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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to .
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Commission file number 0-18549
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SICOR INC.
(formerly named Gensia Sicor Inc.)
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(Exact name of registrant as
specified in its charter)
Delaware 33-0176647
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19 Hughes
Irvine, California 92618
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(Address of principal executive offices and zip code)
(949) 455-4700
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
Preferred Stock Purchase Rights, Par Value $.01
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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At March 15, 2000, the aggregate market value of the voting stock held by
nonaffiliates totaled approximately $556.8 million, based on the last sale price
as reported on the Nasdaq National Market.
At March 15, 2000, there were 90,281,443 shares of common stock, $.01 par value,
of the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(To the extent indicated herein)
The registrant's definitive proxy statement filed in connection with
solicitation of proxies for its Annual Meeting of Stockholders to be held on
June 27, 2000 is incorporated by reference into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL
SICOR Inc. (formerly Gensia Sicor Inc.) ("SICOR" or the "Company") is a
vertically integrated pharmaceutical company with expertise in the development,
manufacture and marketing of injectable pharmaceuticals and the production of
specialty bulk drug substances utilizing synthesis or fermentation. On February
28, 1997, the Company completed the acquisition of Rakepoll Holding B.V.
("Rakepoll Holding") from Rakepoll Finance N.V. ("Rakepoll Finance"). Rakepoll
Holding is the parent company of three specialty pharmaceutical businesses:
SICOR-Societa Italiana Corticosteroidi S.p.A. ("Sicor S.p.A.") of Milan, Italy,
and two companies located in Mexico: Lemery, S.A. de C.V. ("Lemery") and Sicor
de Mexico, S.A. de C.V. ("Sicor de Mexico"). In addition, in December 1997,
Sicor S.p.A. purchased a 50% equity interest in Diaspa S.p.A. ("Diaspa"), an
Italian company engaged in the manufacture of certain raw materials used in
Sicor S.p.A.'s business. In June 1998, Sicor S.p.A. purchased the remaining 50%
of Diaspa. During the second quarter of 1999, the Company divested a 46%
interest in Metabasis Therapeutics, Inc. ("Metabasis"), a proprietary research
and development subsidiary. The Company is headquartered in Irvine, California.
Gensia Sicor Pharmaceuticals, Inc. ("Gensia Sicor Pharmaceuticals") is a
wholly-owned subsidiary of the Company located in Irvine, California. Prior to
the acquisition of Rakepoll Holding, Gensia Sicor Pharmaceuticals was the
Company's primary operating unit. Gensia Sicor Pharmaceuticals' business
emphasis has been on the development, manufacture and marketing of oncology,
anesthesiology and other key multisource injectable pharmaceuticals for the
North American market. Gensia Sicor Pharmaceuticals is currently engaged in
discussions with other pharmaceutical companies in an effort to expand its
product offerings to both domestic and foreign markets. In addition, Gensia
Sicor Pharmaceuticals provides contract manufacturing support and services to a
number of pharmaceutical and biotechnology companies.
Sicor S.p.A. and Sicor de Mexico produce specialty bulk drug substances.
Lemery manufactures oral and injectable finished multisource drug products. The
specialty drug substances produced by Sicor S.p.A. and Sicor de Mexico are
primarily used in oral, parenteral, topical and inhalation therapy products.
Almost all of these products belong to one of four categories: (i)
immunosuppression, (ii) anticancer agents, (iii) steroids or (iv)
non-depolarizing muscle relaxants used in anesthesia. The principal markets for
Sicor S.p.A.'s and Sicor de Mexico's specialty bulk drug substances are the
U.S., Canada, the European Union ("EU") and Japan. The finished multisource drug
products manufactured by Lemery are sold primarily to the national health
program in Mexico and to certain countries in Central and South America, North
Africa, the Middle East and Eastern Europe.
Genchem Pharma Ltd. ("Genchem Pharma") is a wholly-owned subsidiary of
the Company created in June 1997 to acquire and develop technology and to
sell bulk products manufactured by Sicor S.p.A. and Sicor de Mexico. In March
1998, Genchem Pharma acquired a research and development branch ("Genchem
Vacallo") in Vacallo, Switzerland. Genchem Vacallo conducts research and
development with respect to specialty bulk drug substances.
Gensia Sicor de Mexico, S.A. de C.V. is a wholly-owned subsidiary of
Rakepoll Holding with approximately 20 employees located in Mexico that provides
administrative services for Lemery and Sicor de Mexico. This service company
enables Lemery and Sicor de Mexico to utilize common administrative services,
thus avoiding duplication of resources.
In 1998, Sicor S.p.A. acquired a 50% interest in Zetesis S.p.A.
("Zetesis") of Milan, Italy from private investors. Zetesis holds the patents
relating to UK101, an oncological product under development.
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UNITED STATES PHARMACEUTICAL OPERATIONS
GENSIA SICOR PHARMACEUTICALS
Gensia Sicor Pharmaceuticals has broad capabilities in the formulation,
development, marketing and manufacturing of multisource injectable
pharmaceuticals. Since 1991, Gensia Sicor Pharmaceuticals has built a sales
and marketing infrastructure which covers the major hospital and non-hospital
markets in the United States, focusing its sales calls on hospital pharmacies
and distributors servicing alternate site providers such as oncology clinics
and outpatient surgery centers. As collective purchasing agreements have
become increasingly important to healthcare providers as a means to control
costs, Gensia Sicor Pharmaceuticals' marketing group has established
relationships with hospital group purchasing organizations, managed care
groups and other large healthcare purchasing organizations.
One area of particular focus for the Company is the development of
products for the worldwide oncology market. In support of this strategy,
Gensia Sicor Pharmaceuticals has built an oncology manufacturing facility at
Irvine, California. The United States Food and Drug Administration ("FDA")
has recently approved several new Abbreviated New Drug Applications ("ANDAs")
for new oncology products, and manufacturing site transfers for existing
oncology products, which will be manufactured in this facility. This facility
is also being used for contract manufacturing opportunities that require the
sophisticated and specialized compounding and filling capability incorporated
into the facility. Gensia Sicor Pharmaceuticals markets two oncology
products, doxorubicin and etoposide, in the United States that are
manufactured in polymer vials by Delta West Pty. Limited, a wholly-owned
subsidiary of Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn") under FDA
approved ANDAs owned by the Company.
Gensia Sicor Pharmaceuticals is developing additional oncology products
for sale through distributors and marketing partners. Gensia Sicor
Pharmaceuticals does not intend to establish a sales force outside of North
America. The Company intends to have Sicor S.p.A. supply the bulk drug
substances required for a number of the oncology products under development. The
Company believes that through its vertical integration of bulk drug substances
and finished product manufacturing, it can be one of the lowest cost producers
in the multisource oncology market.
In addition, product development is continuing for multisource
injectable drugs in anesthesiology and critical care as well as other
selected areas. Gensia Sicor Pharmaceuticals has fifteen ANDAs pending with
the FDA and has approximately 44 multisource products under development. The
Company believes that this investment in product development may position
Gensia Sicor Pharmaceuticals for growth over the next five years when a
number of major injectable drugs will lose patent protection. There is no
assurance that such growth will occur.
Gensia Sicor Pharmaceuticals' major injectable pharmaceutical products
include alprostadil, atracurium, bumetanide, dacarbazine, desmopressin,
diltiazem, dipyridamole, doxorubicin, etoposide, fluphenazine, haloperidol,
hydralazine, leucovorin calcium, metoclopromide, propofol, and tobramycin.
Gensia Sicor Pharmaceuticals offers approximately 40 multisource pharmaceuticals
in its product line.
Gensia Sicor Pharmaceuticals also operates a contract manufacturing
business focused on the manufacture of sterile injectable products for
biotechnology and pharmaceutical companies. The Company offers a range of
manufacturing services, including production of pilot and commercial
quantities of bulk materials, formulation development, and commercial scale
manufacturing of finished dosage forms. The contract manufacturing business
has experienced growth since 1995, and the Company believes additional growth
may be attained by expanding its collaborations with biotechnology and
pharmaceutical companies. There is no assurance that such growth will be
sustained.
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Gensia Sicor Pharmaceuticals entered into a Sales and Distribution
agreement with Abbott Laboratories ("Abbott") in January 1999, under which
the two companies formed a strategic alliance for marketing and distribution
of oncology products in the United States. This seven-year collaboration
currently includes ten of the Company's oncology products (including
doxorubicin and leucovorin calcium) and will expand in the future to include
certain of Gensia Sicor Pharmaceuticals' oncology products under development.
Under the agreement, Gensia Sicor Pharmaceuticals develops and manufactures
oncology products, and Abbott promotes and sells them to hospitals and
clinics throughout the United States. Abbott has a well established market
presence with hospitals and clinics, and had previously co-marketed oncology
products with Pharmacia & Upjohn through November 1998. Gensia Sicor
Pharmaceuticals' oncology product sales during 1999 were approximately $23.5
million.
In January 1999, Gensia Sicor Pharmaceuticals received approval from
the FDA for propofol injectable emulsion, an intravenous sedative hypnotic
agent used for the induction and maintenance of anesthesia or sedation.
Pursuant to the Drug Price Competition and Patent Term Restoration Act of
1984 (the "Waxman/Hatch Act"), the Company was granted 180 days of marketing
exclusivity in which to sell propofol without other generic competition. The
180-day exclusivity period commenced in the second quarter of 1999 with the
commercial launch of propofol and expired on October 15, 1999. The propofol
product manufactured by Gensia Sicor Pharmaceuticals currently remains as the
only generic propofol product on the U.S. market, although there can be no
assurance that other generic competitors will not enter the U.S. market at
any time. The Company's propofol product is being sold in the U.S. through
Baxter Pharmaceutical Products, Inc. ("Baxter"), which is the Company's
marketing partner for a variety of products in the U.S. The U.S. propofol
market in 1999 was estimated by the IMS market research firm to have sales of
$363.7 million. The branded propofol product, DIPRIVAN-Registered Trademark-
Injectable Emulsion with disodium edetate, is marketed by AstraZeneca PLC
(formerly Zeneca Limited) ("AstraZeneca"). Propofol has been a key
contributor to the Company's profitability in 1999. As of the fourth quarter
of 1999, it was estimated that the Company's marketing partner, Baxter, had
captured 30% of the U.S. market for propofol, according to IMS, a market
research firm. In February 1999, AstraZeneca filed suit in the U.S. District
Court for the District of Maryland against the FDA, alleging that the FDA
improperly approved Gensia Sicor Pharmaceuticals' ANDA for propofol
injectable emulsion. Gensia Sicor Pharmaceuticals has intervened in the
lawsuit to protect its interest and support the FDA in its defense of this
lawsuit. The court denied AstraZeneca's motion for a preliminary injunction
on March 26, 1999, and on August 11, 1999, granted Gensia Sicor
Pharmaceuticals' and the FDA's motion for summary judgment and entered
judgment in favor of the defendants. AstraZeneca has appealed this judgment
to the United States Court of Appeals for the Fourth Circuit. Should
AstraZeneca ultimately succeed on appeal in its litigation against the
Company and the FDA, it could have a material adverse effect on the Company's
financial position, results of operations or cash flows.
In April 1999, Gensia Sicor Pharmaceuticals filed a lawsuit in the
Superior Court of California for Orange County against American Pharmaceutical
Partners ("APP") for breach of contract, breach of the implied covenant of good
faith and fair dealing, breach of confidence, unfair competition and declaratory
relief. The suit alleged that APP breached a distributorship agreement for some
of Gensia Sicor Pharmaceuticals' products by, among other things, acquiring and
operating a business which competes with Gensia Sicor Pharmaceuticals with
respect to some of the same products. In December 1999, APP filed a
cross-complaint against Gensia Sicor Pharmaceuticals asserting causes of action
for breach of contract, breach of the implied covenant of good faith and fair
dealing, unfair competition, unjust enrichment, accounting and declaratory
relief. In March 2000, the Company and APP settled the litigation. Management
believes the settlement will not have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
FOREIGN PHARMACEUTICAL OPERATIONS
In February 1997, the Company acquired three specialty pharmaceutical
companies comprised of a
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company located in Italy, Sicor S.p.A., and two companies located in Mexico,
Sicor de Mexico and Lemery. Sicor S.p.A. and Sicor de Mexico manufacture
specialty bulk drug substances. Lemery produces oral and injectable finished
multisource drug products (also called finished dosage forms) utilizing
specialty bulk drug substances produced by Sicor S.p.A. and Sicor de Mexico or
purchased from third parties. In December 1997, Sicor S.p.A. purchased a 50%
equity interest in Diaspa, a private Italian pharmaceutical company specializing
in bulk fermentation products. In June 1998, Sicor S.p.A. purchased the
remaining 50% of Diaspa.
The specialty bulk drug substances manufactured by Sicor S.p.A. and Sicor
de Mexico are used in oral, parenteral, topical administration, or inhalation
therapy, and almost all belong to one of four categories: (i) immunosuppression,
(ii) oncolytic agents, (iii) steroids or (iv) non-depolarizing muscle relaxants
used in anesthesia. The steroids are either progestins used in contraceptives or
corticosteroids used in a variety of anti-inflammatory preparations, including
preparations used in the treatment of asthma, allergies and certain
dermatological conditions. Certain progestins also have oncolytic applications.
The muscle relaxants are used in conjunction with anesthetics during surgery.
The principal markets for these specialty bulk drug substances are the
United States, Canada, the EU and Japan. The finished multisource drug products
manufactured by Lemery are sold primarily to the government public hospital
program in Mexico and exported to countries in Central and South America, North
Africa, the Middle East and Eastern Europe.
ONCOLYTIC AGENTS
Due to a worldwide increase in the incidence of cancer, related in part to
the general aging of the world's population, and to the introduction of new
regimens for the treatment of cancer, the demand for oncolytic agents continues
to increase. Sicor S.p.A. and Sicor de Mexico offer a wide range of oncolytic
specialty bulk drug substances and Lemery offers finished dosage forms. The
oncolytic agents produced by Sicor S.p.A. are etoposide, the anti-cancer
antibiotics bleomycin, mitomycin, daunorubicin, epirubicin and idarubicin, and
the progestins medroxyprogesterone acetate and megestrol acetate. Lemery
manufactures various oncolytic agents in finished dosage form, including
carboplatin, epirubicin, etoposide, cisplatin, doxorubicin, bleomycin,
paclitaxel and vincristine.
Sicor de Mexico produces two progestins, megestrol acetate and
medroxyprogesterone acetate, which may be used in treating wasting syndrome
in terminally ill AIDS patients, in high dosages to treat certain hormone
dependent malignancies, such as breast cancer and in contraceptives. The
principal markets for these compounds include the U.S. and Far East. Sicor de
Mexico also produces the progestins cyproterone acetate, which is generally
used in the treatment of prostate cancer, although it may also be used as a
component in contraceptives, and chlormadinone acetate, which is administered
orally for the treatment of prostate cancer and benign prostate hypertrophy.
Sicor de Mexico also produces deflazacort, a steroid with oral
anti-inflammatory activity. The principal markets for these drug substances
are the EU, Brazil, Canada, Argentina, the Middle East and Japan.
Sicor de Mexico also produces oncolytic agents such as cisplatin (used in
the treatment of testicular, ovarian and bladder cancers), carboplatin (used in
the treatment of advanced ovarian cancer), and mitoxantrone (used in combination
therapy for the treatment of adult leukemias).
STEROIDS
The steroids manufactured by Sicor S.p.A. and Sicor de Mexico are either
progestins or corticosteroids, used in a variety of anti-inflammatory
preparations for the treatment of asthma, allergies and certain dermatological
conditions. Sicor S.p.A. and Sicor de Mexico together produce five such
progestins: medroxyprogesterone acetate, megestrol acetate, cyproterone acetate,
chlormadinone acetate, and gestodene.
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Medroxyprogesterone acetate is principally used as component of sustained
release contraceptives. The principal markets for this steroid are in
Indonesia, the Philippines and Thailand. In addition, megestrol acetate,
chlormadinone acetate, cyproterone acetate and medroxyprogesterone acetate
have certain oncolytic applications.
Gestodene is a highly active third generation progestin of which Sicor
S.p.A. has only produced laboratory quantities to date. The compound is
principally used in contraceptives in more advanced markets such as the
United States and the EU. Its activity allows the production of dosage forms
with very low concentrations of such compounds.
Sicor S.p.A. and Sicor de Mexico manufacture corticosteroid products with
respect to which they have either developed a proprietary production technology,
including seven different process patents, or enjoy some other market advantage.
Sicor S.p.A. and Sicor de Mexico manufacture over 50 corticosteroids.
Ongoing research to increase the selective activity and reduce the
long-term toxicity of various corticosteroid compounds has produced a number of
corticosteroid products which are now coming off patent. These new products,
together with a growing market for such products in developing countries, have
enabled Sicor S.p.A. and Sicor de Mexico to consistently expand their production
of these compounds for several years.
The highest growth rate of corticosteroid use is in the management of
obstructive airway diseases, and corticosteroids are one of the preferred
prophylactic treatments for asthma in the U.S. This, together with the
expiration of certain patents, has led to an increase in the demand for two
principal corticosteroids in this field: beclomethasone dipropionate and
budesonide, both of which are produced by Sicor S.p.A. and Sicor de Mexico.
OTHER DRUGS
In addition to the oncolytic agents and steroid products discussed above,
Sicor S.p.A. also produces as bulk drug substances the muscle relaxants
atracurium besylate, pancuronium bromide and vecuronium bromide, the
immunosuppressant drug cyclosporine and the prodrug dexrazoxane.
Prodrugs become effective only after they are partially metabolized by the
body. Dexrazoxane metabolites trap the iron ions involved in the process which
leads to myocardial damage caused by anthracycline oncolytic agents such as
doxorubicin. Administration of dexrazoxane with such oncolytic agents protects
tissues of the heart and allows for higher dosages of the oncolytic agent. Sicor
S.p.A. manufactures dexrazoxane according to a proprietary process covered by
process patents filed in many countries. Sicor S.p.A. developed dexrazoxane with
Chiron BV, including performing clinical trials, developing dosage form
manufacturing, marketing and sales.
FUTURE DEVELOPMENTS
Sicor S.p.A. has obtained an exclusive license for a new oncolytic product
("UK 101") from Zetesis. In 1998, Sicor S.p.A. acquired a 50% interest in
Zetesis. UK 101 is a protein antigen obtained from goat liver. Antigens trigger
an immune response designed to destroy such antigens. Antibodies attach
themselves to the antigen marking it for elimination by the immune system. The
antibodies which attack UK 101 also attach themselves to the membrane of certain
cancer cells. It is hoped that cancer cells so marked may then be disposed of by
the immune system. The mechanics of this process are now the subject of further
study by university researchers in Italy. A Phase I study with women who have
advanced breast cancer was completed in Italy which demonstrated UK101 to be
safe and well tolerated.
6
UK114 is one of the major components of UK101 and is thought to be
responsible for most of its anti-cancer activity. Pre-clinical studies and
toxicology studies on UK114 are currently under way.
Sicor S.p.A. is also currently negotiating with a number of pharmaceutical
companies to develop new proprietary pharmaceutical products. If these products
are successfully developed, Sicor S.p.A. expects to have long term supply rights
for the bulk active ingredients used in these products.
Lemery is planning to invest in facilities and infra-structure to
develop biotechnology products, such as interferon and human growth hormones.
Lemery plans to begin manufacturing furnished dosage forms of biotechnology
products in Mexico starting in 2001 using bulk drug substance. Sales will be
targeted to Lemery's existing international customer base (Central and South
America, North Africa, the Middle East and Eastern Europe), and ultimately to
Mexico's government public hospital program.
METABASIS THERAPEUTICS, INC.
