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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
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 0-18231
ATRIX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1043826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2579 MIDPOINT DRIVE FORT COLLINS, COLORADO 80525
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (970) 482-5868
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
----- -----
The number of shares outstanding of the registrant's common stock as of October
26, 2001 was 18,923,473.
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, 2001 December 31, 2000
------------------ -----------------
CURRENT ASSETS:
Cash and cash equivalents $ 42,596,626 $ 4,484,330
Marketable securities available for sale, at fair market value 82,062,768 28,910,439
Notes receivable - stock subscription and license fee -- 23,000,000
Accounts receivable, net of allowance for doubtful accounts
of $172,386 and $209,659 3,486,866 2,610,683
Interest receivable 892,952 472,201
Inventories 2,768,165 1,940,929
Prepaid expenses and deposits 1,591,344 1,085,070
------------- -------------
Total current assets 133,398,721 62,503,652
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET 7,346,229 6,818,372
------------- -------------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $3,160,077 and $2,399,431 3,618,989 4,049,104
Deferred finance costs, net of accumulated amortization of $163,439 and $628,379 133,123 800,536
------------- -------------
Other assets, net 3,752,112 4,849,640
------------- -------------
TOTAL ASSETS $ 144,497,062 $ 74,171,664
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 4,965,540 $ 2,197,980
Interest payable 175,017 215,156
Accrued salaries and payroll taxes 374,559 278,684
Other accrued liabilities 278,464 265,873
Deferred revenue 6,164,808 2,997,154
------------- -------------
Total current liabilities 11,958,388 5,954,847
------------- -------------
DEFERRED REVENUE 25,669,582 24,217,699
CONVERTIBLE SUBORDINATED NOTES PAYABLE 7,511,000 36,190,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000 shares authorized
Series A preferred stock, $.001 par value, 200,000 shares authorized and
no shares issued or outstanding -- --
Series A convertible exchangeable preferred stock, $.001 par value, 20,000 shares
authorized; 12,439 and 12,015 shares issued and outstanding. Liquidation
preference $13,053,426 and $12,397,505 12 12
Common stock, $.001 par value; 45,000,000 shares authorized; 18,911,232 and
13,341,681 shares issued and 18,858,732 and 13,341,681 shares outstanding 18,911 13,342
Treasury stock, 52,500 and -0- shares, at cost (1,039,455) --
Additional paid-in capital 227,828,254 113,763,660
Accumulated other comprehensive income (loss) 808,369 (471,306)
Accumulated deficit (128,257,999) (105,496,590)
------------- -------------
Total shareholders' equity 99,358,092 7,809,118
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 144,497,062 $ 74,171,664
============= =============
See notes to the consolidated financial statements.
2
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
(RESTATED)
------------ ------------
REVENUE:
Net sales and royalties $ 290,924 $ 1,767,564
Contract research and development revenue 1,994,456 347,934
Licensing, marketing rights and milestone revenue 971,169 469,385
------------ ------------
Total revenue 3,256,549 2,584,883
------------ ------------
OPERATING EXPENSES:
Cost of goods sold 112,603 810,416
Research and development 7,162,995 4,575,479
Research and development - licensing fees 2,445,000 --
Administrative and marketing 1,156,152 1,058,186
Administrative - stock option compensation 2,000,000 --
------------ ------------
Total operating expenses 12,876,750 6,444,081
------------ ------------
LOSS FROM OPERATIONS (9,620,201) (3,859,198)
------------ ------------
OTHER INCOME (EXPENSE):
Equity in loss of joint venture (1,007,786) (12,035,025)
Investment income 976,876 522,672
Interest expense (157,005) (644,800)
Debt conversion expense (57,290) --
Other 2,532 9,002
------------ ------------
Net other expense (242,673) (12,148,151)
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (9,862,874) (16,007,349)
Extraordinary gain (loss) on extinguished debt (3,810) 79,906
------------ ------------
NET LOSS BEFORE PREFERRED STOCK DIVIDEND (9,866,684) (15,927,443)
Accretion of dividend on preferred stock (225,599) (170,514)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $(10,092,283) $(16,097,957)
============ ============
Basic and diluted earnings per common share:
Loss before extraordinary item $ (.58) $ (1.33)
Extraordinary item -- .01
------------ ------------
Net loss before preferred stock dividend (.58) (1.32)
Accretion of dividend on preferred stock (.01) (.01)
------------ ------------
Net loss applicable to common stock $ (.59) $ (1.33)
============ ============
Basic and diluted weighted average common shares
outstanding 16,966,110 12,097,565
============ ============
See notes to the consolidated financial statements.
3
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
(RESTATED)
------------ ------------
REVENUE:
Net sales and royalties $ 2,867,303 $ 4,587,785
Contract research and development revenue 5,427,387 1,108,084
Licensing, marketing rights and milestone revenue 2,480,253 1,406,273
------------ ------------
Total revenue 10,774,943 7,102,142
------------ ------------
OPERATING EXPENSES:
Cost of goods sold 1,152,692 1,933,261
Research and development 19,727,044 11,904,657
Research and development - licensing fees 2,985,000 --
Administrative and marketing 3,741,373 3,271,036
Administrative - stock option compensation 2,116,524 --
------------ ------------
Total operating expenses 29,722,633 17,108,954
------------ ------------
LOSS FROM OPERATIONS (18,947,690) (10,006,812)
------------ ------------
OTHER INCOME (EXPENSE):
Equity in loss of joint venture (2,524,447) (12,035,025)
Investment income 2,432,856 1,410,712
Interest expense (647,587) (1,941,260)
Debt conversion expense (2,105,637) --
Other (20,818) 87,124
------------ ------------
Net other expense (2,865,633) (12,478,449)
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF (21,813,323) (22,485,261)
CHANGE IN ACCOUNTING PRINCIPLE
Extraordinary gain (loss) on extinguished debt (292,165) 79,906
Cumulative effect of change in accounting principle -- (20,611,526)
------------ ------------
NET LOSS BEFORE PREFERRED STOCK DIVIDEND (22,105,488) (43,016,881)
Accretion of dividend on preferred stock (655,921) (170,514)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $(22,761,409) $(43,187,395)
============ ============
Basic and diluted earnings per common share:
Loss before extraordinary item and cumulative effect of
change in accounting principle $ (1.41) $ (1.93)
Extraordinary item (.02) .01
Cumulative effect of change in accounting principle -- (1.77)
------------ ------------
Net loss before preferred stock dividend (1.43) (3.69)
Accretion of dividend on preferred stock (.04) (.01)
------------ ------------
Net loss applicable to common stock $ (1.47) $ (3.70)
============ ============
Basic and diluted weighted average common shares
outstanding 15,434,256 11,672,434
============ ============
See notes to the consolidated financial statements.
4
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
Additional
Preferred Stock Common Stock Treasury Paid-in
Shares Amount Shares Amount Stock Capital
------------ ------------ ------------ ------------ ------------ -------------
BALANCE, DECEMBER 31, 2000 12,015 $ 12 13,341,681 $ 13,342 $ -- $ 113,763,660
Comprehensive loss:
Net loss -- -- -- -- -- --
Other comprehensive loss:
- Cumulative foreign
currency translation
adjustments -- -- -- -- -- --
- Unrealized gain on
investments -- -- -- -- -- --
Net comprehensive loss
Issuance of Series A
convertible exchangeable
preferred stock to Elan for
accrued dividends 424 -- -- -- -- --
Accretion on preferred stock -- -- -- -- -- 655,921
Issuance of common stock
to extinguish debt -- -- 1,600,089 1,600 -- 30,783,037
Issuance of common stock to
MediGene -- -- 233,918 234 -- 3,779,766
Non-qualified stock
compensation -- -- -- -- -- 2,116,524
Exercise of non-qualified
stock options -- -- 5,000 5 -- 29,995
Exercise of employee stock
options -- -- 250,958 251 -- 2,509,728
Issuance for employee stock
purchase plan -- -- 1,486 1 -- 21,501
Issuance of restricted stock -- -- 28,100 28 -- 296,420
Purchase of treasury stock -- -- (52,500) -- (1,039,455) --
Offering of common stock -- -- 3,450,000 3,450 -- 73,871,702
------------ ------------ ------------ ------------ ------------ -------------
BALANCE, SEPTEMBER 30, 2001 12,439 $ 12 18,858,732 $ 18,911 $ (1,039,455) $ 227,828,254
============ ============ ============ ============ ============ =============
Accumulated
Other Total
Comprehensive Accumulated Shareholders'
Income (Loss) Deficit Equity
------------- ------------- -------------
BALANCE, DECEMBER 31, 2000 $ (471,306) $(105,496,590) $ 7,809,118
Comprehensive loss:
Net loss -- (22,761,409) (22,761,409)
Other comprehensive loss:
- Cumulative foreign
currency translation
adjustments (11,300) -- (11,300)
- Unrealized gain on
investments 1,290,975 -- 1,290,975
-------------
Net comprehensive loss (21,481,734)
Issuance of Series A
convertible exchangeable
preferred stock to Elan for
accrued dividends -- -- --
Accretion on preferred stock -- -- 655,921
Issuance of common stock
to extinguish debt -- -- 30,784,637
Issuance of common stock to
MediGene -- -- 3,780,000
Non-qualified stock
compensation -- -- 2,116,524
Exercise of non-qualified
stock options -- -- 30,000
Exercise of employee stock
options -- -- 2,509,979
Issuance for employee stock
purchase plan -- -- 21,502
Issuance of restricted stock -- -- 296,448
Purchase of treasury stock -- -- (1,039,455)
Offering of common stock -- -- 73,875,152
------------ ------------- -------------
BALANCE, SEPTEMBER 30, 2001 $ 808,369 $(128,257,999) $ 99,358,092
============ ============= =============
See notes to the consolidated financial statements.
