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 June 30, 1999
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 9,616,154 Shares
-------------------------------- ----------------------------------
(Class) (Outstanding at July 30, 1999)
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 June 30, 1999
and December 31, 1998 3
Condensed Statements of Operations for the three-
month and six-month periods ended June 30, 1999
and 1998 4
Condensed Statements of Cash Flows for the six-month
periods ended June 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMA LABS INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
1999 1998(1)
------------ ------------
(Note)
ASSETS
Cash and cash equivalents $ 718,665 $ 2,722,590
Accounts receivable 2,321,200 1,654,796
Inventories, net 1,664,979 479,045
Prepaid expenses 118,199 79,866
------------ ------------
Total current assets 4,823,043 4,936,297
Property, plant and equipment:
Construction in progress 494,299 72,204
Equipment 9,314,867 9,314,867
Leasehold improvements 4,757,169 4,757,169
Furniture and fixtures 604,204 604,204
------------ ------------
15,170,539 14,748,444
Less accumulated depreciation (6,160,622) (5,318,107)
------------ ------------
9,009,917 9,430,337
Other assets:
Lease deposits 311,804 345,146
Patents and trademarks, net 182,143 204,648
------------ ------------
Total other assets 493,947 549,794
------------ ------------
Total assets $ 14,326,907 $ 14,916,428
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,331,272 $ 670,597
Accrued expenses 791,304 835,043
Advance royalties 468,334 459,105
Current portion of lease obligation 68,164 64,998
------------ ------------
Total current liabilities 2,659,074 2,029,743
Lease obligations 196,252 231,145
------------ ------------
Total liabilities: 2,855,326 2,260,888
Stockholders' equity
Convertible Preferred Stock, $0.01 par value:
Authorized shares--5,000,000; issued and
outstanding shares--none
Common Stock, $0.01 par value:
Authorized shares--20,000,000; issued and
outstanding shares:
9,610,394 June 30, 1999 and December 31, 1998 96,104 96,104
Additional paid-in capital 57,274,274 57,274,274
Accumulated losses (45,898,797) (44,714,838)
------------ ------------
Total stockholders' equity 11,471,581 12,655,540
------------ ------------
Total liabilities and stockholders' equity $ 14,326,907 $ 14,916,428
============ ============
- --------------------------
1 The balance sheet at December 31, 1998 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.
Condensed Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------------------------ ------------------------------
REVENUES:
Net sales $ 1,398,862 $ - $ 1,433,862 $ 157,692
R&D fees and licensing revenue 1,738,153 1,336,125 3,382,605 2,317,925
------------------------------ ------------------------------
3,137,015 1,336,125 4,816,467 2,475,617
COSTS AND EXPENSES:
Cost of goods sold 1,866,108 296,900 2,299,679 637,522
Research and product development 872,762 869,276 2,270,032 2,347,776
Selling, general and administrative 790,171 940,094 1,475,142 1,700,942
------------------------------ ------------------------------
3,529,041 2,106,270 6,044,853 4,686,240
OTHER INCOME (EXPENSE):
Interest income, net 13,329 34,339 42,869 92,298
Other income (expense), net 10,139 (609) 1,558 882
------------------------------ ------------------------------
23,468 33,730 44,427 93,180
NET LOSS: $ (368,558) $ (736,415) $(1,183,959) $(2,117,443)
====================================================================
Net loss per share:
Basic and diluted $ (0.04) $ (0.08) $ (0.12) $ (0.22)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 9,610,394 9,610,394 9,610,394 9,609,808
See notes to financial statements
4
CIMA LABS INC.
Condensed Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
-----------------------------------
1999 1998
-----------------------------------
OPERATING ACTIVITIES
Net loss $(1,183,959) $(2,117,443)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 897,299 807,438
Gain on sale of property, plant and equipment - 2,982
Changes in operating assets and liabilities:
Accounts receivable (666,403) 545,662
Inventories (1,185,933) (545,222)
Other current assets (38,333) 22,916
Accounts payable 660,674 209,824
Accrued expenses (43,741) (35,958)
Advance royalties 9,229 (105,000)
-----------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,551,167) (1,214,801)
-----------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (420,478) (349,878)
Proceeds from sale of property, plant & equipment - 27,000
Proceeds of maturities of short-term investments - 3,277,297
Patents and trademarks (32,280) (56,255)
-----------------------------------
Net cash used in investing activities (452,758) 2,898,164
-----------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock - 5,700
-----------------------------------
Net Cash Used In Financing Activities - 5,700
-----------------------------------
Increase (decrease) in cash and cash equivalents (2,003,925) 1,689,063
Cash and cash equivalents at beginning of period 2,722,590 1,145,760
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 718,665 $ 2,834,823
===================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of equipment pursuant to equipment loan and
capital lease obligation 257,490
See notes to financial statements.
