UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/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 0-24424
CIMA LABS INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1569769
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10000 Valley View Road, Eden Prairie, Minnesota 55344-9361
(Address of principal executive offices including zip code)
(612) 947-8700
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock $.01 par value 9,591,394 Shares
---------------------------------- ----------------------------------
(Class) (Outstanding at November 10, 1997)
1
CIMA LABS INC.
TABLE OF CONTENTS
PAGE NUMBER
-----------
COVER PAGE 1
TABLE OF CONTENTS 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Balance Sheets as of September 30, 1997
and December 31, 1996 3
Condensed Statements of Operations for the three-
month and nine-month periods ended September 30, 1997
and 1996 and the period from December 12, 1986
(inception) to September 30, 1997 4
Condensed Statements of Cash Flows for the nine-month
periods ended September 30, 1997 and 1996 and the period
from December 12, 1986 (inception) to September 30, 1997 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 12
ITEM 2. CHANGES IN SECURITIES. 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 12
ITEM 5. OTHER INFORMATION. 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 13
SIGNATURE 14
EXHIBIT INDEX 15
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CIMA LABS INC.
(A Development Stage Company)
Condensed Balance Sheets (Unaudited)
September 30, December 31,
-------------- --------------
1997 1996
(Note)
ASSETS
Current assets:
Cash and cash equivalents $2,089,860 $2,666,032
Short-term investments 3,503,541 7,597,162
Accounts receivable 1,369,753 247,578
Inventories--Note B 933,638 534,587
Prepaid expenses 210,906 71,880
-------------- --------------
Total current assets 8,107,698 11,117,239
Property, plant and equipment 13,966,652 13,377,085
Less accumulated depreciation (3,572,457) (2,972,474)
-------------- --------------
10,394,195 10,404,611
Other assets:
Lease deposits 40,651 290,650
Patents and trademarks, net of amortization 236,669 252,404
-------------- --------------
277,320 543,054
-------------- --------------
-------------- --------------
Total assets $18,779,213 $22,064,904
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $349,792 $264,370
Accrued expenses 1,390,037 529,402
Advance royalties 250,000 250,000
-------------- --------------
Total current liabilities 1,989,829 1,043,772
Commitments and contingencies
Stockholders' equity
Convertible Preferred Stock, $.01 par value:
Authorized shares--5,000,000; issued and outstanding shares-- none
Common Stock, $.01 par value:
Authorized shares--20,000,000; issued and outstanding shares--
9,591,318--September 30, 1997; 9,411,589--December 31, 1996 95,913 94,116
Additional paid-in capital 57,176,371 56,586,958
Deficit accumulated during the development stage (40,482,900) (35,659,942)
-------------- --------------
Total stockholders' equity 16,789,384 21,021,132
-------------- --------------
Total liabilities and stockholders' equity $18,779,213 $22,064,904
-------------- --------------
-------------- --------------
Note: The balance sheet at December 31, 1996 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed financial statements.
3
CIMA LABS INC.