5
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
(RESTATED)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss applicable to common stock $(22,761,409) $(43,187,395)
Adjustments to reconcile net loss to net cash used in
operating activities:
Accretion of dividend on preferred stock 655,921 170,514
Depreciation and amortization 1,796,166 1,664,176
Equity in loss of joint venture 2,524,447 12,035,025
(Gain) loss on sale of property, plant and equipment 19,253 (7,555)
Loss on sale of marketable securities -- 171,583
Provision for bad debts (37,272) --
Write-off of obsolete patents 497 2,656
Stock plan compensation 2,116,524 75,620
Debt conversion expense 2,105,637 --
Interest expense converted to equity 333,241 --
Extraordinary (gain) loss on extinguished debt 292,165 (79,906)
Cumulative effect of change in accounting principle -- 20,611,526
Net changes in operating assets and liabilities:
Accounts receivable (835,177) (1,309,722)
Note receivable - license fee 8,000,000 --
Interest receivable (420,751) 220,706
Inventories (830,074) (390,105)
Prepaid expenses and deposits (507,020) (709,463)
Accounts payable 277,459 (758,792)
Interest payable (40,140) 632,183
Accrued salaries and payroll taxes 96,254 (32,374)
Other accrued liabilities 13,975 22,424
Deferred revenue 4,619,537 (1,161,274)
------------ ------------
Net cash used in operating activities (2,580,767) (12,030,173)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated joint venture -- (12,035,025)
Acquisition of property, plant and equipment (1,519,014) (444,034)
Investments in intangible assets (330,532) (157,193)
Proceeds from sale of property, plant and equipment 6,904 20,025
Proceeds from sale of marketable securities -- 7,402,545
Proceeds from maturity of marketable securities 22,240,842 --
Investment in marketable securities (74,132,068) (310,136)
------------ ------------
Net cash used in investing activities (53,733,868) (5,523,818)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of equity securities 80,513,082 23,281,172
Payments to acquire treasury stock (1,039,455) --
Note receivable - stock subscription 15,000,000 --
Extinguished convertible long-term debt -- (408,000)
------------ ------------
Net cash provided by financing activities 94,473,627 22,873,172
------------ ------------
NET EFFECT OF EXCHANGE RATE ON CASH (46,696) (127,866)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 38,112,296 5,191,315
------------ ------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,484,330 3,021,869
============ ============
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,596,626 $ 8,213,184
============ ============
Supplemental cash flow information:
Cash paid for interest $ 354,486 $ 1,301,290
============ ============
Non-cash activities:
During the nine months ended September 30, 2001, the Company issued 1,600,089
shares of common stock valued at $30,784,637 to extinguish $28,679,000 of the 7%
Convertible Subordinated Notes.
See notes to the consolidated financial statements.
6
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of Atrix
Laboratories, Inc. and subsidiaries have been prepared in accordance with
generally accepted accounting principles for interim consolidated financial
statements and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. In the opinion of management, all adjustments considered necessary (which
consist of normal recurring accruals) for a fair presentation have been
included. These consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto for the
year ended December 31, 2000, filed with the Securities and Exchange Commission
in the Company's Annual Report on Form 10-K.
Atrix Laboratories, Inc. was formed in August 1986 as a Delaware
corporation. In November 1998, the Company acquired ViroTex Corporation. In June
1999, the Company organized its wholly owned subsidiary Atrix Laboratories
Limited, which is based in London, England. In February 2000, the Company
organized its wholly owned subsidiary Atrix Laboratories GmbH, which is based in
Frankfurt, Germany, to conduct its European operations. Collectively, Atrix
Laboratories and its subsidiaries are referred to as Atrix or the Company. In
June 2000, the Company entered into a research joint venture, Transmucosal
Technologies, Ltd., with Elan International Services, Ltd. ("Elan"), a wholly
owned subsidiary of Elan Corporation, plc, to develop oncology and pain
management compounds. Drug delivery of these compounds will utilize the
Company's patented Atrigel and BEMA drug delivery systems and Elan's
nanoparticulate delivery technology.
Atrix is an emerging specialty pharmaceutical company focused on
advanced drug delivery. With five unique patented drug delivery technologies,
the Company is currently developing a diverse portfolio of products, including
proprietary oncology, pain management, growth hormone releasing peptide-1 and
dermatology products. The Company also partners with several large
pharmaceutical and biotechnology companies to apply its proprietary technologies
to new chemical entities or to extend the patent life of existing products. The
Company has strategic alliances with several large pharmaceutical companies to
use its drug delivery technologies and expertise in the development of new
products.
In June 1998, Statement of Financial Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities, was issued
which, as amended, was effective for all fiscal years beginning after June 15,
1999. SFAS No. 133 provides new standards for the identification, recognition
and measurement of derivative financial instruments, including embedded
derivatives. Historically, we have not entered into derivative contracts to
hedge existing risks nor have we entered into speculative derivative contracts.
Although our convertible debt and preferred stock include conversion features
that are considered to be embedded derivatives, accounting for those instruments
is not affected by SFAS No. 133. The adoption of SFAS No. 133 on January 1, 2001
did not result in a transition adjustment in the financial statements.
On June 29, 2001, SFAS No. 141, "Business Combinations" was issued by
the Financial Accounting Standards Board (FASB). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets must
be tested for impairment, and write-downs may be necessary. The Company adopted
SFAS No. 141 on July 1, 2001. The adoption of this statement did not have an
impact on the Company's consolidated financial position or results of
operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was issued by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January 1, 2002 and it has not determined the impact, if any, that this
statement will have on its consolidated financial position or results of
operations.
In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued by the FASB. SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," for the disposal of a
segment of business. This statement also amends Accounting Research Bulletin No.
51, "Consolidated Financial Statements," to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary, SFAS
No. 144 retains the requirements of SFAS No. 121 to recognize an impairment loss
when the carrying amount of a long-lived asset is not recoverable and provides
for alternative cash flow measurement methods when more than one course of
action is available for the recovery of the carrying amount of the asset. SFAS
No. 144 also removes goodwill from its scope. The Company is required to adopt
SFAS No. 144 on January 1, 2002 and it has not determined the impact, if any,
that this statement will have on its consolidated financial position or results
of operations.
Effective in the fiscal fourth quarter of 2000, the Company changed its
method of accounting for nonrefundable technology access fees and milestone
payments to recognize such payments as revenue over the term of the related
agreements. The change in accounting principle is based on guidance provided in
the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101
- Revenue Recognition in Financial Statements. Previously, the Company
recognized $24,100,000 for nonrefundable technology access fees and milestone
payments as revenue when received and when the Company fulfilled all contractual
obligations relating to the fees and milestone payments. There was approximately
$20,612,000 cumulative effect for this change in accounting principle that was
reported as a charge in the year ended December 31, 2000. The cumulative effect
was recorded as deferred revenue that will be recognized as revenue over the
remaining contractual terms for each of the specific agreements.
The following represents the Consolidated Statement of Operations for
the three and nine months ended September 30, 2000 as previously reported, the
adjustments for the adoption of SAB No. 101, and the resulting Consolidated
Statement of Operations as restated for that adoption.
