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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, 1998.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-18549
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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. _________
At March 24, 1999, the aggregate market value of the voting stock held by
nonaffiliates totaled approximately $169.7 million, based on the last sale price
as reported on the Nasdaq National Market.
At March 24, 1999, there were 79,836,332 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 16, 1999 is incorporated by reference into Part III of this Form 10-K.
PART I
Item 1. BUSINESS
GENERAL
Gensia Sicor Inc. ("Gensia 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
Gensia Sicor completed its 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") 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 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 business. In June 1998,
Sicor purchased the remaining 50% of Diaspa. Gensia Sicor's company offices are
located in Irvine, California.
Gensia Sicor Pharmaceuticals, Inc. (formerly Gensia Laboratories, Ltd. and
herein referred to as "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
foreign markets. In addition, Gensia Sicor Pharmaceuticals provides contract
manufacturing support and services to a number of pharmaceutical and
biotechnology companies.
Sicor 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 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 and Sicor de Mexico's specialty
bulk drug substances are the U.S., Canada, the European Union 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.
The Company's wholly owned subsidiary, Genchem Pharma Ltd. ("Genchem
Pharma") was created in June 1997 to acquire and develop technology and to sell
bulk products manufactured by Sicor and Sicor de Mexico.
Rakepoll Holding created a wholly owned subsidiary, Gensia Sicor de Mexico,
S.A. de C.V., during the third quarter of 1997. Gensia Sicor de Mexico is a
service company with 19 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 any
unnecessary duplication of resources.
In March 1998, Genchem Pharma acquired a research and development branch
("Genchem Vacallo") in Vacallo, Switzerland. Genchem Vacallo conducts research
and development and small-scale manufacturing work with respect to specialty
bulk drug substances.
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In addition, in 1998, Sicor 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.
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 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' corporate marketing group has grown and 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. As a result, Gensia Sicor Pharmaceuticals
has built a state of the art oncology manufacturing facility at Irvine,
California and is in the process of requesting the United States Food and Drug
Administration ("FDA") to approve manufacturing site transfers for existing
oncology products. This new facility is also being used for contract
manufacturing opportunities that require sterile manufacturing. Gensia Sicor
Pharmaceuticals has marketing rights in the United States to three oncology
products (doxorubicin, etoposide and cisplatin) manufactured in polymer vials by
Delta West Pty. Limited, a wholly-owned subsidiary of Pharmacia & Upjohn, Inc.
("Pharmacia & Upjohn"). Two of these products, doxorubicin and etoposide, are
approved by the FDA.
Gensia Sicor Pharmaceuticals is developing additional oncology products for
sale in the U.S. through its own sales and marketing group, and outside of the
U.S. through distributors and marketing partners. Gensia Sicor does not intend
to establish a sales force outside of North America. The Company intends to
have Sicor supply the bulk drug substances required for a number of the oncology
products under development. Gensia Sicor 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 cardiology as well as other selected areas. Gensia
Sicor Pharmaceuticals has sixteen Abbreviated New Drug Applications ("ANDAs")
pending with the FDA and has approximately 27 multisource products under
development. Gensia Sicor 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 come off-patent. There is no
assurance that such growth will occur.
Gensia Sicor Pharmaceuticals' major injectable pharmaceutical products
include atracurium, bumetanide, desmopressin, diltiazem, dipyridamole,
doxorubicin, fluphenazine, leucovorin calcium, and tobramycin. Gensia Sicor
Pharmaceuticals offers approximately 43 multisource pharmaceuticals in its
product line.
Gensia Sicor Pharmaceuticals also has a contract manufacturing business
which manufactures sterile injectable products for biotechnology and
pharmaceutical companies. Gensia Sicor 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 Gensia Sicor believes additional growth may be attained by
expanding its collaborations with biotechnology and pharmaceutical companies.
There is no assurance that
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such growth will be sustained.
Gensia Sicor Pharmaceuticals entered into a Sales and Distribution
agreement with Abbott Laboratories ("Abbott") in January 1999, under which the
two companies have formed a strategic alliance for marketing and distribution of
oncology products in the United States. This seven year collaboration initially
involves seven of the Company's oncology products (including doxorubicin and
leucovorin calcium) but will expand in the future to include certain of Gensia
Sicor Pharmaceuticals' oncology products currently under development. Under the
agreement, Gensia Sicor Pharmaceuticals will develop and manufacture oncology
products, and Abbott will promote and sell 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 1998 were approximately $21 million. While
management believes that the Abbott alliance may be an important element in
helping the Company achieve future profitability, there is no assurance that the
alliance will be successful or that the oncology products will help the Company
to achieve profitability.
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 has a 180 day exclusive period in which to
sell the product without other generic competition. The U.S. propofol market in
1997 was estimated by the IMS market research firm to have sales of $257
million. The branded propofol product, DIPRIVAN(R) Injectable Emulsion with
disodium edetate, is marketed by Zeneca Limited ("Zeneca"). Gensia Sicor
Pharmaceuticals has an existing agreement with Baxter International, a leader in
the U.S. anesthesia market segment, which includes the distribution of propofol.
It is anticipated that generic propofol will be launched during the second
quarter of 1999, which will initiate the 180 day exclusivity period. In
February 1999, Zeneca 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. The complaint seeks an
injunction requiring the FDA to rescind its January 1999 approval of the ANDA,
and Zeneca has moved for a preliminary injunction seeking rescission of the
approval pending resolution of the suit. Gensia Sicor Pharmaceuticals has
intervened as a defendant in the case. On March 26, 1999, the court denied
Zeneca's motion for a preliminary injunction. The Company believes that Zeneca's
claims are without merit, and that the FDA's approval of Gensia Sicor
Pharmaceuticals' ANDA for propofol will be upheld. In the event the court were
to issue a permanent injunction rescinding the approval of the ANDA, there could
be a material adverse effect on the Company's financial position, results of
operations or cash flows.
Foreign Pharmaceutical Operations
In February 1997, the Company acquired three specialty pharmaceutical
companies comprised of a company located in Italy, Sicor, and two companies
located in Mexico, Sicor de Mexico and Lemery. Sicor 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 and Sicor de Mexico or
purchased from third parties. In December 1997, Sicor purchased a 50% equity
interest in Diaspa, a private Italian pharmaceutical company specializing in
bulk fermentation products. In June 1998, Sicor purchased the remaining 50% of
Diaspa.
The specialty bulk drug substances manufactured by Sicor 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
4
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 European Union ("EU") and Japan. The finished
multisource drug products manufactured by Lemery are sold primarily to the
national health 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 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 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 high dosages to treat certain
hormone dependent malignancies, such as breast cancer, in addition to the
latter's more typical use in contraceptives. The principal market for these
compounds is currently the Far East. The Company has applied with the FDA to
market Sicor de Mexico's version of such compounds in the United States and in
the second quarter of 1998, Sicor de Mexico successfully completed its initial
FDA facility inspection and commenced shipments of megestrol to Bristol-Myers
Squibb Company. 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 recently completed construction of a facility to
produce oncolytic agents. The first oncolytic agents scheduled to be produced
include 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 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 and Sicor de Mexico together produce six such progestins:
medroxyprogesterone acetate, megestrol acetate, cyproterone acetate,
chlormadinone acetate, gestodene and desogestrel. 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 and desogestrel are highly active third generation progestins of
which Sicor has only produced laboratory quantities to date. The compounds are
principally used in contraceptives in more advanced markets such as the United
States and the EU. Their activity allows the production of dosage forms with
very low concentrations of such compounds.
5
Sicor 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 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 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 and Sicor de Mexico.
Other Drugs
In addition to the oncolytic agents and steroid products discussed above,
Sicor also produces as bulk drug substances the muscle relaxants atracurium
besylate, pancuronium bromide and vecuronium bromide, the immunosuppressant drug
cyclosporine and the prodrug dexrazoxane.
Cyclosporine is a selective immunosuppressant administered to virtually all
transplant patients. It reduces the risk of severe organ rejection and must be
taken by such patients for most of their lives. The worldwide market for
cyclosporine finished drug products is estimated at more than $1.3 billion
annually. Gensia Sicor has a supply agreement with SangStat Medical Corporation
("SangStat") for the commercial supply of cyclosporine bulk drug substance.
SangStat received FDA marketing approval of its proprietary cyclosporine
formulation for the U.S. market in November 1998, and received European
marketing approval in January 1999. In July 1997, Sicor received FDA approval
for the bulk cyclosporine it produces for SangStat. In December 1997, Gensia
Sicor announced that Sicor had also received European approval of its
cyclosporine bulk drug substance for use in the European Union. In connection
with the supply agreement, SangStat made a $2.5 million equity investment in
Gensia Sicor Common Stock. The funding was used to help increase the Company's
capacity for the production of cyclosporine bulk drug substance. The Company
invested approximately $1.4 million during 1998 on capital for manufacturing
cyclosporine and an additional $1.8 million in related utility infrastructure,
at its facilities in Italy (Rho, Santhia and Diaspa), and expects to invest
approximately a total $9 million through 1999 and 2000.
Sicor manufactures 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 manufactures dexrazoxane
according to a proprietary process covered by process patents filed in many
countries. Sicor is developing dexrazoxane with Chiron BV, which is responsible
for product development, including clinical trials, dosage form manufacturing,
marketing and sales.
Future Developments
Sicor has obtained an exclusive license for a new oncolytic product ("UK
101") from Zetesis. In 1998, Sicor 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
6
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. Phase II clinical
trials started in Mexico by Lemery in coordination with Sicor with patients with
advanced cancer. Thus far, these clinical trials have demonstrated both efficacy
and lack of patient toxicity. 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.
In addition, at its Santhia facility outside of Turin, Sicor is developing
a glycoprotein, urofollitropin. Urofollitropin is involved in the stimulation of
ovulation and is used in the treatment of certain types of infertility. Sicor is
developing a process for the isolation of urofollitropin from the urine of post-
menopausal women.
Sicor is also currently working with a number of pharmaceutical companies
to develop new proprietary pharmaceutical products. If these products are
successfully developed, Sicor expects to have long term supply rights for the
bulk active ingredients used in these products.
Research Activities - Metabasis Therapeutics, Inc.
Gensia Sicor also conducts basic pharmaceutical research at its San Diego
location through its Metabasis Therapeutics, Inc. subsidiary ("Metabasis").
Metabasis' basic research activities are funded primarily through collaborations
with other pharmaceutical companies. Metabasis receives contract research
revenues through its research collaborations with Pfizer Inc. ("Pfizer") in the
area of pain management and with Sankyo Co. Ltd. ("Sankyo") for basic research
funding to discover and develop drugs for the treatment of non-insulin dependent
(Type II) diabetes. The research and development expenses incurred by Metabasis
during the three years ended December 31, 1998, 1997 and 1996 were $7.8 million,
$9.1 million and $13.4 million, respectively. In December 1997, Sankyo made a
$7.25 million equity investment in Metabasis for approximately an 8% interest in
Metabasis. Gensia Sicor's strategic direction does not include a significant
commitment to basic research and it is pursuing various alternatives with
respect to Metabasis. These alternatives include the sale of Metabasis, if a
purchaser can be identified, setting Metabasis up as an independent company or
other options.
Patents, Trademarks and Trade Secrets
Gensia 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. Gensia Sicor intends to file additional patent
applications, when appropriate, relating to improvements in its technology and
other specific products that it develops. Gensia 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 Gensia Sicor. Accordingly, there
can be no assurance that Gensia 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 Gensia Sicor will not be infringed or circumvented by
others, or that others will not obtain patents that Gensia Sicor would need to
license or circumvent. There can be no assurance that licenses that might be
required for Gensia Sicor's processes or products would be available on
reasonable terms. If Gensia Sicor does not obtain such licenses, product
introductions could be delayed or foreclosed. In addition, there can be no
assurance that Gensia 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
Gensia Sicor.
Gensia 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 Gensia
Sicor's trade secrets or disclose such technology. There can be no assurance
that Gensia Sicor
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can meaningfully protect its rights to its unpatented trade secrets.
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, Astra, 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 Immunex Corp. 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 Gensia 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.
Gensia 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 Gensia 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"
8
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 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, Gensia 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 which 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, Gensia
Sicor cannot predict what impact any reform proposal ultimately adopted may have
on its businesses.