5
CIMA LABS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999 (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
six-month periods ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. 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, 1998.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or fair
market value.
June 30, December 31,
1999 1998
--------------- -------------
Raw materials $1,190,966 $479,045
Work in process 60,342 --
Finished products 413,671 --
--------------- -------------
$1,664,979 $479,045
=============== =============
NOTE C - NET LOSS PER SHARE
The Company has adopted Financial Accounting Standards Board Statement No. 128,
EARNINGS PER SHARE. This statement replaces previously reported primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary EPS, basic EPS excludes any dilutive effect of options, warrants
and convertible securities. Diluted earnings per share is very similar to
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented to conform with Statement 128
requirements.
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," "BELIEVE," "EXPECT,"
"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 ANTICIPATED LAUNCHES OF CIMA'S PRODUCTS BY ITS PARTNERS,
THE ABILITY TO ACHIEVE THE DESIRED LEVELS OF PRODUCTION REQUESTED BY CIMA'S
PARTNERS, THE MARKET ACCEPTANCE OF THE COMPANY'S ORASOLV-Registered
Trademark- TECHNOLOGY, AND THE SUCCESSFUL PERFORMANCE UNDER THE COLLABORATIVE
ARRANGEMENTS WITH THE COMPANY'S PARTNERS. CIMA'S RESULTS OF OPERATIONS AND
FINANCIAL POSITION COULD ALSO BE AFFECTED BY SEVERAL FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDING, BUT NOT LIMITED TO, CIMA'S
RELIANCE ON COLLABORATIVE PARTNERS, THE GROWTH OF THE ANTIMIGRAINE MARKET,
THE SUCCESS OF THE COMPANY IN SCALE-UP AND COMMERCIALIZING ITS CURRENT
DEVELOPMENT PROGRAMS, THE COMPANY'S ABILITY TO RAISE ADDITIONAL CAPITAL TO
FUND ITS OPERATION, AND FUTURE CAPITAL REQUIREMENTS. THESE AND OTHER FACTORS
ARE MORE FULLY DISCUSSED IN "BUSINESS RISKS" BELOW.
GENERAL
CIMA LABS INC. ("CIMA" or the "Company") was founded in 1986, and
focused initially on contract manufacturing liquid effervescent products. In
September 1992, patent claims were allowed on the Company's
OraSolv-Registered Trademark- technology. Following the issuance of the
OraSolv patent, CIMA changed its focus and emerged as a drug delivery company
offering technologies in the fast-dissolve and transmucosal area. OraSolv and
DuraSolv-TM-, the Company's premier fast-dissolve technologies, are oral
dosage formulations incorporating microencapsulated active drug ingredients
into tablets which dissolve quickly in the mouth without chewing or water
which effectively mask the taste of the medication being delivered. OraSolv's
and DuraSolv'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
dosage form. In addition, OraSolv and DuraSolv can provide more accurate
administration of doses than liquid or suspension formulations as no
measuring is required. Additional drug delivery technologies in the
transmucosal area are also under development by the Company.
In early-1997 the Company recorded its first commercial sales using the
Company's OraSolv technology. In 1998, another over-the-counter product for a
second partner was launched using the OraSolv technology. In the second
quarter this year, AstraZeneca received regulatory approval from the Swedish
regulatory authority for the OraSolv fast-dissolving version of its
Zomig-Registered Trademark- antimigraine medication. Sweden is also the
rapporteur country for European Union approval. Based on this approval, the
Company anticipates that the first prescription pharmaceutical product using
the OraSolv technology will be launched by AstraZeneca, later in 1999. Prior
to emerging as a drug delivery company, the Company's revenues had 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 collaborative agreements, and product development fees paid by
corporate partners to fund the Company's research efforts for products
developed under such agreements. Approximately 38% of the Company's lifetime
revenues through June 30, 1999 have been generated from development work and
sales of AutoLution products. It is expected that this figure will be less
than 33% by the end of calendar year 1999, as the Company does not anticipate
that it will manufacture liquid effervescent products, and has not recognized
any revenue from such products since 1995. Since 1995, approximately
$18,527,000 of revenue has been generated primarily from three major sources:
product development fees (approximately 45% of the total) for work primarily
related to OraSolv and DuraSolv products, and to a lesser extent sales
(approximately 28%) related to OraSolv products and licenses and milestone
fees (approximately 25%) related to OraSolv and DuraSolv products. In
addition to revenue
7
from the above sources, the Company has funded operations from private and
public sales of equity securities, realizing net proceeds of approximately
$26,000,000 from private sales of equity securities and $16,400,000 and
$12,000,000 from the Company's July 1994 initial public offering and May 1996
public offering of its Common Stock, respectively. At June 30, 1999 the
Company had 9,610,394 shares of its Common Stock outstanding.