7
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AS PREVIOUSLY
REPORTED AND RESTATED
(Unaudited)
2000
(AS PREVIOUSLY SAB No. 101 2000
REPORTED) ADJUSTMENTS (RESTATED)
-------------- ------------ ------------
REVENUE:
Net sales and royalties $ 1,767,564 $ -- $ 1,767,564
Contract research and development revenue 347,934 -- 347,934
Licensing, marketing rights and milestone revenue 150,000 319,385 469,385
------------ ------------ ------------
Total revenue 2,265,498 319,385 2,584,883
------------ ------------ ------------
OPERATING EXPENSES:
Cost of goods sold 810,416 -- 810,416
Research and development 4,575,479 -- 4,575,479
Administrative and marketing 1,058,186 -- 1,058,186
------------ ------------ ------------
Total operating expenses 6,444,081 -- 6,444,081
------------ ------------ ------------
LOSS FROM OPERATIONS (4,178,583) 319,385 (3,859,198)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Equity in loss of joint venture (12,035,025) -- (12,035,025)
Investment income 522,672 -- 522,672
Interest expense (644,800) -- (644,800)
Other 9,002 -- 9,002
------------ ------------ ------------
Net other expense (12,148,151) -- (12,148,151)
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (16,326,734) 319,385 (16,007,349)
Extraordinary gain on extinguished debt 79,906 -- 79,906
------------ ------------ ------------
NET LOSS BEFORE PREFERRED STOCK DIVIDEND (16,246,828) 319,385 (15,927,443)
Accretion of dividend on preferred stock (170,514) -- (170,514)
------------ ------------ ------------
NET LOSS $(16,417,342) $ 319,385 $(16,097,957)
============ ============ ============
Basic and diluted earnings per common share:
Loss before extraordinary item $ (1.36) $ (1.33)
Extraordinary item .01 .01
------------ ------------
Net loss before preferred stock dividend (1.35) (1.32)
Accretion of dividend on preferred stock (.01) (.01)
------------ ------------
Net loss applicable to common stock $ (1.36) $ (1.33)
============ ============
Basic and diluted weighted average common shares
outstanding 12,097,565 12,097,565
============ ============
8
ATRIX LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AS PREVIOUSLY REPORTED AND RESTATED
(Unaudited)
2000
(AS PREVIOUSLY SAB No. 101 2000
REPORTED) ADJUSTMENTS (RESTATED)
-------------- ------------ ------------
REVENUE:
Net sales and royalties $ 4,587,785 $ -- $ 4,587,785
Contract research and development revenue 1,108,084 -- 1,108,084
Licensing, marketing rights and milestone revenue 255,000 1,151,273 1,406,273
------------ ------------ ------------
Total revenue 5,950,869 1,151,273 7,102,142
------------ ------------ ------------
OPERATING EXPENSES:
Cost of goods sold 1,933,261 -- 1,933,261
Research and development 11,904,657 -- 11,904,657
Administrative and marketing 3,271,036 -- 3,271,036
------------ ------------ ------------
Total operating expenses 17,108,954 -- 17,108,954
------------ ------------ ------------
LOSS FROM OPERATIONS (11,158,085) 1,151,273 (10,006,812)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Equity in loss of joint venture (12,035,025) -- (12,035,025)
Investment income 1,410,712 -- 1,410,712
Interest expense (1,941,260) -- (1,941,260)
Other 87,124 -- 87,124
------------ ------------ ------------
Net other expense (12,478,449) -- (12,478,449)
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (23,636,534) 1,151,273 (22,485,261)
Extraordinary gain (loss) on extinguished debt 79,906 -- 79,906
Cumulative effect of change in accounting principle -- (20,611,526) (20,611,526)
------------ ------------ ------------
NET LOSS BEFORE PREFERRED STOCK DIVIDEND (23,556,628) (19,460,253) (43,016,881)
Accretion of dividend on preferred stock (170,514) -- (170,514)
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $(23,727,142) $(19,460,253) $(43,187,395)
============ ============ ============
Basic and diluted earnings per common share:
Loss before extraordinary item and cumulative effect of $ (2.03) $ (1.93)
change in accounting principle
Extraordinary item .01 .01
Cumulative effect of change in accounting principle -- (1.77)
------------ ------------
Net loss before preferred stock dividend (2.02) (3.69)
Accretion of dividend on preferred stock (.01) (.01)
------------ ------------
Net loss applicable to common stock $ (2.03) $ (3.70)
============ ============
Basic and diluted weighted average common shares
outstanding 11,672,434 11,672,434
============ ============
9
NOTE 2. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Atrix Laboratories, Inc., and its wholly owned subsidiaries Atrix
Laboratories Limited and Atrix Laboratories GmbH. All significant intercompany
transactions and balances have been eliminated. While the Company owns 80.1% of
Transmucosal Technologies' outstanding common stock, Elan and its subsidiaries
have retained significant minority investor rights that are considered
"participating rights" as defined in Emerging Issues Task Force Bulletin 96-16,
"Investor's Accounting for an Investee When the Investor Has a Majority of the
Voting Interest, but the Minority Shareholder or Shareholders Have Certain
Approval or Veto Rights." Accordingly, the Company accounts for its investment
in Transmucosal Technologies under the equity method of accounting.
NOTE 3. INVENTORIES
Inventories are stated at the lower of cost, determined by the
first-in, first-out (FIFO) method, or market. The inventory components at
September 30, 2001 and December 31, 2000, are as follows:
September 30, 2001 December 31, 2000
------------------ -----------------
Raw materials $ 1,835,700 $ 1,616,878
Work in process 539,659 144,723
Finished goods 392,806 179,328
------------ ------------
$ 2,768,165 $ 1,940,929
============ ============
NOTE 4. PROPERTY, PLANT, AND EQUIPMENT
The components of net property, plant and equipment are as follows:
September 30, 2001 December 31, 2000
------------------ -----------------
Land $ 1,071,018 $ 1,071,018
Building 3,651,249 3,610,068
Leasehold improvements 615,056 470,002
Furniture and fixtures 590,040 440,534
Machinery 5,821,954 5,038,815
Office equipment 1,116,766 813,317
-------------- --------------
Total property, plant and equipment 12,866,083 11,443,754
Accumulated depreciation and
amortization (5,519,854) (4,625,382)
-------------- --------------
Property, plant and equipment, net $ 7,346,229 $ 6,818,372
============== ==============
NOTE 5. NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share excludes dilution and is
computed by dividing net income (loss) by the weighted-average number of common
shares outstanding during the periods presented. Diluted net income (loss) per
common share reflects the potential dilution of securities that could
participate in the earnings. Stock options, warrants outstanding and their
equivalents are included in diluted earnings per share computations through the
"treasury stock method" unless they are antidilutive. Convertible securities are
included in diluted earnings per share computations through the "if converted"
method unless they are antidilutive. The effect of assuming conversion of the
Series A Convertible Preferred Stock is excluded from the diluted earnings per
share computations since the conversion option commences July 18, 2002.
Additionally, since the Company has not drawn any proceeds under the convertible
promissory note agreement with Elan as of September 30, 2001, there was no
effect on earnings per share computations pertaining to this convertible
promissory note for the periods presented. Common share equivalents have been
excluded from the computations in loss periods, as their effect would be
antidilutive. For the nine months ended September 30, 2001 and 2000,
approximately 1.8 million and 2.1 million equivalent dilutive securities
(primarily convertible notes and common stock options), respectively, have been
excluded from the weighted-average number of common shares outstanding for the
basic and diluted net earnings per common share computations as they are
antidilutive.
NOTE 6. CONVERTIBLE SUBORDINATED NOTES PAYABLE
During the nine months ended September 30, 2001, the Company completed
a series of private transactions involving the exchange of 1,600,089 shares of
the Company's common stock for $28,679,000, or 57% of the principal amount, of
the 7% Convertible Subordinated Notes. Of the 1,600,089 shares issued, 1,509,411
shares were valued at the conversion price of $19.00 per share and the remaining
90,678 shares were valued at the closing market price as of the various exchange
dates. As a result, the Company recognized an extraordinary loss of
approximately $292,000, for the write-off of approximately $625,000 of pro rata
unamortized deferred finance charges net of approximately $333,000 interest
expense eliminated as a result of these exchanges. Additionally, as part of the
90,678 shares of common stock which were exchanged for the 7% Convertible
Subordinated Notes at prices different than the conversion price of $19.00, debt
conversion expense of approximately $2,106,000 was recognized for the nine
months ended September 30, 2001. As of September 30, 2001 and December 31, 2000,
the outstanding principal amount of the 7% Convertible Subordinated Notes was
$7,511,000 and $36,190,000, respectively.
NOTE 7. NON-QUALIFIED STOCK OPTION GRANT
The Company's Board of Directors awarded a non-qualified stock option
to the Company's chief executive officer on August 6, 2001. The options were
fully vested on the date of the grant and expire on August 6, 2011. The Company
recognized compensation expense of $2 million for this grant in the current
period.
NOTE 8. LEGAL PROCEEDINGS
Effective as of August 24, 2001, the Company entered into an Eighth
Amendment to its agreement with Block Drug Corporation pursuant to which the
parties settled all disputes relating to the agreement and agreed to terminate
all legal proceedings between the parties relating thereto. Accordingly, under
the terms of the Eighth Amendment, each party has released the other party from
debts, damages or liabilities relating to the agreement, Block has dismissed the
pending arbitration it initiated with respect to the agreement, and the Company
has dismissed the lawsuit it filed in the U.S. District Court for the District
of Colorado in May 2001.
