cause currency transaction gains and losses. Although translation into the
Company's reporting currency has not historically had a material impact on the
Company's financial position, due to the substantial volatility of currency
exchange rates, among other factors, the Company cannot predict the effect of
exchange rate fluctuations upon future operating results. There can be no
assurance that the Company will not experience currency losses in the future.
The Company has not previously undertaken hedging transactions to cover its
currency exposure but may hedge a portion of its currency exposure in the future
as management deems appropriate.
Management of Growth. The Company expects to experience significant growth
--------------------
in the number of its employees and the scope of its operations. This growth is
expected to place a significant strain on the Company's management and
operations. The Company's ability to manage such growth effectively will depend
upon its ability to broaden its management team and its ability to attract,
hire, and retain skilled employees. The Company's success will also depend on
the ability of its officers and key employees to continue to implement and
improve its operational, management information and financial control systems
and to expand, train and manage its employee base. The Company's inability to
manage growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Key Personnel; Ability to Recruit Personnel. The Company is
---------------------------------------------------------
dependent upon a number of key management and technical personnel, none of whom
is bound by an employment agreement with the Company, including Randy Hamilton,
chairman, Chief Executive Officer and President, Lorin Johnson, Vice President,
Research (Salix Pharmaceuticals), and James Shook, Senior Vice President,
Development (Salix Pharmaceuticals). The loss of the services of one or more
key employees could have a material adverse effect on the Company. The
Company's success will also depend on its ability to attract and retain
additional highly qualified management and technical personnel. The Company
faces intense competition for qualified personnel, many of whom are often
subject to competing employment offers. In the event the Company obtains
regulatory approvals for rifaximin, it intends to sell rifaximin through a small
direct sales force. New employees, particularly new sales and marketing
employees, will require substantial training and education concerning the
Company's products. There can be no assurance that the Company will be
successful in attracting and retaining qualified personnel as necessary, and the
failure to do so could have a material adverse effect on the Company's business,
operating results, and financial condition.
Price Volatility; Limited Trading Volume. The securities markets have from
----------------------------------------
time to time experienced significant price and volume fluctuations that may be
unrelated to the operating performance of particular companies. In addition,
the market prices of the common stock of many publicly traded pharmaceutical and
biotechnology companies have in the past and can in the future be expected to be
especially volatile. Announcements of technological innovations or new products
by the Company or its competitors, developments or disputes concerning
proprietary rights, publicity regarding actual or potential medical results
relating to products under development by the Company or its competitors,
regulatory developments in both the United States and other countries, public
concern as to the safety of pharmaceutical products and economic and other
external factors, as well as period-to-period fluctuations in the Company's
financial results, may have a significant impact on the market price of the
Company's Common Shares. The Company's Common Shares have been traded on The
Toronto Stock
14
Exchange since May 1996. No public trading market exists for the Common Shares
in the United States. In addition, trading volume in the Common Shares on The
Toronto Stock Exchange has been low, and there can be no assurances that an
active trading market will develop or be sustained on The Toronto Stock
Exchange, or any other exchange or dealer quotation system.
15
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In October 1997, the Company completed the sale of 3,000,000 Common Shares at
a per share price of Cdn. $7.00 in a firm commitment underwritten public
offering. The offering was effected in Canada pursuant to final receipts issued
by each of the provincial securities commissions and in the United States
pursuant to a Registration Statement on Form S-1 (Registration No. 333-33781),
which the United States Securities and Exchange Commission declared effective on
October 16, 1997. The offering was underwritten by Levesque Beaubien Geoffrion
Inc., Yorkton Securities Inc., Marleau, Lemire Securities Inc., and Midland
Walwyn Capital Inc. In the United States, the offering was made by the United
States broker-dealer affiliates of the underwriters, NBC Levesque International
Ltd., Yorkton Capital Inc., Marleau Lemire (USA), Inc., and Midland Walwyn
Capital Corporation, respectively. On October 16, 1997, the date of the
effectiveness of the Registration Statement covering the public offering, the
Bank of Canada noon rate of exchange for United States dollars into Canadian
dollars was Cdn $1.3866 per U.S. $1.00.
Of the Cdn. $21,000,000 in aggregate proceeds raised in connection with the
October 1997 offering, (i) approximately Cdn. $1,365,000 was paid to the
underwriters in connection with underwriting discounts, and (ii) approximately
Cdn. $1,213,275 was paid by the Company in connection with offering expenses,
including legal, printing, and filing fees. There were no direct or indirect
payments to directors or officers of the Company or any other person or entity.
None of the offering proceeds have been used for the construction of plant,
building or facilities or the purchase or installation of machinery or equipment
or for purchases of real estate or the acquisition of other businesses. The
Company is currently investing the net offering proceeds for future use as
additional working capital. Such remaining net proceeds have been invested in
short-term, interest-bearing, investment grade securities. A portion of the net
proceeds may be used for the acquisition of technologies, businesses or products
that are complementary to those of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no Current Reports on Form 8-K during the three months
ended September 30, 1997.
16
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.
SALIX HOLDINGS, LTD.
Date: December 8, 1997 By: /s/ Randy Hamilton
----------------------------------
Randy Hamilton, President and
Chief Executive Officer
Date: December 8, 1997 By: /s/ David Boyle
-----------------------------------
David Boyle, Vice President,
Finance & Administration, and
Chief Financial Officer
17