Metabasis conducts basic pharmaceutical research in premises subleased
from the Company at its San Diego location. In December 1997, Sankyo Co. Ltd.
("Sankyo") made a $7.25 million equity investment in Metabasis for
approximately an 8% interest in Metabasis. As the Company's strategic
direction did not include a significant commitment to basic research, the
Company divested a 46% interest in Metabasis during the second quarter of
1999. Following this transaction, the Company retains a 46% equity interest
in Metabasis and will receive royalty payments if technologies currently
owned by Metabasis are licensed or if products are developed and sold using
those technologies. Subsequently, due to the uncertain value of the remaining
interest, the Company elected to write off $1.8 million related to its
remaining investment in Metabasis. Starting in the second quarter of 1999,
investment in Metabasis was accounted for using the equity method as the
Company no longer had control of Metabasis.
PATENTS, TRADEMARKS AND TRADE SECRETS
SICOR's policy is to protect its technology by, among other things, filing
patent applications for technology which it considers important to the
development of its business. SICOR intends to file additional patent
applications, when appropriate, relating to improvements in its technology and
other specific products that it develops. SICOR also relies on trade secrets and
improvements, unpatented know-how and continuing technological innovation to
develop and maintain its competitive position.
Competitors may have filed applications for, or may have been issued,
patents or may obtain additional patents and proprietary rights relating to,
products or processes competitive with those of SICOR. Accordingly, there can be
no assurance that SICOR's patent applications will result in patents being
issued or that, if issued, the patents will afford protection against
competitors with similar technology; nor can there be any assurance that any
patents issued to SICOR will not be infringed or circumvented by others, or that
others will not obtain patents that SICOR would need to license or circumvent.
There can be no assurance that licenses that might be required for SICOR's
processes or products would be available on reasonable terms. If SICOR does not
obtain such licenses, product introductions could be delayed or foreclosed. In
addition, there can be no assurance that SICOR's patents, if issued, would be
held valid by a court. Litigation to defend against or assert claims of
infringement or otherwise related to proprietary rights could result in
substantial costs to SICOR.
SICOR also relies upon unpatented trade secrets, and no assurance can be
given that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to SICOR's
trade secrets or disclose such technology. There can be no assurance that SICOR
can meaningfully protect its rights to its unpatented trade secrets.
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COMPETITION
Significant competition exists in the multisource injectable drug
business from other multisource drug companies, health care companies and
proprietary pharmaceutical companies. The major competitors in the
multisource injectable drug industry include Abbott Laboratories, F.H.
Faulding & Co. Ltd., American Regent (a subsidiary of Luitpold Inc.), Bedford
Laboratories (a division of Boerhinger Ingleheim Corp.), Elkins-Sinn (a
division of American Home Products Corp.), American Pharmaceutical Products,
Schein Pharmaceutical, Inc., Pharmacia & Upjohn, Inc., Bristol-Myers Squibb
Co., and AstraZeneca. Many of these companies have been in business for a
longer period of time, have a greater number of products on the market and
have substantially greater resources than SICOR.
The various competitive factors affecting the marketing of multisource
injectable pharmaceutical products are price, quality, timing (the ability to
produce generic versions of brand name drugs promptly after the patent
protection for the brand name drug expires), product cost, maintenance of
sufficient inventories for timely deliveries, breadth of product line,
reputation, distribution capabilities and customer service.
SICOR believes that price and quality are the most significant competitive
factors in the multisource injectable drug industry as the number of
manufacturers of a particular multisource injectable product increases. As
competition from other manufacturers intensifies, selling prices typically
decline. Accordingly, Gensia Sicor Pharmaceuticals' profitability will depend in
part on its ability to develop and introduce appropriate new products to the
market in a timely manner, to obtain raw materials at competitive prices and to
continue to improve the efficiency of its production capabilities. Gensia Sicor
Pharmaceuticals will also compete with manufacturers of off-patent injectable
brand name products, which may reduce prices in order to keep their brand name
products competitive with equivalent multisource products.
GOVERNMENT REGULATION
Under the Waxman/Hatch Act, the FDA approves certain drugs under an
abbreviated procedure which waives submission of the extensive animal and human
studies of safety and effectiveness normally required to be in an NDA. Instead,
the manufacturer need only to provide an ANDA containing labeling, information
on manufacturing procedures and data establishing that the original "pioneer"
product and the proposed "generic" product are equivalent when administered to
humans. Prior to November 1997, antibiotic drugs were classified separately for
purposes of FDA approval, although the approval procedures for such drugs
conformed substantially to the NDA/ANDA procedures.
As compared to an NDA, an ANDA typically involves reduced research and
development costs. However, there can be no assurance that any such applications
will be approved. Furthermore, the suppliers of raw materials also must be
approved by the FDA. Delays in the review process or failure to obtain approval
of certain of these ANDAs or suppliers could have a material adverse effect on
the financial condition of SICOR.
The President signed into law the Uruguay Round Agreements Act ("URAA") in
December 1994. URAA, which took effect on June 8, 1995, implemented the General
Agreements on Tariffs and Trade ("GATT"). One change in U.S. law required by
GATT is the amendment of patent law to permit owners to choose a patent term of
20 years from the date of filing the application or 17 years from the date of
issuance. URAA extended the requirement by allowing the application of this
provision to all patents in force on June 8, 1995. Congress recognized the
potential harm in this requirement and provided that a potential competitor who
had already made a "substantial investment" in a competing product could make,
use and sell its product after the expiration of the original patent period
provided that they pay the patentee "equitable remuneration" through the
extended patent period. However, the FDA has taken the position that it cannot
approve an ANDA, which certifies the date of patent expiration, until the
expiration of the extended patent period. The extension
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of patent protection may delay the launch of future products by the Company.
Prior to receiving FDA approval, the Company may face more lawsuits
relating to intellectual property rights. While these suits, instituted by
branded pharmaceutical companies, rarely result in findings of infringement or
monetary settlements, they significantly delay the FDA approval process. The
Company expects the branded pharmaceutical companies to continue such tactics
since it is a very cost effective way to delay generic competition and the
subsequent cost savings for the consumer. It is impossible for the Company to
predict the extent to which its operations will be affected under the
regulations discussed above or any new regulations which may be adopted by
regulatory agencies.
In connection with its activities outside the United States, SICOR is also
subject to regulatory requirements governing the testing, approval, manufacture,
labeling, marketing and sale of pharmaceutical, intravenous and diagnostic
products, which requirements vary from country to country. Whether or not FDA
approval has been obtained for a product, approval of the product by comparable
regulatory authorities of foreign countries must be obtained prior to marketing
the product in those countries. The approval process may be more or less
rigorous from country to country, and the time required for approval may be
longer or shorter than that required in the United States. No assurance can be
given that clinical studies conducted outside of any country will be accepted by
such country, and the approval of any pharmaceutical, intravenous or diagnostic
product in one country does not assure that such product will be approved in
another country.
HEALTH CARE REFORM
The federal and state governments in the United States, as well as many
foreign governments, including the United Kingdom, are exploring ways to reduce
medical care costs through health care reform. This effort has resulted in,
among other things, government policies that encourage the use of generic drugs
rather than brand name drugs to reduce drug reimbursement costs. Virtually every
state in the United States has a generic substitution law that permits the
dispensing pharmacist to substitute a generic drug for the prescribed brand name
product. The debate to reform the United States' health care system is expected
to be protracted and intense. Due to uncertainties regarding the ultimate
features of reform initiatives and their enactment and implementation, SICOR
cannot predict what impact any reform proposal ultimately adopted may have on
its businesses.
MANUFACTURING
The manufacturing facility at Gensia Sicor Pharmaceuticals provides SICOR
with the capability to formulate, fill, label and package final dosage forms of
injectable drug products. The Gensia Sicor Pharmaceuticals facility has a broad
filling capability, including the ability to terminally sterilize or aseptically
fill syringes and single and multiple dose vials. The facility also has the
capability to lyophilize (freeze dry) products.
Gensia Sicor Pharmaceuticals completed an oncology manufacturing
facility and additional laboratories for the development of oncology products
in a building adjacent to Gensia Sicor Pharmaceuticals' existing
manufacturing facility in Irvine. The new oncology facility includes the
capability to produce oncology products in lyophilized or liquid forms and in
glass or polymer vials. The new facility underwent FDA Good Manufacturing
Practices ("GMP") inspection during 1998, and is being used to manufacture
oncolytics upon ANDA or ANDA supplemental approval. The initial approval for
vincristine and an alternative manufacturing site approval for etoposide was
received in 1999. Flourouracil and daunorubicin were approved in the first
quarter of 2000. Additionally, this facility started contract manufacturing
products for other companies in January 2000.
The principal raw materials to be used in manufacturing Gensia Sicor
Pharmaceuticals' products are
9
active drug ingredients (such as those produced by Sicor S.p.A.) and inactive
pharmaceutical chemicals. The FDA approval process requires manufacturers of
pharmaceutical products to identify their suppliers of active ingredient raw
materials. If raw materials from a specified supplier were to become
unavailable, FDA approval of a new supplier would be required, which could
result in manufacturing delays. Development, approval and continued
commercialization of Gensia Sicor Pharmaceuticals' products are, therefore,
dependent upon Gensia Sicor Pharmaceuticals' ability to procure active
ingredient raw materials from suppliers who are, and who remain, FDA approved.
Sicor S.p.A. has filed over 37 Drug Master Files with the FDA and is a qualified
source for several of Gensia Sicor Pharmaceuticals' current products as well as
the planned supplier for many of products in development. Termination of
qualified supply arrangements could have a material adverse impact on the sale
of Gensia Sicor Pharmaceuticals' products as Gensia Sicor Pharmaceuticals
currently utilizes single sources for certain raw materials and packaging
components.
Sicor S.p.A.'s production is carried out at its two manufacturing sites
in Italy. The principal manufacturing facility is located near Milan and is
regularly inspected and approved by the FDA. It is a major producer of
oncolytic agents, steroids and certain other products in bulk drug substance
form. These products are manufactured through fermentation or chemical
synthesis processes. This facility supplies specialty bulk drug substances to
Gensia Sicor Pharmaceuticals and Lemery and to other drug manufacturers
around the world.
Sicor S.p.A.'s second manufacturing facility is located on the outskirts
of Turin. It is currently undergoing a significant expansion of its facilities
to produce anthracycline products for the U.S. and European markets. The Company
had plans to purify cyclosporine at this location; however, these plans have
been deferred due to lower expectations of cyclosporine sales.
The acquisition of Diaspa was completed to significantly increase the
Company's capacity for the production of cyclosporine bulk drug substance to
meet expected demand from the long-term cyclosporine supply agreement with
SangStat Medical Corporation ("SangStat"). In November 1998, the Company
received notification from SangStat that it has been granted marketing clearance
by the FDA for SangCya-TM-, SangStat's patented formulation of liquid
cyclosporine. However, demand for SangStat's liquid cyclosporine has not met
management's expectations. In addition to cyclosporine, Diaspa is used for the
production of bulk fermentation products for SICOR and other pharmaceutical
companies under existing and future supply contracts.
Lemery is located in Mexico City and produces drugs in finished dosage
form, of which injectable oncolytic agents are an important product line. These
products are sold in Mexico and exported to certain countries in Central and
South America, North America, Middle East and Eastern Europe.
Sicor de Mexico is located near Toluca, on the outskirts of Mexico
City, and produces principally steroid products for export to various
countries. Sicor de Mexico also recently completed construction of a facility
to produce oncolytic agents, which commenced production in 1997. Production
from this new facility is being used by Lemery to replace certain existing
third party suppliers. The oncology facility is GMP certified by the FDA and
produces megestrol acetate for export to a major U.S. pharmaceutical company.
Each of SICOR's manufacturing sites is maintained in accordance with
applicable regulatory agency regulations. The Company's manufacturing facilities
are considered key strategic assets of the Company. Management believes that the
Company has adequate manufacturing capacity to meet the current and planned
sales demand for its injectable products, once the substantially completed
Irvine oncology facility becomes operational. The Company's manufacturing
capacity for specialty bulk drug substances is also expected to be adequate to
meet current and planned demand.
10
RISK FACTORS THAT MAY AFFECT RESULTS
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company anticipates that its operating cash flows, combined with its
current cash and cash equivalents on hand at December 31, 1999 of $47.5 million,
and commitments from third parties, will enable it to maintain its current and
planned operations. The Company will continue to evaluate the need for
additional capital and, if appropriate, pursue equity, debt and lease financing,
or a combination of these, for its capital needs. Such financings may not be
available on acceptable terms, or at all. If the Company is unable to obtain
additional financing, the Company may have to reduce its capital expenditures,
spending for the development of new products, and its workforce. Such reductions
would have a material adverse effect on the Company. In addition, at December
31, 1999, approximately $107 million of the Company's $386 million in assets
consisted of either intangibles or goodwill. The Company may not be able to
realize any value from these intangible assets. The Company reviews long-lived
assets and certain identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the total amount of an asset may not be
recoverable. An impairment loss is recognized when estimated future cash flows
expected to result from the use of the asset and its eventual disposition are
less than its carrying amount.
LOSS HISTORY; UNCERTAINTY OF FUTURE PROFITABILITY
Until 1999, the Company was unprofitable on an annual basis since its
inception in 1986. As of December 31, 1999, the Company had an accumulated
deficit of approximately $348.3 million. The Company may not be profitable on
a quarterly or annual basis in the future. The Company believes that future
operating results will be subject to quarterly and annual fluctuations due to
a variety of factors, including whether and when new products are
successfully developed and introduced by the Company, market acceptance of
current or new products, regulatory delays, product recalls, manufacturing
delays or inefficiencies, shipment problems, seasonal customer demand, the
timing of significant orders, changes in reimbursement policies, competitive
pressures on average selling prices, changes in the mix of products sold and
uncertainty with respect to patent matters.
COMPETITION
SICOR operates in a rapidly evolving business environment. Competition
from large pharmaceutical companies, biotechnology companies, and other
companies is intense. Many of these companies have substantially greater
resources and experience in developing, manufacturing and marketing
pharmaceutical products than SICOR. There can be no assurance that
competitors will not succeed in developing technologies and products that are
more effective or that would render the technology and products of SICOR
obsolete or noncompetitive.
A significant portion of SICOR's business is dependent on winning bids
from the Mexican government public hospital program. The bidding for this
program is highly competitive with numerous other pharmaceutical manufacturers
participating, many of which are established companies with greater financial
and other resources than SICOR. The Company may not be able to continue to
compete effectively
11
with respect to this program.
GOVERNMENT REGULATION; NO ASSURANCE OF OBTAINING REGULATORY APPROVALS
The testing, manufacture and marketing of SICOR's products are subject to
regulation by numerous federal, state and local governmental authorities in the
United States, and by similar agencies in other countries in which SICOR
develops, manufactures and markets drugs. SICOR must receive approval for each
of its drugs from the applicable regulatory agencies before it may be marketed
as a drug in a particular country. The regulatory process can take many years
and may require SICOR to expend substantial resources. In addition, SICOR may
encounter delays or rejections based on changes in regulatory agency policies
during the period in which a potential drug is being developed and/or the period
required for review of any application for regulatory agency approval. Delays in
obtaining regulatory agency approvals could negatively affect the marketing of
any potential drug, result in the imposition of costly procedures on SICOR's
activities, and negatively affect SICOR's ability to receive royalties. SICOR
may not obtain regulatory approvals for potential drugs.
Moreover, if SICOR obtains regulatory agency approval for a drug, such
approval may be limited regarding the indicated uses for which the drug may be
marketed and this would limit SICOR's potential market for the drug.
Furthermore, the marketing and manufacture of drug products remain subject to
extensive regulatory requirements. The discovery of previously unknown problems
with any of SICOR's drugs could result in restrictions on such drug including
withdrawal of the drug from the market. If SICOR fails to comply with regulatory
requirements, it could be fined, its regulatory approvals suspended, its
operations restricted, and it could be involved in criminal prosecution. In
addition, regulatory agency approval of pricing is required in many countries
and may be required for the marketing in such countries of any drug SICOR
develops.
DEPENDENCE ON KEY PERSONNEL
The success of SICOR depends in large part upon its ability to attract and
retain qualified scientific, manufacturing, marketing and management personnel.
SICOR faces competition for such personnel from other companies, academic
institutions, government entities and other organizations. In addition, the
success of SICOR will be dependent upon key personnel, the loss of which may
have a material adverse effect on the Company's business.
UNCERTAINTY OF ABILITY TO OPERATE WITHOUT INFRINGING ON PATENTS AND PROPRIETARY
TECHNOLOGY OF OTHERS
The success of SICOR will depend, in part, on its ability to maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties. The patents others have, or may acquire, may have an adverse
effect on the ability of SICOR to commercialize its products. Litigation, which
could result in substantial costs to the Company, may be necessary to determine
the scope and validity of the proprietary rights of third parties. If any of the
Company's products are found to infringe upon the patents or other rights owned
by third parties, SICOR may be subject to significant liabilities to third
parties and may be required to obtain licenses to patents or other proprietary
rights of third parties which may not be available on acceptable terms. If SICOR
does not obtain such licenses, product introductions could be delayed or
foreclosed. SICOR may not have sufficient funds to obtain licenses that may be
required in order to develop and commercialize its products, to contest patents
obtained by third parties, or to defend against suits brought by third parties.
SICOR also relies on protecting its proprietary technology in part through
confidentiality agreements with its corporate collaborators, employees,
consultants and certain contractors. These agreements may be breached and SICOR
may not have adequate remedies of any breach. In addition, SICOR's trade secrets
may
12
otherwise become known or independently discovered by its competitors.
POTENTIAL INABILITY TO OBTAIN RAW MATERIALS OR MANUFACTURE PRODUCTS
SICOR depends on third party manufacturers for bulk raw materials for many
of its products. These raw materials are generally available from a limited
number of sources, and certain raw materials are available only from foreign
sources. In addition, Gensia Sicor Pharmaceuticals utilizes sole sources of
supply for certain raw materials used in the manufacture of its products and
certain packaging components. Any disruption in one or more of these supply
sources could have a material adverse effect on SICOR.
UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED MATTERS
The levels of revenues and profitability of pharmaceutical companies will
be affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of health care through various means. For example,
in certain foreign markets pricing or profitability of prescription
pharmaceuticals is subject to government control. Domestically and
internationally, there have been, and SICOR expects that there will continue to
be, a number of legislative proposals to implement government controls. While
SICOR cannot predict whether any such legislative or regulatory proposals or
reforms will be adopted, or the effect such proposals or reforms may have on its
businesses, the announcement of such proposals or reforms could have a material
adverse effect on SICOR's ability to raise capital. Additionally, the adoption
of such proposals or reforms could have a material adverse effect on SICOR's
business, financial condition and profitability.
In addition, in both the United States and elsewhere, sales of
prescription pharmaceuticals are dependent in part on the availability of
reimbursement to the consumer from third party payors, such as government and
private insurance plans. Third party payors are increasingly challenging the
prices charged for medical products and services. The products of SICOR may not
be considered cost effective and reimbursement to the consumer may not be
available or may not be sufficient to allow SICOR to sell its products on a
competitive basis. If purchasers or users of SICOR's products are not able to
obtain adequate reimbursement for the cost of using SICOR's products, they may
forego or reduce their use. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and whether
adequate third party coverage will be available.
It has been reported that certain United States governmental agencies,
including the Department of Justice and the Department of Health and Human
Services, have been investigating issues surrounding pricing information
reported by drug manufacturers and used in the calculation of reimbursements
under the Medicaid program administered jointly by the federal government and
the states. The Company has supplied documents in connection with these
investigations and has had preliminary discussions with representatives of
the federal and state governments, but is unable to estimate at this time
what effect, if any, these investigations will have on the Company's pricing
policies or its financial statements. There can be no assurance that these
investigations will not result in changes to the Company's pricing policies
or other actions which might have a material adverse effect on the Company's
financial position, results of operations or cash flows.