Under the terms of the Eighth Amendment to the Block agreement, the
Company reacquired the sales and marketing rights to its Atridox(R), Atrisorb(R)
Free Flow and Atrisorb(R) Free Flow with Doxycycline products from Block for
$7.0 million. Of this amount, $3.3 million was paid upon execution of the Eighth
Amendment to the agreement and the balance will generally be payable over a
four-year period with the amount payable each year based upon net sales of the
Atridox(R), Atrisorb(R) Free Flow and Atrisorb(R) Free Flow with Doxycycline
products and/or receipt of licensing fees for the Atridox(R), Atrisorb(R) Free
Flow and Atrisorb(R) Free Flow with Doxycycline products. In turn, Block paid
the Company $3.0 million owed for the development and FDA approval of the
Company's Atrisorb(R) Free Flow with Doxycycline product.
10
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 as well as information contained elsewhere
in this Report, contains statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements include statements
regarding the intent, belief or current expectations of us, our directors or our
officers with respect to, among other things: (i) whether we will receive, and
the timing of, regulatory approvals or clearances to market potential products;
(ii) the results of current and future clinical trials; (iii) the time and
expenses associated with the regulatory approval process for products; (iv) the
safety and effectiveness of our products and technologies; (v) the timing of new
product launches; and (vi) expected future additional equity losses for
Transmucosal Technologies. The success of our business operations is dependent
on factors such as the receipt and timing of regulatory approvals or clearances
for potential products, the effectiveness of our marketing strategies to market,
our current and any future products, our ability to manufacture products on a
commercial scale, the appeal of our mix of products, our success at entering
into and collaborating with others to conduct effective strategic alliances and
joint ventures, general competitive conditions within the biotechnology and drug
delivery industry and general economic conditions. Forward-looking statements
are not guarantees of future performance and involve risks and uncertainties.
Actual results may differ materially from those projected in the forward-looking
statements as a result of various factors, including those described below under
the heading "Risk Factors."
OVERVIEW
We are an emerging specialty pharmaceutical company focused on advanced
drug delivery. With five unique patented drug delivery technologies, we are
currently developing a diverse portfolio of products, including proprietary
oncology, pain management, growth hormone releasing peptide-1 and dermatology
products. Our drug delivery systems deliver controlled amounts of drugs in time
frames ranging from minutes to months to address a range of therapeutic and
patient needs. Atrigel is our original proprietary sustained release
biodegradable polymer drug delivery system. The Atrigel system may provide
benefits over traditional methods of drug administration such as safety and
effectiveness, wide array and ease of applications, site-specific or systemic
delivery, customized release rates and biodegradability. With the acquisition of
ViroTex Corporation in November 1998, we added four additional drug delivery
systems: BEMA, MCA, BCP and SMP.
We also partner with large pharmaceutical and biotechnology companies
to apply our proprietary technologies to new chemical entities or to extend the
patent life of existing products. We have strategic alliances with several
pharmaceutical companies including collaborations with Pfizer, Elan,
Sanofi-Synthelabo, MediGene, Faulding Pharmaceuticals, Human Genome Sciences,
Geneva Pharmaceuticals, Del Pharmaceuticals, Pharmacia & Upjohn Animal Health,
CollaGenex Pharmaceuticals, and J.B. Williams Company.
In January 2001, we acquired an exclusive option from Tulane University
Health Sciences Center to license a patented human growth hormone releasing
peptide-1 compound, or GHRP-1. Previously we focused on reformulating existing
compounds in our drug delivery technologies. GHRP-1 represents our first
chemical entity that we would acquire and develop for our own product portfolio,
rather than in conjunction with an external partner. Possible applications of
GHRP-1 include treatment of patients with AIDS or cancer, promotion of growth in
children with short stature, or prevention of muscle wasting and frailty in aged
individuals. Our intent is to deliver GHRP-1 for an extended period of time
using our patented Atrigel drug delivery system. In September 2001, we exercised
our option to license GHRP-1 from Tulane for $1,960,000. Additionally, under the
terms of the Tulane agreement, we will pay Tulane a royalty on sales of any
product that may be developed. We will fund the research and development and
perform most of the development effort.
In April 2001, we entered into an exclusive marketing agreement with
MediGene AG, a German biotechnology company, to market our Leuprogel products in
Europe. Under the terms of the agreement, valued at approximately $20 million,
we received an up-front license fee of $2 million in April 2001 and will receive
additional payments for certain clinical and regulatory matters and sales
milestones upon approval for marketing by the European Medicine Evaluation
Agency or other competent authority. The $2 million license fee from MediGene
will be recognized as revenue over the term of the agreement using the
straight-line method in accordance with the Securities and Exchange Commission's
Staff Accounting Bulletin No. 101 - Revenue Recognition in Financial Statements,
or SAB 101. Additionally, MediGene purchased shares of our common stock for
$3.78 million at a premium to the market in April 2001 as part of the agreement
and will provide the resources needed to conduct clinical research and
regulatory activities associated with seeking European marketing approvals.
In June 2001, we received $3 million from Sanofi-Synthelabo upon the
acceptance for filing by the FDA of a New Drug Application, or NDA, for our
Leuprogel One-month product. The agreement is valued at approximately $60
million, which includes a license fee, research and development support and
payments for certain clinical, regulatory and sales milestones of the Leuprogel
products upon approval for marketing by the FDA.
In August 2001, we entered into an agreement with F.H. Faulding & Co.
Limited, ABN, trading as Faulding Pharmaceuticals, for marketing rights for our
three Leupogel products in Australia and New Zealand. In accordance with the
agreement, we received an up-front license fee of $100,000 in August 2001. The
license fee will be recognized as revenue over the term of the agreement using
the straight-line method in accordance with SAB 101. The agreement includes
certain milestone payments, royalty payments on net sales, and manufacturing
margins of the Leuprogel products upon approval for marketing by the Therapeutic
Goods Administration of Australia and/or other competent authorities in
Australia and New Zealand. Additionally, Faulding will be responsible for
regulatory submission and any studies that may be necessary to gain approval
with the Australian and New Zealand authorities.
In August 2001, we also entered into an agreement with Human Genome
Sciences, Inc., a pioneer in the discovery and development of genomics-base
drugs, to develop a sustained-release formulation of a Human Genome Sciences new
proprietary protein with our Atrigel drug delivery system. Under the terms of
the agreement, Human Genome Sciences will provide funding for the project.
In August 2001, we completed a public offering of three million shares
of our common stock sold at an offering price of $23.00 per share. Additionally,
in August 2001, the underwriters of our public offering exercised their option
to purchase 450,000 additional shares of our common stock to cover
over-allotments. Net proceeds from our public offering and the subsequent
underwriters' exercise of the over-allotment option was approximately
11
$73,875,000, net of issuance costs of approximately $714,000. We anticipate
using the proceeds from this offering to broaden our technologies, supplement
our product pipeline, and further current product development efforts.
Under the terms of an amendment to the Block agreement dated August 24,
2001, we reacquired marketing rights of our dental products for $7 million, of
which $3.3 million was paid upon execution of the agreement and the balance of
the $3.7 million will generally be payable over a four-year period with the
amount payable each year based upon net sales of the dental products and/or from
receipt of licensing fees for the dental products. In conjunction with the
amendment to the Block agreement, Block paid us $3 million owed for the
September 2000 FDA approval and Block's first commercial sale obligation of
Atrisorb(R)-D, a periodontal barrier product with the antibiotic doxycycline for
gingival surgery. Finally, each party agreed to terminate all legal proceedings
against the other party relating to the Block agreement. Also during August
2001, we licensed the exclusive U.S. marketing rights for Atridox(R),
Atrisorb(R)-Free Flow and Atrisorb(R)-D to CollaGenex Pharmaceuticals, Inc.,
following the reacquisition of the sales and marketing rights from Block. Under
the terms of the CollaGenex agreement, we received an up-front licensing fee of
$1 million, and will receive a royalty on sales of the dental products, in
addition to the manufacturing margin from the production of the three products.
As part of the transaction, we purchased $3 million of CollaGenex's common stock
at a premium to the market, the proceeds of which CollaGenex will use primarily
to fund a revitalized marketing campaign for Atridox and the Atrisorb barrier
products. We anticipate that CollaGenex will commence U.S. sales of our dental
products during the fourth quarter of 2001.