(A Development Stage Company)
Condensed Statements of Income (Unaudited)
Period from
December 12,
Three Months Ended Nine Months Ended 1986
-------------------------- --------------------------- (Inception) to
September 30, September 30, September 30,
-------------------------- --------------------------- -------------
1997 1996 1997 1996 1997
-------------------------- --------------------------- -------------
Revenues:
Net sales $825,117 $0 $1,657,689 $0 $15,408,573
Research and development fees & 800,884 504,425 1,258,996 1,171,560 6,605,586
Licensing revenues
-------------------------- --------------------------- -------------
1,626,001 504,425 2,916,685 1,171,560 22,014,159
Costs and expenses:
Cost of goods sold 1,323,096 0 2,891,202 0 20,722,617
Research and product development 594,773 1,228,632 2,579,434 3,903,428 23,102,282
Selling, general and administrative 739,751 782,544 2,628,110 2,363,303 20,272,185
-------------------------- --------------------------- -------------
2,657,620 2,011,176 8,098,746 6,266,731 64,097,084
Other income (expense):
Interest income, net 68,783 200,096 262,487 367,574 1,381,887
Other income (expense) 1,418 (1,876) 125,640 (4,700) 395,670
-------------------------- --------------------------- -------------
70,201 198,220 388,127 362,874 1,777,557
Net loss and deficit accumulated
during the development stage ($961,418) ($1,308,531) ($4,793,934) ($4,732,297) ($40,305,368)
-------------------------- --------------------------- -------------
-------------------------- --------------------------- -------------
Net loss per share:
Primary $(0.10) $(0.14) $(0.50) $(0.55) $(11.96)
Fully diluted $(0.10) $(0.14) $(0.50) $(0.55) $(8.82)
Weighted average shares outstanding:
Primary 9,556,054 9,405,846 9,498,266 8,633,939 3,370,411
Fully diluted 9,556,054 9,405,846 9,498,266 8,633,939 4,568,497
See notes to condensed financial statements.
4
CIMA LABS INC.
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
Period from
December 12,
Nine Months Ended 1986
September 30, (Inception) to
--------------------------- September 30,
1997 1996 1997
--------------------------- --------------
OPERATING ACTIVITIES
Net loss ($4,793,934) ($4,732,297) ($40,305,368)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 695,145 442,374 4,715,708
Preferred stock issued for accrued interest 0 0 141,448
Gain on sale of property, plant and equipment 0 0 (53,270)
Changes in operating assets and liabilities:
Accounts receivable (1,122,175) (226,761) (1,369,753)
Inventories (399,051) (25,173) (933,638)
Other current assets (139,026) 175,028 (210,906)
Accounts payable 85,422 (148,575) 349,788
Accrued expenses 860,635 293,809 1,390,037
Advance royalties 0 0 250,000
--------------------------- --------------
Net cash used in operating activities (4,812,984) (4,221,595) (36,025,954)
INVESTING ACTIVITIES
Purchase of and deposits on property, plant and equipment (588,969) (404,268) (15,050,305)
Purchase of short-term investments (1,257,262) 0 (27,401,564)
Proceeds from sale of property, plant & equipment 0 0 471,883
Proceeds of maturities of short-term investments 5,350,885 0 23,898,025
Patents and trademarks (80,030) (81,959) (695,458)
--------------------------- --------------
Net cash used in investing activities 3,424,624 (486,227) (18,777,419)
FINANCING ACTIVITIES
Proceeds from issuance of stock:
Common Stock 562,188 13,083,130 31,394,363
Preferred Stock 0 0 25,458,690
Lease financing of equipment 0 0 2,441,650
Security deposits on leases 250,000 0 (40,651)
Proceeds from issuance of notes payable and warrants 0 0 1,923,951
Payments on notes payable 0 0 (1,823,700)
Payments on capital leases 0 0 (2,441,650)
Organization costs 0 0 (19,420)
--------------------------- --------------
Net cash (used in) provided by financing activities 812,188 13,083,130 56,893,233
--------------------------- --------------
Increase (decrease) in cash and cash equivalents (576,172) 8,375,308 2,089,860
Cash and cash equivalents at beginning of period 2,666,032 3,558,743 -
--------------------------- --------------
Cash and cash equivalents at end of period $2,089,860 $11,934,051 $2,089,860
--------------------------- --------------
--------------------------- --------------
Supplemental schedule of noncash investing and financing activities:
Note payable exchanged for issuance of common stock $1,517,500
Common stock issued for note receivable 50,000
See notes to condensed financial statements.
5
CIMA LABS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed 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, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1996.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or fair
market value.