PRODUCT LIABILITY EXPOSURE; INADEQUACY OR UNAVAILABILITY OF PRODUCT LIABILITY
INSURANCE
SICOR, as a manufacturer of finished drug products, faces an inherent
exposure to product liability claims in the event that the use of any of its
technology or products is alleged to have resulted in adverse effects. This
exposure exists even with respect to those products that receive regulatory
approval for commercial sale, as well as those undergoing clinical trials. While
SICOR has taken and will continue to take what it believes are appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure.
13
In addition, as a manufacturer of bulk drug substances, SICOR supplies
other pharmaceutical companies with active ingredients, which are contained in
finished products. The ability of SICOR to avoid significant product liability
exposures depends in part upon its ability to negotiate appropriate commercial
terms and conditions with its customers and its customers' manufacturing,
quality control and quality assurance practices. SICOR may not be able to
negotiate satisfactory terms and conditions with its customers. Although SICOR
maintains insurance for product liability claims, which the Company believes is
in line with the insurance coverage carried by other companies in its industry,
the insurance coverage may not be sufficient. In addition, adequate insurance
coverage might not continue to be available at acceptable costs, if at all, and
product liability claims could adversely affect the business or financial
condition of SICOR.
UNCERTAINTY REGARDING MEXICAN ECONOMIC FACTORS, GOVERNMENT POLICIES AND
INFLATION
The Mexican government has exercised and continues to exercise
significant influence over many aspects of the Mexican economy. Accordingly,
Mexican government actions could have a significant effect on Lemery and
Sicor de Mexico, and on market conditions and prices in Mexico. Approximately
50% of the finished multisource drug products manufactured by Lemery are sold
to the Mexican government public hospital program. Sales to the Mexican
government public hospital program may not continue in the future. In
addition, although the Mexican government has paid Lemery on a timely basis,
this payment pattern may not continue in the future. Further, as recently as
1995, Mexico experienced high double-digit inflation and it may experience
similar high inflation in the future. Future actions by the Mexican
government, or developments in the Mexican economy and changes in Mexico's
political, social or economic situation may adversely affect the operations
of Lemery and Sicor de Mexico.
RISKS RELATED TO INTERNATIONAL OPERATIONS
During 1998 and 1999, percentage of total product sales to customers
outside of Canada, Western Europe, Japan and the United States was approximately
26% and 27%, respectively. Operations outside of Canada, Western Europe, Japan
and the United States are subject in varying degrees to greater business risks
such as war, civil disturbances, adverse governmental actions (which may disrupt
or impede operations and markets, restrict the movement of funds, impose
limitations on foreign exchange transactions or result in the expropriation of
assets) and economic and governmental instability. SICOR may experience material
adverse financial results with respect to its business in these markets if such
events were to occur.
ENVIRONMENTAL MATTERS
SICOR's business involves the controlled storage, use and disposal of
hazardous materials and biological hazardous materials. SICOR is subject to
numerous environmental regulations in the jurisdictions in which it operates.
Although SICOR believes that its safety procedures for handling and disposing of
these hazardous materials comply with the standards prescribed by law and
regulation in each of its locations, the risk of accidental contamination or
injury from hazardous materials cannot be completely eliminated. In the event of
an accident, SICOR could be held liable for any damages that result, and such
liability could exceed the Company's resources. SICOR's operations, business and
assets may be substantially and detrimentally affected by current or future
environmental laws or regulations. SICOR maintains liability insurance for some
environmental risks which the Company's management believes to be appropriate
and in accordance with industry practice. However, SICOR may incur liabilities
beyond the limits or outside the coverage of its insurance and my not be able to
maintain insurance on acceptable terms.
UNCERTAINTY OF OUTCOME OF LEGAL PROCEEDINGS
The Company is involved in various actions, claims, and legal proceedings
arising from its business
14
operations. The ultimate outcome of these matters is uncertain and could have a
material adverse effect on the Company's financial position, results of
operations or cash flows. See Legal Proceedings.
CURRENCY FLUCTUATIONS
SICOR has significant operations in several countries, including the
United States, Italy, Mexico and Switzerland. In addition, purchases and sales
are made in a large number of other countries. As a result, its business is
subject to the risk and uncertainties of foreign currency fluctuations. While
SICOR has policies and strategies to minimize this risk, there can be no
assurance that such policies and strategies will be effective in preventing
significant negative financial adjustments in the future.
CONTROL BY PRINCIPAL STOCKHOLDER
Carlo Salvi, the Company's President, Chief Executive Officer and a
director beneficially owns approximately 37% of the Company's Common Stock. In
addition, pursuant to a shareholder's agreement, dated as of November 12, 1996,
as amended (the "Shareholder's Agreement") Rakepoll Finance, an entity
controlled by Mr. Salvi, is entitled to designate three of SICOR's directors,
who in turn are entitled to designate (jointly with two executive officer
directors of SICOR) five additional directors. The consent of the Rakepoll
Finance designated directors is required for SICOR to take certain actions, such
as a merger or sale of all or substantially all of the business or assets of
SICOR and certain issuances of securities. As a result of his ownership of SICOR
Common Stock, Mr. Salvi may be able to control substantially all matters
requiring approval by the stockholders of SICOR, including the election of
directors and the approval of mergers or other business combination
transactions.
POSSIBLE VOLATILITY OF STOCK PRICE; DIVIDEND POLICY
The market price of the shares of SICOR Common Stock, like that of the
common stock of many other pharmaceutical companies, has been and is likely to
continue to be highly volatile. The market for securities of such companies has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. The market price
of SICOR Common Stock could be subject to significant fluctuations in response
to variations in SICOR's anticipated or actual operating results, sales of
substantial amounts of SICOR Common Stock, other issuances of SICOR Common Stock
pursuant to pre-existing obligations, announcements concerning SICOR or its
competitors, including the results of testing, technological innovations or new
commercial products or services, developments with SICOR's collaborators,
developments in patent or other proprietary rights of SICOR or its competitors,
including litigation, conditions in the pharmaceuticals industry, governmental
regulation, health care legislation, public concern as to the safety of SICOR's
products, changes in estimates of SICOR's performance by securities analysts,
market conditions for pharmaceutical stocks in general, and other events or
factors not within SICOR's control.
SICOR has never paid cash dividends on SICOR Common Stock. SICOR presently
intends to retain earnings, if any, for the development of its businesses and
does not anticipate paying any cash dividends on SICOR Common Stock in the
foreseeable future. Unless full cumulative dividends are paid on SICOR's
outstanding $3.75 Convertible Exchangeable Preferred Stock, $.01 par value
("Convertible Preferred Stock"), cash dividends may not be paid or declared and
set aside for payment on SICOR Common Stock. At December 31, 1999, SICOR had
approximately $7.5 million in undeclared cumulative preferred dividends on such
Convertible Preferred Stock. If SICOR chooses not to declare dividends for six
cumulative quarters, the holders of Convertible Preferred Stock, voting
separately as a class, will be entitled to elect two additional directors until
the dividend in arrears has been paid.
15
SUBORDINATION OF COMMON STOCK TO NOTES AND PREFERRED STOCK
SICOR's Common Stock is expressly subordinate to $20 million of 2.675%
subordinated convertible notes due May 1, 2004, and to the series A preferred
stock into which the notes are convertible, in the event of SICOR's liquidation,
dissolution or winding up. SICOR's Common Stock is also subordinate to the
approximately $80 million (plus accrued and unpaid dividends) liquidation
preference of SICOR's outstanding $3.75 Convertible Exchangeable Preferred
Stock. If SICOR was to cease operations and liquidate its assets, there may not
be any remaining value available for distribution to the holders of common stock
after providing for the above liquidation preferences.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
SICOR's Certificate of Incorporation and Bylaws include provisions that
could discourage potential takeover attempts and make attempts by its
stockholders to change management more difficult. The approval of 66-2/3% of
SICOR's voting stock is required to approve certain transactions and to take
certain stockholder actions, including the calling of a special meeting of
stockholders and the amendment of any of the anti-takeover provisions contained
in SICOR's Certificate of Incorporation. SICOR also has a stockholder rights
plan, the effect of which may also deter or prevent takeovers. These rights will
cause a substantial dilution to a person or group that attempts to acquire SICOR
on terms not approved by the SICOR Board of Directors and may have the effect of
deterring hostile takeover attempts.
16
MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company as of March 15, 2000 are as follows:
NAME AGE POSITION
- - - - - - - - ---- --- --------
Carlo Salvi 63 President and Chief Executive Officer and Director
Frank C. Becker 64 Executive Vice President and Chief Operating Officer and
Director
Michael D. Cannon 54 Executive Vice President and Chief Scientific Officer and
Director
Gianpaolo Colla 62 Executive Vice President, Italian Operations and Director
John W. Sayward 48 Executive Vice President, Finance, Chief Financial Officer and
Treasurer and Director
Armand J. LeBlanc 57 Senior Vice President, Corporate Scientific Affairs
Wesley N. Fach 48 Vice President, Senior Legal Counsel and Secretary
Mr. Salvi has been a director of the Company since February 1997 and
served as Executive Vice President of the Company from November 1997 to August
1998. He was named President and Chief Executive Officer of the Company in
August 1998. Additionally, since February 1997 Mr. Salvi has served as a
Chairman of the Board of Directors and President of Sicor S.p.A. Sicor S.p.A. is
a wholly-owned subsidiary of Rakepoll Holding, which is owned by the Company.
From September 1995 to February 1997, Mr. Salvi was a consultant to Alco
Chemicals Ltd., Swiss Branch ("Alco") in Lugano, Switzerland, which acts as an
agent and distributor of certain Sicor S.p.A. products. From 1986 to September
1995, he was General Manager of Alco.
Mr. Becker has been a director of the Company since June 1998 and was
appointed Executive Vice President and Chief Operating Officer of the Company in
June 1999. He retired as Vice President, Chemical Research and Development for
Abbott Laboratories, a healthcare products and services company, in December
1997. Mr. Becker joined Abbott Laboratories in 1959. In January 1998, Mr. Becker
formed Greenfield Chemicals Inc., an outsourcing and consulting company
supporting the pharmaceutical industry.
Mr. Cannon joined the Company as Executive Vice President in February
1997. From August 1998 until June 1999, Mr. Cannon was President and Chief
Operating Officer of the Company's wholly-owned subsidiary, Gensia Sicor
Pharmaceuticals, Inc., and in June 1999 he was named Chief Scientific Officer of
the Company. Prior to joining the Company, Mr. Cannon was a member of the Board
of Directors of Sicor S.p.A. (where he worked from the company's beginning in
1983) and Director of Business Development of Alco Chemicals Ltd. in Lugano,
Switzerland since 1986. From 1970 to 1982, Mr. Cannon worked at SIRS S.p.A., a
manufacturer of bulk corticosteroids in Milan, Italy in a variety of technical
positions.
Dr. Colla has been a director and the Company's Vice President, Italian
Operations since March 1999. He has also been Managing Director of Sicor S.p.A.
and a member of its Board of Directors since 1996, and
17
has served in various management capacities with Sicor S.p.A. since its founding
in 1983. From 1983 to 1994, Dr. Colla also collaborated with the Elemond Group,
a publishing company, as Strategic Operating Planning Coordinator, and prior to
this period he was Director of Mergers and Acquisitions with Fides (now KPMG
Peat Marwick LLP) from 1982 through 1983. Dr. Colla continues to serve as member
of the Statutory Audit Board for several significant Italian companies. He is a
Registered Statutory Auditor in Italy and graduated from Milan's Catholic
University with a degree in Economics and Business Sciences.
Mr. Sayward has been a director of the Company since June 1998. He joined
the Company in 1992 and was named Vice President, Finance, Chief Financial
Officer and Treasurer in February 1997 and Executive Vice President in August
1998. Prior to that he was Division Vice President, Finance, Corporate
Controller of the Company and Chief Financial Officer of Gensia Sicor
Pharmaceuticals, Inc. From 1975 to 1992, Mr. Sayward was employed in a wide
variety of financial and accounting positions at Baxter Healthcare Corporation,
serving as Vice President of Finance and Business Development, I.V. Systems
Division from 1988 to 1992. From 1986 to 1988, he was Vice President and
Controller, Dade Diagnostics Division of Baxter. Mr. Sayward served in a number
of financial management positions at Baxter and American Hospital Supply from
1975 to 1986. He received his master of management degree from the Northwestern
Kellogg School of Management.
Mr. LeBlanc joined the Company as Vice President, Scientific Affairs,
Gensia Sicor Pharmaceuticals in January 1996. He was appointed Senior Vice
President, Corporate Scientific Affairs in June 1999. Prior to joining the
Company, Mr. LeBlanc was Vice President, Quality Assurance/Quality Control at
Fujisawa USA, Inc. from 1993 to 1996. From 1976 to 1993, he was employed in
various management capacities in Quality Assurance/Quality Control for Lorex
Pharmaceuticals, G.D. Searle & Co., Millipore Corporation, and Mallinckrodt,
Inc. Prior to being employed in the pharmaceutical industry, Mr. LeBlanc was
employed as a Microbiologist with the U.S. Food and Drug Administration from
1966 to 1976. He received his master of science degree from Georgia Institute of
Technology.
Mr. Fach joined the Company as Assistant General Counsel in January 1992
and was named Secretary in January 1993. He was appointed Vice President and
Senior Legal Counsel in July 1997. Prior to joining the Company Mr. Fach was
legal counsel to Marrow-Tech Incorporated (now named Advanced Tissue Sciences,
Inc.) from 1990 to 1992. From 1984 to 1990 he was General Counsel of IMED
Corporation and from 1986 to 1990 he was Assistant General Counsel of its parent
company, Fisher Scientific Group Inc. Mr. Fach received his juris doctor degree
from Columbia University.
HUMAN RESOURCES
As of December 31, 1999, the Company employed a total of approximately
1300 individuals on a full-time basis. The Company employs approximately 390
individuals in Southern California.
Sicor S.p.A., Diaspa, Lemery, Sicor de Mexico and Gensia Sicor de Mexico
employ approximately 930 individuals, of whom approximately 30% work in Italy
and 70% in Mexico. As is customary in Italy and Mexico, most of these employees
are represented by unions. Sicor S.p.A., Diaspa, Lemery, Sicor de Mexico and
Gensia Sicor de Mexico have not experienced any significant labor disputes in
recent years.
The Company considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company leases a total of approximately 150,000 square feet of space
in San Diego, California. Of this amount, approximately 146,000 square feet is
18
subleased to third-party tenants. These facilities include both laboratory
and office space.
In December 1997, the Company moved its principal administrative offices
from San Diego to Irvine, California where Gensia Sicor Pharmaceuticals is
located.
Gensia Sicor Pharmaceuticals leases approximately 220,000 square feet of
office, laboratory, warehouse and manufacturing space in Irvine, California.
These facilities are leased under several lease agreements expiring in 2000 to
2006 with some of the leases including an option to extend an additional five
and ten years.
Sicor S.p.A.'s production is carried out at its two manufacturing sites in
Italy. The principal site is located on the outskirts of Milan and is regularly
inspected and approved by the FDA. This production center covers approximately
1,200 square meters of a 14,438 square meter site. Sicor S.p.A.'s other
production center is located in Santhia, on the outskirts of Turin, and covers
approximately 6,200 square meters of a site encompassing more than 90,000 square
meters. This site has been undergoing a significant expansion of its production
facilities to become one of the Company's key manufacturing facilities of
strategic bulk products. Sicor S.p.A. also leases approximately 200 square
meters of office space in Milan.
All of Diaspa's operations are carried out at its site in Corana, which is
approximately 50 km south of Milan. The plant and administrative offices cover
approximately 7,000 square meters of a 33,000 square meter site. In December
1999, Diaspa entered into a sale-leaseback transaction covering certain assets
including the plant and administrative offices, which are being leased back over
a period of 9.5 years. See Note 14 to the financial statements.
Lemery owns a 10,403 square meter manufacturing/office site located in
Mexico City. Sicor de Mexico owns a 22,037 square meter manufacturing/office
site located near Toluca, on the outskirts of Mexico City.
Gensia Sicor de Mexico leases approximately 560 square meters of office
space in Mexico City.
Genchem Vacallo leases approximately 870 square meters of office and
laboratory space in Vacallo, Switzerland. The lease expires in 2006 with an
option to cancel in 2001 and an option to renew for an additional five years in
2006.
ITEM 3. LEGAL PROCEEDINGS
In July 1998, the Company was named as a defendant in a complaint filed by
Protocol Systems, Inc. ("Protocol Systems"). The complaint alleged breach of a
supply agreement (the "Supply Agreement"). In August 1999, the Company reached a
settlement with Protocol Systems concerning the alleged breach of the Supply
Agreement. The resolution of the matter did not result in an adjustment to the
Company's consolidated financial position or results of operations in 1999 as an
adequate provision was recorded in the fourth quarter of 1998.
In February 1999, a lawsuit was filed by AstraZeneca, Inc. in the U.S.
District Court in Baltimore, Maryland against the FDA with regards to Gensia
Sicor Pharmaceuticals' ANDA for propofol. In the suit, AstraZeneca alleged
that the FDA improperly approved Gensia Sicor Pharmaceuticals' propofol
product. The Company believes this lawsuit is without merit, and that it
represents AstraZeneca's continued legal maneuvering to stop the FDA approval
of generic propofol. Gensia Sicor Pharmaceuticals intervened in the lawsuit
to protect its interest and support the FDA in its defense of this lawsuit.
The court denied AstraZeneca's motion for a preliminary injunction on March
26, 1999, and on August 11, 1999, granted Gensia Sicor Pharmaceuticals' and
the FDA's motion for summary judgment and entered judgment in favor of the
defendants. AstraZeneca has appealed this judgment
19
to the United States Court of Appeals for the Fourth Circuit. Should
AstraZeneca ultimately succeed on appeal in its litigation against the
Company and the FDA, it could have a material adverse effect on the Company's
financial position, results of operations or cash flows.
In April 1999, Gensia Sicor Pharmaceuticals filed a lawsuit in the
Superior Court of California for Orange County against APP for breach of
contract, breach of the implied covenant of good faith and fair dealing, breach
of confidence, unfair competition and declaratory relief. The suit alleged that
APP breached a distributorship agreement for some of Gensia Sicor
Pharmaceuticals' products by, among other things, acquiring and operating a
business which competes with Gensia Sicor Pharmaceuticals with respect to some
of the same products. In December 1999, APP filed a cross-complaint against
Gensia Sicor Pharmaceuticals asserting causes of action for breach of contract,
breach of the implied covenant of good faith and fair dealing, unfair
competition, unjust enrichment, accounting and declaratory relief. In March
2000, the Company and APP settled the litigation. Management believes the
settlement will not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
It has been reported that certain United States governmental agencies,
including the Department of Justice and the Department of Health and Human
Services, have been investigating issues surrounding pricing information
reported by drug manufacturers and used in the calculation of reimbursements
under the Medicaid program administered jointly by the federal government and
the states. The Company has supplied documents in connection with these
investigations and has had preliminary discussions with representatives of
the federal and state governments, but is unable to estimate at this time
what effect, if any, these investigations will have on the Company's pricing
policies or its financial statements. There can be no assurance that these
investigations will not result in changes to the Company's pricing policies
or other actions which might have a material adverse effect on the Company's
financial position, results of operations or cash flows.