In September 2001, we submitted an NDA to the FDA for our Leuprogel
Three-month product. Under the terms of our agreement with Sanofi-Synthelabo, a
$3 million milestone payment will be payable, within 30 days after the Company
gives notice to Sanofi-Synthelabo of the FDA's acceptance for filing of the NDA
for the Three-month product. We anticipate receipt of this milestone payment in
the fourth quarter of 2001. The $3 million milestone payment from Sanofi will be
recognized as revenue over the remainder of the contract using the straight-line
method in accordance with SAB 101.
Effective September 17, 2001, the Board of Directors approved a new
stock repurchase program to acquire up to $5 million of our common stock. In
September 2001, we repurchased a total of 52,500 shares of our common stock in
the open market at share prices ranging from a low of $18.06 to a high of
approximately $23.29 for a total stock repurchase value of approximately
$1,039,000.
We continued to devote significant resources during the period ended
September 30, 2001 for the research and development of our Leuprogel prostate
cancer treatment products, our Atrisone acne treatment product, and our new
GHRP-1 product. Research and development efforts with third-party partnerships,
such as Pfizer, Geneva Pharmaceuticals, and our joint venture with Elan
continued as well. We anticipate the commitment of significant resources for
research and development activities will continue throughout the fourth quarter
of 2001 for the expeditious advancement of our various products currently in
development.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2000 (RESTATED)
Total revenues for the three months ended September 30, 2001 were
approximately $3,257,000 compared to approximately $2,585,000 for the three
months ended September 30, 2000, representing a 26% increase.
Product net sales and royalty revenue were approximately $291,000
during the three months ended September 30, 2001 compared to approximately
$1,768,000 for the three months ended September 30, 2000, representing an 84%
decrease. This decrease was primarily related to our legal dispute with Block
which was settled during the third quarter 2001. As a result, no new shipments
of product to Block occurred during the three months ended September 30, 2001.
The three-month period ending September 30, 2001 also included a return of
product in the amount of approximately $317,000.
Contract research and development revenue represents revenue we
received from grants, from unaffiliated third parties and from our joint venture
with Elan for performing contract research and development activities using our
various patented drug delivery technologies. Contract research and development
revenue was approximately $1,994,000 for the three months ended September 30,
2001 compared to approximately $348,000 for the three months ended September 30,
2000. This increase is primarily related to the recognition of revenue for the
three months ended September 30, 2001 of approximately $1,258,000 for oncology
and pain management research activities with our joint venture, Transmucosal
Technologies. We entered into the joint venture contract with Elan in July of
2000 and did not recognize any joint venture related contract revenue in the
third quarter of 2000. Additionally, research activities increased approximately
$462,000 for five collaborative partners.
Licensing fees, marketing rights and milestone revenue recognized in
accordance with SAB No. 101 for the three months ended September 30, 2001 was
approximately $971,000 compared to approximately $469,000 for the three months
ended September 30, 2000, representing a 107% increase. This increase is
primarily related to the recognition of approximately $333,000 in license fee
and milestone revenue for our Leuprogel products under the Sanofi-Synthelabo and
MediGene agreements. In addition, approximately $165,000 of additional revenue
was recognized for the three months ended September 2001 due to the effects
related to the amendment of the Block agreement, (See Part II, Item 1. Legal
Proceedings) and the net effects of the CollaGenex $1 million licensing fee net
of a $500,000 reduction of deferred revenue for the additional premium paid on
the CollaGenex stock purchase. The net effects of the amendment of the Block
agreement will be recognized as revenue over the term of the amended agreement
and the licensing of marketing rights to CollaGenex will be recognized as
revenue over the term of the CollaGenex agreement using the straight-line method
in accordance with SAB No. 101.
Cost of goods sold recorded for the three months ended September 30,
2001 was approximately $113,000 compared to approximately $810,000 for the three
months ended September 30, 2000, representing an 86% decrease. This decrease in
cost of sales correlates to the decline in sales revenue.
Research and development expenses for the three months ended September
30, 2001 were approximately $7,163,000 compared to approximately $4,575,000 for
the three months ended September 30, 2000, representing a 57% increase.
Approximately $899,000 of this increase was
12
related to a progression through clinical trials of our Leuprogel prostate
cancer treatment products and the filing of an NDA for our Leuprogel Three-month
product. Approximately $536,000 is related to oncology and pain management
research activities with our joint venture, Transmucosal Technologies.
Additionally, approximately $1,032,000 of the increase was related to our
research and development activities for Atrisone, Geneva Pharmaceuticals and
GHRP-1.
Research and development - licensing fees for the three months ended
September 30, 2001 were approximately $2,445,000. This expense represents
licensing fees paid by us for Tulane's GHRP-1 of $1,960,000 and Amarillo
Biosciences' oral low-dose interferon-alpha of $485,000.
Administrative and marketing expenses for the three months ended
September 30, 2001 were approximately $1,156,000 compared to approximately
$1,058,000 for the three months ended September 30, 2000, representing a 9%
increase. This increase is primarily due to our donation of approximately
$110,000 for the American Red Cross Disaster Relief Fund to assist families of
the victims of the tragic events of September 11, 2001.
Administrative - stock option compensation for the three months ended
September 30, 2001 was $2,000,000. A $2 million non-qualified stock option was
granted for long-term compensation to our Chief Executive Officer in August
2001. The options were fully vested on the date of the grant and expire on
August 6, 2011.
We recognized a loss of approximately $1,008,000 for the three months
ended September 30, 2001 for our 80.1% equity share in the loss of Transmucosal
Technologies, our joint venture with Elan, compared to a loss of approximately
$12,035,000 for the three months ended September 30, 2000. The joint venture was
established in July 2000 and included a one-time, non-cash charge of $15,000,000
in the third quarter 2000 for an exclusive license to use Elan's nanoparticulate
drug delivery technology. We expect to record additional equity losses for
Transmucosal Technologies in the foreseeable future.
Investment income for the three months ended September 30, 2001 was
approximately $977,000 compared to approximately $523,000 for the three months
ended September 30, 2000, representing an 87% increase. The increase was
primarily the result of an increase in our average cash and cash equivalents and
our marketable securities for the three months ended September 30, 2001 compared
to the average balances for the three months ended September 30, 2000. In
January 2001, we received $8 million for a license fee and $15 million for
purchase of our common stock from Sanofi-Synthelabo. We received $2 million from
MediGene to license Leuprogel in Europe and $3.8 million for MediGene's purchase
of our common stock. In June 2001, we received $3 million from Sanofi-Synthelabo
upon acceptance for filing by the FDA of an NDA for our Leuprogel One-month
product. In August 2001, we issued a total of 3,450,000 shares of common stock
under the shelf registration statement in an underwritten public offering. We
received net proceeds of approximately $74 million in the public offering.
Interest expense for the three months ended September 30, 2001 was
approximately $157,000 compared to approximately $645,000 for the three months
ended September 30, 2000, representing a 76% decrease. The reduction in interest
expense was primarily the result of exchanging 1,600,089 shares of our common
stock for $28,679,000 of our 7% Convertible Subordinated Notes since the period
ended September 30, 2000.
We issued shares of Series A Convertible Exchangeable Preferred Stock
to Elan in July 2000 in connection with the formation of Transmucosal
Technologies. Related to this issuance, we recognized approximately $226,000 for
accretion of dividend on the Series A Preferred Stock for the three months ended
September 30, 2001 compared to approximately $171,000 for the three months ended
September 30, 2000.
For the reasons described above, we recorded a net loss applicable to
common stock of approximately $10,092,000, or $.59 per share, for the three
months ended September 30, 2001 compared to a net loss applicable to common
stock of approximately $16,098,000, or $1.33 per share, for the three months
ended September 30, 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 2000 (RESTATED)
Total revenues for the nine months ended September 30, 2001 were
approximately $10,775,000 compared to approximately $7,102,000 for the nine
months ended September 30, 2000, representing a 52% increase.
Product net sales and royalty revenue were approximately $2,867,000
during the nine months ended September 30, 2001 compared to approximately
$4,588,000 for the nine months ended September 30, 2000, representing a 38%
decrease. This decrease was primarily related to the settlement of our legal
dispute with Block during the third quarter 2001. As a result, no new shipments
of product occurred during the three months ended September 30, 2001 and the
period also included a return of product in the amount of approximately
$317,000. Additionally, we experienced a decrease of approximately $239,000 for
our Doxirobe periodontal disease treatment product and a reduction in sales of
approximately $496,000 in our contract manufacturing business.
Contract research and development revenue represents revenue we
received from grants, from unaffiliated third parties and from our joint venture
with Elan for performing contract research and development activities using our
various patented drug delivery technologies. Contract research and development
revenue was approximately $5,427,000 for the nine months ended September 30,
2001 compared to approximately $1,108,000 for the nine months ended September
30, 2000. This increase is primarily related to the recognition of revenue of
approximately $3,142,000 for oncology and pain management research activities
with our joint venture, Transmucosal Technologies. Additionally, research
activities increased approximately $1,303,000 for five collaborative partners.