Manufacturing
The manufacturing facility at Gensia Sicor Pharmaceuticals provides Gensia
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 will be used to manufacture oncolytics upon ANDA or ANDA
supplemental approval. The initial approvals are expected during the third
quarter of 1999. This facility will also be used for contract manufacturing
beginning in late 1999.
The principal raw materials to be used in manufacturing Gensia Sicor
Pharmaceuticals' products are
9
active drug ingredients (such as those produced by Sicor) 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 has filed over 30 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. Gensia Sicor Pharmaceuticals
currently utilizes single sources for certain raw materials and packaging
components.
Sicor'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 either 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 other manufacturing facility is located on the outskirts of Turin.
It is currently undergoing a significant expansion of its facilities to handle
an anticipated increase in demand for purified cyclosporine and hard to produce
anthracycline products for the U.S. and European markets.
Sicor acquired a 50% interest in Diaspa S.p.A., a pharmaceutical company
located near Milan, Italy specializing in bulk fermentation products, in
December 1997. In June 1998, Sicor purchased the remaining 50% of Diaspa. The
acquisition of Diaspa is expected 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. 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 cyclosporine. In addition to cyclosporine, Diaspa will be used
for the production of bulk fermentation products for Gensia 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 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 its existing third party suppliers.
Each of Gensia Sicor's manufacturing sites is a modern facility, which is
maintained in accordance with applicable regulatory agencies 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 current capital resources, commitments
from third parties, and efforts to reduce overall costs and expenses and working
capital requirements will enable it to maintain its current and planned
operations through at least 1999. The Company will continue to evaluate the
need for additional capital and, if appropriate, pursue equity, debt and lease
financing for its capital needs. Financings may not be available on acceptable
terms, or at all. If the Company is unable to obtain additional financing, the
Company would 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, 1998 approximately $115
million of the Company's $372 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 routinely assesses the recoverability of long-
lived assets by determining whether the carrying value of such assets can be
recovered through undiscounted future operating cash flows. If impairment is
indicated, the Company will measure the amount of such impairment by comparing
the carrying value of the asset to the present value of the expected future cash
flows associated with the use of the asset.
Uncertainty of Outcome of Legal Proceedings
The Company is a defendant in various actions, claims, and legal
proceedings arising from its business 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.
Loss History; Uncertainty of Future Profitability
Gensia Sicor was founded in 1986, has never made an annual profit, and has
never had positive annual cash flow from operations. As of December 31, 1998,
Gensia Sicor had an accumulated deficit of approximately $360.4 million. For the
years ended December 31, 1996, 1997 and 1998, Gensia Sicor had net losses
applicable to common shares of $51.8 million, $82.7 million and $24.6 million,
respectively. Gensia Sicor may incur additional losses in the future. Although
management has taken steps to decrease the loss, there is no assurance that
Gensia Sicor will be profitable in the future.
Competition
Gensia Sicor is engaged in a rapidly evolving field. 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 Gensia 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 Gensia Sicor obsolete or noncompetitive.
Gensia Sicor competes in the highly competitive multisource (generic)
injectable drug industry with numerous other pharmaceutical manufacturers, many
of which are established companies with greater financial and other resources
than Gensia Sicor. Gensia Sicor may not be able to continue to compete
effectively in this market. Because selling prices of multisource injectable
drug products typically decline as competition intensifies, the profitability of
Gensia Sicor will depend in part on its ability to develop and introduce new
products to the market in a timely manner, to obtain raw materials at
competitive prices and to improve the efficiency of its production capability.
11
The development and commercialization process is time consuming and costly.
Delays in any part of the process or the inability of Gensia Sicor to obtain
regulatory approval for its products could materially and adversely affect the
Company.
Dependence on Key Personnel
The success of Gensia Sicor depends in large part upon its ability to
attract and retain qualified scientific, manufacturing, marketing and management
personnel. Gensia Sicor faces competition for such personnel from other
companies, academic institutions, government entities and other organizations.
In addition, the success of Gensia Sicor will be dependent upon certain key
personnel currently associated with Gensia Sicor, 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 Gensia 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 of others may have an adverse
effect on the ability of Gensia Sicor to commercialize its products. Litigation,
which could result in substantial cost 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, Gensia Sicor may be required to obtain licenses
to patents or other proprietary rights of third parties which may not be
available on acceptable terms. If Gensia Sicor does not obtain such licenses,
product introductions could be delayed or foreclosed. Gensia 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.
Potential Inability to Obtain Raw Materials or Manufacture Products
Gensia Sicor depends on third party manufacturers for bulk raw materials
for certain 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 Gensia 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. In the United States, there
have been, and Gensia Sicor expects that there will continue to be, a number of
federal and state proposals to implement government controls. While Gensia
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 Gensia Sicor's ability to raise capital and the adoption of
such proposals or reforms could have a material adverse effect on Gensia Sicor's
businesses, 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 Gensia Sicor may not be considered cost effective and
reimbursement to the consumer may not be available or may not be sufficient to
allow Gensia Sicor to sell its products on a competitive basis.
12
Product Liability Exposure; Inadequacy or Unavailability of Product Liability
Insurance
Gensia 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
Gensia 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.
In addition, as a manufacturer of bulk drug substances, Gensia Sicor
supplies other pharmaceutical companies with active ingredients which are
contained in finished products. The ability of Gensia 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.
Gensia Sicor may not be able to negotiate satisfactory terms and conditions with
its customers. Gensia 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; however, 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 Gensia
Sicor.
In September 1998, the Company reached a settlement with Great Lakes
Chemical Corporation ("Great Lakes") regarding liabilities related to the
purchase by Sicor of certain contaminated products from Great Lakes in 1994 -
1995. The settlement resulted in a dismissal of certain litigation between
Sicor, Great Lakes and Pharmacia & Upjohn, Inc. Under the terms of the
settlement, Sicor received a cash payment that is expected to cover
substantially all of the related customer claims against it. At December 31,
1998, Sicor has a reserve of $1.8 million for estimated settlement costs still
outstanding. The settlement also resulted in the dismissal with prejudice of
Sicor's action against Great Lakes filed in the United States District Court in
Arkansas and other related claims against the Company.
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. A large portion of the
finished multisource drug products manufactured by Lemery is sold to the
national health program in Mexico. The national health program in Mexico 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.
Actions by the Mexican government, future developments in the Mexican economy
and Mexico's political, social or economic situation may adversely affect the
operations of Lemery and Sicor de Mexico.
Risks Related to International Operations
During 1997 and 1998, percentage of total product sales to customers
outside of Western Europe, Japan and the United States was approximately 23%
and 27%, respectively. Operations outside of Western Europe, Japan and the
United States are subject in varying degrees to risks involved in doing business
abroad 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. Gensia Sicor may experience
material adverse developments with respect to its operations outside of Western
Europe, Japan and the United States and such developments, if they were to
occur, may have a material adverse effect on the results of operations
13
and financial condition of Gensia Sicor.
Environmental Matters
Gensia Sicor is subject to numerous environmental regulations in the
jurisdictions in which it operates, including regulations relating to the
handling, transport and disposal of hazardous materials and the protection of
the environment. In certain of these jurisdictions, protection of the
environment is becoming an area of increased governmental scrutiny and
surveillance. While Gensia Sicor has implemented practices to comply with
applicable regulations, the cost of doing so in the future may become
prohibitive and may have a significant adverse impact on the Company's
operations. Gensia Sicor may not be able to comply with all applicable laws and
regulations and such laws and regulations may have a material adverse impact on
the Company's operations.
Currency Fluctuations
Gensia Sicor has significant operations in several countries, including the
United States, Italy, and Mexico. 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 Gensia 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 and Chief Executive Officer and a
director beneficially owns approximately 41% of the Company's Common Stock. In
addition, pursuant to the 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 Gensia Sicor's ten
directors, who in turn are entitled to designate (jointly with two executive
officer directors of Gensia Sicor) five additional directors. In addition, the
consent of the Rakepoll Finance designated directors is required for Gensia
Sicor to take certain actions, such as a merger or sale of all or substantially
all of the business or assets of Gensia Sicor and certain issuances of
securities. As a result of its ownership of Gensia Sicor Common Stock, Mr.
Salvi may be able to control substantially all matters requiring approval by the
stockholders of Gensia 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 Gensia Sicor Common Stock, like that of
the common stock of many other life sciences companies, has been and is likely
to continue to be highly volatile, and 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 Gensia Sicor Common Stock could be subject to
significant fluctuations in response to variations in Gensia Sicor's anticipated
or actual operating results, sales of substantial amounts of Gensia Sicor Common
Stock, other issuances of substantial amounts of Gensia Sicor Common Stock
pursuant to pre-existing obligations, announcements concerning Gensia Sicor or
its competitors, including the results of testing, technological innovations or
new commercial products or services, developments in patent or other proprietary
rights of Gensia Sicor or its competitors, including litigation, conditions in
the life sciences or pharmaceuticals industries, governmental regulation, health
care legislation, public concern as to the safety of Gensia Sicor's products,
changes in estimates of Gensia Sicor's performance by securities analysts,
market conditions for life sciences stocks in general, and other events or
factors.
14
Gensia Sicor has never paid cash dividends on Gensia Sicor Common Stock.
Gensia Sicor presently intends to retain earnings, if any, for the development
of its businesses and does not anticipate paying any cash dividends on Gensia
Sicor Common Stock in the foreseeable future. Unless full cumulative dividends
are paid on Gensia 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 Gensia Sicor Common Stock.
Through December 31, 1998, Gensia Sicor had approximately $7.5 million in
undeclared cumulative preferred dividends on such Convertible Preferred Stock.
The Company made quarterly cash dividend payments in the aggregate amount of
$6.0 million on the Convertible Preferred Stock in 1998. If Gensia 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.
Effect of Certain Anti-Takeover Provisions
Gensia 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
Gensia 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 Gensia Sicor's Certificate of Incorporation. Further, pursuant to the terms
of its stockholder rights plan, Gensia Sicor has distributed a dividend of one
right for each outstanding share of Gensia Sicor Common Stock. These rights will
cause a substantial dilution to a person or group that attempts to acquire
Gensia Sicor on terms not approved by the Gensia Sicor Board of Directors and
may have the effect of deterring hostile takeover attempts.
MANAGEMENT
Executive Officers
- ------------------
The executive officers of Gensia Sicor as of March 24, 1999 are as follows:
Name Age Position
- ---- --- --------
Carlo Salvi 62 President and Chief Executive Officer and Director
Michael D. Cannon 53 Executive Vice President and Director
Gianpaolo Colla 61 Executive Vice President, Italian Operations and
Director
John W. Sayward 47 Executive Vice President, Finance, Chief Financial
Officer and Treasurer and Director
Thomas M. Speace 49 Vice President, International Business Development,
Gensia Sicor Pharmaceuticals
Wesley N. Fach 47 Vice President, Senior Legal Counsel and Secretary
Mr. Salvi has been a director of Gensia Sicor since February 1997 and was
appointed Executive Vice President of the Company in November 1997. 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. Sicor is a wholly-owned subsidiary
of Rakepoll Holding, which is owned
15
by Gensia Sicor. 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 products.
From 1986 to September 1995, he was General Manager of Alco.
Mr. Cannon joined Gensia Sicor as Executive Vice President in February
1997. In August 1998 Mr. Cannon was appointed President and Chief Operating
Officer of the Company's wholly-owned subsidiary, Gensia Sicor Pharmaceuticals,
Inc. Prior to joining Gensia Sicor, Mr. Cannon was a member of the Board of
Directors of Sicor (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 and a
member of its Board of Directors since 1996, and has served in various
management capacities with Sicor 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
Gensia Sicor 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 Gensia Sicor and Chief Financial Officer of Gensia Sicor
Pharmaceuticals. 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. Speace was named Vice President, Marketing and Business Development,
Gensia Sicor Pharmaceuticals in May 1996 and Vice President, International
Business Development, Gensia Sicor Pharmaceuticals in August 1998. He joined
Gensia Sicor in 1991 as Senior Director of Business Development of Gensia Sicor
Pharmaceuticals, becoming Executive Director in 1994 and Division Vice President
in 1995. Mr. Speace worked at Kendall McGaw Pharmaceuticals, from 1987 to 1991,
when the company was acquired by Gensia Sicor and subsequently renamed Gensia
Sicor Pharmaceuticals. Mr. Speace previously worked at Elkins-Sinn, a division
of A.H. Robins and had responsibility for materials and project management,
strategic planning and business development. He received his master of business
administration from St. Joseph's University in Pennsylvania.