The Company is also a defendant in various actions, claims, and legal
proceedings arising from its normal business operations. Management believes the
Company has meritorious defenses and intends to vigorously defend against all
allegations and claims. As the ultimate outcome of these matters is uncertain,
no contingent liabilities or provisions have been recorded in the accompanying
financial statements for such matters. However, in management's opinion,
liabilities arising from such matters, if any, will not have a material adverse
effect on consolidated financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq National Market under the symbol "SCRI." The following table sets forth,
for the periods indicated, the range of high and low trade price information for
the Company's Common Stock on the Nasdaq National Market.
HIGH LOW
-------- --------
January 1 - March 31, 1998 $ 6.13 $ 4.69
April 1 - June 30, 1998 5.44 3.63
July 1 - September 30, 1998 5.00 2.56
October 1 - December 31, 1998 4.75 3.00
HIGH LOW
-------- --------
January 1 - March 31, 1999 $ 5.75 $ 2.63
April 1 - June 30, 1999 4.78 3.19
July 1 - September 30, 1999 4.88 3.50
October 1 - December 31, 1999 8.63 3.94
As of March 15, 2000, there were approximately 774 holders of record of
the Company's Common Stock.
The Company has not paid a cash dividend to date on its Common Stock. The
Company elected not to make a payment of quarterly cash dividends on its
Preferred Stock in June, September and December 1995 and March and June 1996.
The Company resumed payment of the Preferred Stock dividend in September 1996.
Unless full cumulative dividends are paid on the Company's outstanding Preferred
Stock, cash dividends may not be paid or declared and set aside for payment on
the Company's Common Stock. At March 15, 2000, the Company had undeclared
cumulative Preferred Stock dividends of approximately $7.5 million. The Company
does not anticipate paying cash dividends on its Common Stock in the foreseeable
future. The Company intends to retain its earnings, if any, for the development
of its business.
21
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
The data set forth below should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
document.
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1999 1998(4) 1997(2)(4) 1996 1995
--------- --------- --------- --------- ---------
Revenues:
Product sales $ 223,700 $ 168,080 $ 140,424 $ 54,636 $ 53,464
Contract research and license fees 5,303 10,415 9,257 3,666 11,062
License restructuring fee -- -- -- -- 50,000
Sale of investment -- -- -- -- 5,359
--------- --------- --------- --------- ---------
Total revenues 229,003 178,495 149,681 58,302 119,885
Cost and expenses:
Cost of sales 143,752 119,237 99,008 40,654 33,183
Research and development 15,797 23,140 26,118 31,081 38,762
Selling, general and administrative 41,001 35,968 46,993 32,839 31,137
Amortization expense 6,098 5,982 4,367 -- --
Interest and other, net 7,188 6,719 2,298 (473) (1,214)
Write-down of investment and
restructuring charge 1,777 1,839 14,666 -- 1,092
Acquisition of in-process research and
development -- -- 29,200 -- 18,269
Litigation settlement -- -- -- -- 4,000
--------- --------- --------- --------- ---------
Total costs and expenses 215,613 192,885 222,650 104,101 125,229
--------- --------- --------- --------- ---------
Income (loss) before income taxes 13,390 (14,390) (72,969) (45,799) (5,344)
Provision for income taxes 1,746 5,111 3,179 -- 550
--------- --------- --------- --------- ---------
Net income (loss) before minority interest 11,644 (19,501) (76,148) (45,799) (5,894)
Minority interest 31 800 -- -- --
--------- --------- --------- --------- ---------
Net income (loss) 11,675 (18,701) (76,148) (45,799) (5,894)
Dividends on preferred stock, including
undeclared cumulative dividends of
$7,500 as of December 31, 1999 (6,000) (6,000) (6,000) (6,000) (6,000)
--------- --------- --------- --------- ---------
Net income (loss) applicable to common shares $ 5,675 $ (24,701) $ (82,148) $ (51,799) $ (11,894)
--------- --------- --------- --------- ---------
Basic and diluted net income (loss) per common
share(1) $ .07 $ (.31) $ (1.14) $ (1.41) $ (.36)
--------- --------- --------- --------- ---------
Shares used in computing per
share amounts - basic(1) 85,340 79,479 71,800 36,624 33,231
========= ========= ========= ========= =========
Shares used in computing per
share amounts - diluted(1) 85,908 79,479 71,800 36,624 33,231
========= ========= ========= ========= =========
DECEMBER 31,
-------------------------------------------------------------
BALANCE SHEET DATA: 1999 1998(4) 1997(3)(4) 1996 1995
--------- --------- --------- --------- ---------
Working capital $ 42,278 $ 18,279 $ 40,203 $ 24,754 $ 67,687
Total assets 386,179 372,728 364,339 89,550 118,560
Long-term obligations, less current maturities 65,244 79,597 75,294 585 46
Accumulated deficit (348,310) (359,985) (341,284) (265,136) (219,337)
Stockholders' equity 208,854 169,413 188,090 67,999 102,303
(1) Computed on the basis described for earnings per share in Note 2 to the
financial statements.
(2) 1997 amounts include the results for Rakepoll Holding B.V. from February
28, 1997, the date of acquisition (see Note 1).
(3) Balance sheet data as of December 31, 1997 includes amounts relating to
the acquisition of Rakepoll Holding B.V. and Diaspa, S.p.A. (see Note 1).
(4) Restated to reflect the retroactive effect to the change in accounting for
certain inventories from the LIFO method to the FIFO method during 1999
(see Note 3).
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in this Annual Report on Form 10-K, the words "expects,"
"anticipates," "estimates" and similar expressions are intended to identify
forward-looking statements. Such statements involve risks and uncertainties,
including the timely development, regulatory approvals, and successful marketing
of new products and acceptance of new products, the impact of competitive
products, product costs and pricing, changing market conditions and the other
risks detailed throughout this Form 10-K, including those listed under "RISK
FACTORS THAT MAY AFFECT RESULTS." Actual results may differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which represent the Company's judgment as of the
date of the filing of this Form 10-K. The Company disclaims, however, any intent
or obligation to update these forward-looking statements.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
In 1999, the Company reported a net income applicable to common shares
of $5.7 million (after preferred stock dividends of $6.0 million for the
year) as compared to a net loss applicable to common shares of $24.7 million
in 1998 (after preferred stock dividends of $6.0 million for the year), and a
net loss of $82.1 million in 1997 (after preferred stock dividends of $6.0
million for the year). The 1999 results included a $1.8 million charge
related to the divestiture of a 46% interest in Metabasis, a proprietary
research and development subsidiary. As a result of the divestiture, the
operating results of Metabasis are included in the Company's consolidated
results through the quarter ended March 31, 1999. Starting in the second
quarter of 1999, Metabasis has been accounted for under the equity method.
The 1997 loss included an in-process research and development charge of $29.2
million recognized as a part of the purchase price for the Rakepoll Holding
acquisition, along with a restructuring charge of $11.5 million related to
the divestiture of an 81% interest in Gensia Automedics, Inc. ("Automedics"),
and a one-time restructuring charge of $3.2 million for costs from relocating
the Company's headquarters from San Diego to Irvine, California. Total
revenues for 1999 were $229.0 million as compared to $178.5 million in 1998,
and $149.7 million in 1997. During 1999, the Company's subsidiary, Sicor
S.p.A. changed its method of determining the cost of inventories from the
last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method.
Accordingly, all previously reported results have been restated to reflect
the retroactive application of this accounting change as required by
generally accepted accounting principles. The accounting change reduced the
net income for 1999 by $0.9 million. The net loss previously reported for
1998 was increased by $0.1 million and the net loss previously reported for
1997 was reduced by $0.5 million.
Product sales increased to $223.7 million in 1999, from $168.1 million in
1998 and from $140.4 million in 1997. The increase in product sales in 1999
compared to 1998 is primarily due to increased sales by Gensia Sicor
Pharmaceuticals mainly from the launch of its new product, propofol and from the
sale of oncology finished goods inventory to Abbott Laboratories as a result of
the Sales and Distribution Agreement entered into with Abbott in January 1999.
Pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984
(the "Waxman/Hatch Act"), the Company had a 180-day exclusive period in which to
sell propofol without other generic competition. The 180-day exclusivity period
was initiated in the second quarter of 1999 with the commercial launch of
propofol and expired on October 15, 1999. The Company's propofol product is
being sold in the U.S. through Baxter, which is the Company's marketing partner
for a variety of products in the U.S.
23
Product sales also increased in the international operations in 1999 compared
to 1998 mainly as the result of sales of new products. The increase in
product sales in 1998 compared to 1997 is due to the inclusion of operating
results for Rakepoll Holding for the full twelve months in 1998 as opposed to
only from February 28, 1997, the date of its acquisition, for the same period
in 1997, and increased sales at Sicor de Mexico principally resulting from
megestrol product sales. Sicor de Mexico successfully completed its initial
FDA facility inspection in the second quarter of 1998 and commenced shipments
of megestrol to a major U.S. customer. The increase is also due to the
acquisition of Diaspa in December 1997 and increased sales at Genchem Pharma
and Gensia Sicor Pharmaceuticals. Partially offsetting these increases was
the termination of the Company's distribution agreement for the Laryngeal
Mask Airway ("LMA") effective January 1, 1998. In 1997, the LMA accounted for
approximately $12.1 million in product sales. The Company expects product
sales to increase in 2000 compared to 1999 primarily from the continued
growth of Gensia Sicor Pharmaceuticals' products approved for sale in the
U.S. during 1999, mainly propofol, along with new products which the Company
expects to be approved for sale by regulatory agencies during 2000 (e.g.
hydralazine, thiotepa and bleomycin).
Cost of sales in 1999 was $143.8 million which yielded a product gross
margin of 36%, compared to a cost of sales of $119.2 million in 1998 which
yielded a gross margin of 29%, and a cost of sales of $99.0 million in 1997
which yielded a gross margin of 29%. The increase in gross margin in 1999
compared to 1998 was primarily due to a more profitable product mix. This mix
was positively impacted by the U.S. launch of three new products during the
second quarter of 1999, propofol, haloperidol and alprostadil.
Contract research and license fees for the years ended December 31,
1999, 1998, and 1997 were $5.3 million, $10.4 million, and $9.3 million,
respectively. The decrease in 1999 compared to 1998 was primarily due to the
divestiture of Metabasis during the second quarter of 1999 and an up-front
non-refundable license fee received in June 1998 from a major U.S.
pharmaceutical company for the development and production of sample batches
of a bulk drug substance. The 1999 decrease was partially offset by a $3.5
million reimbursement received in March 1999 from Baxter for Gensia Sicor
Pharmaceuticals' expenses incurred for propofol research and development. The
increase in 1998 compared to 1997 was primarily due to an up-front
non-refundable license fee received in June 1998 from a major U.S.
pharmaceutical company for the development and production of sample batches
of a bulk drug substance. In addition, in the fourth quarter of 1998,
Metabasis achieved a certain milestone with Sankyo Co. Ltd., which resulted
in the Company recording $1 million in research revenue. These increases were
partially offset by a decrease in license revenue from fully amortizing
certain deferred license revenue in 1998.
Research and development expenses decreased to $15.8 million in 1999 from
$23.1 million in 1998, and $26.1 million in 1997. The decrease in expenses in
1999 compared to 1998 was primarily due to the exclusion of Metabasis' expenses
as a result of the divestiture of a 46% interest in Metabasis in the second
quarter of 1999 and research related milestone payments made during 1998. The
decrease in expenses in 1998 compared to 1997 was primarily due to the exclusion
of Automedics' expenses as a result of the divestiture of an 81% interest in
Automedics in the fourth quarter of 1997, and lower research spending by
Metabasis. This was offset by increased expenses by the Rakepoll Holding
companies as a result of the inclusion of operating results for Rakepoll Holding
for the full twelve month period ended December 31, 1998 as opposed to only from
February 28, 1997, the date of its acquisition, for the same period in 1997.
Additionally, there was an increase in expenses from several research related
milestone payments made during 1998, including costs incurred by Gensia Sicor
Pharmaceuticals related to a co-development agreement with ASTA Medica.
Selling, general and administrative expenses for the years ended December
31, 1999, 1998, and 1997 were $41.0 million, $36.0 million, and $47.0 million,
respectively. The increase in expenses in 1999 compared to 1998 was mainly due
to a cash payment received in the third quarter of 1998 from the settlement of a
contamination lawsuit with Great Lakes Chemical Corporation, and higher legal
expenses in 1999 related to the propofol litigation and other patent litigation.
This increase was partially offset by lower expenses in 1999
24
resulting from the absence of Metabasis' expenses after the first quarter of
1999 due to the divestiture and the charge for the Protocol Systems lawsuit
in 1998 (see Note 17). The decrease in expenses in 1998 compared to 1997 was
primarily due to the divestiture of Automedics and the settlement of the
contamination lawsuit with Great Lakes Chemical Corporation in June 1998.
These decreases were partially offset by the inclusion of operating results
for Rakepoll Holding for the full twelve months in 1998 compared to ten
months in the same period of 1997 and the reserve for the Protocol Systems
lawsuit in 1998.
The Company recorded amortization expenses of $6.1 million, $6.0 million,
and $4.4 million for the years ended December 31, 1999, 1998, and 1997,
respectively. The increase in expenses in 1998 compared to 1997 was due to the
amortization of goodwill resulting from the acquisition of 50% of Diaspa in
December 1997 and the remaining 50% of Diaspa in June 1998, the acquisition of
Genchem Vacallo in March 1998, and the inclusion of expenses related to the
identified intangibles and goodwill resulting from the acquisition of Rakepoll
Holding for the full twelve months in 1998 compared to ten months in the same
period of 1997.
The Company had interest and other expenses of $7.2 million, $6.7
million, and $2.3 million for the years ended December 31, 1999, 1998, and
1997, respectively. The increase in expenses in 1999 compared to 1998 was
primarily due to higher exchange losses in 1999 offset by a large product
donation in the third quarter of 1998. The increase in expenses in 1998
compared to 1997 was mainly due to higher interest expenses, expenses from
product donations, and a gain recognized on the sale of a parcel of land in
1997.
During the second quarter of 1999, the Company divested a 46% interest in
Metabasis, a proprietary research and development subsidiary, to Metabasis
management. Following this transaction, the Company retains a 46% equity
interest in Metabasis. Subsequently, due to the uncertain value of the remaining
interest, the Company elected to write off its remaining investment in Metabasis
of $1.8 million.
The Company elected in January 1998 to write down the investment value of
its 19% interest in Automedics from $1.8 million to $0.7 million, due to, among
other things, the lack of market acceptance of the GenESA System. The Company
subsequently wrote off the remaining balance of $0.7 million in the fourth
quarter of 1998.
In December 1997, the Company divested an 81% interest in Automedics in
order to reduce future operating losses and cash flow requirements associated
with this business. As discussed in Note 13, due to the contingent nature of the
royalty and milestone payments associated with this transaction, the Company
recorded a charge of approximately $11.5 million. This restructuring charge
included a $7.3 million write-off of intangible assets associated with products
transferred into Automedics, specifically prepaid royalties for the GenESA
System and Brevibloc rights, a $2.9 million loss realized on the sale of
Automedics' assets and liabilities, and $1.3 million of severance related
expenses.
The Company also recorded a restructuring charge of $3.2 million in 1997
for the expected costs related to the consolidation of the Company's
headquarters from San Diego, California to Irvine, California where Gensia Sicor
Pharmaceuticals occupies approximately 220,000 square feet of manufacturing,
warehousing, laboratory and office space. This consolidation was completed
during the first quarter of 1998.
In connection with the Rakepoll Holding acquisition in 1997, the assets
and liabilities of Rakepoll Holding were adjusted to their estimated fair
values, and the Company incurred a one-time $29.2 million write-off related to
the value assigned to the acquired in-process research and development. This
charge is not deductible for income tax purposes. The determination of acquired
in-process research and development took under consideration both the costs and
internal resources necessary to advance the in-process technology to
25
clinical development and eventual approval by regulatory agencies. Management
also considered the risks of possible negative outcomes during clinical
development, as well as changes in the market place with respect to competing
technologies. The Company currently estimates that it will need to expend over
$5 million to develop this in-process technology. The in-process technology may
never be successfully developed.
The Company had income tax expenses of $1.7 million, $5.1 million, and
$3.2 million for the years ended December 31, 1999, 1998, and 1997,
respectively. The decrease in tax expense in 1999 compared to 1998 is
primarily attributable to the utilization of net operating loss carryforwards
in the U.S. and reduced profitability in one of the Italian operations. As of
December 31, 1999, the Company had a federal tax net operating loss
carryforward of approximately $253.6 million and a credit carryforward of
approximately $11.6 million. The acquisition of Rakepoll Holding by the
Company caused a cumulative change in ownership of more than 50% within the
three-year period ending on February 28, 1997. This ownership change had a
material impact on the utilization of approximately $238.2 million and $10.3
million of net operating loss and credit carryforward, respectively. The
Company's Section 382 limitation is estimated to be approximately $11.5
million per year. Unused annual limitations may be carried over to later
years, and the amount of the limitation may, under certain circumstances, be
increased by the unrealized net built-in-gains in assets held by the Company
at the time of the ownership change that are recognized within the five-year
period after the ownership change.
The Company had minority interest income of $31,000 for the year ended
December 31, 1999 which represented the minority stockholders' proportionate
share of the loss in Metabasis. Minority interest income for the year ended
December 31, 1998 was $0.8 million, which represented the minority stockholders'
proportionate share of the loss in Metabasis and Diaspa. In June 1998, Sicor
S.p.A. purchased the remaining 50% interest in Diaspa.
Dividends relate to the Company's convertible exchangeable preferred stock
issued in February 1993. Annual dividends on preferred stock of $6.0 million in
1999, 1998, and 1997 consisted of payments of $1.5 million during each of the
four quarters. In order to reduce its cash usage, the Company's Board of
Directors determined not to declare the preferred stock quarterly dividend
payments for June, September and December 1995 and March and June 1996. The
Company resumed payments of preferred stock dividends in September 1996. Through
March 2000, the Company has approximately $7.5 million in undeclared cumulative
preferred dividends. If the Company chooses not to declare dividends for six
cumulative quarters, the holders of Convertible Preferred Stock, voting
separately as a class, will be entitled to elect two additional directors until
the dividend in arrears has been paid.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had cash and cash equivalents of
$47.5 million and working capital of $42.3 million compared to $24.5 million and
$18.3 million, respectively, as of December 31, 1998. The increase in cash and
working capital in 1999 resulted from $41.6 million of cash provided by
operations and $15.3 million of cash from financing activities, offset by
investment activities of $31.4 million and $2.5 million of exchange rate
changes.
Significant cash flow changes in operating assets and liabilities during
the year ended 1999 included a $2.2 million decrease in inventories and a $10.0
million increase in accounts payable and accrued expenses. The decrease in
inventory reflects the Company's successful launch of new products and tighter
inventory controls. The increase in accounts payable and accrued expenses
reflects the Company's higher expenses associated with new products and deferred
income from its alliance partners, Abbott and Baxter.
26
During 1999, the Company expended approximately $29.1 million for
property and equipment. The expenditures related primarily to the following:
(i) increased propofol capacity at Gensia Sicor Pharmaceuticals; (ii) a new
anthracyclines facility and related infrastructure at Sicor S.p.A.; and (iii)
significant investments in the injectable and oncological facilities at
Lemery. In December 1999, Diaspa completed a sale-leaseback transaction where
it sold certain assets for net proceeds of approximately $12.3 million. The
assets are being leased back from the purchaser over a period of 6.5 years
for equipment and 9.5 years for land and buildings. Under the agreement,
Diaspa will maintain deposits, initially in the amount of approximately $9.8
million, which will be reduced as future lease payments are made.
During 1999, the Company paid cash dividends on its preferred stock
totaling $6.0 million. At December 31, 1999, the Company had five cumulative
quarters, or approximately $7.5 million, in undeclared cumulative preferred
dividends. If the Company chooses to not declare dividends for six cumulative
quarters, the holders of the preferred stock, voting separately as a class, will
be entitled to elect two additional directors until the dividend in arrears has
been paid.