Licensing, marketing rights and milestone revenue recognized in
accordance with SAB No. 101 for the nine months ended September 30, 2001 was
approximately $2,480,000 compared to approximately $1,406,000 for the nine
months ended September 30, 2000, representing a 76% increase. This increase is
primarily related to the recognition of approximately $828,000 in license fee
and milestone revenue for our Leuprogel products under the Sanofi-Synthelabo
December 2000 and MediGene April 2001 agreements. In addition, approximately
$165,000 of additional revenue was recognized for the three months ended
September 2001 due to the effects related to the amendment of the Block
agreement, (See Part II, Item 1. Legal Proceedings) and the net effects of the
CollaGenex $1 million licensing fee and a $500,000 reduction of deferred revenue
for the additional premium paid on the CollaGenex stock purchase. The net
effects of the amendment of the Block agreement will be recognized as revenue
over the term of the amended agreement
13
and the transfer of marketing rights to CollaGenex will be recognized as revenue
over the term of the CollaGenex agreement using the straight-line method in
accordance with SAB No. 101.
Cost of goods sold recorded for the nine months ended September 30,
2001 was approximately $1,153,000 compared to approximately $1,933,000 for the
nine months ended September 30, 2000, representing a 40% decrease. This decrease
in cost of sales correlates to the decline in sales revenue.
Research and development expenses for the nine months ended September
30, 2001 were approximately $19,727,000 compared to approximately $11,905,000
for the nine months ended September 30, 2000, representing a 66% increase.
Approximately $3,737,000 of this increase was due to the rapid development
progress in our Leuprogel for prostate cancer treatment products and the NDA
filings of our Leuprogel One-month and Three-month products. Approximately
$1,306,000 of the increase is related to oncology and pain management research
activities with our joint venture, Transmucosal Technologies. Additionally,
approximately $2,767,000 of the increase was related to our research and
development activities for Atrisone, Geneva Pharmaceuticals and GHRP-1.
Research and development - licensing fees for the nine months ended
September 30, 2001 was approximately $2,985,000. This expense represents
licensing fees paid by us of $2,500,000 to Tulane for GHRP-1 and $485,000 to
Amarillo BioSciences for oral low-dose interferon-alpha.
Administrative and marketing expenses for the nine months ended
September 30, 2001 were approximately $3,741,000 compared to approximately
$3,271,000 for the nine months ended September 30, 2000, representing a 14%
increase. The increase was primarily related to an increase in legal expenses
associated with general business planning and activities, including fees for
patent/trademark searches and the Block dispute settlement. See Part II, Item 1
Legal Proceedings. Additionally, approximately $110,000 of the increase was due
to our donation for the American Red Cross Disaster Relief Fund to assist
families of the victims of the tragic events of September 11, 2001.
Administrative - stock option compensation for the nine months ended
September 30, 2001 was $2,117,000. The increase was primarily due to a $2
million non-qualified stock option grant to our Chief Executive Officer in
August 2001. The options were fully vested on the date of the grant and expire
on August 6, 2011. The remaining increase related to non-qualified stock options
granted to a non-employee for services rendered.
We recognized a loss of approximately $2,524,000 for the nine months
ended September 30, 2001 for our 80.1% equity share in the loss of Transmucosal
Technologies, our joint venture with Elan, compared to approximately $12,035,000
for the nine months ended September 30, 2000. The joint venture was established
in July 2000 and recorded a one-time, non-cash charge of $15,000,000 in the
third quarter 2000 for an exclusive license to use Elan's nanoparticulate drug
delivery technology. We expect to record additional equity losses for
Transmucosal Technologies in the foreseeable future.
Investment income for the nine months ended September 30, 2001 was
approximately $2,433,000 compared to approximately $1,411,000 for the nine
months ended September 30, 2000, representing a 72% increase. The increase was
primarily the result of an increase in our average cash and cash equivalents and
our marketable securities for the nine months ended September 30, 2001 compared
to the average balances for the nine months ended September 30, 2000. In January
2001, we received $8 million for a license fee and $15 million for purchase of
our common stock from Sanofi-Synthelabo in conjunction with the December 2000
agreement. We received $2 million from MediGene to license Leuprogel in Europe
and $3.8 million for MediGene's purchase of our common stock in conjunction with
the April 2001 agreement. In June 2001, we received $3 million from
Sanofi-Synthelabo upon the acceptance for filing by the FDA of an NDA for our
Leuprogel One-month product. In August 2001, we issued a total of 3,450,000
shares of common stock under the shelf registration statement in an underwritten
public offering. We received net proceeds of approximately $74 million in the
public offering.
Interest expense for the nine months ended September 30, 2001 was
approximately $648,000 compared to approximately $1,941,000 for the nine months
ended September 30, 2000, representing a 67% decrease. The reduction in interest
expense was primarily the result of the exchange of shares of our common stock
for $28,679,000 in principal amount of our 7% Convertible Subordinated Notes
since the period ended September 30, 2000.
During the nine months ended September 30, 2001, we completed a series
of private transactions involving the exchange of 1,600,089 shares of our common
stock for $28,679,000, or 57% of the principal amount of the 7% Convertible
Subordinated Notes. Of the 1,600,089 shares issued, 1,509,411 shares were valued
at the conversion price of $19.00 per share and the remaining 90,678 shares were
valued at the closing market price as of the various exchange dates. As a
result, we recognized an extraordinary loss of approximately $292,000, for the
write-off of approximately $625,000 of pro rata unamortized deferred finance
charges net of approximately $333,000 interest expense eliminated as a result of
these exchanges. Additionally, part of the 90,678 shares were exchanged for our
7% Convertible Subordinated Notes at prices different than the conversion price
of $19.00, which resulted in debt conversion expense of approximately $2,106,000
for the nine months ended September 30, 2001. During the nine months ended
September 30, 2000, we repurchased a total of $500,000, or 1% of the offering
amount, of the 7% Convertible Subordinated Notes for approximately $415,000,
which included approximately $7,000 accrued interest paid. As a result, we
recognized an extraordinary gain of approximately $80,000, net of deferred
finance charges. As of September 30, 2001 and December 31, 2000, the 7%
Convertible Subordinated Notes payable balance was $7,511,000 and $36,190,000,
respectively.
Effective in the fiscal fourth quarter of 2000, we changed our method
of accounting for nonrefundable technology access fees and milestone payments to
recognize such payments as revenue over the term of the related agreements. The
change in accounting principle is based on guidance provided in SAB No. 101.
Previously, we recognized $24,100,000 for nonrefundable technology access fees
and milestone payments as revenue when received and when we fulfilled all
contractual obligations relating to the fees and milestone payments. We recorded
approximately $20,612,000 cumulative effect for this change in accounting
principle that was reported as a charge in the first quarter of 2000.
We issued shares of our Series A Convertible Exchangeable Preferred
Stock to Elan in July 2000 in connection with the formation of Transmucosal
Technologies. Related to this issuance, we recognized approximately $656,000 for
accretion of dividend on the Series A Preferred Stock for the nine months ended
September 30, 2001 compared to approximately $171,000 for the nine months ended
September 30, 2000.
14
For the reasons described above, we recorded a net loss applicable to
common stock of approximately $22,761,000, or $1.47 per share, for the nine
months ended September 30, 2001 compared to a net loss applicable to common
stock of approximately $43,187,000, or $3.70 per share, for the nine months
ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, we had cash and cash equivalents of
approximately $42,597,000, marketable securities (at fair market value) of
approximately $82,063,000 and other current assets of approximately $8,739,000
for total current assets of approximately $133,399,000. Current liabilities
totaled approximately $11,958,000, which resulted in working capital of
approximately $121,441,000.
In July 2000, Elan and our company formed Transmucosal Technologies, a
joint venture to develop and commercialize oncology and pain management
products. Subject to the satisfaction of certain conditions, Elan has agreed to
loan us up to $8,010,000 under a convertible promissory note agreement in
support of our 80.1% share of the joint venture's research and development
costs. The note has a six-year term, will accrue interest at 7% per annum,
compounded semi-annually and added to principal, and is convertible at Elan's
option into our common stock at a $14.60 conversion price. The note also allows
us to convert this debt into our common stock at the prevailing market price at
maturity. As of September 30, 2001, we had not drawn any amounts under the note.
During the nine months ended September 30, 2001, net cash used in
operating activities was approximately $2,581,000. This was primarily the result
of the net loss applicable to common stock for the period of approximately
$22,761,000, adjusted for certain non-cash expenses, and changes in operating
assets and liabilities as set forth in the consolidated statements of cash
flows. We received an $8 million license fee from Sanofi-Synthelabo in January
2001 for payment of the December 2000 Note Receivable - License Fee.