September 30, December 31,
1997 1996
------------- ------------
Raw materials $426,413 $534,587
Work in process 141,404 --
Finished products 365,821 --
------------- ------------
$933,638 $534,587
NOTE C - INITIAL PUBLIC OFFERING
The Company completed its initial public offering ("IPO") of its Common Stock in
August 1994. Outstanding shares of Series A, B, C, D and E Preferred Stock were
automatically converted on a one-for-one basis to shares of Common Stock on the
closing date of August 4, 1994.
NOTE D - NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares from stock
options and warrants are excluded from the computation as their effect is
antidilutive. In February 1997, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 128, "EARNINGS PER SHARE." This Statement
replaces the presentation of primary earnings per share (EPS) with basic EPS
and also requires dual presentation of basic and diluted EPS for entities
with complex capital structures. This Statement is effective for the fiscal
year ended December 31, 1997. For the quarter ended September 30, 1997,
there is no difference between basic earnings per share under Statement No.
128 and primary net loss per share as reported.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "EXCEPT," "ESTIMATE"
AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE
SUCCESS OF THE COMPANY IN MANUFACTURING PRODUCTS USING THE COMPANY'S TECHNOLOGY,
THE AVAILABILITY OF ADEQUATE FUNDS FOR THE COMPANY'S OPERATIONS, THE SUCCESS OF
THE COMPANY IN COMMERCIALIZING ITS NEW DRUG DELIVERY PROGRAMS, AND THE COMPANY'S
RELIANCE ON ITS KEY PERSONNEL AND COLLABORATIVE PARTNERS, AS WELL AS THOSE
DISCUSSED IN "BUSINESS RISKS" BELOW.
GENERAL
CIMA, founded in 1986, is a drug delivery company focused primarily on
the development and manufacture of pharmaceutical products based upon its
patented OraSolv-REGISTERED TRADEMARK- technology for marketing by
multinational pharmaceutical companies. OraSolv is an oral dosage formulation
incorporating microencapsulated active drug ingredients into a tablet which
dissolves quickly in the mouth without chewing or water and which effectively
masks the taste of the medication being delivered. OraSolv's fast-dissolving
capability may enable patients in certain age groups or those with a variety
of conditions that limit their ability to swallow conventional tablets to
receive medication in a more convenient oral dosage form. The Company
believes that OraSolv is more convenient than traditional tablet-based oral
dosages as it does not require water to be ingested, thereby enabling
immediate medication at the onset of symptoms. In addition, OraSolv can
provide more accurate administration of doses than liquid or suspension
formulations as no measuring is required. The Company believes OraSolv's
ease of use and effective taste-masking may foster greater patient compliance
with recommended dosage regimens, both for over-the-counter ("OTC") and
prescription products, thereby improving therapeutic outcomes and reducing
costs in the healthcare system.
CIMA's business strategy is to commercialize its OraSolv technology
through collaborations with multinational pharmaceutical companies with
emphasis on products which command a large market share and/or are in large
market segments. Product differentiation and brand name identity are critical
to the successful marketing of pharmaceutical products. The Company believes
that OraSolv affords pharmaceutical companies a means to significantly
differentiate their products in the competitive pharmaceutical marketplace.
Because it is a patented technology, OraSolv affords more enduring product
differentiation than the more traditional approaches of changing product
flavor or packaging innovations, which can be easily replicated. The Company
has entered into agreements with a number of pharmaceutical companies for
development, manufacture and commercialization of OraSolv products.
The Company is currently focusing on developing OraSolv products for
selected prescription drug applications. The Company believes that such
prescription OraSolv products should result in improved taste acceptance and
ease of administration, and so enhance patient compliance with the
recommended dosage regimen for such prescription pharmaceuticals. This
quarter the Company signed its first two pharmaceutical product development
agreements with two major multinational pharmaceutical companies. The
Company has also initiated the development of new drug technologies. These
technologies include a new oral solid delivery system, DuraSolv-TM-; a unique
sustained-released delivery system, OraSolv-REGISTERED TRADEMARK- SR; and an
improved efficacy delivery system. One of the Company's recently signed
agreements will utilize the unique sustained-released technology. The goal
of the Company is to focus on drug delivery technologies that improve
efficacy.