During the second quarter of 1999, the Company raised approximately $35
million through a private placement of SICOR units for $4.00 per unit. Each unit
consists of one share of Common Stock and a warrant to purchase one-tenth of one
share of the Company's Common Stock for $5.75 per share. In connection with this
transaction, the Company repaid the loan of $10 million made in the fourth
quarter of 1998 by Carlo Salvi, the Company's President, Chief Executive
Officer, director and principal stockholder. Mr. Salvi purchased 2.5 million
SICOR units for a total of $10 million in the private placement.
The Company had a net reduction of $6.8 million in short-term borrowings,
proceeds of $14.1 million from the issuance of long-term debt and capital lease
obligations, and principal reductions of $12.5 million in long-term debt and
capital lease obligations during 1999. These changes reflect the expansion of
operations and the pay down of higher cost loans utilizing operating cash flow
and a portion of the private placement funds received in the second quarter of
1999.
In May 1998, Sicor S.p.A. received notification from the Italian Ministry
of University, Scientific & Technological Research that it has been awarded
approximately $8.8 million in a grant and subsidized loan package for an applied
research program related to the development of anthracycline derivatives. The
receipt of funding for the research program is contingent upon presentation of a
statement of progress at established "Checkpoints," the first of which occurred
in the third quarter of 1999. Accordingly, Sicor S.p.A. received approximately
$0.8 million in the form of a subsidized loan, which is repayable in semi-annual
installments of interest only for 3.5 years and subsequently repayable in
semi-annual installments of principal and interest through 2009. Sicor S.p.A.
expects the next funding to occur in the second quarter of 2000 in the amount of
approximately $0.6 million.
The Company expects to incur additional costs, including manufacturing
and marketing costs, to support anticipated product launches. The planned
spending on sales and marketing activities during 2000 related to promoting
products is approximately $14.5 million. Management also plans to invest in
plant and equipment to increase and improve existing manufacturing capacity,
including the expansion of facilities in Italy and Lemery and to make further
investments in the oncology manufacturing facility at Gensia Sicor
Pharmaceuticals in Irvine, California. Additional investments in plant and
equipment are also planned for propofol production at Gensia Sicor
Pharmaceuticals. Future spending relating to these planned capital
expenditures in Italy, Mexico and Irvine, California, along with new planned
capital expenditures, are estimated to total $34 million during 2000. This
capital spending is anticipated to be funded through the Company's cash flow
from operations and new lease agreements.
27
The Company has significantly improved its cash flow results. During 1999,
net cash provided by operating activities was $41.6 million compared to $9.7
million net cash used in operating activities for the same period of 1998. The
Company anticipates that its operating cash flows, combined with its current
cash and cash equivalents on hand at December 31, 1999 of $47.5 million, and
commitments from third parties, will enable it to maintain its current and
planned operations. In connection with its plans for expanding its business, to
accomplish its core strategy of being a leading fully-integrated provider of
injectable pharmaceutical products and services, the Company's management and
Board of Directors will continue to evaluate the need to raise additional
capital and, if appropriate, pursue equity, debt and lease financing, or a
combination of these, for its capital and investment needs. Such financings may
not be available on acceptable terms, or at all. If financing is not available,
the Company may have to reduce planned expenditures, discontinue certain
operations, or otherwise restructure to continue operations.
In March 1999, the Company's Italian subsidiary, Sicor S.p.A., entered
into twenty monthly U.S. $1 million U.S. Dollar put/Lira call options
exercisable in 1999, ten at a strike price of Lira 1,696 per U.S. $1 and an
additional ten at a strike price of Lira 1,750 per U.S. $1. Additionally, in
September 1999, Sicor S.p.A. entered into sixteen monthly U.S. Dollar
put/Lira call options, the first four contracts, exercisable in 1999, were
for U.S. $0.5 million and the next twelve contracts, exercisable starting in
January 2000, were for U.S. $1 million at a strike price of Lira 1,800 per
U.S. $1. In addition, in November 1999, Sicor S.p.A. entered into twelve
monthly U.S. $1 million U.S. Dollar put/Lira call options at a strike price
of Lira 1,800 per U.S. $1 exercisable starting in January 2000. As of December
31, 1999, no contracts have been exercised.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The cost incurred
to date for the Year 2000 transition was approximately $1.7 million which
includes software and hardware upgrades that would have been purchased in the
normal course of business to accommodate future growth and worldwide
integration. The Company is not aware of any material problems resulting from
Year 2000 issues, either with its products, its internal systems, or the
products and services of third parties. The Company will continue to monitor its
mission critical computer applications and those of its suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk with respect to its debt outstanding
and foreign currency transactions. Most of the Company's long-term borrowings
are based on fixed interest rates and therefore not subject to material risk
from changes in interest rates. Short-term borrowings, however, are based on
prime or other indicative base rates plus a premium. If these indicative base
rates increase, the Company will incur higher relative interest expense and
similarly, a decrease in the rates will reduce relative interest expense. In
recent years, there have not been significant fluctuations in the prime or other
indicative base rates. A 1.0% change in the prime rate or other indicative base
rates would not materially change interest expense assuming levels of debt
consistent with historical amounts. Due to the Company's international
operations, certain transactions are conducted in foreign currencies. The
Company's Italian operations hedge against transactional risks by borrowing
against its receivables and against economic risk by buying monthly call options
to strike at a rate equal to or above the budgeted exchange rate.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors F-1
Consolidated Balance Sheets at December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1999 F-3
Consolidated Statement of Stockholders' Equity for each of
the three years in the period ended December 31, 1999 F-4
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999 F-5
Notes to Consolidated Financial Statements F-6
29
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
SICOR Inc.
We have audited the accompanying consolidated balance sheets of SICOR Inc. as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SICOR Inc. at
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
As explained in Note 3 to the financial statements, the Company has given
retroactive effect to the change in accounting for inventories from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method.
ERNST & YOUNG LLP
San Diego, California
February 16, 2000
F-1
SICOR INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value data)
DECEMBER 31,
1999 1998
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 47,506 $ 24,461
Accounts receivable, net 49,623 51,407
Inventories, net 47,716 54,203
Other current assets 9,514 11,926
--------- ---------
Total current assets 154,359 141,997
Property and equipment, net 101,839 105,067
Other noncurrent assets 22,551 11,243
Intangibles, net 42,971 46,572
Goodwill, net 64,459 67,849
--------- ---------
$ 386,179 $ 372,728
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,363 $ 46,552
Accrued payroll and related expenses 5,858 3,156
Other accrued liabilities 25,680 18,087
Short-term borrowings 36,685 49,625
Current portion of long-term debt 6,974 5,241
Current portion of capital lease obligations 1,521 1,057
--------- ---------
Total current liabilities 112,081 123,718
Other long-term liabilities 9,599 5,826
Long-term debt, less current portion 35,661 41,108
Long-term debt with related party -- 10,000
Long-term capital lease obligations, less current portion 2,447 1,210
Deferred taxes 17,537 21,453
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par value, 5,000 shares authorized,
1,600 shares issued and outstanding, liquidation preference of
$80,000 16 16
Common stock, $.01 par value, 125,000 shares authorized, 88,848
and 79,717 shares issued and outstanding at December 31, 1999
and 1998, respectively 888 797
Additional paid-in capital 558,802 528,545
Accumulated deficit (348,310) (359,985)
Accumulated other comprehensive income (loss) (2,542) 40
--------- ---------
Total stockholders' equity 208,854 169,413
--------- ---------
$ 386,179 $ 372,728
========= =========
See accompanying notes.
F-2
SICOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Revenues:
Product sales $ 223,700 $ 168,080 $ 140,424
Contract research and license fees 5,303 10,415 9,257
--------- --------- ---------
Total revenues 229,003 178,495 149,681
Costs and expenses:
Cost of sales 143,752 119,237 99,008
Research and development 15,797 23,140 26,118
Selling, general and administrative 41,001 35,968 46,993
Amortization expense 6,098 5,982 4,367
Interest and other, net 7,188 6,719 2,298
Write-down of investment and restructuring charge 1,777 1,839 14,666
Acquisition of in-process research and development -- -- 29,200
--------- --------- ---------
Total costs and expenses 215,613 192,885 222,650
--------- --------- ---------
Income (loss) before income taxes 13,390 (14,390) (72,969)
Provision for income taxes 1,746 5,111 3,179
--------- --------- ---------
Net income (loss) before minority interest 11,644 (19,501) (76,148)
Minority interest 31 800 --
--------- --------- ---------
Net income (loss) 11,675 (18,701) (76,148)
Dividends on preferred stock (6,000) (6,000) (6,000)
--------- --------- ---------
Net income (loss) applicable to common shares $ 5,675 $ (24,701) $ (82,148)
========= ========= =========
Net income (loss) per share
- Basic $ .07 $ (.31) $ (1.14)
========= ========= =========
- Diluted $ .07 $ (.31) $ (1.14)
========= ========= =========
Shares used in calculating per share amounts
- Basic 85,340 79,479 71,800
========= ========= =========
- Diluted 85,908 79,479 71,800
========= ========= =========
See accompanying notes.
F-3
SICOR INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Years Ended December 31, 1999
(in thousands)
Convertible
Preferred Stock Common Stock Additional
------------------- ------------------- Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------- ----------
Balance at December 31, 1996 1,600 $ 16 39,658 $ 396 $ 332,782
Comprehensive income (loss):
Net loss
Foreign currency translation adjustments
Unrealized gain on available for sale
securities
Comprehensive loss
Issuance of common stock 38,991 390 191,069
Cash dividends on preferred stock (6,000)
Issuance of warrants 3,571
Amortization of unearned compensation 776
Investment by Sankyo in Metabasis
Therapeutics, Inc. 7,250
----- --------- ------ --------- ---------
Balance at December 31, 1997 1,600 16 78,649 786 529,448
Comprehensive income (loss):
Net loss
Foreign currency translation adjustments
Comprehensive loss
Issuance of common stock 1,068 11 5,097
Cash dividends on preferred stock (6,000)
----- --------- ------ --------- ---------
Balance at December 31, 1998 1,600 16 79,717 797 528,545
Comprehensive income (loss):
Net income
Foreign currency translation adjustments
Comprehensive income
Issuance of common stock 9,131 91 36,441
Cash dividends on preferred stock (6,000)
Other (279)
Amortization of unearned compensation 95
----- --------- --------- --------- ---------
Balance at December 31, 1999 1,600 $ 16 88,848 $ 888 $ 558,802
===== ========= ========= ========= =========
Accumulated
Other Total
Accumulated Unearned Comprehensive Stockholders'
Deficit Compensation Income(Loss) Equity
------------ ------------ ------------- -------------
Balance at December 31, 1996 $(265,136) $ (55) $ (4) $ 67,999
Comprehensive income (loss):
Net loss (76,148) (76,148)
Foreign currency translation adjustments (876) (876)
Unrealized gain on available for sale
securities 4 4
-------------
Comprehensive loss (77,020)
Issuance of common stock 191,459
Cash dividends on preferred stock (6,000)
Issuance of warrants 3,571
Amortization of unearned compensation 55 831
Investment by Sankyo in Metabasis
Therapeutics, Inc. 7,250
--------- --------- --------- ---------
Balance at December 31, 1997 (341,284) -- (876) 188,090
Comprehensive income (loss):
Net loss (18,701) (18,701)
Foreign currency translation adjustments 916 916
-------------
Comprehensive loss (17,785)
Issuance of common stock 5,108
Cash dividends on preferred stock (6,000)
--------- --------- --------- ---------
Balance at December 31, 1998 (359,985) -- 40 169,413
Comprehensive income (loss):
Net income 11,675 11,675
Foreign currency translation adjustments (2,582) (2,582)
-------------
Comprehensive income 9,093
Issuance of common stock 36,532
Cash dividends on preferred stock (6,000)
Other (279)
Amortization of unearned compensation 95
--------- --------- --------- ---------
Balance at December 31, 1999 $(348,310) $ -- $ (2,542) $ 208,854
========= ========= ========= =========
See accompanying notes.
F-4
SICOR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 11,675 $ (18,701) $ (76,148)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 18,872 17,947 14,320
(Gain) loss on disposal of property and equipment 248 256 (850)
Minority interest (31) (800) --
Deferred income tax (3,145) 2,020 2,034
Inventory purchase price allocation adjustments 564 301 4,416
Write-down of investment and restructuring charge 1,777 1,839 14,666
Charge for acquired in-process research and development -- -- 29,200
Changes in operating assets and liabilities, net of effects
from acquisitions and divestitures:
Accounts receivable (1,354) (4,549) (10,782)
Inventories 2,237 (7,279) 231
Prepaid expenses and other assets 771 (5,278) 5,142
Accounts payable and accrued expenses 9,964 4,548 (9,804)
--------- --------- ---------
Net cash provided by (used in) operating activities 41,578 (9,696) (27,575)
Cash flows from investing activities:
Purchases of property and equipment (29,127) (17,572) (24,291)
Proceeds from sale of property 12,433 131 2,911
Other noncurrent assets (9,758) -- --
Divestiture of Metabasis Therapeutics, Inc. (4,911) -- --
Acquisitions of businesses, net of cash acquired -- (7,551) (10,975)
Proceeds from short-term investments -- 2,000 18,747
Purchases of short-term investments -- (2,000) (13,651)
Acquisition of intangible asset -- -- (5,593)
Other -- (697) 187
--------- --------- ---------
Net cash used in investing activities (31,363) (25,689) (32,665)
Cash flows from financing activities:
Payments of cash dividends on preferred stock (6,000) (6,000) (6,000)
Issuance of common stock and warrants, net 36,532 1,556 44,848
Change in short-term borrowings (6,791) 11,499 10,442
Issuance of long-term debt from related party -- 10,000 --
Issuance of long-term debt and capital lease obligations, net 14,112 3,420 33,425
Principal payments on long-term debt from related party (10,000) -- --
Principal payments on long-term debt and capital lease obligations (12,549) (4,134) (3,084)
Proceeds from Sankyo's investment in Metabasis -- -- 7,250
Funding from minority shareholder -- 972 --
Payments for debt issuance costs -- -- (931)
--------- --------- ---------
Net cash provided by financing activities 15,304 17,313 85,950
--------- --------- ---------
Effect of exchange rate changes on cash (2,474) 909 (357)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 23,045 (17,163) 25,353
Cash and cash equivalents at beginning of year 24,461 41,624 16,271
--------- --------- ---------
Cash and cash equivalents at end of year $ 47,506 $ 24,461 $ 41,624
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 5,383 $ 4,586 $ 2,657
Income taxes paid 1,120 3,564 3,737
Supplemental schedule of non-cash investing and financing activities:
Discount on long-term debt -- -- 3,571
Common stock issued to settle accrued liabilities -- 3,553 --
Common stock issued to acquire net assets of businesses:
Fair value of assets acquired, other than cash -- -- 206,933
Liabilities assumed -- -- (81,270)
See accompanying notes.
F-5
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION
ORGANIZATION
SICOR Inc. (formerly Gensia Sicor Inc.) ("SICOR" or the "Company"), a
Delaware corporation, was incorporated November 17, 1986. SICOR is a
specialty pharmaceutical company focused on the development, manufacture and
marketing of products for worldwide oncology and injectable pharmaceutical
markets. The Company is headquartered in Irvine, California. On February 28,
1997, SICOR completed the acquisition of Rakepoll Holding B.V. ("Rakepoll
Holding") from Rakepoll Finance N.V. ("Rakepoll Finance"). Rakepoll Holding
is the parent company of three specialty pharmaceutical businesses:
SICOR-Societa Italiana Corticosteroidi S.p.A. ("Sicor S.p.A.") of Milan,
Italy, and two companies located in Mexico: Lemery, S.A. de C.V. ("Lemery")
and Sicor de Mexico, S.A de C.V. ("Sicor de Mexico"). In addition, in
December 1997, Sicor S.p.A. purchased a 50% equity interest in Diaspa S.p.A.
("Diaspa"), an Italian company engaged in the manufacture of certain raw
materials used in Sicor S.p.A.'s business. In June 1998, Sicor S.p.A.
purchased the remaining 50% of Diaspa. During the second quarter of 1999, the
Company divested a 46% interest in Metabasis Therapeutics, Inc.
("Metabasis"), a proprietary research and development subsidiary, after which
the Company retains a 46% interest.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiary companies, all of which are wholly owned.
Affiliated companies in which the Company does not have a controlling
interest, or for which control is expected to be temporary, are accounted for
using the equity method. The four wholly-owned subsidiaries are as follows:
Rakepoll Holding B.V., Gensia Sicor Pharmaceuticals, Inc. ("Gensia Sicor
Pharmaceuticals"), Gensia Development Corporation and Genchem Pharma Ltd.
("Genchem Pharma"). All significant intercompany accounts and transactions
have been eliminated. The accompanying consolidated balance sheets at
December 31, 1999 and 1998 include the assets, liabilities and stockholders'
equity of the combined companies. The consolidated statement of operations
and statement of cash flows for the year ended December 31, 1997 include the
results for Rakepoll Holding from February 28, 1997 (the date of
acquisition). As noted above, the remaining 50% of Diaspa was acquired during
the second quarter of 1998, and accordingly, Diaspa became a wholly-owned
subsidiary in the second quarter of 1998. Subsequent to the divestiture of a
46% interest in Metabasis, the Company retains a 46% equity interest in
Metabasis. Accordingly, starting in the second quarter of 1999, investment in
Metabasis was accounted for using the equity method as the Company no longer
had control of Metabasis. Consequently, the consolidated statement of
operations and statement of cash flows for the year ended December 31, 1999
include the results for Metabasis through the first quarter of 1999 only.
FINANCIAL STATEMENT PREPARATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Certain
prior year amounts have been reclassified to conform with the current year
presentation.
F-6
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents and short-term investments consist of highly liquid
instruments. The Company considers instruments purchased with an original
maturity of three months or less to be cash equivalents. Management has
classified the Company's short-term investments as available-for-sale securities
in the accompanying financial statements. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. The cost of debt
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization is included in investment income. Realized gains
and losses and declines in value judged to be other than temporary on
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
investment income.
CONCENTRATION OF CREDIT RISK
The Company invests its excess cash in U.S. government securities and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification of
its cash investments and their maturities that should maintain safety and
liquidity. These guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates.
The Company performs ongoing credit evaluations of its customers'
financial condition, and generally does not require collateral. Allowances are
maintained for potential credit losses and such losses have been within
management's expectations. The Company's four largest customers accounted for
approximately 50% of product sales for 1999. At December 31, 1999, these
customers accounted for approximately 45% of net accounts receivable.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method. Effective January 1, 1999, Sicor
S.p.A. changed its method of determining the cost of inventories from the
last-in, first-out (LIFO) method to the FIFO method. See Note 3.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost less accumulated depreciation.
Expenditures for maintenance, repairs and renewals of relatively minor items are
generally charged to expense as incurred. Renewals of significant items are
capitalized. Depreciation is computed on the straight-line method over the
following estimated useful lives: building and building improvements - 11 to 20
years; machinery and equipment - 3 to 15 years; office furniture and equipment 3
to 12 years.