Additionally, we recognized non-cash charges for debt conversion expense of
approximately $2,106,000 and approximately $292,000 as an extraordinary loss on
extinguished debt during the nine months ended September 30, 2001 for the
exchange of 1,600,089 shares of our common stock to extinguish approximately
$28,679,000 of our 7% Convertible Subordinated Notes. A non-cash charge of $2
million was recognized in the third quarter of 2001 for the grant of
non-qualified stock option to our Chief Executive Officer. The increase of
approximately $4,620,000 for deferred revenue included a $1 million payment from
Block in February 2001 for an Atridox sales milestone payment, a $3 million
payment in June 2001 from Sanofi-Synthelabo for our Leuprogel One-month NDA
filing and a $2 million payment in April 2001 from MediGene for exclusive
marketing rights in Europe of our Leuprogel product.
Net cash used in investing activities was approximately $53,734,000
during the nine months ended September 30, 2001, primarily as a result of
investing a portion of the net proceeds from our public stock offering in the
third quarter of 2001 in marketable securities.
Net cash provided by financing activities was approximately $94,474,000
during the nine months ended September 30, 2001. In the third quarter of 2001,
we completed our public stock offering that resulted in a net increase in
financing funds of approximately $73,875,000. We received $15 million from
Sanofi-Synthelabo in January 2001 for payment pertaining to Sanofi's common
stock purchase in conjunction with the December 2000 collaboration, license and
supply agreement. We received $3.8 million from MediGene for the issuance of our
common stock in conjunction with the stock purchase agreement in April 2001.
Additionally, approximately $2,510,000 was received for the issuance of common
stock related to employee stock options. Effective September 17, 2001, our Board
of Directors approved a new stock repurchase program to acquire up to $5 million
of our common stock. In September 2001, we repurchased a total of 52,500 shares
of our common stock in the open market at share prices ranging from a low of
$18.06 to a high of approximately $23.29 for a total stock repurchase value of
approximately $1,039,000.
In February 2001, we filed a shelf registration statement on Form S-3
with Securities and Exchange Commission registering 4,000,000 shares of our
common stock for future issuance. The registration statement was declared
effective by the SEC in June 2001. In August 2001, we issued a total of
3,450,000 shares of common stock under the shelf registration statement in an
underwritten public offering. We received net proceeds of approximately
$73,875,000 in the public offering, net of issuance costs of approximately
$714,000. There were 550,000 shares available for issuance under the shelf
registration as of September 30, 2001.
Our long-term capital expenditure requirements will depend on numerous
factors, including:
o the progress of our research and development
programs,
o the time required to file and process regulatory
approval applications,
o the development of our commercial manufacturing
facilities,
o our ability to obtain additional licensing
arrangements, and
o the demand for our products.
We expect to continue to incur substantial expenditures for research
and development, testing, regulatory compliance, market development in European
countries, possible repurchases of our notes or common stock and to hire
additional management, scientific, manufacturing and administrative personnel.
We will also continue to expend a significant amount of funds in our ongoing
clinical studies. Depending on the results of our research and development
activities, we may determine to accelerate or expand our efforts in one or more
proposed areas and may, therefore, require additional funds earlier than
previously anticipated. Management believes that the existing cash and cash
equivalent assets in addition to marketable security resources will be
sufficient to fund our operations for the foreseeable future. However, we cannot
assure you that underlying assumed levels of revenue and expense will prove
accurate.
15
RECENT ACCOUNTING PRONOUNCEMENTS
Effective in the fiscal fourth quarter of 2000, we changed our method
of accounting for nonrefundable technology access fees and milestone payments to
recognize such payments as revenue over the term of the related agreements. The
change in accounting principle is based on guidance provided in the Securities
and Exchange Commission's Staff Accounting Bulletin No. 101 - Revenue
Recognition in Financial Statements. Previously, we recognized $24,100,000 for
nonrefundable technology access fees and milestone payments as revenue when
received and when we fulfilled all contractual obligations relating to the fees
and milestone payments. We recorded approximately $20,612,000 cumulative effect
for this change in accounting principle that was reported as a charge in the
year ended December 31, 2000. The cumulative effect was recorded as deferred
revenue that will be recognized as revenue over the remaining contractual terms
for each of the specific agreements. During the year ended December 31, 2000,
the impact of the change in accounting principle increased net loss applicable
to common stock by approximately $18,734,000, or $1.58 per share. This amount is
comprised of approximately $20,612,000, or $1.73 per share, cumulative effect of
the change as described above, net of approximately $1,878,000, or $0.16 per
share, recognized as revenue during the year ended December 31, 2000.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued which, as amended, was effective for all fiscal
years beginning after June 15, 1999. SFAS No. 133 provides new standards for the
identification, recognition and measurement of derivative financial instruments,
including embedded derivatives. Historically, we have not entered into
derivative contracts to hedge existing risks nor have we entered into
speculative derivative contracts. Although our convertible debt and preferred
stock include conversion features that are considered to be embedded
derivatives, accounting for those instruments is not affected by SFAS No. 133.
The adoption of SFAS No. 133 on January 1, 2001 did not result in a transition
adjustment in the financial statements.
On June 29, 2001, Statement of Financial Accounting Standards (SFAS)
No. 141, "Business Combinations" was issued by the Financial Accounting
Standards Board (FASB). SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Goodwill and certain intangible assets will remain on the balance sheet and not
be amortized. On an annual basis, and when there is reason to suspect that their
values have been diminished or impaired, these assets must be tested for
impairment, and write-downs may be necessary. The Company adopted SFAS No. 141
on July 1, 2001. The adoption of this statement did not have an impact on the
Company's consolidated financial position or results of operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was issued by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January 1, 2002 and it has not determined the impact, if any, that this
statement will have on its consolidated financial position or results of
operations.
In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued by the FASB. SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," for the disposal of a
segment of business. This statement also amends Accounting Research Bulletin No.
51, "Consolidated Financial Statements," to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary, SFAS
No. 144 retains the requirements of SFAS No. 121 to recognize an impairment loss
when the carrying amount of a long-lived asset is not recoverable and provides
for alternative cash flow measurement methods when more than one course of
action is available for the recovery of the carrying amount of the asset. SFAS
No. 144 also removes goodwill from its scope. The Company is required to adopt
SFAS No 144 on January 1, 2002 and it has not determined the impact, if any,
that this statement will have on its consolidated financial position or results
of operations.
RISK FACTORS
In addition to the other information contained in this Report, we
caution stockholders and potential investors that the following important
factors, among others, in some cases have affected, and in the future could
affect, our actual results of operations and could cause our actual results to
differ materially from those expressed in any forward-looking statements made by
or on behalf of our company. The following information is not intended to limit
in any way the characterization of other statements or information under other
captions as cautionary statements for such purpose. These factors include:
o Delay, difficulty, or failure in obtaining regulatory approval
or clearance to market additional products, including delays
or difficulties in development because of insufficient proof
of safety or efficacy.
o Substantial manufacturing and marketing expenses to be
incurred in the commercial launch of the Atridox and Atrisorb
products and commercializing future products.
o Failure of corporate partners to develop or commercialize
successfully our products or to retain and expand markets
served by the commercial collaborations; conflicts of
interest, priorities, and commercial strategies that may arise
between our company and such corporate partners.
o Our limited experience in the sale and marketing of our
products; dependence on CollaGenex to establish effective
marketing, sales and distribution capabilities for the
Atridox, Atrisorb GTR Barrier, and Atrisorb-Doxy products in
the US. Failure to internally develop marketing channels for
the Atrisorb GTR Barrier, Atrisorb-Doxy and Atridox products
in Europe.
o The ability to obtain, maintain and protect intellectual
property rights, and the cost of acquiring in-process
technology and other intellectual property rights, either by
license, collaboration or purchase of another entity.
16
o Limited experience in manufacturing products on a commercial
scale, failure to manufacture present and future products in
compliance with applicable regulations and at an acceptable
cost.
o Product liability or other claims against us which may result
in substantial damages or reduce demand for our products.
o Cancellation or termination of material collaborative
agreements and the resulting loss of research or other
funding, or marketing, sales and distribution capabilities.
o Access to the pharmaceutical compounds necessary to
successfully commercialize the Atrigel system, Atridox and
Atrisorb products or other products and delivery systems
currently in development.
o Competitive or market factors that may limit the use or broad
acceptance of our products.
o The ability to attract and retain highly qualified management
and scientific personnel.
o Difficulties or high costs of obtaining adequate financing to
fund future research, development and commercialization of
products.
o The slow rate of acceptance of new products.
o The continued growth and market acceptance of our products and
our ability to develop and commercialize new products in a
timely and cost-effective manner.
o Exchange rate fluctuations that may adversely impact net
income (loss).
o Our ability to enter into strategic alliances or collaborative
arrangements with third parties to market and commercialize
our products on favorable terms, if at all.
o The requirement that we must receive separate regulatory
approval for each of our product candidates in each indication
before we can sell them in North America or internationally.
o Our ability to successfully acquire and integrate technologies
and businesses.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES CONCERNING MARKET RISKS.