Mr. Fach joined Gensia Sicor 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 Gensia Sicor 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.
16
Human Resources
As of December 31, 1998, Gensia Sicor Inc. employed a total of
approximately 1200 individuals on a full-time basis. The Company employees 315
individuals in Southern California. Approximately 80% are located in Irvine and
approximately 20% are in San Diego.
Sicor, Diaspa, Lemery, Sicor de Mexico and Gensia Sicor de Mexico employ
approximately 890 individuals, of whom approximately 32% work in Italy and 68%
in Mexico. As is customary in Italy and Mexico, most of these employees are
represented by unions. Sicor, Diaspa, Lemery, Sicor de Mexico and Gensia Sicor
de Mexico have not experienced any significant labor disputes in recent years.
Gensia Sicor considers its employee relations to be good.
Item 2. PROPERTIES
Gensia Sicor leases a total of approximately 150,000 square feet of space
in San Diego. Of this amount, approximately 23,000 square feet is subleased to
third-party tenants and 56,000 square feet is occupied by Metabasis. These
spaces include laboratory facilities, used by Metabasis and a third party
tenant, which are equipped for research activities in biochemistry, analytical
chemistry, synthetic chemistry, tissue culture and enzymology. Metabasis also
uses these facilities for preclinical research. The Company acquires most
equipment under operating and capital lease agreements.
In December 1997, Gensia Sicor moved its principal administrative offices
from San Diego to Irvine, California where Gensia Sicor Pharmaceuticals is
located. The Company is considering several alternatives with regards to its
leased facilities in San Diego.
Gensia Sicor Pharmaceuticals leases approximately 170,000 square feet of
office, laboratory and manufacturing space in Irvine, California. These
facilities are leased under several lease agreements expiring in 1999 to 2006
with some of the leases including an option to extend an additional five and ten
years.
Sicor'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 other production
center is located in Santhia, on the outskirts of Turin, and covers
approximately 6,200 square meters of a site over 90,000 square meters. This site
is currently undergoing a significant expansion of its production facilities to
become one of the Company's key manufacturing facilities of strategic bulk
products.
Sicor also leases a 197 square meter sales office in Milan which is
responsible for sales in Italy.
All of Diaspa's operations are carried out at its site in Corana, which is
outside of Milan. The plant and administrative offices cover approximately
7,000 square meters of a 33,000 square meter site, which is owned by Diaspa.
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. Sicor de Mexico
completed construction of a facility to produce oncolytic agents in late 1997
and commenced production in December 1997. Gensia Sicor de Mexico leases
approximately 300 square meters of office space in Mexico City.
Genchem Vacallo leases approximately 870 square meters of office and
laboratory space in Vacallo,
17
Switzerland. The lease expires in 2006 with an option to renew for an
additional five years.
Item 3. LEGAL PROCEEDINGS
In September 1998, the Company reached a settlement with Great Lakes Chemical
Corporation ("Great Lakes") regarding liabilities related to the purchase by
Sicor of certain contaminated products from Great Lakes in 1994 - 1995. The
settlement resulted in a dismissal of certain litigation between Sicor, Great
Lakes and Pharmacia & Upjohn, Inc. Under the terms of the settlement, Sicor
received a cash payment that is expected to cover substantially all of the
related customer claims against it. At December 31, 1998, Sicor has a reserve
of $1.8 million for estimated settlement costs still outstanding. The
settlement also resulted in the dismissal with prejudice of Sicor's action
against Great Lakes filed in the United States District Court in Arkansas and
other related claims against the Company.
In July 1998, the Company was named as a defendant in a complaint filed by
Protocol Systems, Inc. ("Protocol Systems"). The complaint alleges breach of a
supply agreement (the "Supply Agreement"). Protocol Systems alleges damages
estimated at approximately $10.8 million, plus any amounts which it may owe to
a third-party vendor. Gensia Sicor believes that the amount of the claim is
significantly overstated for a variety of reasons and plans to vigorously
defend itself against this claim. Based on a review of the current facts and
circumstances, management has recorded a provision for its estimate of
liability related to this lawsuit. The ultimate outcome with respect to the
lawsuit could 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
they have 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 the consolidated financial position, results of operations or cash
flows of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
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 "GNSA". The following table sets forth,
for the periods indicated, the range of high and low reported bid prices for the
Company's Common Stock on the Nasdaq National Market.
High Low
------ ------
January 1 - March 31, 1997 $4.94 $3.94
April 1 - June 30, 1997 5.19 3.13
July 1 - September 30, 1997 7.81 4.41
October 1 - December 31, 1997 7.00 4.50
High Low
------ ------
January 1 - March 31, 1998 $6.00 $4.69
April 1 - June 30, 1998 5.38 3.63
July 1 - September 30, 1998 4.97 2.56
October 1 - December 31, 1998 4.66 3.03
As of March 24, 1999, there were approximately 867 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 24, 1999, the Company had undeclared
cumulative Preferred Stock dividends of approximately $7.5 million. Gensia 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.
In December 1998, the Company sold $10 million of 8% Subordinated
Convertible Notes due in January 2001 to Carlo Salvi, the Company's President,
Chief Executive Officer, director and a principal stockholder. The 8%
Notes are convertible at any time into Common Stock at a $4.50 per share
conversion price.
19
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,
------------------------------------------------------------------------
1998 1997(2) 1996 1995 1994
--------- --------- --------- --------- ---------
Statement of Operations Data:
Revenues:
Product sales ............................ $ 168,080 $ 140,424 $ 54,636 $ 53,464 $ 51,830
Contract research and license fees ....... 10,415 9,257 3,666 11,062 17,956
License restructuring fee ................ -- -- -- 50,000 --
Sale of investment ....................... -- -- -- 5,359 --
--------- --------- --------- --------- ---------
Total revenues ...................... 178,495 149,681 58,302 119,885 69,786
Cost and expenses:
Cost of sales ............................ 119,017 99,850 40,654 33,183 30,937
Research and development ................. 23,140 26,118 31,081 38,762 61,201
Selling, general and administrative ...... 35,968 46,993 32,839 31,137 29,006
Amortization expense ..................... 5,982 4,367 -- -- --
Interest and other, net .................. 6,719 2,298 (473) (1,214) (1,240)
Write-down of investment and
restructuring charge ..................... 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 ............. 192,665 223,492 104,101 125,229 119,904
--------- --------- --------- --------- ---------
Loss before income taxes ...................... (14,170) (73,811) (45,799) (5,344) (50,118)
Provision for income taxes .................... 5,188 2,884 -- 550 --
--------- --------- --------- --------- ---------
Net loss before minority interest ............. (19,358) (76,695) (45,799) (5,894) (50,118)
Minority interest ............................. 800 -- -- -- --
--------- --------- --------- --------- ---------
Net loss ...................................... (18,558) (76,695) (45,799) (5,894) (50,118)
Dividends on preferred stock, including
undeclared cumulative dividends of
$7,500 as of December 31, 1998 ........... (6,000) (6,000) (6,000) (6,000) (6,000)
--------- --------- --------- --------- ---------
Net loss applicable to common shares .......... $ (24,558) $ (82,695) $ (51,799) $ (11,894) $ (56,118)
========= ========= ========= ========= =========
Basic and diluted net loss per common share (1) $ (.31) $ (1.15) $ (1.41) $ (.36) $ (1.89)
========= ========= ========= ========= =========
Shares used in computing per
share amounts (1) ........................... 79,479 71,800 36,624 33,231 29,670
========= ========= ========= ========= =========
December 31,
------------------------------------------------------------------------
1998 1997(3) 1996 1995 1994
--------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital .......................... $ 17,332 $ 39,113 $ 24,754 $ 67,687 $ 47,439
Total assets ............................. 371,814 363,205 89,550 118,560 109,866
Long-term obligations, less
current maturities .................... 79,597 75,294 585 46 71
Accumulated deficit ...................... (360,389) (341,831) (265,136) (219,337) (213,443)
Stockholders' equity ..................... 169,009 187,543 67,999 102,303 83,778
(1) Computed on the basis described for net loss per share in Note 2 of Notes to
Consolidated Financial Statements.
(2) Amounts in 1997 column include the results for Rakepoll Holding B.V. from
February 28, 1997, the date of acquisition (see Note 1 of the Notes to
Consolidated Financial Statements).
(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 of the
Notes to Consolidated Financial Statements).
20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Gensia Sicor has been unprofitable since its inception in 1986. For the
period from its inception to December 31, 1998, Gensia Sicor has incurred a
cumulative net loss of $360.4 million.
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, 1998, 1997 and 1996
- --------------------------------------------
In 1998, the Company reported a net loss applicable to common shares of
$24.6 million (after preferred stock dividends of $6.0 million for the year,
paid out at approximately $1.5 million each quarter) as compared to a net loss
applicable to common shares of $82.7 million in 1997 (after preferred stock
dividends of $6.0 million for the year, paid out at approximately $1.5 million
each quarter), and a net loss of $51.8 million in 1996 (after aggregate
preferred stock dividends of $3.0 million paid in September and December 1996
and $3.0 million in undeclared and unpaid cumulative preferred stock dividends).
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 Automedics, and a one-time restructuring
charge of $3.2 million for costs from relocating Gensia Sicor's headquarters
from San Diego to Irvine, California. Total revenues for 1998 were $178.5
million as compared to $149.7 million in 1997, and $58.3 million in 1996.
Product sales increased to $168.1 million in 1998, from $140.4 million in
1997 and from $54.6 million in 1996. 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 one 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 and 1996, the LMA accounted for
approximately $12.1 million and $9.3 million in product sales, respectively.
The increase in product sales in 1997 compared to 1996 is primarily due to the
acquisition of Rakepoll Holding in February 1997. The Company expects product
sales to increase in 1999 compared to 1998 primarily from new product sales,
including continued growth for Gensia Sicor Pharmaceuticals' products approved
for sale in the U.S. during 1998, along with products which the Company expects
to be approved for sale by regulatory agencies during 1999 (e.g. haliperidol
and alprostidil).
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
21
sedation. Pursuant to the Waxman/Hatch Act, the Company has a 180 day exclusive
period in which to sell the product without other generic competition. Gensia
Sicor Pharmaceuticals has an agreement with Baxter International, a leader in
the U.S. anesthesia market segment, which includes the distribution of propofol.
It is anticipated that generic propofol will be launched during the second
quarter of 1999, which will initiate the 180 day exclusivity period.
Gensia Sicor Pharmaceuticals also entered into a Sales and Distribution
agreement with Abbott Laboratories in January 1999, under which the two
companies have formed a strategic alliance for marketing and distribution of
oncology products in the United States. Gensia Sicor Pharmaceuticals' oncology
product sales during 1998 were approximately $21 million. While management
believes that the Abbott and Baxter alliances may help the Company achieve
future profitability, there is no assurance that these alliance will be
successful and new product approvals may not be obtained. If Gensia Sicor does
not experience its planned growth, it would have a significant adverse effect on
the results of operations and financial condition of the Company.
Cost of sales in 1998 was $119.0 million which yielded a product gross
margin of 29%, compared to a cost of sales of $99.9 million in 1997 which
yielded a gross margin of 29%, and a cost of sales of $40.7 million in 1996
which yielded a gross margin of 25%. The increase in gross margin in 1997
compared to 1996 was primarily due to the larger product sales base that
resulted from the acquisition of Rakepoll Holding in February 1997, along with
improved margins for certain of Gensia Sicor Pharmaceuticals newer multisource
injectable products launched during 1997.
Contract research and license fees of $10.4 million in 1998 increased from
$9.3 million in 1997, and $3.7 million in 1996. 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 involving a bulk drug
substance. In addition, in the fourth quarter of 1998, Metabasis achieved a
certain milestone with Sankyo which resulted in the Company recording $1 million
in research revenue. These increases were partially offset by a decrease in
license revenue from deferred license revenue that was fully amortized during
1998. The increase in 1997 compared to 1996 was primarily due to the licensing
and research and development agreement with Sankyo in the area of diabetes
research. The Company continued to receive contract research revenues through
its research collaboration with Pfizer in the areas of pain and inflammation
research. The research collaboration with Pfizer is scheduled to end in May
1999 and may not be renewed. Metabasis is engaged in discussions with other
pharmaceutical companies concerning collaborations under which these companies
would fund additional Metabasis' research and development efforts; however,
there is no assurance that any such collaborations will be completed.