7
At September 30, 1997, the Company had accumulated losses of
approximately $ 40,305,000. The Company recorded its first commercial sales
using the Company's OraSolv technology in the three month period ending March
31, 1997. Prior to this the Company's revenues have been from sales using
the Company's AutoLution (a liquid effervescent) technology, license fees
paid by corporate partners in consideration of the transfer of rights under
collaboration agreements, and research and development fees paid by corporate
partners to fund the Company's research and development efforts for products
developed under such agreements. To date, such revenues have been derived
primarily from manufacturing agreements with third parties for liquid
effervescent, other products, and products using OraSolv technology, the
latter generated in the last seven months. To a lesser extent revenue has
been generated from research and development fees and licensing arrangements,
primarily in the last five years. The Company is not currently manufacturing
liquid effervescent products, and has not recognized any revenues from such
products since 1995. The Company expects to continue generating revenue from
manufacturing OraSolv products. In addition to revenues from manufacturing,
research and development and licensing, the Company has funded operations
from private and public sales of equity securities, realizing net proceeds of
approximately $25,963,000 from private sales of equity securities and
$16,379,000 and $12,038,000 from the Company's July 1994 initial public
offering and May 1996 public offering of its Common Stock, respectively. The
total shares outstanding at September 30, 1997 were 9,591,318.
The Company's ability to generate revenues is dependent upon its ability
to develop new, innovative drug delivery technologies and to enter into and
be successful in collaborative arrangements with pharmaceutical and other
healthcare companies for the development and manufacture of OraSolv products
to be marketed by these corporate partners. The Company is highly dependent
upon the efforts of the corporate partners to successfully market OraSolv
products. Although the Company believes these partners have and will have an
economic motivation to market these products vigorously, the amount and
timing of resources to be devoted to marketing are not within the control of
the Company. These partners independently could make material marketing and
other commercialization decisions which could adversely affect the Company's
future revenues. Moreover, certain of the Company's products are seasonal in
nature and the Company's revenues could vary materially from quarter to
quarter depending on which of such products, if any, are then being marketed.
The Company expects that losses will continue through at least 1998,
even though CIMA expects to continue generating sales revenue from
manufacturing OraSolv products in 1997 and 1998. Research and development
expenses will increase as CIMA investigates new drug delivery technologies,
including the possibility of utilizing microencapsulation for the development
of sustained released systems, as well as sublingual systems which could
deliver faster absorption of drug ingredients. Personnel costs for research
and development are expected to remain relatively stable as the majority of
the necessary personnel for this function has already been hired. Personnel
costs for administration may decrease slightly in an effort to reduce
corporate overhead. As CIMA continues production, additional operations
personnel may need to be added to meet corporate partners' orders.
Manufacturing infrastructure costs should not need to increase materially as
there is capacity to meet short-term production needs.
In the fourth quarter of 1996, the Company signed a Supply Agreement
with Bristol-Myers Squibb, a major pharmaceutical company. The Agreement
covers full-scale production of an over-the-counter product in CIMA's OraSolv
dosage form. CIMA began commercial production for this product during the
first quarter of 1997. The product was officially launched in September
1997. In the second quarter of 1997, the Company expanded its relationship
with Bristol-Myers Squibb and signed a global non-exclusive license agreement
which covers multiple products. In the third quarter, the first two
prescription product license and development agreements were signed. Each
agreement is for a product which is currently marketed by the Company's
partners, Schering-Plough and Zeneca.
In recent years the Company has actively marketed its OraSolv technology
to the pharmaceutical industry. The Company is presently engaged in product
development and manufacturing scale-up efforts and negotiations with several
different pharmaceutical companies regarding a variety of potential products.