F-7
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
INTANGIBLE ASSETS
The Company has recorded goodwill for the excess purchase price over
the estimated fair values of tangible and intangible assets acquired and
liabilities assumed resulting from acquisitions. In connection with the
acquisitions, a portion of the purchase price was allocated to various
identifiable intangible assets, including developed technology, trademarks
and assembled workforce, based on their fair values at the date of
acquisition. The excess purchase price over the estimated fair value of the
net assets acquired has been assigned to goodwill. Additionally, the Company
has recorded intangible assets related to the purchase of proprietary
technology rights. Amortization of intangible assets is computed on the
straight-line method over the following estimated useful lives: technology
rights - 5 years; assembled workforce - 5 years; developed technology 17
years; trademarks - 30 years; goodwill - 10 to 30 years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
total amount of an asset may not be recoverable. An impairment loss is
recognized when estimated future cash flows expected to result from the use of
the asset and its eventual disposition are less than its carrying amount.
FINANCIAL INSTRUMENTS
The Company does not hold or issue financial instruments for trading
purposes. The Company values financial instruments as required by SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments." The carrying amounts of
cash, accounts receivable, short-term debt and long-term, and variable-rate debt
approximate fair value. The Company estimates that the carrying value of
long-term fixed rate debt approximates fair value based on the Company's
estimated current borrowing rates for debt with similar maturities.
RESEARCH AND DEVELOPMENT EXPENSES
All costs of research and development, including those incurred in
relation to the Company's collaborative agreements, are expensed in the period
incurred.
REVENUE RECOGNITION
Product sales revenues are recorded as products are shipped.
Adjustments to product sales are made for estimated sales discounts offered
due to wholesaler chargebacks, Medicaid-sponsored payor allowance discounts,
and early payment discounts. The Company provides for returns at the time of
sale based on estimated product returns. For contracts under which the
Company is reimbursed for research and development efforts, revenue is
recognized in accordance with the terms of the contract as the related
expenses are incurred. Amounts recorded as revenues are not dependent upon
the success of the research efforts. Nonrefundable license fees in connection
with research and development agreements are recognized on the straight-line
method over the term of the contract.
F-8
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
EARNINGS PER SHARE
Basic EPS includes no dilution and is computed by dividing net income,
after deducting preferred stock dividends, by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilutive effect, determined by the treasury stock method, of additional
common shares that are issuable upon exercise of outstanding stock options
and warrants.
The calculations of basic and diluted weighted average shares outstanding
are as follows:
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
Basic weighted average common shares outstanding 85,340 79,479 71,800
Net effect of dilutive common share equivalents:
Options 325 -- --
Warrants 243 -- --
------ ------ ------
Diluted weighted average common shares outstanding 85,908 79,479 71,800
====== ====== ======
The conversion of the Convertible Exchangeable Preferred Stock (see Note
9) and Subordinated Convertible Notes (see Note 8) was not assumed for purposes
of computing diluted ESP for the years ended December 31, 1999, 1998, and 1997
since its effect would be anti-dilutive.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company accounts for common stock options granted to employees using the
intrinsic value method prescribed by APB No. 25, "Accounting for Stock Issued to
Employees" and, thus, recognizes no compensation expense for options granted
with exercise prices equal to or greater than the fair value of the Company's
common stock on the date of the grant. Deferred compensation for options granted
to non-employees has been determined in accordance with SFAS No. 123 and EITF
96-18 as the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measured. Deferred charges
for options granted to non-employees are periodically remeasured as the
underlying options vest.
COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The new standard established new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income (loss) or stockholders'
equity. SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in stockholders' equity, to be
included in other comprehensive income (loss). Prior year financial statements
have been reclassified to conform to the requirements of SFAS No. 130.
F-9
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries outside the United States, except
those subsidiaries located in highly inflationary economies, are generally
measured using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the rates of exchange at the
balance sheet date. Income and expense items are translated at average monthly
rates of exchange.
FOREIGN CURRENCY CONTRACTS
The Company's Italian operations hedge against transactional risks by
borrowing against its receivables and against economic risk by buying monthly
call options priced to strike at a rate equal to or above the budgeted
exchange rate. The cost of the borrowing is recorded as interest expense when
it is incurred. The cost of the options is recognized at the time the options
are purchased. Gains on the options are recorded as foreign exchange gains at
the time the options are exercised.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which will
be effective January 1, 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. The
Company has not completed its determination of the impact of the adoption of
this new accounting standard on its consolidated financial position or results
of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statement"
("SAB 101"). Among other things, SAB 101 discusses the SEC Staff's view on
accounting for non-refundable up-front fees received in connection with
collaboration agreements. The Company is currently evaluating the impact of SAB
101 on the accounting for up-front license fees received in prior years. Should
the Company determine that a change in its accounting policy is necessary, such
a change will be made effective January 1, 2000 and would result in a charge to
results of operations for the cumulative effect of the change. This amount, if
recognized, would be recorded as deferred revenue and recognized as revenue in
future periods. Prior financial statements would not be restated.
3. CHANGE IN ACCOUNTING PRINCIPLES
Sicor S.p.A., at the time of acquisition in 1997, used the LIFO method
to determine inventory valuation. Effective January 1, 1999, Sicor S.p.A.
changed to the FIFO method. The change in accounting principal, which has
been applied retroactively, was made to conform the inventory valuation
method of the Sicor S.p.A. to the method used for all of the Company's other
operations. At the time of acquisition, this change was considered but
delayed because of the relative insignificance of the accounting change and
the need to concentrate on other more pressing merger related issues. As
expected, since the acquisition, the Company has been more
F-10
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
fully integrated and management believes one worldwide inventory valuation
method is preferable. Additionally, the Company has been in a stable price
environment where LIFO and FIFO are approximately the same and prices are not
expected to increase significantly in the foreseeable future. As such, FIFO more
closely represents current costs in the current stable price environment.
The effect of this change was to decrease income by $0.9 million ($.01 per
share) in 1999, increase income by $0.1 million (no change per share) in 1998,
and decrease income by $0.5 million ($.01 per share) in 1997. There was no
effect on beginning retained earnings in 1997.
4. COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS
December 31,
1999 1998
-------- --------
(in thousands)
Receivables:
Trade receivables $ 51,983 $ 53,337
Less allowance for doubtful accounts (2,360) (1,930)
-------- --------
$ 49,623 $ 51,407
======== ========
Approximately $18.1 million and $30.9 million of trade receivables at
December 31, 1999 and 1998, respectively were pledged as security for short-term
borrowings (see Note 7).
December 31,
1999 1998
--------- ---------
(in thousands)
Inventories:
Raw materials $ 24,767 $ 21,543
Work-in-process 9,421 11,154
Finished goods 17,904 23,704
--------- ---------
52,092 56,401
Less reserve (4,376) (2,198)
--------- ---------
$ 47,716 $ 54,203
========= =========
Other current assets:
Prepaid expenses $ 3,343 $ 2,949
VAT receivable 1,995 1,961
Other taxes receivable 1,911 3,797
Other receivables 2,265 3,219
--------- ---------
$ 9,514 $ 11,926
========= =========
Property and equipment:
Land and land improvements $ 1,452 $ 1,738
Buildings and building improvements 21,161 20,074
Machinery and equipment 91,064 95,336
Office furniture and equipment 4,925 5,942
Construction in progress 19,969 16,301
--------- ---------
138,571 139,391
Less accumulated depreciation and amortization (36,732) (34,324)
--------- ---------
$ 101,839 $ 105,067
========= =========
F-11
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
At December 31, 1999 and 1998, equipment acquired under capital lease
obligations totaled $7.2 million and $5.4 million, respectively. Such leased
equipment is included in property and equipment, net of accumulated amortization
of $1.6 million and $1.0 million at December 31, 1999 and 1998, respectively.
Depreciation expense, including amortization of capital leases, was $11.8
million, $11.0 million, and $9.0 million for the years ended December 31, 1999,
1998 and 1997, respectively.
December 31,
1999 1998
-------- --------
(in thousands)
Other noncurrent assets:
Restricted deposit $ 14,683 $ 4,925
Deferred expenses 4,627 2,198
Deferred tax asset 393 982
Other 2,848 3,138
-------- --------
$ 22,551 $ 11,243
======== ========
Intangibles:
Developed technology $ 45,293 $ 45,293
Trademarks 4,600 4,600
Assembled workforce 2,270 2,270
Technology rights 832 970
-------- --------
52,995 53,133
Less accumulated amortization (10,024) (6,561)
-------- --------
$ 42,971 $ 46,572
======== ========
Goodwill:
Goodwill $ 71,587 $ 72,210
Less accumulated amortization (7,128) (4,361)
-------- --------
$ 64,459 $ 67,849
======== ========
Other current accrued liabilities:
Deferred tax liability $ 5,597 $ 5,618
VAT and other taxes payable 7,225 3,314
Liabilities to marketing partners 4,744 --
Deferred revenue -- 729
Other 8,114 8,426
-------- --------
$ 25,680 $ 18,087
======== ========
Other long-term liabilities:
Deferred revenue $ 5,610 $ 153
Severance indemnities 2,928 3,089
Contamination reserve -- 1,827
Other 1,061 757
-------- --------
$ 9,599 $ 5,826
======== ========
Severance indemnity is paid in Italy to employees upon termination of
their employment. Each year, the employer accrues, for each employee, an amount
partly based on the employee's remuneration and partly based on the revaluation
of amounts previously accrued.
F-12
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. DISTRIBUTION AGREEMENTS
Gensia Sicor Pharmaceuticals entered into a Sales and Distribution
agreement with Abbott Laboratories ("Abbott") in January 1999, under which the
two companies formed a strategic alliance for the marketing and distribution of
oncology products in the United States. Under the agreement, the Company
received $5.6 million from Abbott in the first quarter of 1999 representing an
initial commitment fee to help finance Gensia Sicor Pharmaceuticals' future
development of generic oncology drugs. Given the nature of this commitment, the
Company has elected to recognize these commitment fees over the life of the
agreement, through the year 2005.
Gensia Sicor Pharmaceuticals also entered into an amendment to an
earlier agreement with Baxter Pharmaceutical Products, Inc. ("Baxter") under
which a fee of approximately $3.5 million was received in March 1999 from
Baxter to reimburse Gensia Sicor Pharmaceuticals for its expenses previously
incurred for propofol research and development. The Company recognized this
amount as contract research and license revenue in the first quarter of 1999.
In April 1999, the Company, through Baxter, launched its generic propofol
product.
6. INVESTMENTS
The following is a summary of available-for-sale securities classified as
cash and cash equivalents (in thousands):
December 31,
1999 1998
------- -------
U.S. corporate securities $12,231 $ 5,423
U.S. government securities 14,593 --
------- -------
$26,824 $ 5,423
======= =======
The amortized cost of available-for-sale securities approximated fair
value at both December 31, 1999 and 1998. Gross realized gains and losses on
sales of available-for-sale securities were immaterial in 1999, 1998, and 1997.
7. SHORT-TERM BORROWINGS
Short-term borrowings consist of the following (in thousands):
December 31,
1999 1998
------- -------
Repayable in U.S. dollars and Italian lira under credit line arrangements $35,525 $46,061
Repayable in U.S. dollars and Swiss francs 1,160 3,564
------- -------
$36,685 $49,625
======= =======
The Company's Italian subsidiaries maintain credit line arrangements with
several banks where most are pledged with trade receivables to the banks in
return for short-term borrowings in U.S. dollars and Italian lira. These
transactions effectively eliminate most of the Company's foreign exchange risk
associated with these receivables. The Company retains all credit risk with
respect to the receivables. Consequently, both the receivables and related
borrowings are included in the accompanying
F-13
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
consolidated financial statements. The weighted average interest rate on these
borrowings was approximately 5.7% at December 31, 1999 and 1998.
The short-term borrowings from banks, repayable in U.S. dollars and Swiss
francs are unsecured. The terms of the borrowings range from three to six
months. The weighted average interest rate on these borrowings was approximately
11.2% and 7.2% at December 31, 1999 and 1998, respectively.
8. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
1999 1998
-------- --------
2.675% subordinated convertible notes due 2004, net of unamortized
discount of $2,228 and $2,742 at December 31, 1999 and 1998,
respectively, effective interest rate of 5.9% $ 17,772 $ 17,258
Mortgage notes payable 11,364 15,854
Notes payable to bank 3,660 5,997
Notes payable to suppliers 7,788 5,782
Notes payable to Italian Ministry of Industry 1,003 1,232
Research project loan payable 822 --
Other 226 226
-------- --------
42,635 46,349
Less: current portion (6,974) (5,241)
-------- --------
Long-term debt, net of current portion $ 35,661 $ 41,108
======== ========
In 1997, the Company issued $20 million of Subordinated Convertible Notes
due May 1, 2004 ("the Notes"). The Notes bear interest at the rate of 2.675%
annually, which is payable quarterly in arrears on the last business day of
March, June, September and December of each year, commencing June 30, 1997.
The Notes are convertible at the option of the holder at any time into
SICOR Convertible Preferred Stock or Common Stock at a conversion price of $100
per share and $3.78 per share, respectively, subject to adjustment under certain
conditions. At the Company's option, the Notes are convertible into SICOR
Preferred Stock at a conversion price of $100 per share, subject to meeting
certain financial conditions or SICOR Common Stock price levels. At the
Company's option, the Notes are redeemable on or after 18 months of the closing
date, subject to meeting certain SICOR Common Stock price levels.
In connection with the Notes, Warrants to purchase up to 2,645,503 shares
of SICOR Common Stock at $4.35 per share were also issued. Fifty percent of
these Warrants are Conditional Warrants that may not be exercised for three
years and will be cancelled if the SICOR Common Stock price exceeds certain
levels during the first three years after the closing. The estimated fair market
value of the Warrants of $3.6 million was recorded as a discount on Notes
payable and is being amortized to interest expense over the term of the Notes.
All Warrants were outstanding at December 31, 1999.
The mortgage notes payable are secured by certain production facilities
with a carrying value of approximately $5.8 million. Additionally, a certain
portion of the note is secured by deposits maintained by Diaspa following the
sale-leaseback transaction of certain assets (see Note 14). The mortgage notes
F-14
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
payable are repayable in quarterly and semi-annual installments of principal and
interest through 2005. The floating interest rate is based on several financial
indicators. The weighted average interest rate on these loans was 4.5% and 5.8%
at December 31, 1999 and 1998, respectively.
The notes payable to a bank are unsecured and are repayable in monthly and
semi-annual installments of principal and interest through 2003. The weighted
average fixed interest rate on these notes was 6.9% at December 31, 1999 and
1998.
Notes payable to suppliers are secured by certain machinery and equipment
with a carrying value of approximately $6.8 million and are repayable in
quarterly and semi-annual installments of principal and interest through 2004.
The weighted average fixed interest rate on these notes was 5.4% and 6.7% at
December 31, 1999 and 1998, respectively.
The notes payable to the Italian Ministry of Industry are secured by
certain production facilities and are repayable in annual installments of
principal and interest through 2009. The weighted average fixed interest rate on
these notes was 7.3% at December 31, 1999 and 1998.
The research project loan payable is from the Italian Ministry of
University, Scientific & Technological Research under the approximately $8.8
million in total grant and subsidized loan package for an applied research
program related to the development of anthracycline derivatives. The receipt of
funding for the research program is contingent upon presentation of a statement
of progress at established "Checkpoints," the first of which occurred in the
third quarter of 1999. The loan is repayable in semi-annual installments of
interest only for 3.5 years and subsequently repayable in semi-annual
installments of principal and interest through 2009. The variable interest rate
on the loan was 4.4% at December 31, 1999.
Long-term debt maturities for each of the next five years are as follows
(in thousands): $6,974 in 2000; $6,210 in 2001; $4,348 in 2002; $3,387 in 2003
and $19,985 in 2004. Interest expense for 1999, 1998, and 1997 was $6.3 million,
$6.1 million, and $3.7 million, respectively.
9. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company's 1.6 million shares of $3.75 Convertible Exchangeable
Preferred Stock (the "Preferred Stock") was issued in a private offering to
institutional investors. The Preferred Stock has a liquidation preference of
$50.00 per share. Cash dividends on the Preferred Stock are payable quarterly at
an annual dividend rate of $3.75 for each share. Dividends on the Preferred
Stock are cumulative. The Preferred Stock is convertible, at any time prior to
redemption, into approximately 2.9 million shares of the Company's Common Stock
at a conversion price of $27.60 per share, subject to certain anti-dilution
adjustments. The Preferred Stock is redeemable at the option of the Company,
initially at a price of $52.50 per share and thereafter at prices declining to
$50.00 per share in March 2002 plus all accrued and unpaid dividends. The
Preferred Stock will be exchangeable at the option of the Company in whole, but
not in part, on any dividend payment date for its 7 1/2% Convertible
Subordinated Debentures due 2003 at the rate of $50.00 principal amount of
Debentures for each share of Preferred Stock.
F-15
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
The Company made quarterly cash dividend payments of approximately $1.5
million per quarter on its outstanding Preferred Stock from June 1, 1993
through March 1, 1995. Subsequent to March 1995, as a measure to reduce cash
outflows, the Company's Board of Directors suspended quarterly cash dividend
payments on its outstanding Preferred Stock. The Company resumed payment of
the Preferred Stock dividend in September 1996. At December 31, 1999, the
Company had approximately $7.5 million ($4.69 per share) in undeclared
cumulative preferred dividends. If the Company chooses to not declare
dividends for six cumulative quarters, the holders of this Preferred Stock,
voting separately as a class, will be entitled to elect two additional
directors until the dividend in arrears has been paid. The holder of this
Preferred Stock has no other voting rights.
WARRANTS
In July 1996, warrants to purchase 70,000 shares of Common Stock were
issued in connection with a lease financing commitment for Gensia Sicor
Pharmaceuticals. These warrants have an exercise price of $5.25 per share and
expire in July 2006. At December 31, 1999, all warrants were outstanding.
In March 1997, the Company sold approximately 4 million Units in a private
placement, each Unit consisting of one share of Common Stock and a Warrant to
purchase one-half share of Common Stock at a per share exercise price of $4.1875
per share. These warrants expire in December 2002. At December 31, 1999,
warrants to purchase an aggregate of 1,871,000 shares of SICOR Common Stock were
outstanding.
In December 1997, the Company sold approximately 2.4 million Units in a
private placement, each Unit consisting of one share of Common Stock and a
Warrant to purchase one-half share of Common Stock at a per share exercise price
of $7.34 per share. These warrants expire in July 2003. If a purchaser sold the
Common Stock purchased in the Unit offering prior to June 30, 1998, then the
purchaser was not issued the Warrant component of the Unit. At December 31,
1999, warrants to purchase an aggregate of 1,227,000 shares of SICOR Common
Stock were outstanding.
During the second quarter of 1999, the Company sold approximately 8.7
million Units in a private placement, each Unit consisting of one share of
Common Stock and a Warrant to purchase one-tenth of a share of Common Stock at a
per share exercise price of $5.75 per share. These warrants expire in December
2003. Each Warrant is to be issued if the holder sells no Common Stock or other
securities of the Company for a period commencing from the date of the purchase
of Units and ending on December 31, 2000. At December 31, 1999, warrants to
purchase an aggregate of 867,500 shares of SICOR Common Stock were outstanding.
Additional warrants were issued in connection with the issuance of the
2.675% Subordinated Convertible Notes (see Note 8).
STOCKHOLDER RIGHTS PLAN
The Company has adopted a Stockholder Rights Plan (the "Plan"). The Plan
provides for the distribution of a Preferred Stock purchase right (a "Right") as
a dividend for each share of the Company's Common Stock. Under certain
conditions involving an acquisition by any person or group of 15% or more of the
Common Stock, the Rights permit the holders (other than the 15% holder) to
purchase the
F-16
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Company's Common Stock at a 50% discount upon payment of an exercise price of
$200 per Right. In addition, in the event of certain business combinations, the
Rights permit the purchase of the Common Stock of an acquiror at a 50% discount.