Research and development expenses decreased to $23.1 million in 1998 from
$26.1 million in 1997, and $31.1 million in 1996. 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
the development of leuprolide with ASTA Medica. The decrease in expenses in
1997 compared to 1996 was mostly due to lower research spending by Metabasis and
Automedics offset by the inclusion of operating results for Rakepoll Holding
from February 28, 1997. As discussed in the Research Activities section, the
Company is considering several options, which if accomplished would eliminate
ongoing expenses and contract research revenues from its Metabasis research
operation, causing both future research and development expenses and contract
research revenues to decrease from current levels. See "Research Activities" for
further discussion.
22
Selling, general and administrative expenses for the years ended December
31, 1998, 1997, and 1996 were $36.0 million, $47.0 million, and $32.8 million,
respectively. 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 (see Note 15). These decreases
were partially offset by the inclusion of operating results for Rakepoll Holding
for the full twelve months compared to ten months in the same period of 1997 and
the reserve for the Protocol Systems lawsuit (see Note 15). The increase in
expenses in 1997 compared to 1996 was primarily due to the inclusion of Rakepoll
Holding's operating results which were not included in 1996, along with
increased sales and marketing expenses in support of Automedics' initial
marketing efforts for the GenESA System.
The Company recorded amortization expense of $6.0 million and $4.4 million
for the years ended December 31, 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 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 compared to ten months in the same period of 1997.
The Company had interest and other expenses of $6.7 million and $2.3
million for the years ended December 31, 1998 and 1997, respectively and
interest and other income of $0.5 million for the year ended December 31, 1996.
The increase in expenses in 1998 compared to 1997 was mainly due to higher
interest expenses, expenses from donated products, and a gain recognized on the
sale of a parcel of land in 1997. The increase in expenses in 1997 compared to
1996 was primarily due to a combination of higher interest expense from the
inclusion of Rakepoll Holding, along with foreign currency exchange and
translation net losses recognized by Rakepoll Holding's international operations
during the year offset partially by the gain on the sale of a parcel of land in
San Diego.
As discussed in Note 6, due to, among other things, the lack of market
acceptance of the GenESA(R) 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 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. As discussed in Note 6,
due to the contingent nature of the royalty and milestone payments associated
with this transaction, Gensia Sicor recorded a charge of approximately $11.5
million. This restructuring charge reflected 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. In
addition, a $2.9 million loss was realized on the sale of Automedics' assets and
liabilities, and $1.3 million of severance related expenses were recognized.
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 170,000 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
23
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. 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.
Income tax expense for 1998 increased to $5.2 million from $2.9 million for
1997, and zero in 1996. The increase in tax expense is attributable to
profitable operations in Italy and Mexico. Although the Company reported a net
loss for 1998, any taxable losses generated by the U.S. entities cannot be
utilized to reduce taxable income generated by the foreign entities. As of
December 31, 1998, the Company had a federal tax net operating loss carryforward
of approximately $292.9 million and a credit carryforward of approximately $11.9
million. The acquisition of Rakepoll Holding by Gensia Sicor 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 the net
operating loss and credit carryforward, respectively. Gensia Sicor'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 Gensia Sicor 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 $0.8 million for the year ended
December 31, 1998 which represented minority stockholders' proportionate share
of the loss in the Company's consolidated subsidiaries, Diaspa and Metabasis.
In June 1998, Sicor purchased the remaining 50% interest in Diaspa.
Dividends relate to the Company's convertible exchangeable preferred stock
issued in February 1993. Dividends on preferred stock of $6.0 million in 1998
and 1997 consisted of payments of $1.5 million during each of the four quarters.
Dividends on preferred stock of $6.0 million in 1996 consisted of $3.0 million
in paid dividends and $3.0 million in undeclared and unpaid cumulative
dividends. In order to reduce its cash usage, Gensia Sicor'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 1999,
the Company has approximately $7.5 million in undeclared cumulative preferred
dividends. If Gensia 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.
Liquidity and Capital Resources
As of December 31, 1998, Gensia Sicor had cash and cash equivalents of
$24.5 million and working capital of $17.3 million compared to $41.6 million and
$39.1 million, respectively, as of December 31, 1997. The decrease in cash and
working capital resulted from cash used in operations of $9.7 million and
investments in long-term assets of $25.7 million, partially offset by $17.3
million from financing activities and $0.9 million from exchange rate changes.
Significant changes in operating assets and liabilities during the year
ended 1998, excluding the net assets acquired from the Genchem Vacallo
acquisition (see Note 1), included a $7.5 million increase in inventories, and a
$5.3 million increase in prepaid expenses and other assets, a $5.3 million
increase in accounts payable and accrued expenses, and a $4.5 million increase
in accounts receivable.
As discussed in Note 15, the Company reached a settlement with Great Lakes
Chemical Corporation ("Great Lakes") regarding liabilities related to the
purchase by Sicor of certain contaminated products from Great Lakes in 1994 -
1995. The settlement resulted in a dismissal of certain litigation between
Sicor, Great Lakes and Pharmacia & Upjohn, Inc. Under the terms of the
settlement, Sicor received a cash payment that is expected to cover
substantially all of the related customer claims against it. The settlement
also resulted in the dismissal with prejudice of Sicor's action against Great
Lakes filed in the United States District Court in Arkansas and other related
claims against the Company.
In March 1998, Genchem Pharma acquired a research and development branch
("Genchem Vacallo") in Vacallo, Switzerland for approximately $1.9 million in
cash. In addition, in 1998, Sicor acquired a 50% interest in Zetesis S.p.A. for
approximately $0.7 million in cash from private investors.
In June 1998, Sicor became the sole owner of Diaspa, S.p.A. by purchasing
the 50% owned by third parties 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. Gensia Sicor
purchased the initial 50% interest for approximately $2.7 million in December
1997. The remaining 50% interest in Diaspa was purchased from Archimica
S.p.A., an Italian bulk pharmaceutical company in which Carlo Salvi, who
represents Gensia Sicor's largest stockholder and is a director and President
and Chief Executive Officer of Gensia Sicor, previously had a 50% beneficial
24
ownership interest. The acquisition of Diaspa increases 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.
During 1998, the Company expended approximately $17.9 million on property
and equipment mostly at Gensia Sicor Pharmaceuticals, Sicor, Diaspa and Lemery.
The expenditure related primarily to the following: (i) significant completion
of the oncology facility at Gensia Sicor Pharmaceuticals; (ii) increase in
cyclosporine capacity at Sicor and Diaspa and related utilities at Sicor; (iii)
increase in oncological capacity and upgrade anti-neoplastic production
capability and related utilities at Sicor; and (iv) upgrade in water treatment
facility and the injectables area at Lemery.
The Company's subsidiary, Gensia Sicor Pharmaceuticals, entered into a
short-term financing in the third quarter of 1998 which provides a line of
credit of up to $10 million. This is secured by accounts receivable and
inventory. At December 31, 1998, approximately $4 million of loans were
outstanding under the agreement.
The Company had a net increase in short-term borrowings of $11.5 million in
1998 mainly from an increase in borrowings at Sicor to finance capital
improvements and to acquire the remaining 50% of Diaspa.
In December 1998, the Company sold $10 million of 8% Subordinated
Convertible Notes due in January 2001 to Carlo Salvi, the Company's President,
Chief Executive Officer, director and a principal stockholder. The 8% Notes are
convertible at any time into Common Stock at a $4.50 per share conversion price.
During 1998, the Company paid cash dividends on its preferred stock
totaling $6.0 million. At December 31, 1998, the Company had five cumulative
quarters, or approximately $7.5 million, in undeclared cumulative preferred
dividends. If the Company chooses to not declare preferred 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 Company anticipates that its efforts to reduce overall costs and
expenses and working capital requirements, combined with its current cash and
cash equivalents on hand at December 31, 1998 of $24.5 million, and commitments
from third parties, will enable it to maintain its current and planned
operations through at least 1999. 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 are evaluating plans to raise
required additional capital. 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 financing is not available, the
Company may have to reduce planned expenditures, discontinue certain
operations, or otherwise restructure to continue operations.
In connection with the Sales and Distribution agreement entered into
with Abbott Laboratories in January 1999 (as further discussed under Item 1.
Business), the Company received $4.5 million in February 1999. Additionally,
approximately $3.7 million was received in March 1999 for the sale of finished
goods inventory to Abbott Laboratories.
The Company has entered into an amendment to an earlier agreement with
Baxter International under
25
which a fee of approximately $3.5 million was received in March 1999 from Baxter
to reimburse Gensia Sicor for its investment in propofol research and
development.
Gensia Sicor expects to incur additional costs, including manufacturing and
marketing costs, to support anticipated product launches. The planned
spending on sales and marketing activities during 1999 related to promoting
products is approximately $13.8 million. Management also plans to invest in
plant and equipment to increase and improve the existing manufacturing capacity,
including expansion of facilities in Italy to produce cyclosporine and to
complete an oncology product development and manufacturing facility at Gensia
Sicor Pharmaceuticals in Irvine, California. Significant investment in plant
and equipment is also planned for propofol at Gensia Sicor Pharmaceuticals.
Future commitments relating to these planned capital expenditures in Italy and
Irvine, California, along with other planned capital expenditures, are estimated
to total $24 million during 1999. This capital commitment is anticipated to be
funded from future revenues generated by products manufactured at these sites.
The Company has commitments to finance the completion of the oncology
facility and a portion of the propofol investment through lease and debt
financing secured against certain assets of Gensia Sicor Pharmaceuticals. Such
financing may not continue to be available on attractive terms, or at all.
In May 1998, the Company's Sicor subsidiary 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 a research program in process development with anthracyclines. The receipt
of funding for the research program is contingent upon presentation of a
statement of progress at established "Checkpoints", the first of which is
expected in the second quarter of 1999.
In November 1998, the Company was notified by SangStat Medical Corporation
("SangStat") that it was granted marketing clearance by the U.S. Food and Drug
Administration ("FDA") for SangCya(TM), SangStat's patented formulation of
cyclosporine. With this approval, the Company's subsidiary, Sicor, expects to
provide a majority of cyclosporine bulk material for SangCya(TM). Sicor will be
the primary manufacturer of the cyclosporine bulk drug substance used in the
production of SangCya(TM) for subsequent commercial sale and distribution
worldwide by SangStat. The sales of this product are expected to result in
additional liquidity for the business. There is no assurance that these sales
or additional liquidity will be achieved.
As discussed in Notes 6 and 15, the Company was named as a defendant in a
complaint filed by Protocol Systems. The complaint alleges breach of the Supply
Agreement, and damages estimated at approximately $10.8 million, plus any
amounts which Protocol Systems may owe to a third-party vendor. Gensia Sicor
believes that the amount of the claim is significantly overstated for a variety
of reasons and plans to vigorously defend itself against this claim. Based on a
review of the current facts and circumstances, management has recorded a
provision for its estimate of liability related to this lawsuit. The ultimate
outcome with respect to the lawsuit could have a material adverse effect on the
Company's financial position, results of operations or cash flows.
26
The Company is continuing to pursue various strategic options with respect
to Metabasis, including the possibility of establishing Metabasis as an
independent company, selling the business to another pharmaceutical company or
other options. The Company's current 1999 operating plan includes continued
funding of basic research activities at Metabasis primarily through
collaborations with Pfizer and Sankyo. The Company's product development efforts
with Pfizer and Sankyo may not be successful, Pfizer and Sankyo may terminate
their respective collaborations and Gensia Sicor may not be able to find a
purchaser for Metabasis or establish Metabasis as an independent entity.
Most of the Company's foreign subsidiaries use foreign exchange currency
contracts to reduce the negative financial impact of currency fluctuations. In
March 1998, the Company's Italian subsidiary, Sicor, entered into ten monthly
U.S. $1 million put options at a strike price of Lira 1,750 per U.S. $1. As of
December 31, 1998, six contracts were exercised.
Impact of Year 2000
The Company has taken actions to understand the nature and extent of the
work required to make its systems and infrastructure Year 2000 compliant.
System hardware, software and microprocessor controlled equipment that support
the Company's infrastructure have been inventoried and assessed for Year 2000
compliance. To the extent necessary to address material Year 2000 issues, the
Company is in the process of obtaining and installing current releases or
upgrades from software vendors. All domestic business systems have been
upgraded and are believed to be compliant.