There can be no assurance, however, that these activities or discussions will
result in license agreements or the marketing of products using the OraSolv
technology. The Company believes that mergers and acquisitions in the
pharmaceutical industry in recent years, together with changes in product
plans by potential partners, may have had an adverse effect on the progress
of certain projects, and the eventual marketing of products incorporating the
Company's technology.
8
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
The Company's results of operations for the three- and nine-month
periods ended September 30, 1997 reflect an increased emphasis on the
manufacturing of an OraSolv product for a commercial launch by Bristol-Myers
Products in 1997. Net product sales increased to $825,000 and $1,658,000 in
the three- and nine-month periods ended September 30, 1997 from zero in the
first nine months in 1996. The majority of sales in 1997 relate to the first
commercial sales of a product using the OraSolv technology, which began in
March 1997. Research and development fees and licensing revenues were
$801,000 and $1,259,000 for the three- and nine-month periods ended September
30, 1997, respectively, compared to $504,000 and $1,172,000, respectively, in
the comparable periods of 1996. These fees and revenues reflect the signing
of license option and development agreements with multinational
pharmaceutical companies that provide for licensing fees, product development
fees, milestone payments, royalties and manufacturing fees. The 1997
revenues are for agreements that relate to Prescription ("Rx"), Rx to OTC
switch, and OTC products. The 1996 revenues are only for agreements that
relate to OTC, and Rx to OTC switch products. So long as the Company has
relatively few agreements with corporate partners, research and development
fees will tend to fluctuate on a quarter to quarter basis.
Cost of goods sold increased to $1,323,000 and $2,891,000 in the three-
and nine-month periods ended September 30, 1997, respectively, from zero in
the first nine months of 1996. Costs in cost of goods sold include the
manufacturing infrastructure costs necessary to meet future anticipated sales
levels. These costs caused the cost of goods sold to exceed the net sales
price for the products in the first nine months of 1997. The Company
anticipates this situation will not improve until production significantly
increases, and it approaches full manufacturing capacity. In 1996, these
costs were classified as product development expenses. Research and
development expenses decreased to $595,000 and $2,579,000 in the three- and
nine-month periods ended September 30, 1997, respectively, from $1,229,000
and $3,903,000 in the three- and nine-month periods ended September 30, 1996,
respectively. After accounting for the reclassification of manufacturing
infrastructure costs, as noted above, research and development expenses
actually increased on a like-to-like comparison by approximately $76,000, and
$446,000 for the three- and nine-month periods ended September 30, 1997, over
the corresponding prior year periods, respectively. The increase, which was
mostly in the first three-months of 1997, was due to expenses related to the
hiring of the new Vice President of Research and Development, additional
efforts on the development of future technologies, and product development
expenses related to the transition to commercial production. Selling, general
and administrative expenses decreased to $740,000 from $783,000 in the
three-month period ended September 30, 1997 and 1996, respectively. The
decrease was related to the reduction of outside consulting services.
Selling, general and administrative expenses, however, increased to
$2,628,000 for the nine-month period ended September 30, 1997 from $2,363,000
for the same period in 1996. This increase is primarily due to spending on
consumer studies to support OraSolv marketing claims. Net interest income
decreased to $69,000, and $262,000, respectively, in the three- and
nine-month periods ended September 30, 1997 from $200,000 and $368,000,
respectively, for the same periods in 1996. This decrease is due to the
reduced cash position of the Company. Other income (expense) increased to
$1,000 and $126,000, respectively, in the three- and nine-month periods ended
September 30, 1997 from ($2,000) and ($5,000) respectively, for the same
periods in 1996. The major component for the increase is a $120,000 state
sales and use tax refund for previously purchased fixed assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through
private and public sales of its equity securities and revenues from
manufacturing agreements. Through September 30, 1997, CIMA had received net
offering proceeds from such private and public sales of approximately
$57,176,000 and had net sales from manufacturing agreements of approximately
$15,409,000. Cash, cash equivalents and short-term investments were
approximately $5,593,000 at September 30, 1997, a decrease of $4,670,000 from
$10,263,000 at December 31, 1996. However, the net cash position only has
decreased by approximately $900,000 in the third quarter ending September 30,
1997 to $5,593,000 from $6,492,000 at the end of the second quarter ending
June 30, 1997.