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 and
DuraSolv products, and products based on such new technologies to be marketed
by these corporate partners. The Company is highly dependent upon the efforts
of the corporate partners to successfully market OraSolv and DuraSolv
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 1999.
These losses will continue to decrease for the balance of the year. It is
anticipated that sales will continue to increase as it is expected that two
of the Company's partners will be launching their products in the OraSolv
dosage form. AstraZeneca is expected to launch a fast-dissolving version of
Zomig in European countries, and Novartis will launch Triaminic-Registered
Trademark- Softchews-Registered Trademark- utilizing the OraSolv dosage form.
It is also expected that other revenues for the second half of 1999 will meet
or exceed the figures generated in the first half of the year. As the Company
has geared up production for the previously mentioned upcoming launches for
its partners the Company has hired additional personnel to meet their initial
orders. Manufacturing infrastructure fixed costs should not need to increase
materially as there is production capacity to meet short-term production
needs. Research and development expenses are expected to show a minimal
increase as the Company continues investigating new coating and drug delivery
technologies, including the possibilities of utilizing sublingual systems,
and to support our partners' development projects. At June 30, 1999, the
Company had accumulated net losses of approximately $45,900,000.
The Company has substantially completed the assessment of the impact
that the Year 2000 date conversion may have on its internal systems and
software, including information technology ("IT") and non-IT, or embedded
technology systems. The Company believes that its risks relating to Year 2000
issues in its systems to be very low, as its IT systems are relatively small
and predominately new and its software consists entirely of "off the shelf"
packages for which Year 2000 compliant up-grades are available and have
already been implemented. There is however additional testing that is
currently underway to ensure that there are no Year 2000 issues with the
embedded systems in the Company's production equipment. The initial testing
has indicated that there are not any issues that can not be resolved with a
minimum amount of expenditure. This testing is anticipated to be completed by
the end of the third quarter 1999. If there were unanticipated issues that
were to arise relating to Year 2000, it could have a negative effect to the
Company's ability to achieve the desired level of production requested by its
partners.
The Company has designated an individual to oversee Year 2000
compliance. It was their responsibility, by the end of the first half of
1999, to ensure that all software packages have been converted or replaced,
if necessary, to be free of Year 2000 problems. This task has been completed,
except for, as
8
noted above, the embedded systems in production operations. The Company has
spent, to date, approximately $22,000 on software upgrades and expects the
total upgrades to be less than $50,000.
The Company is substantially complete in replacing or reallocating
hardware that may present Year 2000 concerns, and estimates the total cost of
any such replacement to be less than $20,000. A review performed by an
outside consultant has indicated that the risks related to the Company's
internal systems is immaterial as far as Year 2000 compliance is concerned.
The Company is still in the process of determining if its major
suppliers and corporate partners have appropriate plans to remediate Year
2000 issues. To date, none of the parties have indicated significant concerns
about their ability to do so. However, a substantial negative impact of Year
2000 on one of the Company's few large major suppliers or corporate partners
that would affect their ability to do business could have a material adverse
effect on the operations and financial condition of the Company.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The Company's results of operations for the three- and six-month periods
ended June 30, 1999 reflect the continued emphasis of developing OraSolv
products for our corporate partners and progressing them into commercial
projects. Total revenues increased to $3,137,000 and $4,816,000 in the
three- and six-month periods ended June 30, 1999, respectively, from
$1,336,000 and $2,476,000 in the three- and six-month periods ended June 30,
1998. Sales were $1,399,000 for the three-month period ended June 30, 1999,
as compared to zero for the same period in 1998. The majority of these sales
represent the sales to Novartis Consumer Health, Inc. for their anticipated
national launch of Triaminic-Registered Trademark- Softchews-Registered
Trademark- in the OraSolv dosage form. Sales were $1,434,000 for the
six-month period ended June 30, 1999, as compared to $158,000, for the same
period in 1998. Other revenues, which consist primarily of product
development fees and licensing and milestone revenues, increased to
$1,738,000 and $3,383,000 in the three- and six-month periods ended June 30,
1999, respectively, from $1,336,000 and $2,318,000 in the three- and
six-month periods ended June 30, 1998. In 1999, the majority of these
revenues were generated by two prescription product collaborations, one each
with AstraZeneca and Organon, and the Novartis over-the-counter cough, cold
product, Triaminic Softchews. Revenues have increased in 1999, as the
projects continue to progress, and the financial results include milestone
payments received related to this progress.