Work continues on the Company's international facilities systems. Upgrades
and conversions are scheduled for completion by the end of the second quarter of
1999 in Italy and by the end of the fourth quarter of 1999 in Mexico. A failure
by the Company to convert its international systems in a timely fashion could
have a material adverse effect on the Company.
Because third party failures could have a material adverse impact on the
Company's ability to conduct business, the Company is attempting to obtain
written assurances from all material customers and vendors that their systems
are or will be Year 2000 compliant. The Company has received such assurances
from its domestic material customers and vendors; however, this is an on-going
process. The Company anticipates that this process will be completed by mid-
1999 for its international operations. The Company's total sales to
international customers in the year ended December 31, 1998 were approximately
$91.3 million, which represented approximately 54% of the Company's total sales
in such period. One customer, the Mexican hospital program, accounted for
approximately $19.8 million of sales, or 11.8% of the Company's sales. No other
international customer accounted for more than 5% of the Company's sales in the
year ended December 31, 1998. If either the Company or any material customer or
vendor experiences a failure of any critical system, it could have a material
adverse impact on the Company's business or require the Company to incur
unanticipated expenses.
If by mid-1999, the Company has not obtained reasonable assurances from
material vendors as to Year 2000 compliance, the Company will consider
alternatives, including the replacement of material vendors, if possible. The
business interruption of any of the Company's significant customers, resulting
from their Year 2000 issues, could have a material adverse impact on the
Company's revenues and results of operations.
27
The Company has not completed a formal contingency plan for non-compliance,
but it is developing a plan based on the information obtained from third parties
and an on-going evaluation of the Company's own systems. The Company anticipates
having a contingency plan in place by mid-1999 which will include development of
backup procedures, identification of alternate suppliers and possible increases
in inventory levels. The Company has not identified its most reasonably likely
worst case scenario with respect to possible losses in connection with Year 2000
related problems. The Company plans on completing this analysis in mid-1999.
There are many factors outside the Company's control that could cause the
Year 2000 problem to seriously disrupt its operations. There are risks,
however, for which the Company is preparing and, in so doing, seeking to reduce
its exposure. The scope of the Company's efforts regarding each risk is
limited to the Company's key products, key compounds, subsidiaries, critical
suppliers, and major customers. The most critical of these risks are: - a
disruption in the supply of product with particular emphasis on failures of raw
material suppliers, commercial partners, and external distribution channels
- - internal infrastructure failures such as utilities, communications, internal
information technology services and integrated information technology systems -
non-U.S. government failures, especially as they impact import and export
activity - interruption of the product regulatory filing process - a major
customer failure or interruption.
The cost incurred through December 31, 1998, for the Year 2000 transition
was approximately $0.7 million, which includes software and hardware upgrades
that would have been purchased in the normal course of business to meet the
future growth and worldwide integration. The Company estimates that the
remaining costs to be incurred on upgrading systems, including the Year 2000
transition, will be approximately $1.0 million, and as such will not have a
significant impact on the Company's financial position or operating results.
Based on available information, including assurances from software vendors that
their products are compliant, the Company believes that, barring critical
failures arising from factors beyond the Company's direct control, it will be
able to manage its total Year 2000 transition without any material adverse
effect on its business operations, products, operating results or financial
condition.
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, 1998 and 1997 F-2
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1998 F-3
Consolidated Statement of Stockholders' Equity for each of
the three years in the period ended December 31, 1998 F-4
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1998 F-5
Notes to Consolidated Financial Statements F-6
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Gensia Sicor Inc.
We have audited the accompanying consolidated balance sheets of Gensia Sicor
Inc. as of December 31, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1998. 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 generally accepted auditing
standards. 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 Gensia Sicor Inc.
at December 31, 1998 and 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
March 8, 1999
F-1
GENSIA SICOR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value data)
December 31,
-----------------------------
1998 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 24,461 $ 41,624
Accounts receivable, net ............................................ 51,407 45,532
Inventories, net .................................................... 52,746 43,952
Other current assets ................................................ 11,926 8,373
--------- ---------
Total current assets ........................................... 140,540 139,481
Property and equipment, net .............................................. 105,067 95,243
Other noncurrent assets .................................................. 11,243 10,759
Intangibles, net ......................................................... 46,572 49,825
Goodwill, net ............................................................ 68,392 67,897
--------- ---------
$ 371,814 $ 363,205
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 46,552 $ 38,152
Accrued payroll and related expenses ................................ 3,156 4,094
Other accrued liabilities ........................................... 17,577 18,454
Short-term borrowings ............................................... 49,625 35,581
Current portion of long-term debt ................................... 5,241 3,487
Current portion of capital lease obligations ........................ 1,057 600
--------- ---------
Total current liabilities ...................................... 123,208 100,368
Other long-term liabilities .............................................. 5,826 6,547
Long-term debt, less current portion ..................................... 41,108 42,668
Long-term debt with related party ........................................ 10,000 --
Long-term capital lease obligations, less current portion ................ 1,210 525
Deferred taxes ........................................................... 21,453 22,228
Minority interest ........................................................ -- 3,326
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, 79,717
and 78,649 shares issued and outstanding at December 31, 1998
and 1997, respectively ........................................... 797 786
Additional paid-in capital .......................................... 528,545 529,448
Accumulated deficit ................................................. (360,389) (341,831)
Accumulated other comprehensive income (loss) ....................... 40 (876)
--------- ---------
Total stockholders' equity ..................................... 169,009 187,543
--------- ---------
$ 371,814 $ 363,205
========= =========
See accompanying notes
F-2
GENSIA SICOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31,
------------------------------------------------
1998 1997 1996
---------- ---------- ---------
Revenues:
Product sales .................................... $ 168,080 $ 140,424 $ 54,636
Contract research and license fees ............... 10,415 9,257 3,666
--------- --------- ---------
Total revenues .............................. 178,495 149,681 58,302
Costs and expenses:
Cost of sales .................................... 119,017 99,850 40,654
Research and development ......................... 23,140 26,118 31,081
Selling, general and administrative .............. 35,968 46,993 32,839
Amortization expense ............................. 5,982 4,367 --
Interest and other, net .......................... 6,719 2,298 (473)
Write-down of investment and restructuring charge. 1,839 14,666 --
Acquisition of in-process research and
development ................................... -- 29,200 --
--------- --------- ---------
Total costs and expenses .................... 192,665 223,492 104,101
--------- --------- ---------
Loss before income taxes .............................. (14,170) (73,811) (45,799)
Provision for income taxes ............................ 5,188 2,884 --
--------- --------- ---------
Net loss before minority interest ..................... (19,358) (76,695) (45,799)
Minority interest ..................................... 800 -- --
--------- --------- ---------
Net loss .............................................. (18,558) (76,695) (45,799)
Dividends on preferred stock .......................... (6,000) (6,000) (6,000)
--------- --------- ---------
Net loss applicable to common shares .................. $ (24,558) $ (82,695) $ (51,799)
========= ========= =========
Basic and diluted net loss per common share ........... $ (.31) $ (1.15) $ (1.41)
========= ========= =========
Shares used in computing basic and diluted net loss per
common share ...................................... 79,479 71,800 36,624
========= ========= =========
See accompanying notes.
F-3
GENSIA SICOR INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three years ended December 31, 1998
(in thousands)
Convertible Contingent
Preferred Stock Common Stock Value Rights
------------------------ ---------------------- -------------------------
Shares Amount Shares Amount Shares Amount
----------- ---------- ---------- --------- -------- ----------
Balance at December 31, 1995 . 1,600 $ 16 34,641 $ 346 2,875 $ 2,875
Comprehensive income (loss):
Net loss ...............................
Unrealized loss on available for sale ..
securities ............................
Comprehensive loss .....................
Issuance of common stock .................. 2,914 29
Cash dividends on preferred stock ........
Unearned compensation related to
issuance of common stock, net .......... (74) (1)
Amortization of unearned compensation .....
Issuance of litigation shares ............. 532 5
Issuance of payment on CVRs in Aramed
acquisition ............................ 1,645 17 (2,875) (2,875)
------------------------------------------------------------------------------
Balance at December 31, 1996 . 1,600 16 39,658 396 -- --
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
Cash dividends on preferred stock .........
Issuance of warrants ......................
Amortization of unearned compensation .....
Investment by Sankyo in Metabasis
Therapeutics, Inc. .....................
----------------------------------------------------------------------------
Balance at December 31, 1997 . 1,600 16 78,649 786 -- --
Issuance of common stock .................. 1,068 11
Comprehensive income (loss):
Net loss ...............................
Foreign currency translation adjustments
Comprehensive loss .....................
Cash dividends on preferred stock .........
----------------------------------------------------------------------------
Balance at December 31, 1998 . 1,600 $ 16 79,717 $ 797 -- $ --
============================================================================
Accumulated
Additional Other Total
Paid-in Accumulated Unearned Comprehensive Stockholders'
Capital Deficit Compensation Income (Loss) Equity
--------- ---------- ------------ ------------ ---------
Balance at December 31, 1995 . $ 319,503 $(219,337) $ (1,100) $ -- $ 102,303
Comprehensive income (loss):
Net loss ............................... (45,799) (45,799)
Unrealized loss on available for sale
securities ............................ (4) (4)
---------
Comprehensive loss ..................... (45,803)
Issuance of common stock .................. 13,388 13,417
Cash dividends on preferred stock ........ (3,008) (3,008)
Unearned compensation related to
issuance of common stock, net .......... 46 10 55
Amortization of unearned compensation...... 1,035 1,035
Issuance of litigation shares ............. (5) --
Issuance of payment on CVRs in Aramed
acquisition ............................ 2,858 --
-----------------------------------------------------------------
Balance at December 31, 1996 . 332,782 (265,136) (55) (4) 67,999
Comprehensive income (loss):
Net loss ............................... (76,695) (76,695)
Foreign currency translation adjustments (876) (876)
Unrealized gain on available for sale
securities ............................ 4 4
---------
Comprehensive loss ..................... (77,567)
Issuance of common stock .................. 191,069 191,459
Cash dividends on preferred stock ......... (6,000) (6,000)
Issuance of warrants ...................... 3,571 3,571
Amortization of unearned compensation ..... 776 55 831
Investment by Sankyo in Metabasis
Therapeutics, Inc. ..................... 7,250 7,250
-----------------------------------------------------------------
Balance at December 31, 1997 . 529,448 (341,831) -- (876) 187,543
Issuance of common stock .................. 5,097 5,108
Comprehensive income (loss):
Net loss ............................... (18,558) (18,558)
Foreign currency translation adjustments 916 916
---------
Comprehensive loss ..................... (17,642)
Cash dividends on preferred stock ......... (6,000) (6,000)
-----------------------------------------------------------------
Balance at December 31, 1998 . $ 528,545 $(360,389) $ -- $ 40 $ 169,009
=================================================================
See accompanying notes.