9
The Company's long-term capital requirements will depend upon numerous
factors, including the status of the Company's collaborative arrangements,
the progress of the Company's research and development programs and receipt
of revenues from the collaborative agreements, sales of the Company's
products and the need to expand production capacity. The Company believes
that its currently available funds, including any license fees product
development fees, and sales revenue anticipated to be received in the future,
will meet its needs through 1998. Thereafter, or sooner if conditions make it
necessary, the Company will need to raise additional funds through research
and development relationships with suitable potential corporate partners
and/or through public or private financings, including equity financing which
may be dilutive to stockholders. There can be no assurance that the Company
will be able to raise additional funds if its capital resources are
exhausted, or that funds will be available on terms attractive to the Company.
The Company has not generated taxable income through September 1997. At
December 31, 1996, the net operating losses available to offset taxable
income were approximately $35,247,000. Because the Company has experienced
ownership changes, pursuant to Internal Revenue Code regulations, future
utilization of the operating loss carryforwards will be limited in any one
fiscal year. The carryforwards expire beginning in 2001. As a result of the
annual limitation, a portion of these carryforwards may expire before
ultimately becoming available to reduce potential federal income tax
liabilities.
BUSINESS RISKS
The Company has recently initiated commercial production of its first
product in CIMA's OraSolv dosage form, and must be evaluated in light of the
uncertainties and complications present for any company that has just
recently began to derive product revenues and, in particular, a company in
the pharmaceutical industry. The Company has accumulated aggregate net
losses from inception through September 30, 1997 of $40,305,000. Losses have
resulted principally from costs incurred in research and development of the
Company's technologies and from general and administrative costs. These
costs have exceeded Company's revenues, which until recently have been
derived primarily from the manufacturing of AutoLution-REGISETRED TRADEMARK-
(a liquid effervescent) and other non-OraSolv products for which the Company
no longer manufactures. In more recent years, the Company has also received
revenue from its commercial partners for product development and licensing of
OraSolv, and to a lesser extent, OraSolv for which commercial production
commenced in the first quarter of 1997 for Bristol-Myers Products. The
Company expects to continue to incur losses at least through 1998. There can
be no assurance that the Company will ever generate substantial revenues or
achieve profitability.
The Company is dependent upon its ability to enter into and perform
under collaborative arrangements with pharmaceutical companies for the
development and commercialization of its products. Failure of these partners
to market the Company's products successfully could have a material adverse
effect on the Company's financial condition and results of operations. The
Company's revenues are also dependent upon ultimate consumer acceptance of
the OraSolv drug delivery system and newly developed technologies as
alternatives to conventional oral dosage forms. The Company expects that
OraSolv products will be priced slightly higher than conventional swallow
tablets. Although the Company believes that initial consumer research has
been encouraging, there can be no assurance that market acceptance for the
Company's OraSolv products will ever develop or be sustained.
The Company began manufacturing OraSolv products in commercial
quantities in February 1997. Commercial sales have been made and revenue has
been recognized from sales of OraSolv products. To achieve future desired
levels of production, the Company will be required to increase its
manufacturing capabilities. There can be no assurance that manufacturing can
be scaled-up in a timely manner to allow production in sufficient quantities
to meet the needs of the Company's corporate partners. Furthermore, the
Company has only one manufacturing facility capable of manufacturing OraSolv
products. If this facility becomes damaged or becomes incapable of
manufacturing products due to natural disaster, governmental regulatory
issues or otherwise, the Company would have no other means of producing
OraSolv products.