Under certain conditions, the Rights may be redeemed by the Board of Directors
in whole, but not in part, at a price of $.01 per Right. The Rights have no
voting privileges and are attached to and automatically trade with the Company's
Common Stock. The Rights expire on March 16, 2002. The Plan was amended in
November 1996 to exempt the acquisition of Rakepoll Holding from the provisions
of the Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan ("ESPP") for all
eligible employees to purchase shares of common stock at 85% of the lower of
the fair market value on the first or the last day of each six-month offering
period. Employees may authorize the Company to withhold up to 12% of their
total compensation during each six-month offering period, subject to certain
limitations. The 1992 ESPP, as amended, authorizes up to 700,000 shares to be
issued under the plan. During the year ended December 31, 1999, 1998, and
1997, shares totaling 50,139, 82,392, and 65,670 were issued under the plan
at an average price of $3.52, $3.52, and $3.77 per share, respectively. At
December 31, 1999, 177,050 shares were reserved for future issuance.
STOCK OPTION PLANS
In February 1997, the stockholders approved the 1997 Long-Term Incentive
Plan (the "1997 Stock Plan") which replaced the 1990 Stock Plan (the "1990 Stock
Plan"). The Stock Plan provides for both the direct award or sale of Common
Shares and the granting of qualified and nonqualified options to its employees,
directors and certain other individuals. Generally, options outstanding vest
over a four-year period and are exercisable for up to ten years from the grant
date. The 1997 Stock Plan, as amended, authorizes up to 5,600,000 shares to be
issued. This amount will be increased by any shares not subject to exercise
under the 1990 Stock Plan or which are not exercised because of forfeiture or
termination of options granted under the 1990 Stock Plan. Under the 1990 Stock
Plan, 6,383,334 shares of SICOR Common Stock have been authorized for issuance.
Accordingly, as of December 31, 1999, 11,983,334 shares were authorized for
issuance under both stock option plans.
In September 1997, the stockholders approved the Chairman's Options (the
"Chairman's Options"). Under the Chairman's Options, 500,000 shares were
authorized for issuance and the full 500,000 shares were issued to the Company's
current Chairman of the Board, who at the time of issuance was a non-executive
Chairman of the Board. Of the 500,000 shares subject to the Chairman's Options,
200,000 shares were fully vested, and the remaining 300,000 shares will vest in
increments of 100,000 shares subject to meeting certain performance conditions.
No compensation expense has been recorded related to these options through
the year ended December 31, 1999 (see Note 19).
F-17
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
A summary of the Company's stock option activity and related information
is as follows (in thousands except exercise price):
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998 1997
------------------------ ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
--------- -------- --------- -------- --------- --------
Outstanding - beginning
of year 5,631 $ 4.76 5,520 $ 4.90 4,154 $ 5.03
Granted 1,177 4.42 1,175 4.14 2,635 4.44
Exercised (281) 4.42 (204) 4.13 (623) 3.90
Canceled (909) 5.27 (860) 4.84 (646) 4.84
----- ------ ----- ------ ----- ------
Outstanding - end of year 5,618 $ 4.62 5,631 $ 4.76 5,520 $ 4.90
===== ====== ===== ====== ===== ======
Exercisable - end of year 3,633 $ 4.77 3,787 $ 4.99 3,566 $ 5.16
===== ====== ===== ====== ===== ======
The following table summarizes information about stock options outstanding
at December 31, 1999 (number of shares in thousands):
Options Outstanding Options Exercisable
---------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
of Shares Life (In Years) Price of Shares Price
--------- --------------- -------- --------- --------
$2.38 to $3.50 318 6.6 $ 3.15 241 $ 3.16
$3.51 to $4.00 930 8.5 3.87 430 3.87
$4.04 to $4.50 1,428 7.7 4.29 737 4.28
$4.52 to $5.00 2,393 6.3 4.75 1,876 4.77
$5.06 to $6.00 411 7.8 5.25 228 5.28
$6.25 to $28.48 138 4.6 12.41 121 13.24
----- --- ------ ----- ------
$2.38 to $28.48 5,618 7.1 $ 4.62 3,633 $ 4.77
===== === ====== ===== ======
Shares of Common Stock reserved at December 31, 1999 for the exercise of
available and outstanding stock options including the Chairman's options totaled
8,813,146.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Pro Forma information regarding net income and net income per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock plans under the fair value method of that
statement. The fair value was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates
of 5.7% to 5.8%, 5.1% to 5.2% and 6.1% to 6.2%; dividend yields of 0% for
1999, 1998 and 1997; volatility factors of the expected market price of the
Company's Common
F-18
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Stock of 59.3% for 1999 and 36.2% for 1998 and 1997; and a weighted-average
life of six to seven years for 1999, five to six years for 1998 and four to
five years for 1997.
The Black-Scholes option-valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its options. The weighted
average estimated fair values of stock options granted during the years 1999,
1998, and 1997 were $2.82, $2.55, and $2.41 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value is
amortized to expense over the vesting period of such stock or options. The
effects of applying SFAS No. 123 for pro forma disclosure purposes are not
likely to be representative of the effects on pro forma information in future
years because they do not take into consideration pro forma compensation expense
related to grants made prior to 1995. The Company's pro forma information for
the years ended December 31 is as follows (in thousands except per share date):
1999 1998 1997
-------- -------- --------
Net income (loss):
As reported $ 5,675 $(24,701) $(82,148)
Pro forma $ 3,561 (26,412) (82,264)
Basic and diluted net income (loss) per share:
As reported $ .07 $ (.31) $ (1.14)
Pro forma $ .04 (.33) (1.15)
SHARES RESERVED FOR FUTURE ISSUANCE
The following shares of common stock are reserved for future issuance
at December 31, 1999 (in thousands):
1990 and 1997 Stock Plan 8,313
Chairman's Options 500
Employee Stock Purchase Plan 177
401(k) plan 453
Warrants 6,731
Subordinated Convertible Notes 5,291
Convertible Exchangeable Preferred Stock 2,899
------
24,364
======
10. EMPLOYEE SAVINGS AND RETIREMENT PLAN
The Company has a 401(k) plan that allows eligible U.S. employees to
contribute up to 15% of their salary, subject to annual limits. Effective
January 1, 1999, the Company matched 25% of the employee pretax contribution, up
to an annual maximum of $1,875. The matching contribution was in the form of the
Company Common Stock. As of December 31 1999, 500,000 shares were authorized for
contribution pursuant to the plan and 46,659 shares had been issued valued at
$168,000.
11. ACQUISITIONS
RAKEPOLL HOLDING B.V.
On February 28, 1997, after shareholder approval, the Company acquired all
of the outstanding shares of capital stock of Rakepoll Holding from Rakepoll
Finance in exchange for 29,500,000 shares of the Company's Common Stock and
$100,000. The transaction was accounted for using the purchase method. The total
purchase price was $157.1 million, which was comprised of the fair value of
Common Stock issued of $146.6 million, acquisition costs of $10.4 million, and a
cash payment of $100,000.
F-19
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Based on the purchase price of $157.1 million, allocation of the total
acquisition cost is as follows (in thousands):
Net tangible assets $ 30,967
Developed technology 45,000
Other intangibles 6,870
In-process research and development 29,200
Deferred income tax (23,068)
Goodwill 68,126
---------
Total $ 157,095
=========
The developed technology and other intangibles are being amortized over
their estimated lives. The excess of the purchase price over the fair value of
identified assets and liabilities of $45.0 million and the deferred income tax
liability of $23.1 million were recorded as goodwill, which is being amortized
over its estimated life of 30 years. The determination of acquired in-process
research and development took under consideration both the costs and internal
resources necessary to advance the in-process technology to clinical development
and eventual approval by regulatory agencies. Management also considered the
risks of possible negative outcomes during clinical development, as well as
changes in the market place with respect to competing technologies. At the time
of acquisition, the technological feasibility of the acquired in-process
research and development had not yet been established and it was determined that
the technology had no future alternative uses. Accordingly, the value assigned
to in-process research and development was immediately charged to the statement
of operations. This charge is not deductible for income tax purposes.
DIASPA S.p.A.
In December 1997, Sicor S.p.A. purchased a 50% equity interest in
Diaspa, an Italian company engaged in the manufacture of certain raw
materials used in Sicor S.p.A.'s business for $2.7 million. The remaining 50%
interest in Diaspa was purchased by Archimica S.p.A. ("Archimica"), an
Italian bulk pharmaceutical company in which the Company's President, Chief
Executive Officer, director and a principal stockholder, had a 50% beneficial
ownership. In June 1998, Sicor S.p.A. purchased the remaining 50% interest
from Archimica for approximately $5.7 million in cash, including a $1.3
million payment to a third party for the release of an option on the Diaspa
shares and approximately $1.9 million related to capital contributions made
since the acquisition of the initial 50% interest in Diaspa. For financial
reporting purposes, the acquisition of Diaspa's net assets was accounted for
using the purchase method. Diaspa was consolidated in the 1997 financial
statements as the Company had an other than temporary controlling financial
interest.
The following unaudited pro forma data reflects the combined results of
operations of the Company, Rakepoll Holding and Diaspa as if the acquisition
had occurred on January 1, 1997 (in thousands, except per share data):
Year Ended
December 31, 1997
-----------------
Total revenues $ 176,922
Net loss after preferred stock dividends (85,325)
Basic and diluted net loss per share $ (1.15)
F-20
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
GENCHEM VACALLO
In March 1998, Genchem Pharma Ltd. acquired a research and development
branch ("Genchem Vacallo") in Vacallo, Switzerland for $1.9 million. For
financial reporting purposes, the acquisition was accounted for using the
purchase method and the excess of the purchase price over the fair value of
identified assets and liabilities of $1.2 million was recorded as goodwill. The
financial position and results of operations of the acquired company are not
material. Pro forma information has been omitted as the amounts are not
significant.
12. RELATED PARTIES
The Company has agency agreements with Alco Chemicals ("Alco"). In
September 1996, the majority shareholder of Alco acquired a majority of the
outstanding shares of Rakepoll Finance N.V., which owns approximately 33% the
Company's outstanding Common Stock. The same majority shareholder of Alco is
also President, Chief Executive Officer and a director of the Company and
beneficially owns approximately 37% of the Company Common Stock.
Under the terms of its agreements with the Company, Alco is to receive
commissions equal to 4% of sales to third-party non-Italian customers. The
agreements are in place for five years, unless there is a change in control of
Alco. The agreement permits the Company to sell its products directly or through
other agents. If the Company pays commissions that are less than the contractual
commission percentage to such agents, the Company must pay the differential
between the commissions paid and the contractual percentage to Alco. Commission
expenses relating to Alco were approximately $2.3 million, $2.1 million and $2.0
MILLION for the years ended December 31, 1999, 1998, and 1997, respectively, and
the net outstanding payable to Alco at December 31, 1999 and 1998 was $0.6
million and $0.7 million, respectively.
Lemery in Mexico purchases raw materials and supplies from two
companies in which Lemery's Managing Director and Director of Operations have
beneficial ownership. The combined material and supply purchases made by
Lemery during 1999 and 1998 from these two companies totaled approximately
$2.6 million and $3.1 million, respectively.
Sicor S.p.A. purchased a 50% equity interest in Diaspa (see Note 11) in
December 1997 for approximately $2.7 million. The remaining 50% interest of
Diaspa was purchased by Archimica, a company in which the Company's President,
Chief Executive Officer, director and a principal stockholder, had a 50%
beneficial ownership. In June 1998, Sicor S.p.A. purchased the remaining 50%
interest from Archimica for approximately $5.7 million in cash, including a $1.3
million payment to a third party for the release of an option on the Diaspa
shares and approximately $1.9 million related to capital contributions made
since the acquisition of the initial 50% interest in Diaspa. Product sales to
F-21
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Archimica were approximately $3.0 million and $0.5 million for the years ended
December 31, 1999 and 1998, respectively. At December 31, 1999 and 1998, the
Company had a net receivable balance from Archimica of $2.3 million and a net
payable balance to Archimica of $34,000, respectively.
The Company paid approximately $0.1 million in 1999 for services provided
by a consulting firm owned by the Company's Executive Vice President, Chief
Operating Officer and director, and approximately $0.2 million for services
provided by a market research firm in which the same individual serves as a
director.
In March 1998, Genchem Pharma Ltd. acquired a research and development
branch in Vacallo, Switzerland for $1.9 million from Alco.
In December 1998, the Company sold $10 million of 8% Subordinated
Convertible Notes due January 10, 2001 to the Company's President, Chief
Executive Officer, director and a principal stockholder. The Company
subsequently repaid the principal and accrued interest in the second quarter of
1999.
13. WRITE-DOWN OF INVESTMENT AND RESTRUCTURING CHARGE
During the second quarter of 1999, the Company divested a 46% interest in
Metabasis Therapeutics, Inc., a proprietary research and development subsidiary,
to Metabasis management. Following this transaction, the Company retains a 46%
equity interest in Metabasis and will receive royalty payments if technologies
currently owned by Metabasis are licensed or if products are developed and sold
using those technologies. Subsequently, due to the uncertain value of the
remaining interest, the Company elected to write off $1.8 million related to its
remaining investment in Metabasis. Starting in the second quarter of 1999,
investment in Metabasis was accounted for using the equity method.
In December 1997, the Company divested an 81% interest in Gensia
Automedics, Inc. ("Automedics") in order to reduce future operating losses and
cash flow requirements associated with this business. Due to the contingent
nature of the royalty and milestone payments associated with this transaction,
the Company recorded a charge of approximately $11.5 million. This restructuring
charge included a $7.3 million write-off of intangible assets associated with
products transferred into Automedics, specifically prepaid royalties for the
GenESA System and Brevibloc rights, a $2.9 million loss realized on the sale of
Automedics' assets and liabilities, and $1.3 million of severance expenses. Due
to the lack of market acceptance of the GenESA System, the Company wrote off the
investment value of its 19% interest in Automedics from $1.8 million to $0.7
million in the first quarter of 1998 and subsequently wrote off the remaining
balance of $0.7 million in the fourth quarter of 1998. In August 1999, the
Company reached a settlement with Protocol Systems, Inc. concerning the alleged
breach of a supply agreement related to the GenESA System. The resolution of the
matter did not result in an adjustment to the Company's consolidated financial
position or results of operations in 1999 as an adequate provision was recorded
in the fourth quarter of 1998.
In December 1997, the Company relocated its corporate staff from San
Diego, California to Irvine, California to improve operating efficiencies and
reduce operating costs. The Company's wholly-owned subsidiary, Gensia Sicor
Pharmaceuticals, occupies approximately 220,000 square feet of manufacturing,
F-22
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
warehousing, laboratory and office space in Irvine. In connection with the
relocation, the Company recorded a non-recurring charge of $3.2 million in the
third quarter of 1997.
14. COMMITMENTS
The Company leases its office, manufacturing and research facilities and
certain equipment under operating and capital lease agreements. The minimum
annual rents are subject to increases based on changes in the Consumer Price
Index, taxes, insurance and operating costs.
In December 1999, the Company's subsidiary, Diaspa sold certain assets
for net proceeds of approximately $12.3 million. The assets are being leased
back from the purchaser over a period of 6.5 years for equipment and 9.5
years for land and buildings. The lease is being accounted for as an
operating lease, and the resulting net gain of approximately $0.4 million is
being amortized over the respective life of the lease. In connection with
this agreement, a loss of approximately $0.3 million was immediately
recognized for the difference between the undepreciated cost and the fair
value for certain assets. Under the agreement, Diaspa will maintain deposits,
initially in the amount of approximately $9.8 million, which will be reduced
over time as future lease payments are made.
The Company also leases two buildings, which are secured by a $4.8
million letter of credit, which in turn is collateralized by a $4.9 million
certificate of deposit, that will be released provided the Company achieves
certain financial milestones.
Included in deposits and other assets was $15.1 million and $5.3
million at December 31, 1999 and 1998, respectively deposited under these
agreements. Rent expense for 1999, 1998, and 1997 was $7.5 million, $5.4
million, and $6.6 million, respectively.
Rent expense for 1999, 1998 and 1997 was net of $2.0 million, $1.2
million, and $1.0 million of sublease income, respectively.
Future minimum payments, by year and in the aggregate, under the
aforementioned leases and other non-cancelable operating leases with initial or
remaining terms in excess of one year as of December 31, 1999, are as follows
(in thousands):
Capital Operating
Leases Leases
-------- ---------
2000 $ 1,697 $ 12,455
2001 1,242 9,583
2002 811 7,512
2003 573 5,802
2004 -- 5,442
Thereafter -- 18,875
------- --------
Total minimum lease payments 4,323 $ 59,669
--------
Less amount representing interest (355)
-------
Present value of net minimum lease payments 3,968
Less current portion (1,521)
-------
$ 2,447
=======
F-23
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Future minimum rentals to be received under non-cancelable subleases as of
December 31, 1999 totaled approximately $3.3 million.
15. INCOME TAXES
The provision for income taxes comprises the following (in thousands):
Years Ended December 31,
----------------------------------------
1999 1998 1997
------- ------- -------
Current:
Federal $ 230 $ -- $ --
State -- -- --
Foreign 4,661 3,091 1,145
------- ------- -------
4,891 3,091 1,145
Deferred:
Federal $ -- $ -- $ --
State -- -- --
Foreign (3,767) 2,020 2,034
------- ------- -------
(3,767) 2,020 2,034
Net operating loss benefit allocated to goodwill 622 -- --
------- ------- -------
$ 1,746 $ 5,111 $ 3,179
======= ======= =======
The provision for income taxes on earnings subject to income taxes differs
from the statutory federal rate due to the following (in thousands):
Federal income taxes (benefit) at 35% $ 4,687 $ (4,956) $ (25,834)
Tax effect of non-deductible expenses, including write-off
of acquired in-process research and development in 1997 41 306 13,299
Alternative minimum taxes 230 -- --
Increase (decrease) in valuation allowance and other (1,561) 7,447 14,486
Foreign income tax expense (benefit) (1,651) 2,314 1,228
------- ------- -------
$ 1,746 $ 5,111 $ 3,179
======= ======= =======
Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1999 and 1998 are shown below. A valuation
allowance of $118.6 million has been recognized as an offset to the deferred
tax assets as of December 31, 1999 as realization of such assets is
uncertain. The valuation allowance decreased by $16.8 million in 1999 and
increased by $9.1 million and $14.3 million in 1998 and 1997, respectively.
During the second quarter of 1999, the Company divested a 46% interest in
Metabasis Therapeutics, Inc. Approximately $10.2 million of the 1999
valuation allowance decrease is attributable to the allocation of the gross
deferred tax asset and related valuation allowance to Metabasis upon
divestiture. The balance of reduction in the valuation allowance relates to
current year activity.
F-24
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
DECEMBER 31,
------------------------
1999 1998
--------- ---------
(in thousands)
Deferred tax liabilities:
Basis differences in acquired assets $ 16,234 $ 21,258
Depreciation 10,324 8,352
Inventory 4,566 4,870
Other 1,712 2,063
--------- ---------
Total deferred tax liabilities 32,836 36,543
Deferred tax assets:
Net operating loss carryforwards 90,973 108,622
Credit carryforwards 15,199 14,823
Capitalized research and development 7,498 8,603
Depreciation 5,028 2,993
Other 11,363 11,384
--------- ---------
Total deferred tax assets 130,061 146,425
Valuation allowances for deferred tax assets (118,601) (135,419)
--------- ---------
Net deferred tax assets 11,460 11,006
--------- ---------
Net deferred taxes $ 21,376 $ 25,537
========= =========
At December 31, 1999, the Company had federal and California tax net
operating loss carryforwards of approximately $253.6 million and $34.4
million, respectively. The difference between the net operating loss
carryforwards for federal and California income tax purposes is primarily
attributable to the capitalization of research and development costs for
California purposes and the fifty percent limitation on California loss
carryforwards. The federal tax loss carryforwards will begin expiring in 2005
unless previously utilized. The California tax loss carryforwards will begin
to expire in 2000 unless previously utilized. Approximately $1.6 million of
California tax loss carryforwards expired unused in 1999. The Company has
Mexican tax loss carryforwards of approximately $1.0 million. The Mexican tax
loss carryforwards will begin expiring in 2004, unless previously utilized.