F-4
GENSIA SICOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
____________________________________________________
1998 1997 1996
---------------- ---------------- ----------------
Cash flows from operating activities:
Net loss ................................................... $ (18,558) $ (76,695) $ (45,799)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ......................... 17,947 14,320 5,115
(Gain) loss on disposal of property and equipment ..... 256 (850) 878
Minority interest ..................................... (800) -- --
Deferred income tax ................................... 1,355 (1,652) --
Inventory purchase price allocation adjustments ....... 301 4,416 --
Write-down of investment and restructuring charge ..... 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 ................................... (4,549) (10,782) 4,577
Inventories ........................................... (7,499) 1,073 (5,437)
Prepaid expenses and other assets ..................... (5,278) 5,142 (657)
Accounts payable and accrued expenses ................. 5,290 (6,413) 5,493
---------- --------- ---------
Net cash used in operating activities ....... (9,696) (27,575) (35,830)
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired ...... (7,551) (10,975) --
Investment in other business .......................... (697) -- --
Proceeds from short-term investments .................. 2,000 18,747 192,658
Purchases of short-term investments ................... (2,000) (13,651) (186,315)
Acquisition of intangible asset ....................... -- (5,593) --
Purchases of property and equipment ................... (17,572) (24,291) (12,701)
Proceeds from sale of property ........................ 131 2,911 136
Other ................................................. -- 187 641
--------- --------- ---------
Net cash used in investing activities ............ (25,689) (32,665) (5,581)
Cash flows from financing activities:
Payments of cash dividends on preferred stock ......... (6,000) (6,000) (3,008)
Issuance of common stock and warrants, net ............ 1,556 44,848 13,468
Funding from minority shareholder ..................... 972 -- --
Proceeds from Sankyo's investment in Metabasis ........ -- 7,250 --
Change in short-term borrowings ....................... 11,499 10,442 --
Issuance of long-term debt from related party ......... 10,000 -- --
Issuance of long-term debt and capital lease
obligations, net ..................................... 3,420 33,425 206
Principal payments on long-term debt and capital
lease obligations .................................... (4,134) (3,084) (405)
Payments for debt issuance costs ...................... -- (931) --
--------- --------- ---------
Net cash provided by financing activities 17,313 85,950 10,261
--------- --------- ---------
Effect of exchange rate changes on cash .................... 909 (357) --
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ........... (17,163) 25,353 (31,150)
Cash and cash equivalents at beginning of year ............. 41,624 16,271 47,421
--------- --------- ---------
Cash and cash equivalents at end of year ................... $ 24,461 $ 41,624 $ 16,271
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid .......................................... $ 4,586 $ 2,657 $ 82
Income taxes paid ...................................... 3,564 3,737 605
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
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Basis of Presentation
Organization
Gensia Sicor Inc. ("Gensia Sicor" or the "Company"), a Delaware corporation,
was incorporated November 17, 1986. Gensia 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, Gensia 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") 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 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 business. In June 1998,
Sicor purchased the remaining 50% of Diaspa. Also in December 1997, as part of
a restructuring, the Company completed the transfer of its licensed and
proprietary medical products into Gensia Automedics, Inc. ("Automedics") in
exchange for certain milestone and other contingent payments. Subsequently,
Automedics sold an equity interest representing approximately 81% of Automedics
to private investors.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary companies, all of which are wholly owned, except for Metabasis
Therapeutics, Inc. ("Metabasis"), which is 92% owned. An affiliated company in
which the Company does not have a controlling interest, or for which control is
expected to be temporary, is accounted for using the equity method. The four
wholly-owned subsidiaries are as follows: Rakepoll Holding B.V., Gensia Sicor
Pharmaceuticals, Inc. (formerly Gensia Laboratories, Ltd. and herein referred to
as "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, 1998 and 1997 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). Minority
interest at December 31, 1997 represents minority stockholders' proportionate
share of the equity in the Company's consolidated subsidiaries, Diaspa and
Metabasis. Minority interest at December 31, 1998 represents minority
stockholders' proportionate share of the equity in Metabasis only which is
included in other noncurrent assets. As noted above, the remaining 50% of
Diaspa was acquired during the second quarter of 1998, so that Diaspa is now a
wholly-owned subsidiary and was consolidated in the 1997 financial statements as
the Company had an other than temporary controlling financial interest. The
statement of operations and statement of cash flows for the year ended December
31, 1997 do not include the operations of Diaspa as the acquisition was
completed in late December 1997.
In December 1997, the Company sold approximately 8% of the equity of its
wholly-owned subsidiary, Metabasis Therapeutics, Inc., for $7.25 million. The
transaction was accounted for as a capital transaction in the consolidated
financials statements and accordingly, the proceeds were treated as
F-6
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
an addition to the stockholders' equity and no gain or loss was recognized in
the income statement. The Company did not have any other equity issuances of a
subsidiary's stock in 1998 and 1997 or in any prior periods.
In March 1998, Genchem Pharma 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.
In 1998, Sicor acquired a 50% interest in Zetesis, S.p.A. ("Zetesis"). The
investment in Zetesis is accounted for using the equity method. Accordingly,
Sicor's share of the earnings of Zetesis is included in consolidated net income.
2. Summary of Significant Accounting Policies
Cash, cash equivalents and short-term investments
Cash, cash equivalents and short-term investments consist of highly liquid
debt 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 amortized 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 risks
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, requires no collateral from its customers. The
Company maintains reserves for potential credit losses; to date, such losses
have not been significant and are within management's expectations.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method for inventories of Diaspa, Lemery, Sicor
de Mexico and Gensia Sicor Pharmaceuticals. Cost is determined by the last-in,
first-out (LIFO) method for Sicor.
F-7
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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
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 purchase of proprietary technology rights. Amortization of intangible assets
is computed on the straight-line method over the following estimated life:
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 routinely assesses the recoverability of long-lived assets by
determining whether the carrying value of such assets can be recovered through
undiscounted future operating cash flows. If impairment is indicated, the
Company will measure the amount of such impairment by comparing the carrying
value of the asset to the present value of the expected future cash flows
associated with the use of the asset.
Financial instruments
Off-balance sheet financial instruments such as foreign currency forward
contracts are valued at market prices with the resulting gains and losses
recognized in the statement of operations. 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.
F-8
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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.
Use of estimates in the preparation of financial statements
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.
Net loss per share
Net loss per share is computed by dividing net loss, after deducting preferred
stock dividends, by the weighted average number of common shares outstanding
during the year.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS 128"). The new standard is effective for
financial statements for periods ending after December 15, 1997, and must be
applied retroactively. SFAS 128 simplifies the standards for computing earnings
per share and requires presentation of two new amounts, basic and diluted
earnings per share. The Company adopted SFAS 128 in the fourth quarter of 1997
and such adoption has had no effect on the previously reported earnings per
share. Diluted loss per share including shares issuable upon exercise of
outstanding stock options and warrants has not been presented since the effects
of such conversions and exercises would be anti-dilutive.
Stock-based compensation
During the year ended December 31, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company has continued to measure compensation
expense for its stock-based employee compensation plans using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, the
Company has provided pro
F-9
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
forma disclosures of results of operations as if the fair value-based method
prescribed by SFAS 123 had been applied in measuring compensation expense.
Comprehensive Income (Loss)
As of January 1, 1998, Company adopted the Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). 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 loss or stockholders' equity. SFAS 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 130.
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. The resulting translation adjustments are included in
accumulated other comprehensive income (loss), a separate component of
stockholders' equity. Income and expense items are translated at average
monthly rates of exchange. The functional currency of Lemery has been the
Mexican peso. In accordance with SFAS 52, the net assets of Lemery were
remeasured to the U.S. dollar during the second quarter of 1997 as a result of a
hyper-inflationary economy in Mexico and, accordingly, gains and losses from
balance sheet translation adjustments are included in net earnings. The
functional currency of Sicor de Mexico is the U.S. dollar.
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 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 Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). The Company expects to adopt SFAS 133 effective January 1, 2000. SFAS
133 will require the Company to recognize all derivatives on the balance sheet
at fair value. The Company does not anticipate that the adoption of the
Statement will have a significant effect on its results of operations or
financial position.
F-10
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Reclassifications
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform to the current year presentation.
3. Acquisitions
Rakepoll Holding B.V.
On February 28, 1997, after shareholder approval, Gensia Sicor 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.
Based on the purchase price of $157.1 million, allocation of the total
acquisition cost is as follows (in thousands):
Net tangible assets ............... $ 30,132
Developed technology .............. 45,000
Other intangibles ................. 6,870
In-process research and development 29,200
Deferred income tax ............... (22,776)
Goodwill .......................... 68,669
---------
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 $45.9 million and the deferred income tax
liability of $22.8 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 purchased a 50% equity interest in Diaspa, an Italian
company engaged in the manufacture of certain raw materials used in Sicor'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 purchased the
remaining 50% interest
F-11
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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.
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, of the respective year (in thousands, except per share
data):
December 31,
1997 1996
---------- ----------
Total revenues ............................ $ 176,922 $ 152,166
Net loss after preferred stock dividends .. (85,872) (76,244)
Basic and diluted net loss per share .... $ (1.16) $ (1.15)
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.
Zetesis, S.p.A
In 1998, Sicor acquired a 50% interest in Zetesis, S.p.A. for approximately
$0.7 million in cash. The investment in Zetesis was accounted for using the
equity method. Accordingly, Sicor's share of the earnings of Zetesis since the
acquisition is included in consolidated net income. Pro forma information has
been omitted as the amounts are not significant.
4. 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 37% 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 41% of the Company's 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 $2.1 million and
$2.0 million for the years ended December 31, 1998 and 1997, respectively, and
the net outstanding payable to Alco at December 31, 1998 and 1997 was $0.7
million and $1.1 million, respectively.
F-12
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Lemery in Mexico purchases raw materials and supplies from two companies which
Lemery's Managing Director and Director of Operations have beneficial ownership.
The combined material and supply purchases made by Lemery during 1998 and 1997
from these two companies totaled approximately $3.1 million and $2.1 million,
respectively.
Sicor purchased a 50% equity interest in Diaspa (see Note 3) 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 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. At December 31, 1998 and
1997, the Company had a net payable balance to Archimica of $34,000 and a net
receivable balance from Archimica of $43,000, respectively.
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 Notes are convertible at any
time into Gensia Sicor Common Stock at a $4.50 per share conversion price. The
interest is payable quarterly in arrears on the last business day of March,
June, September and December of each year.
5. Composition of Certain Consolidated Financial Statement Captions
December 31,
1998 1997
--------- ---------
Receivables (in thousands):
Trade receivables .................. $ 53,337 $ 47,517
Less allowance for doubtful accounts (1,930) (1,985)
-------- --------
$ 51,407 $ 45,532
======== ========
Approximately $30.9 million and $21.1 million of trade receivables at December
31, 1998 and 1997, respectively were pledged as security for short-term
borrowings (see Note 8).
Inventories (in thousands):
Raw materials .................... $ 21,543 $ 16,332
Work-in-process .................. 11,154 6,182
Finished goods ................... 22,247 23,363
-------- --------
54,944 45,877
Less reserve ................... (2,198) (1,925)
-------- --------
$ 52,746 $ 43,952
======== ========
If the FIFO method had been used for the entire consolidated group, they would
have been approximately $1.5 million and $1.7 million higher than reported at
December 31, 1998 and 1997, respectively.
F-13
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
December 31,
1998 1997
---------- ----------
Other current assets (in thousands):
Prepaid expenses ................................. $ 2,949 $ 2,357
VAT receivable ................................... 1,961 2,230
Other taxes receivable ........................... 3,797 1,492
Other receivables ................................ 3,219 2,294
--------- ---------
$ 11,926 $ 8,373
========= =========
Property and equipment (in thousands):
Land and land improvements ..................... $ 1,738 $ 1,530
Buildings and building improvements ............ 20,074 19,903
Machinery and equipment ........................ 95,336 76,306
Office furniture and equipment ................. 5,942 5,221
Construction in progress ....................... 16,301 15,273
--------- ---------
139,391 118,233
Less accumulated depreciation and amortization . (34,324) (22,990)
--------- ---------
$ 105,067 $ 95,243
========= =========
At December 31, 1998 and 1997, equipment acquired under capital lease
obligations totaled $5.4 million and $3.2 million, respectively. Such leased
equipment is included in property and equipment, net of accumulated amortization
of $1.0 million and $0.3 million at December 31, 1998 and 1997, respectively.
Depreciation expense, including amortization of capital leases, was $11.0
million, $9.0 million, and $3.3 million for the years ended December 31, 1998,
1997 and 1996, respectively.
Other noncurrent assets (in thousands):
Restricted short-term investment .... $ 4,925 $ 4,925
Deferred tax asset .................. 982 1,720
Investment in Gensia Automedics, Inc. -- 1,839
Other ............................... 5,336 2,275
-------- --------
$ 11,243 $ 10,759
======== ========
Intangibles (in thousands):
Developed technology ................ $ 45,293 $ 45,000
Trademarks .......................... 4,600 4,600
Assembled workforce ................. 2,270 2,270
Technology rights ................... 970 912
-------- --------
53,133 52,782
(6,561) (2,957)
-------- --------
Less accumulated amortization ....... $ 46,572 $ 49,825
======== ========
F-14
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
December 31,
1998 1997
--------- ----------
Goodwill (in thousands):
Goodwill ...................................... $ 72,753 $ 69,552
Less accumulated amortization ................. (4,361) (1,655)
-------- --------
$ 68,392 $ 67,897
======== ========
Other current accrued liabilities (in thousands):
Deferred tax liability ................... $ 5,108 $ 3,247
Restructuring accrual .................... -- 3,184
Deferred revenue ......................... 729 1,229
VAT and other taxes payable .............. 3,314 4,240
Other .................................... 8,426 6,554
-------- --------
$ 17,577 $ 18,454
======== ========
Other long-term liabilities (in thousands):
Severance indemnities .................... $ 3,089 $ 2,977
Contamination reserve .................... 1,827 2,834
Deferred revenue ......................... 153 611
Other .................................... 757 125
-------- --------
$ 5,826 $ 6,547
======== ========
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.