These revenues reflect the signing of license option and development
agreements with multinational pharmaceutical companies that provide for
licensing fees, milestone payments, royalties and manufacturing fees. So long
as the Company has relatively few agreements with corporate partners, license
revenues and product development fees will tend to fluctuate on a
quarter-to-quarter basis.
Cost of goods sold increased to $1,866,000 and $2,300,000 in the three-
and six-month periods ended June 30, 1999, respectively, from $297,000 and
$638,000 in the three- and six-month periods ended June 30, 1998. The
increase in 1999 costs is primarily attributable to increased production. The
manufacturing facility is not running at full capacity, therefore resulting
in cost of sales exceeding sales due to the under-absorbed overhead. Research
and development expenses were $873,000 for the three-months ended June 30,
1999, as compared to $869,000 for the same period in 1998. For the six-month
period ended June 30, 1999, research and development expenses were $2,270,000
compared to $2,348,000 for the same period ended June 30, 1998. Research and
development expenses have remained fairly constant over these periods as
efforts continue on the development programs for our partners, and internal
efforts to develop new technologies. Selling, general and administrative
expenses decreased to $790,000 and $1,475,000 in the three- and six-
9
month periods ended June 30, 1999, respectively, from $940,000 and $1,701,000
for the same periods in 1998, respectively. This decrease was primarily due
to the reduction in legal expenses and outside consulting fees. Other income
decreased to $23,000, and $44,000 in the three- and six-month periods ended
June 30, 1999, respectively, from $34,000 and $93,000 for the same periods in
1998, respectively. Other income is comprised mainly of interest income which
has decreased as it is dependent on the cash position of the Company.
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 supply
agreements. Through June 30, 1999, the Company had received net offering
proceeds from such private and public sales of approximately $57,300,000 and
had net sales from manufacturing and supply agreements of approximately
$18,910,000, and other revenues that include licensing revenue, product
development and milestone fees of $16,924,000. Among other things, these
funds were used to purchase approximately $16,500,000 of capital equipment,
including approximately $7,500,000 in the last two quarters of 1994 in
connection with completing the Company's manufacturing facility.
Cash and cash equivalents were approximately $719,000 at June 30, 1999,
a decrease of $2,004,000 from $2,723,000 at the period ended December 31,
1998. The majority of the decrease can be attributable to the increase in the
trade receivables of $461,000, and the $1,186,000 increase in inventory for
the forthcoming production for our corporate partners, as well as research
and development efforts.
The Company's expects that its cash position will improve during the
remainder of the year. It already has built satisfactory inventory levels to
support the two anticipated product launches, later this year, by its
corporate partners Novartis Consumer Health and AstraZeneca. The Company
expects its cash flow from these sales, and continued product development and
milestone fees, and licensing revenues to exceed expenditures for the
remainder of the year, and into year 2000. To ensure that the Company would
have enough cash during this phase, in July 1999, the Company secured a
$2,000,000 line of credit to be available to provide financing, if necessary.
The Company's long-term capital requirements will depend upon numerous
factors, including the status of the Company's collaborative arrangements
with corporate partners, the progress of the Company's research and
development programs and receipt of revenues from the collaborative
agreements, and the potential need to expand production capacity. As
previously noted, the Company believes that its currently available funds
together with revenues from operations, and a bank line of credit should be
sufficient to meet its anticipated needs through 1999. Thereafter, if
conditions make it necessary, the Company may need to raise additional funds
for capital expansion needs through public or private financings, including
equity financing which may be dilutive to shareholders and/or through
research and development relationships with suitable potential corporate
partners. 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 June 30, 1999. At
December 31, 1998, the net operating losses available to offset taxable
income were approximately $45,700,000. 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.
10
BUSINESS RISKS
The Company began commercial production of its first product in the
Company's OraSolv dosage form in 1997 and must be evaluated in light of the
uncertainties and complications present for any company that has just
recently begun to derive product revenues and, in particular, a company in
the pharmaceutical industry. The Company has accumulated net losses of
$45,900,000 from inception through June 30, 1999. Losses have resulted
principally from costs incurred in research and development of the Company's
technologies, supporting the manufacturing facility, and from general and
administrative costs. These costs have exceeded the Company's revenues. The
Company expects to continue to incur additional losses at least through the
remainder of 1999. There can be no assurance that the Company will ever
generate substantial revenue or achieve profitability.