The Company has federal and California research and development tax credit
carryforwards totaling $11.6 million and $4.4 million, respectively, which
will begin to expire in 2001 unless previously utilized. The Company also has
alternative minimum tax credit carryforwards of $0.7 million.
Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the
Company's net operating loss and credit carryforwards is limited because of a
cumulative ownership changes of more than 50% which occurred within the three
year periods ending in 1997. The ownership change in 1997 had a material impact
on the utilization of the net operating loss and credit carryforwards.
16. SEGMENT AND GEOGRAPHIC INFORMATION
F-25
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
The Company operates predominantly in one industry segment, that being
the development, manufacture and marketing of injectable pharmaceuticals and
the production of specialty bulk drug substances. The Company evaluates its
performance based on operating earnings of the respective business units
primarily by geographic area. The three main business units that correspond
to each geographic area are as follows: (i) United States: SICOR, Gensia
Sicor Pharmaceuticals, Genchem Pharma and Gensia Development Corporation;
(ii) Italy: Sicor S.p.A. and Diaspa, and (iii) Mexico: Lemery, Sicor de
Mexico, and Gensia Sicor de Mexico. Intergeographic sales are accounted for
at prices that approximate arm's length transactions. Information regarding
business geographic areas at December 31, 1999, 1998, and 1997 and for each
of the years then ended is as follows (in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
--------- -------- --------
Product sales to unaffiliated customers:
United States $102,631 $ 62,506 $ 61,794
Italy 67,859 62,321 51,606
Mexico 53,210 43,253 27,024
--------- -------- --------
$223,700 $168,080 $140,424
========= ======== ========
Intergeographic sales:
United States $ 235 $ 5,638 $ 3,032
Italy 10,065 7,672 5,317
Mexico 170 270 180
--------- -------- --------
$ 10,590 $ 13,580 $ 8,529
========= ======== ========
Income (loss) before income taxes:
United States $ 3,136 $(24,827) $(82,028)
Italy (1,813) 2,617 5,754
Mexico 12,754 9,564 4,150
Other (579) (653) (505)
Eliminations and adjustments (108) (1,091) (340)
--------- -------- --------
$ 13,390 $(14,390) $(72,969)
========= ======== ========
Total assets:
United States $ 375,659 $372,968 $391,648
Italy 126,896 146,913 115,639
Mexico 58,603 45,365 35,004
Other 52 115 60
Eliminations and adjustments (175,031) (192,633) (178,012)
--------- -------- --------
$ 386,179 $372,728 $364,339
========= ======== ========
17. CONTINGENCIES
In July 1998, the Company was named as a defendant in a complaint filed by
Protocol Systems, Inc. ("Protocol Systems"). The complaint alleged breach of a
supply agreement (the "Supply Agreement"). In August 1999, the Company reached a
settlement with Protocol Systems concerning the alleged breach of
F-26
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
the Supply Agreement. The resolution of the matter did not result in an
adjustment to the Company's consolidated financial position or results of
operations in 1999 as an adequate provision was previously recorded in the
fourth quarter of 1998.
In February 1999, a lawsuit was filed by AstraZeneca PLC (formerly
Zeneca Limited) ("AstraZeneca") in the U.S. District Court in Baltimore,
Maryland against the Food and Drug Administration ("FDA") with regards to
Gensia Sicor Pharmaceuticals' Abbreviated New Drug Application ("ANDA") for
propofol. In the suit, AstraZeneca alleged that the FDA improperly approved
Gensia Sicor Pharmaceuticals' propofol product. The Company believes this
lawsuit is without merit, and that it represents AstraZeneca's continued
legal maneuvering to stop the FDA approval of generic propofol. Gensia Sicor
Pharmaceuticals intervened in the lawsuit to protect its interest and support
the FDA in its defense of this lawsuit. The court denied AstraZeneca's motion
for a preliminary injunction on March 26, 1999, and on August 11, 1999,
granted Gensia Sicor Pharmaceuticals' and the FDA's motion for summary
judgment and entered judgment in favor of the defendants. AstraZeneca has
appealed this judgment to the United States Court of Appeals for the Fourth
Circuit. Should AstraZeneca ultimately succeed on appeal in its litigation
against the Company and the FDA, it could have a material adverse effect on
the Company's financial position, results of operations or cash flows.
In April 1999, Gensia Sicor Pharmaceuticals filed a lawsuit in the
Superior Court of California for Orange County against American Pharmaceutical
Partners ("APP") for breach of contract, breach of the implied covenant of good
faith and fair dealing, breach of confidence, unfair competition and declaratory
relief. The suit alleged that APP breached a distributorship agreement for some
of Gensia Sicor Pharmaceuticals' products by, among other things, acquiring and
operating a business which competes with Gensia Sicor Pharmaceuticals with
respect to some of the same products. In December 1999, APP filed a
cross-complaint against Gensia Sicor Pharmaceuticals asserting causes of action
for breach of contract, breach of the implied covenant of good faith and fair
dealing, unfair competition, unjust enrichment, accounting and declaratory
relief.
It has been reported that certain United States governmental agencies,
including the Department of Justice and the Department of Health and Human
Services, have been investigating issues surrounding pricing information
reported by drug manufacturers and used in the calculation of reimbursements
under the Medicaid program administered jointly by the federal government and
the states. The Company has supplied documents in connection with these
investigations and has had preliminary discussions with representatives of
the federal and state governments, but is unable to estimate at this time
what effect, if any, these investigations will have on the Company's pricing
policies or its financial statements. There can be no assurance that these
investigations will not result in changes to the Company's pricing policies
or other actions which might have a material adverse effect on the Company's
financial position, results of operations or cash flows.
The Company is also a defendant in various actions, claims, and legal
proceedings arising from its normal business operations. Management believes the
Company has meritorious defenses and intends to vigorously defend against all
allegations and claims. As the ultimate outcome of these matters is uncertain,
no contingent liabilities or provisions have been recorded in the accompanying
financial statements for such matters. However, in management's opinion,
liabilities arising from such matters, if
F-27
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
any, will not have a material adverse effect on consolidated financial position,
results of operations or cash flows.
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for 1999 and 1998 is as follows (in
thousands, except per share data):
First Second Third Fourth
------- ------- ------- -------
1999 Quarters
Total revenues $53,660 $54,691 $55,419 $65,233
Total costs and expenses 52,355 53,278 50,205 59,775
Income (loss) before income taxes 1,305 1,413 5,214 5,458
Net income (loss) applicable to common shares (1,653) 284 2,995 4,049
Basic and diluted net income (loss) per common
share (.02) .00 .03 .05
First Second Third Fourth
------- ------- ------- -------
1998 Quarters
Total revenues $43,604 $47,992 $43,480 $43,419
Total costs and expenses 47,315 47,894 42,300 55,376
Income (loss) before income taxes (3,711) 98 1,180 (11,957)
Net loss applicable to common shares (4,929) (2,461) (3,314) (13,997)
Basic and diluted net loss per common
share (.06) (.03) (.04) (.18)
(1) Quarterly results for 1998 and 1999 were retroactively restated to reflect
an accounting change at the Company's Italian subsidiary, Sicor S.p.A. for
changing inventory accounting from the LIFO method to the FIFO method (see
Note 3). Management believes the financial impact of restating quarterly
earnings in both the current and prior years for this accounting change is
immaterial.
(2) Second quarter 1999 results included a $1.8 million of expenses related to
the write-down of investment in Metabasis.
(3) First quarter 1998 results included a $1.1 million of expenses related to
the write-down of investment in Automedics.
(4) Fourth quarter 1998 results included a $3.7 million of expenses related to
the additional write-down of investment in Automedics and a charge for the
Protocol Systems lawsuit.
19. EVENTS (UNAUDITED) SUBSEQUENT TO REPORT OF INDEPENDENT AUDITORS
In connection with the Chairman's Options as discussed in Note 9, the
Company's Chairman of the Board was issued 500,000 shares of which 200,000
shares were fully vested at the time of grant, and the
F-28
SICOR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
remaining 300,000 shares were to vest in increments of 100,000 shares subject
to meeting certain performance conditions. During the first quarter of 2000,
the remaining 300,000 shares vested upon attainment of the stipulated
conditions. Accordingly, the Company expects to record approximately $1.7
million in compensation expense due to the vesting of said options in the
first quarter of 2000. An additional incentive compensation expense of $1
million relating to the Company's chairman is also expected to be recorded in
the first quarter of 2000 upon the Company reaching the market capitalization
of $1 billion in accordance with the letter agreement between the Company and
Chairman of the Board. The payment is to be paid out in the form of an
annuity over 10 years, which amount may be paid by the Company in stock or
cash.
During the first quarter of 2000, the holders of $20 million of
Subordinated Convertible Notes notified the Company that they intend to convert
the Notes into the Company's Common Stock. The Notes are convertible into Common
Stock at a conversion price of $3.78 per share or 5,291,005 shares.
In connection with the lawsuit between Gensia Sicor Pharmaceuticals and
APP as discussed in Note 17, the Company and APP settled the litigation in
March 2000. Management believes the settlement will not have a material impact
on the Company's consolidated financial position, results of operations or
cash flows.
F-29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item (with respect to Directors) is
incorporated by reference from the information under the caption "Election of
Directors" contained in the registrant's definitive proxy statement to be filed
in connection with solicitation of proxies for its Annual Meeting of
Stockholders to be held on June 27, 2000 (the "Proxy Statement"). The required
information concerning Executive Officers of the Company is contained in Part I
of this Form 10-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than 10% of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established
and the Company is required to identify in this document (or documents
incorporated by reference to this document) those persons who failed to timely
file these reports. In 1999, all directors, executive officers and 10%
stockholders timely filed all such reports.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the information under the caption "Compensation of Executive Officers and
Directors" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the information under the caption "Stock Ownership of Management and Certain
Beneficial Owners" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporation by reference from
the information contained under the caption "Certain Transactions" in the Proxy
Statement.
59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report
(1) Financial Statements
Reference is made to the Index to Consolidated Financial
Statements under Item 8 in Part II hereof, where these
documents are listed.
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable, not
required, or the information is shown either in the
consolidated financial statements or in the notes thereto.
(3) Exhibits
See (c) below.
(b) Reports on Form 8-K during the fourth quarter:
None
(c) Exhibits
The following documents are exhibits to this Form 10-K:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3(i)(21) Restated Certificate of Incorporation of the Company, as amended.
3(ii)(11) By-Laws of the Company.
4.1(4) Warrant Agreement dated November 26, 1991 between the Company and
First Interstate Bank, Ltd. (Warrant Agent).
4.2(7) Form of Certificate for the Company's Common Stock with Rights Legend
(4.1)*.
4.3(10) Warrant Agreement dated April 10, 1996 between the Company and Domain
Partners III, L.P. (4.1)*.
4.4(10) Warrant Agreement dated July 22, 1996 between the Company and MMC/GATX
Partnership No. 1 (4.2)*.
4.5(11) Shareholder's Agreement dated November 12, 1996, as amended on
December 21, 1996 and on February 28, 1997, between Gensia, Inc. and
Rakepoll Finance N.V. (4.1)*.
4.6(14) Amendment No. 3, dated May 19, 1997, to the Shareholder's Agreement,
dated November 12, 1996, as amended on December 21, 1996 and on
February 28, 1997, between the Company and Rakepoll Finance N.V.
(4.1)*.
4.7(14) Securities Purchase Agreement, dated May 1, 1997, by and between the
Company and HCCP (4.2)*.
4.8(14) Registration Rights Agreement, dated May 19, 1997, by and between the
Company and HCCP (4.3)*.
4.9(14) Form of 2.675% Subordinated Convertible Notes due May 1, 2004, issued
to certain affiliates of HCCP (4.4)*.
4.10(14) Form of Common Stock Purchase Warrant, dated May 19, 1997, issued to
certain affiliates of HCCP (4.5)*.
4.11(15) Form of Unit Purchase Agreement between the Company and certain
accredited investors, dated as of March 27, 1997 (4.2)*.
60
4.12(17) Form of Unit Purchase Agreement between the Company and certain
accredited investors, dated December 1997 (4.6)*.
4.13(18)+ Investor's Rights Agreement among the Company, Metabasis Therapeutics,
Inc. and Sankyo Co., Ltd. dated December 18, 1997 (4.13)*.
4.14(19) Securities Purchase Agreement between the Company and Carlo Salvi
dated December 1, 1998, including the 8% Subordinated Convertible
Notes due January 10, 2001, and Registration Rights Agreement.
4.15(21) Form of Unit Purchase Agreement between the Company and certain
investors (4.1)*.
10.1(1)# Form of Indemnification Agreement entered into between the Company and
its directors (10.1)*.
10.2(6)# Amended and Restated 1990 Stock Plan of the Company (the "Plan").
10.3(1)# Form of Incentive Stock Option Agreement under the Plan (10.3)*.
10.4(1)# Form of Nonstatutory Stock Option Agreement under the Plan (10.4)*.
10.5(2)# Form of Indemnification Agreement entered into between the Company and
its officers and certain key employees (10.50)*.
10.6(3) Form of Warrant issued to MMC/GATX Partnership No. 1 (10.56)*.
10.7(5) Stockholder Rights Plan dated March 9, 1992.
10.8(8) Lease agreement between Gena Property Company and the Company dated as
of December 21, 1993.
10.9(9) Form of Severance Agreement for officers and certain other employees.
10.10(12) Amendment No. 1 to Stockholder Rights Agreement dated November 12,
1996.
10.11(13) Factoring agreement, dated September 25, 1997, by and between the
Company and Silicon Valley Financial Services (a division of Silicon
Valley Bank) (10.1)*.
10.12(15)+Supply Agreement between and among Sicor S.p.A., Alco Chemicals, Ltd.
and Boehringer Ingelheim International GmbH, dated September 23, 1996
(10.2)*.
10.13(15)+Distribution and Supply Agreement between and among the Sicor S.p.A.
and Alco Chemicals, Ltd. and The Upjohn Company, dated as of January
1, 1994 (10.3)*.
10.14(15) Manufacturing Agreement between Sicor S.p.A. and Alco Chemicals, Ltd.,
dated July 16, 1992 (10.12)*.
10.15(15) Service Agreement between Sintesis Lerma and Grupo Fairmex S.A. de
C.V., dated January 2, 1995 (10.13)*.
10.16(15) Letter Agreement between the Company and Donald E. Panoz, dated March
18, 1997 (10.14)*.
10.17(16)+Cyclosporine Amended and Restated Supply and License Agreement, dated
as of March 31, 1997, between and among the Company, Alco Chemicals,
Ltd., Vinchem, Inc. and Sangstat.
10.18(14) Agreement, dated as of April 15, 1997, by and between Sicor de Mexico
S.A. de C.V. and Alco Chemicals, Ltd. (10.2)*.
10.19(14)+Agreement, dated as of April 15, 1997, by and between Genchem Pharma,
Ltd. and Alco Chemicals, Ltd. (10.3)*.
10.20(14) Agreement, dated as of January 1, 1997, by and between Sicor S.p.A.
and Alco Chemicals, Ltd. (10.4)*.
10.21(18)+Amendment No. One to Cyclosporine Amended and Restated Supply and
License Agreement dated as of December 22, 1997 between the Company
and Sangstat Medical Corporation (the Transplant Company) (10.41)*.
10.22(18) Asset and Liability Transfer Agreements by and among Gensia
Automedics, Inc., the Company and Gensia Sicor Pharmaceuticals, Inc.
dated December 23, 1997 (10.44)*.
10.23(19) Loan and Security Agreement, dated September 29, 1998, as amended on
October 30, 1998 and November 4, 1998, by and between the Company and
Coast Business Credit (a division of Southern Pacific Bank) (10.34)*.
61
10.24(20)+Sales and Distribution Agreement dated as of January 28, 1999 between
Gensia Sicor Pharmaceuticals and Abbott Laboratories, Inc. (10.1)*.
10.25(21) Employment Agreement dated June 1, 1999 between the Company and Frank
C. Becker (10.1)*.
10.26(22) Amended and Restated Employee Stock Purchase Plan (10.1)*.
10.27(23) Amended and Restated 1997 Long-Term Incentive Plan (10.1)*.
18 Preference Letter re: Change in Accounting Principles re: LIFO to
FIFO.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
- - - - - - - - ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-34565).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-38877).
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-43221).
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (No. 0-18549).
(5) Incorporated by reference to the Company's Current Report on Form 8-K dated
March 16, 1992 (No. 0-18549).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-8 (No. 33-95152).
(7) Incorporated by reference to the Company's Registration Statement on Form
S-4 (No. 33-94778).
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 (0-18549).
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (0-18549).
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 (0-18549).
(11) Incorporated by reference to the Company's Report on Form 8-K dated
February 28, 1997 (0-18549).
(12) Incorporated by reference to the Company's Annual Report of Form 10-K for
the fiscal year ended December 31, 1996 (0-18549).
(13) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 (0-18549).
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 (0-18549).
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 (0-18549).
(16) Incorporated by reference to Exhibit 10.24 of SangStat Medical
Corporation's (the Transplant Company) Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 (File No. 000-22890).
(17) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 332-44563).
(18) Incorporated by reference to the Company's Annual Report of Form 10-K, as
amended by Amendment No. 1, filed on May 6, 1998 and Amendment No. 2, filed
on May 20, 1998, for the fiscal year ended December 31, 1997 (0-18549).
(19) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 (0-18549).
(20) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 (0-18549).
(21) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 (0-18549).
(22) Incorporated by reference to the Company's Registration Statement on Form
S-8 (No. 333-83079).
(23) Incorporated by reference to the Company's Registration Statement on Form
S-8 (No. 333-83077).
* Parenthetical references relate to the exhibit number under which such
exhibit was initially filed.
# Indicates management contract or compensatory plan or arrangement.
+ Certain portions of this exhibit have been omitted pursuant to a request
for confidential treatment.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SICOR INC.
Date: March 29, 2000 By: /s/ Carlo Salvi
------------------------------------
Carlo Salvi, President and
Chief Executive Officer
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Carlo Salvi President and March 29, 2000
- - - - - - - - -------------------------------- Chief Executive Officer
(Carlo Salvi)
/s/ John W. Sayward Executive Vice President, Finance, Chief March 29, 2000
- - - - - - - - -------------------------------- Financial Officer and Treasurer (Principal
(John W. Sayward) Financial Officer and Principal Accounting Officer)
/s/ Donald E. Panoz Chairman of the Board March 29, 2000
- - - - - - - - --------------------------------
(Donald E. Panoz)
/s/ Frank C. Becker Director March 29, 2000
- - - - - - - - --------------------------------
(Frank C. Becker)
/s/ Michael D. Cannon Director March 29, 2000
- - - - - - - - --------------------------------
(Michael D. Cannon)
63
SIGNATURES
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gianpaolo Colla Director March 29, 2000
- - - - - - - - --------------------------------
(Gianpaolo Colla)
/s/ Herbert J. Conrad Director March 29, 2000
- - - - - - - - --------------------------------
(Herbert J. Conrad)
/s/ Carlos A. Ferrer Director March 29, 2000
- - - - - - - - --------------------------------
(Carlos A. Ferrer)
/s/ Carlo Ruggeri Director March 29, 2000
- - - - - - - - --------------------------------
(Carlo Ruggeri)
64
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
18 Preference Letter re: Change in Accounting Principles re: LIFO to FIFO.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule.
65