6. Write-down of Investment and Restructuring Charge
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. In anticipation of this
divestiture, Gensia Sicor transferred its licensed and proprietary medical
products, including the GenESA(R) System, Brevibloc(R), and the AutoHep(TM)
System (previously called the Feedback Controlled Heparin System) to Automedics
in exchange for future royalty and milestone payments, and subordinated
preferred shares of Automedics. Subsequently, Automedics sold an equity
interest representing approximately 81% of Automedics to private investors for
approximately $6.0 million. Due to the contingent nature of the potential
royalty and milestone payments, Gensia Sicor recorded a charge of approximately
$11.5 million in the fourth quarter of 1997, including the write-off of
approximately $7.3 million of intangible assets related to the products
transferred to Automedics. Gensia Sicor has retained potential obligations from
agreements that were assigned to Automedics, which could exceed $20 million. In
particular, Gensia Sicor assigned its Development and Supply Agreement dated
January 26, 1990, as amended, (the "Supply Agreement") with Protocol Systems,
Inc. ("Protocol Systems") to Automedics. Gensia Sicor remains liable for these
obligations if Automedics does not fulfill these contractual commitments. In
addition, while Gensia Sicor has assigned agreements with Gensia Clinical
Partners, L.P. (the "Partnership") to Automedics, if Automedics fails to comply
with the
F-15
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
provisions of these agreements, including using its best efforts to
market the GenESA System and paying royalties on sales of the GenESA System to
the Partnership, the Company remains liable for obligations under these
agreements. The following summarizes the significant components of the
Company's Automedics restructuring charge included in the consolidated statement
of operations (in thousands):
Year ended
December 31, 1997
-----------------
Write-off of intangible assets $ 7,318
Loss in net assets transferred 2,888
Severance and related benefits 1,276
-------
$11,482
=======
In April 1998, the Company and Automedics announced that they had
determined not to exercise an option granted by the Partnership to repurchase
the technology associated with the GenESA System and had informed Gensia
Development Corporation, the general partner of the Partnership of this
decision. The decision was based on, among other things, the lack of market
acceptance of the GenESA System since its U.S. market introduction in October
1997 and its European market introduction in the second quarter of 1995.
Automedics has discontinued the promotion of the GenESA System in the U.S. and
in Europe.
Gensia Sicor and Automedics also informed Protocol Systems that no
additional GenESA System devices would be purchased under the Supply Agreement.
As noted above, pursuant to the Automedics divestiture, the Company assigned its
rights and obligations under the Supply Agreement to Automedics. This
assignment resulted in transferring the Company's obligation to purchase a
minimum number of GenESA System devices from Protocol Systems totaling
approximately $3.4 million in 1998, and $4.3 million every year for the years
1999 to 2002. The Company remained liable for these obligations. In July 1998,
the Company was named as a defendant in a complaint filed by Protocol Systems,
Inc. The complaint alleges breach of the Supply Agreement. Protocol Systems
alleges damages estimated at approximately $10.8 million, plus any amounts which
it may owe to a third-party vendor. Gensia Sicor believes that the amount of
the claim is significantly overstated for a variety of reasons and plans to
vigorously defend itself against this claim. Based on a review of the current
facts and circumstances, management has recorded a provision for its estimate of
liability related to this lawsuit. The ultimate outcome with respect to the
lawsuit could have a material adverse effect on the Company's financial
position, results of operations or cash flows.
As a result of 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 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 170,000 square feet of manufacturing,
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.
F-16
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
7. Investments
The following is a summary of available for sale securities classified as
cash and cash equivalents (in thousands):
December 31,
1998 1997
------ ------
U.S. corporate securities $5,423 $ --
U.S. government securities -- 791
------ ------
$5,423 $ 791
====== ======
The amortized cost of available for sale securities approximated fair value at
both December 31, 1998 and 1997. Gross realized gains and losses on sales of
available for sale securities were immaterial in 1998, 1997 and 1996.
At December 31, 1998, the contractual maturities of all of the Company's
available for sale investments are less than 90 days from the balance sheet
date.
8. Short-Term Borrowings
Short-term borrowings consist of the following (in thousands):
December 31,
1998 1997
------- -------
Short-term borrowings under credit line arrangements,
repayable in U.S. dollars and Italian lire ....... $46,061 $29,166
Short-term borrowings, repayable in Swiss francs .... 2,143 --
Short-term borrowings, repayable in U.S. dollars .... 1,421 2,472
Short-term borrowings, repayable in Italian lire .... -- 3,573
Short-term borrowings, repayable in Mexican pesos ... -- 370
------- -------
$49,625 $35,581
======= =======
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 Italian lire. These transactions
effectively eliminate most of the Company's foreign exchange risk associated
with these receivables. The Company's domestic operations also entered into a
factoring agreement of its receivables during 1997 and 1998. The Company
retains all credit risk with respect to the receivables. Consequently, both the
receivables and related borrowings are included in the accompanying consolidated
financial statements. The weighted average interest rate on these borrowings
was approximately 5.7% and 6.9% at December 31, 1998 and 1997, respectively.
The short-term borrowings from banks, repayable in Swiss francs, U.S. dollars
and Italian lire, are unsecured. The terms of the borrowings range from three
to six months. The weighted average interest rate on these borrowings was
approximately 7.2% and 10.2% at December 31, 1998 and 1997, respectively.
F-17
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
The short-term borrowings from banks, repayable in Mexican pesos, are
unsecured. The weighted average interest rate on these borrowings was
approximately 26% at December 31, 1997.
9. Long-Term Debt
Long-term debt consists of the following (in thousands):
December 31,
1998 1997
---------- ---------
2.675% subordinated convertible notes due 2004, net of
unamortized discount of $2,742 and $3,256 at December 31,
1998 and 1997, respectively, effective interest
rate of 5.9%............................................. $ 17,258 $ 16,744
Mortgage notes payable ................................... 15,854 16,559
Notes payable to bank .................................... 5,997 6,510
Notes payable to suppliers ............................... 5,782 4,923
Notes payable to Italian Ministry of Industry............. 1,232 1,193
Other..................................................... 226 226
-------- --------
46,349 46,155
Less: current portion ................................... (5,241) (3,487)
-------- --------
Long-term debt, net of current portion ................... $ 41,108 $ 42,668
======== ========
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 Gensia
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 Gensia
Sicor Preferred Stock at a conversion price of $100 per share, subject to
meeting certain financial conditions or Gensia 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 Gensia Sicor Common Stock price levels.
In connection with the Notes, Warrants to purchase up to 2,645,503 shares of
Gensia 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 Gensia 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, 1998.
The mortgage notes payable are secured by certain production facilities
with a carrying value of approximately $18.8 million and 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 6.1% and 8.0% at December 31,
1998 and 1997, respectively.
F-18
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
The notes payable to a bank are unsecured and are repayable in quarterly
and semi-annual installments of principal and interest through 2003. The
weighted average fixed interest rate on these notes was 7.4% and 7.9% at
December 31, 1998 and 1997, respectively.
Notes payable to suppliers are secured by certain machinery and equipment
with a carrying value of approximately $3.6 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 6.7% and 7.3% at
December 31, 1998 and 1997, 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 7.4% at December 31, 1998 and 1997.
Interest expense for 1998, 1997, and 1996 was $6.1 million, $3.7 million,
and $0.1 million, respectively.
Maturities of long-term debt during the years subsequent to December
31, 1998 are as follows (in thousands) :
1999 $ 5,241
2000 6,976
2001 6,862
2002 4,774
2003 2,286
Thereafter 20,210
-------
$46,349
=======
10. 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.
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
F-19
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Stock. The Company resumed payment of the Preferred Stock dividend in September
1996. At December 31, 1998, the Company has approximately $7.5 million 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, 1998, 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, 1998,
warrants to purchase an aggregate of 1,871,000 shares of Gensia 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,
1998, warrants to purchase an aggregate of 1,227,000 shares of Gensia Sicor
Common Stock were outstanding.
Additional warrants were issued in connection with the issuance of the 2.675%
Subordinated Convertible Notes (see Note 9).
Stock options
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock plans because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
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. Under the 1997 Stock Plan, 2,000,000 shares were authorized for issuance.
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 Gensia Sicor Common Stock have been authorized for issuance.
F-20
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
In June 1997, the Board of Directors approved, and in September 1997, the
Company's stockholders consented to the amendment of the 1997 Stock Plan to
increase the aggregate number of shares authorized for issuance thereunder by
1,000,000 shares to a total of 3,000,000. In April 1998, the Board of Directors
approved and in June 1998, the Company's stockholders consented to the further
amendment of the 1997 Stock Plan to increase an additional 1,000,000 shares to a
total of 4,000,000. Accordingly, as of December 31, 1998, 10,383,334 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.
A summary of the Company's stock option activity and related information is as
follows (in thousands except exercise price):
Years ended December 31,
-----------------------------------------------------------
1998 1997 1996
-------------------- ------------------- ------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
-------- ---------- ------- ---------- ------- ---------
Outstanding - beginning
of year ........................... 5,520 $ 4.90 4,154 $ 5.03 4,416 $ 4.96
Granted .............................. 1,175 4.14 2,635 4.44 949 5.02
Exercised ............................ (204) 4.13 (623) 3.90 (523) 4.50
Canceled ............................. (860) 4.84 (646) 4.84 (688) 4.93
------ -------- ----- -------- ----- --------
Outstanding - end of year .............. 5,631 $ 4.76 5,520 $ 4.90 4,154 $ 5.03
====== ======== ===== ======== ===== ========
Exercisable - end of year .............. 3,787 $ 4.99 3,566 $ 5.16 4,142 $ 5.21
====== ======== ===== ======== ===== ========
The following table summarizes information about stock options outstanding at
December 31, 1998:
Weighted
Number average
Range of outstanding remaining
exercise prices (in thousands) contractual life
- --------------- -------------- ----------------
$2.00 to $3.38 334 7.5
$3.40 to $5.00 4,682 7.4
$5.06 to $6.00 346 7.6
$6.13 to $10.00 94 7.1
$10.33 to $28.48 175 3.1
------
5,631
======
F-21
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Shares of Common Stock reserved at December 31, 1998 for the exercise of
available and outstanding stock options including the Chairman's options totaled
7,676,022.
In April 1998, the Company's majority owned subsidiary, Metabasis adopted its
own 1998 Stock Incentive Plan (the "Metabasis Plan") for the benefit of its
eligible employees, consultants and independent directors. The Metabasis Plan
authorized 1,500,000 shares of Metabasis' common stock for issuance. Under the
terms of the Metabasis Plan, non-qualified and incentive options may be granted
to consultants, employees, officers and directors at prices not less than 100%
of the fair value on the date of grant. Options vest over four years and expire
ten years from the date of grant. Metabasis' employees continue to vest with
respect to the Company's stock options issued and may continue to participate in
the Company's Employee Stock Purchase Plan as long as Metabasis remains a
majority owned subsidiary of the Company.
Restricted stock
In 1994 and 1995, the Company issued restricted Common Stock to certain
employees. In conjunction with the issuance of these restricted shares, options
to purchase 360,250 shares were canceled. The market value of the restricted
shares at the time of issuance was recorded as unearned compensation in a
separate component of stockholders' equity and amortized to expense over the
period of restriction.
Employee stock purchase plan
The Company's Employee Stock Purchase Plan (the "ESPP") provides employees of
the Company the opportunity to purchase Common Stock through payroll deductions.
In April 1998, the Board of Directors approved and in June 1998, the Company's
stockholders consented to the amendment of the 1992 ESPP to increase the
aggregate number of shares reserved for issuance thereunder by 100,000 shares to
a total of 600,000 shares of Common Stock. Any full-time employee of the
Company is eligible to participate in the ESPP after he or she has been
continuously employed by the Company for three consecutive months. Eligible
employees may elect to contribute up to 12% of their total compensation during
each six-month offering period, subject to certain statutory limits. At the end
of each six-month offering period, the Company will apply the amount contributed
by the participant during the offering period to purchase whole shares of Common
Stock, but not more than 1,000 shares. The shares of Common Stock vest
immediately and are purchased for 85% of the lower of (i) the market price of
the Common Stock immediately before the beginning of the purchase period or (ii)
the market price of the Common Stock on the last business day of the purchase
period. All expenses incurred in connection with the implementation and
administration of the ESPP are paid by the Company. At December 31, 1998,
494,765 shares had been issued under the ESPP.