The Company believes that its currently available funds, together with the
line of credit, product development and milestone fees, license and sales
revenue anticipated to be received in the future, should be sufficient to
meet its needs through 1999. After 1999, the Company may need to raise
additional funds to expand production capacity to meet corporate partners
anticipated needs. The Company is considering numerous types of financing.
These include public or private financing, including equity financing which
may be dilutive to shareholders, debt or equity financing with a potential or
present corporate partners and/or expanding the current line of credit. 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 is dependent upon its ability to enter into and perform
under collaborative arrangements with pharmaceutical companies for the
development and commercialization of its products and technologies. 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 Company's technologies as an alternative to conventional
oral dosage forms. The Company expects that products using its technologies
will be priced slightly higher than conventional swallow or chewable tablets.
Although the Company believes that its consumer research, and the launch of
some fast-dissolve products has been encouraging, there can be no assurance
that market acceptance for the Company's OraSolv products and/or its new drug
delivery technologies 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. The Company expects that two
of its partners will launch their products in the OraSolv dosage form later
in 1999. The Company has sufficient capacity to meet these demands. However,
to achieve future desired levels of production, the Company may 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 line and one facility
capable of manufacturing products. If this production line and/or 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.
The Company intends to increase its research and development
expenditures to enhance its current technologies, and to pursue internal
proprietary drug delivery technologies. 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 technology in their
product, of being difficult to manufacture on a large scale or of being
uneconomical to market.
The fast-dissolve drug delivery field is fairly new and rapidly
evolving. Within the past fifteen months the Company's two major competitors
(Fuisz Technologies Ltd., and RP Scherer Corporation) have been acquired by
two larger companies. It is unclear how these acquisitions will impact the
Company, but the competitors most likely have additional resources to develop
their technologies. It can be expected that the fast-dissolve drug delivery
field will
11
continue to undergo improvements and changes, and the Company may be at a
competitive disadvantage to react to these changes as many of its
competitors, or any new competitors will have greater financial resources.
There can be no assurance that these competitors will not succeed in
developing technologies and products that are more effective than any which
are developed by the Company or which could render the Company's technologies
and products non-competitive or that any technology developed by the Company
will be preferred by consumers to any existing or newly developed
technologies.
The foregoing risks reflect the Company's stage of development and the
nature of the Company's industry. The Company is also subject to 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, all of which may have
a material adverse effect on the Company's business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are not currently subject to market risks for
interest rates, foreign currency exchange rates, commodity prices or other
market price risks of a material nature.
12
CIMA LABS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has instituted an opposition proceeding in the
European Patent Office, and has requested that the United States Patent and
Trademark Office declare an interference proceeding, each of which has been
reported in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 1998.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 2, 1999, the Company held its annual meeting of
stockholders, at which meeting the stockholders took the following
actions:
(i) elected John M. Siebert, Ph.D., Terrence W. Glarner,
Steven B. Ratoff and Joseph R. Robinson, Ph.D., to serve as
directors of the Company for the ensuing year and until their
successors are elected;
(ii) approved the amendment and restatement of the Company's
Equity Incentive Plan to increase the aggregate number of shares
of Common Stock authorized for issuance under such plan by 250,000
shares to 2,650,000; and
(iii) ratified the selection of Ernst & Young LLP as
independent auditors of the Company for its fiscal year ending
December 31, 1999.
Such actions were taken by the following votes:
VOTES
VOTES FOR WITHHELD
--------- --------
Election of Directors:
John M. Siebert, Ph.D. 9,049,187 18,975
Terrence W. Glarner 9,049,187 18,975
Steven B. Ratoff 9,049,187 18,975
Joseph R. Robinson, Ph.D. 9,049,187 18,975
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
Amendment of Stock Plan 5,319,723 3,739,439 9,000
Ratification of Auditors 9,056,887 5,500 5,775
13
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Item Description
---- -----------
3.2 Third Restated Bylaws of the Company.
10.6 Equity Incentive Plan, as amended and
restated.
10.17 License Agreement dated May 28, 1999,
between IPR Pharmaceticals, Inc. and the
Company.
27 Financial Data Schedule.
14
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: August 16, 1999 By: /s/ John M. Siebert
------------------- ---------------------------
John M. Siebert
President and Chief Executive Officer
Date: August 16, 1999 By: /s/ Keith P. Salenger
------------------- ---------------------------
Keith P. Salenger
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
EXHIBIT INDEX
NO. OF EXHIBIT DESCRIPTION
- -------------- -----------
3.2 Third Restated Bylaws of the Company.
10.6 Equity Incentive Plan, as amended and restated.
10.17 License Agreement dated May 28, 1999, between IPR
Pharmaceuticals, Inc. and the Company.
27 Financial Data Schedule.
16