10
The Company intends to increase its research and development
expenditures to enhance its current technologies, and to pursue internal
proprietary drug delivery technologies that are being developed. Even if
these technologies appear promising during various stages of development,
they may not reach the commercialization stage for a number of reasons. Such
reasons include the possibilities of not finding a partner to market the
product, the product being difficult to manufacture on a large scale or of
being uneconomical to market.
The Company has conducted an initial review regarding the effect the
upcoming year 2000 will have on its computer applications. The Company has
determined that there will be little to no impact for the Company, and
minimal financial and human resources will be utilized to address this issue.
The Company computer support is provided by a server supported, PC-based,
LAN system. Software vendors for the software used by the Company are aware
of the issue and the Company has been informed that they have taken necessary
steps to address the date-field issue. However, the conversion is an
uncertainty and there can be no assurance that unforeseen problems will not
arise in connection with this issue.
The foregoing risks reflect the Company's stage of development and the
nature of the Company's industry and products. Also inherent in the
Company's stage of development and the nature of the Company's industry is a
range of additional risks, including competition, uncertainties regarding the
effects of healthcare reform on the pharmaceutical industry, including
pressures exerted on the prices charged for pharmaceutical products, and
uncertainties regarding protection of patents and proprietary rights.
11
CIMA LABS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On October 29, 1997, the Company instituted an opposition
proceeding in the European Patent Office seeking cancellation
of a patent owned by Laboratoires Prographarm of Chateauneuf,
France ("Prographarm"). The Company has alleged in the
opposition proceeding that publications exist which are prior
art against the European patent, including an international
patent application owned by the Company which was published
prior to the priority date of the European patent.
On February 27, 1997, the United States Patent and Trademark
Office ("USPTO") suspended prosecution of a U.S. patent
application owned by the Company to consider the Company's
request that an interference proceeding be declared between a
pending U.S. patent application owned by the Company and a
U.S. patent owned by Prographarm. The Company is seeking a
determination by the USPTO that either (i) the Company's
personnel are the prior inventors of the invention encompassed
by the Prographarm U.S. patent and accordingly that the
Company is entitled to claims directed to the same invention
in a new patent to be owned by the Company, or (ii) in the
alternative, a determination that the claims are unpatentable
to the Company or Prographarm. Either holding would result in
cancellation of the Prographarm U.S. patent. The Company's
factual allegations are the same as in the European
opposition, and further include the Company's pending U.S.
patent application itself and the priority date of such
pending application.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Item Description
---- -----------
10.28 Development and Option Agreement between Schering
Corporation and the Company, dated August 11,
1997.(1)
10.29 Development and License Option Agreement between IPR
PHARMACEUTICALS, INC. and the Company, dated
September 10, 1997.(1)
10.30 Employment Agreement, dated October 29, 1997,
between the Company and John M. Siebert, Ph.D.
27 Financial Data Schedule.
___________
(1) Confidential treatment has been requested for this exhibit.
13
CIMA LABS INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
CIMA LABS INC.
Date: November 14, 1997 By: /s/ John M. Siebert
--------------------- --------------------------------------
John M. Siebert
President and Chief Executive Officer
Date: November 14, 1997 By: /s/ Keith P. Salenger
--------------------- --------------------------------------
Keith P. Salenger
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
EXHIBIT INDEX
NO. OF EXHIBIT DESCRIPTION
- -------------- -----------
10.28 Development and Option Agreement between Schering
Corporation and the Company, dated August 11, 1997.(1)
10.29 Development and License Option Agreement between IPR
PHARMACEUTICALS,INC. and the Company, dated
September 10, 1997.(1)
10.30 Employment Agreement, dated October 29, 1997, between the
Company and John M. Siebert, Ph.D.
27 Financial Data Schedule.
____________
(1) Confidential treatment has been requested for this exhibit.
15