We own financial instruments that are sensitive to market risks as part
of our investment portfolio of cash equivalents and marketable securities. The
investment portfolio is used to preserve our capital until it is required to
fund operations, including our research and development activities. None of
these market-risk sensitive instruments are held for trading purposes. We do not
own derivative financial instruments in our investment portfolio. Due to the
nature of our investment portfolio, the investment portfolio contains
instruments that are primarily subject to interest rate risk. Our 7% Convertible
Subordinated Notes are also subject to interest rate and equity price risks.
Interest Rate Risk. Our investment portfolio includes fixed rate debt
instruments that are primarily United States government and agency bonds and
corporate notes with maturity dates ranging from one to fifteen years. To
mitigate the impact of fluctuations in cash flow, we maintain substantially all
of our debt instruments as fixed rate. The market value of these bonds is
subject to interest rate risk and could decline in value if interest rates
increase. The portion maintained as fixed rate is dependent on many factors
including judgments as to future trends in interest rates.
Our investment portfolio also includes equity interests in United
States government and agency bond mutual funds. The value of these equity
interests is also subject to interest rate risk.
We regularly assess the above described market risks and have
established policies and business practices to protect against the adverse
effects of these and other potential exposures. Our investment policy restricts
investments to U.S. Government or government backed securities, or high rated
commercial paper and other high rated investments only. As a result, we do not
anticipate any material credit losses in these areas.
For disclosure purposes, we use sensitivity analysis to determine the
impacts that market risk exposures may have on the fair values of our debt and
financial instruments. The financial instruments included in the sensitivity
analysis consist of all of our cash and cash equivalents and short-term and
long-term debt instruments.
To perform a sensitivity analysis, we assess the risk of loss in fair
values from the impact of hypothetical changes in interest rates on market
sensitive instruments. The fair values are computed based on the present value
of future cash flows as impacted by the changes in the rates attributable to the
market risk being measured. The discount rates used for the present value
computations were selected based on market interest rates in effect at September
30, 2001. The fair values that result from these computations are compared with
the fair values of these financial instruments at September 30, 2001. The
differences in this comparison are the hypothetical gains or losses associated
with each type of risk. The results of the sensitivity analysis at September 30,
2001 are as follows:
Interest Rate Sensitivity: A 10% decrease in the levels of interest
rates with all other variables held constant would result in an
increase in the fair value of our financial instruments by
approximately $517,000 per year. A 10% increase in the levels of
interest rates with all other variables held constant would result in a
decrease in the fair value of our financial instruments by
approximately $517,000 per year. We maintain a portion of our financial
instruments, including long-term debt instruments of approximately
$11,025,000 at September 30, 2001, at
17
variable interest rates. If interest rates were to increase or decrease
10%, the impact of such instruments on cash flows or earnings would not
be material.
The use of a 10% estimate is strictly for estimation and evaluation
purposes only. The value of our assets may rise or fall by a greater amount
depending on actual general market performances and the value of individual
securities we own.
The market price of our 7% Convertible Subordinated Notes generally
changes in parallel with the market price of our common stock. When our stock
price increases, the price of these notes generally increases proportionally.
Fair market price of the notes can be determined from quoted market prices,
where available. The fair value of our long-term debt was estimated to be
approximately $9,285,000 at September 30, 2001 and is higher than the carrying
value by approximately $1,774,000. Market risk was estimated as the potential
decrease in fair value resulting from a hypothetical 1% increase in our weighted
average long-term borrowing rate and a 1% decrease in quoted market prices, or
approximately $150,000.
Exchange Rate Risk. We face foreign exchange rate fluctuations,
primarily with respect to the British Pound and the Euro, as the financial
results of our foreign subsidiaries are translated into United States dollars
for consolidation. As exchange rates vary, these results, when translated may
vary from expectations and adversely impact net income (loss) and overall
profitability. The effect of foreign exchange rate fluctuation for the period
ended September 30, 2001 was not material. Based on our overall foreign currency
rate exposure at September 30, 2001, we do not believe that a hypothetical 10%
change in foreign currency rates would materially affect our financial position.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Effective as of August 24, 2001, we entered into an Eighth Amendment to
our agreement with Block Drug Corporation pursuant to which the parties settled
all disputes relating to the agreement and agreed to terminate all legal
proceedings between the parties relating thereto. Accordingly, under the terms
of the Eighth Amendment, each party has released the other party from debts,
damages or liabilities relating to the agreement, Block has dismissed the
pending arbitration it initiated with respect to the agreement, and we have
dismissed the lawsuit we filed in the U.S. District Court for the District of
Colorado in May 2001.
Under the terms of the Eighth Amendment to the Block agreement, we
reacquired the sales and marketing rights to our Atridox(R), Atrisorb(R) Free
Flow and Atrisorb(R) Free Flow with Doxycycline products from Block for $7.0
million. Of this amount, $3.3 million was paid upon execution of the Eighth
Amendment to the agreement and the balance will generally be payable over a
four-year period with the amount payable each year based upon net sales of the
Atridox(R), Atrisorb(R) Free Flow and Atrisorb(R) Free Flow with Doxycycline
products and/or receipt of licensing fees for the Atridox(R), Atrisorb(R) Free
Flow and Atrisorb(R) Free Flow with Doxycycline products. In turn, Block paid us
$3.0 million owed for the development and FDA approval of our Atrisorb(R) Free
Flow with Doxycycline product.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
For the nine months ended September 30, 2001, we completed a series of
private transactions involving the exchange of 1,600,089 shares of common stock
for $28,679,000, or 57% of the principal amount, of the 7% Convertible
Subordinated Notes. Of the 1,600,089 shares of common stock issued, 1,509,411
shares were valued at the conversion price of $19.00 per share and the remaining
90,678 shares were valued at the closing market price as of the various exchange
dates. Because these transactions constituted an exchange of securities by us
exclusively with existing security holders, where no commission or other
remuneration was paid or given for soliciting such exchange, the transactions
were exempt from registration under the Securities Act of 1933 under Section
3(a)(9) of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.01* Eighth Amendment to Agreement by and between Atrix
Laboratories, Inc. and Block Drug Corporation, dated as of
August 24, 2001.
10.02* License Agreement by and between Atrix Laboratories, Inc. and
CollaGenex Pharmaceuticals, Inc., dated as of August 24, 2001.
10.03* Stock Purchase Agreement by and between Atrix Laboratories,
Inc. and CollaGenex Pharmaceuticals, Inc., dated as of August
24, 2001.
10.04* Collaboration, License and Supply Agreement by and between
Atrix Laboratories, Inc. and Fujisawa Healthcare, Inc., dated
October 15, 2001.
----------
*Confidential treatment requested
(b) Reports on Form 8-K: We filed the following Current Reports on Form
8-K during the quarter ended September 30, 2001:
o Current Report on Form 8-K dated April 4, 2001, filed with the
Securities and Exchange Commission on June 20, 2001, under
Item 5. Other Events, and Item 7. Exhibits.
o Current Report on Form 8-K dated August 8, 2001, filed with
the Securities and Exchange Commission on August 10, 2001,
under Item 5. Other Events, and Item 7. Exhibits.
18
o Current Report on Form 8-K dated August 24, 2001, filed with
the Securities and Exchange Commission on August 27, 2001,
under Item 5. Other Events, and Item 7. Exhibits.
19
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.
ATRIX LABORATORIES, INC.
(Registrant)
October 29, 2001 By: /s/ David R. Bethune
----------------------------------------
David R. Bethune
Chairman of the Board of Directors and
Chief Executive Officer
October 29, 2001 By: /s/ Brian G. Richmond
----------------------------------------
Brian G. Richmond
Chief Financial Officer and Assistant
Secretary
20
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.01* Eighth Amendment to Agreement by and between Atrix
Laboratories, Inc. and Block Drug Corporation, dated as
of August 24, 2001.
10.02* License Agreement by and between Atrix Laboratories,
Inc. and CollaGenex Pharmaceuticals, Inc., dated as of
August 24, 2001.
10.03* Stock Purchase Agreement by and between Atrix
Laboratories, Inc. and CollaGenex Pharmaceuticals,
Inc., dated as of August 24, 2001.
10.04* Collaboration, License and Supply Agreement by and
between Atrix Laboratories, Inc. and Fujisawa
Healthcare, Inc., dated October 15, 2001.
----------
*Confidential Treatment Requested
21