Pro forma information
Pro Forma information regarding net loss and net loss per share is required by
SFAS 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 1998, 1997 and 1996,
respectively: risk-free interest rates of 5.1% to 5.2%, 6.1% to 6.2% and 6.0% to
6.2%; dividend yields of
F-22
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
0% for 1998, 1997 and 1996; volatility factors of the
expected market price of the Company's Common Stock of 36.2% for 1998 and 1997
and 46.9% for 1996; and a weighted-average life of five to six years for 1998,
four to five years for 1997 and three to five years for 1996.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which 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 employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
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 employee stock options.
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 Statement 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 is as follows
(in thousands except per share, and fair value and exercise price data):
1998 1997 1996
---------- ---------- ----------
Net loss:
As reported ....................... $ (24,558) $ (82,695) $ (51,799)
Pro forma ......................... (26,269) (82,811) (54,781)
Basic and diluted net loss per share:
As reported ....................... $ (.31) $ (1.15) $ (1.41)
Pro forma ......................... (.33) (1.15) (1.50)
Weighted average Weighted average
fair value exercise price
-------------------------- ------------------------
1998 1997 1996 1998 1997 1996
------- -------- ------- ------- ------- --------
Exercise Price on Date of Grant:
Equal to market price of stock . $ 4.10 $ 4.54 $ 5.09 $ 4.10 $ 4.54 $ 5.09
Less than market price of stock:
Options ..................... $ 4.36 $ 4.66 $ 5.09 $ 4.25 $ 4.18 $ 4.40
Restricted stock ............ $ 4.90 $ 5.52 $ 5.09 $ .01 $ .01 $ .01
Employee stock purchase plan $ 4.26 $ 5.11 $ 4.85 $ 3.40 $ 3.77 $ 4.12
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 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
F-23
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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.
11. 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.
Included in deposits and other assets at December 31, 1998 and 1997 was $0.4
million and $0.3 million, respectively, deposited under these agreements. Rent
expense for 1998, 1997, and 1996 was $5.4 million, $6.6 million, and $4.7
million, respectively. Rent expense for 1998, 1997 and 1996 were net of $1.2
million, $1.0 million, and $0.4 million of sublease income, respectively.
The lease related to the buildings where the Company's centralized research
and development facilities are located is secured by a $4.8 million letter of
credit, which is collateralized by a $4.9 million certificate of deposit, and
will be released provided the Company achieves certain financial milestones.
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, 1998, are as follows
(in thousands):
Capital Operating
leases leases
------- -------
1999 ........................................ $ 1,147 $ 8,741
2000 ........................................ 816 7,465
2001 ........................................ 301 5,057
2002 ........................................ 162 3,888
2003 ........................................ 91 2,987
Thereafter .................................. -- 15,471
------- -------
Total minimum lease payments ................ 2,517 $43,609
Less amount representing interest ........... (250) =======
-------
Present value of net minimum lease payments . 2,267
Less current portion ........................ (1,057)
-------
$ 1,210
=======
Future minimum rentals to be received under non-cancelable subleases as of
December 31, 1998 totaled approximately $1.1 million.
F-24
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
12. Income Taxes
The provision for income taxes comprises the following (in thousands):
Years ended December 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
Current:
Federal..................................... $ -- $ -- $ --
State ...................................... -- -- --
Foreign .................................... 3,091 1,145 --
-------- -------- --------
3,091 1,145 --
Deferred:
Federal..................................... $ -- $ -- $ --
State....................................... -- -- --
Foreign..................................... 2,097 1,739 --
-------- -------- --------
2,097 1,739 --
-------- -------- --------
$ 5,188 $ 2,884 $ --
======== ======== ========
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% ........... $ (4,956) $(25,834) $(16,016)
Tax effect of non-deductible expenses, including
write-off of acquired in-process research and
development ................................ 306 13,299 582
Increase in valuation allowance and other ....... 7,447 14,486 15,434
Foreign taxes ................................... 2,391 933 --
-------- -------- --------
$ 5,188 $ 2,884 $ --
======== ======== ========
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1998 and 1997 are shown below. A valuation allowance of $135.4
million has been recognized as an offset to the deferred tax assets as of
December 31, 1998 as realization of such assets is uncertain. Approximately $9.1
million, $14.3 million, and $20.0 million of the valuation allowance are
related to 1998, 1997, and 1996, respectively. As of December 31, 1998,
approximately $1.0 million of the valuation allowance for deferred tax assets
relates to pre-acquisition tax net operating losses which, when recognized, will
be allocated directly to goodwill.
December 31,
---------------------
(in thousands)
1998 1997
------- --------
Deferred tax liabilities:
Basis differences in acquired assets $21,258 $22,557
Depreciation ....................... 8,352 7,997
Inventory .......................... 4,870 2,910
Other .............................. 1,553 1,000
------- -------
Total deferred tax liabilities ........ 36,033 34,464
F-25
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
December 31,
-------------------------
(in thousands)
1998 1997
--------- ----------
Deferred tax assets:
Net operating loss carryforwards ....... 108,622 101,964
Research and development credits ....... 14,823 13,545
Capitalized research and development ... 8,603 9,236
Depreciation ........................... 2,993 3,077
Other .................................. 11,384 9,540
--------- ---------
Total deferred tax assets .................. 146,425 137,362
Valuation allowances for deferred tax assets (135,419) (126,367)
--------- ---------
Net deferred tax assets .................... 11,006 10,995
--------- ---------
Net deferred taxes ......................... $ 25,027 $ 23,469
========= =========
At December 31, 1998, the Company had federal and California tax net operating
loss carryforwards of approximately $292.9 million and $40.9 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 1999 unless previously
utilized. Approximately $8.8 million of California tax loss carryforwards
expired unused in 1998. The Company has Italian and Mexican tax loss
carryforwards of approximately $7.5 million and $2.5 million, respectively. The
Italian and Mexican tax loss carryforwards will begin expiring in 2000 and 2004,
respectively, unless previously utilized. The Company also has federal and
California research and development tax credit carryforwards totaling $11.9
million and $4.5 million, respectively, which will begin to expire beginning in
2001 unless previously utilized.
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 net operating loss and credit carryforwards.
13. Segment and Geographic Information
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") was issued effective for fiscal years ending
after December 31, 1998. The information for 1997 and 1996 has been restated
from the prior year's presentation in order to conform to the 1998 presentation.
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
performances based on operating earnings of the respective business units
primarily by geographic area. The three main geographic areas and the business
units that fall under each geographic areas are as follows: (i) United States:
Gensia Sicor, Gensia Sicor Pharmaceuticals, Metabasis and Gensia Development
Corporation; (ii) Italy: Sicor, Diaspa and Genchem Pharma; and (iii) Mexico:
Lemery, Sicor de Mexico and Gensia Sicor de Mexico. Intergeographic sales
F-26
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
are accounted for at prices that approximate arm's length transactions.
Information regarding geographic areas at December 31, 1998, 1997, and 1996 and
for each of the years then ended is as follows (in thousands):
Years ended December 31,
-------------------------------------------
1998 1997 1996
---------- --------- --------
Product sales to unaffiliated customers
United States .................... $ 46,957 $ 58,622 $ 54,636
Italy ............................ 77,870 54,778 --
Mexico ........................... 43,253 27,024 --
--------- --------- ---------
$ 168,080 $ 140,424 $ 54,636
========= ========= =========
Intergeographic sales
United States .................... $ -- $ -- $ --
Italy ............................ 8,560 4,935 --
Mexico ........................... 270 704 --
--------- --------- ---------
$ 8,830 $ 5,639 $ --
========= ========= =========
Income (loss) before income taxes:
United States .................... $ (31,705) $ (84,494) $ (46,096)
Italy ............................ 9,715 7,378 --
Mexico ........................... 9,564 4,150 --
Other ............................ (653) (505) 297
Eliminations and adjustments ..... (1,091) (340) --
--------- --------- ---------
$ (14,170) $ (73,811) $ (45,799)
========= ========= =========
December 31
-------------------------------------------
1998 1997 1996
---------- --------- --------
Total assets:
United States .................... $ 347,622 $ 386,905 $ 109,151
Italy ............................ 171,345 119,248 --
Mexico ........................... 45,365 35,004 --
Other ............................ 115 60 939
Eliminations and adjustments ..... (192,633) (178,012) (20,540)
--------- --------- ---------
$ 371,814 $ 363,205 $ 89,550
========= ========= =========
14. Collaboration Agreements
Adenosine regulating agents
In May 1996, the Company announced an agreement with Pfizer Inc. to
collaborate on a research program using the Company's adenosine regulating
agents ("ARA") technology to discover and develop broad spectrum analgesic drugs
for the treatment of pain. In connection with the agreement, Pfizer made a non-
refundable licensing payment of $3.0 million and provided up-front research
funding of $0.8 million. Additional funding is to be paid quarterly for a
period of at least two years. In conjunction with
F-27
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
this research collaboration, Pfizer also purchased 792,293 shares of the
Company's Common Stock through a $5.0 million equity investment. The Company may
also receive certain payments upon the achievement of specified milestones and
royalties on any product sales that result from the collaboration.
Diabetes
In April 1997, the Company announced an agreement with Sankyo Co., Ltd
("Sankyo") to collaborate on a research program to discover and develop drugs
for the treatment of non-insulin dependent (Type II) diabetes. Gensia Sicor's
diabetes research focuses on a class of novel compounds which targets and
inhibits a rate limiting enzyme that acts in the metabolic pathway responsible
for glucose production in the liver. Under the terms of the agreement, the
Company will receive license fees, equity investment, research funding for three
years and milestone payments from Sankyo, plus royalties on product sales.
Sankyo will have exclusive, worldwide commercialization rights to all products
discovered in the collaboration. Gensia Sicor, or its permitted assignee, would
also have co-promotion rights in North America to any commercialized product,
the final terms are subject to future negotiation. In connection with the
agreement, Sankyo made a payment of $7.25 million in exchange for approximately
8% of the equity of Metabasis Therapeutics, Inc. Sankyo has the right to convert
its Metabasis interest into a variable number of shares of Gensia Sicor Common
Stock based on a formula defined in the agreement.
15. Contingencies
In September 1998, the Company reached a settlement with Great Lakes Chemical
Corporation ("Great Lakes") regarding liabilities related to the purchase by
Sicor of certain contaminated products from Great Lakes in 1994 - 1995. The
settlement resulted in a dismissal of certain litigation between Sicor, Great
Lakes and Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn"). Under the terms of
the settlement, Sicor received a cash payment that is expected to cover
substantially all of the related customer claims against it. At December 31,
1998, Sicor has a reserve of $1.8 million for estimated settlement costs still
outstanding. The settlement also resulted in the dismissal with prejudice of
Sicor's action against Great Lakes filed in the United States District Court in
Arkansas and other related claims against the Company.
In July 1998, the Company was named as a defendant in a complaint filed by
Protocol Systems, Inc. ("Protocol Systems"). The complaint alleges breach of a
supply agreement (the "Supply Agreement"). Protocol Systems alleges damages
estimated at approximately $10.8 million, plus any amounts which it may owe to a
third-party vendor. Gensia Sicor believes that the amount of the claim is
significantly overstated for a variety of reasons and plans to vigorously defend
itself against this claim. Based on a review of the current facts and
circumstances, management has recorded a provision for its estimate of liability
related to this lawsuit. The ultimate outcome with respect to the lawsuit could
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
they have 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-28
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
any, will not have a material adverse effect on consolidated financial position,
results of operations or cash flows.
16. Quarterly Financial Information (Unaudited)
Summarized quarterly financial data for 1998 and 1997 is as follows (in
thousands, except per share data):
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 55,156
Income (loss) before income taxes ........................... (3,711) 98 1,180 (11,737)
Net loss applicable to common shares ........................ (4,929) (2,461) (3,314) (13,854)
Basic and diluted net loss per common
share ..................................................... (.06) (.03) (.04) (.17)
First Second Third Fourth
-------- -------- -------- --------
1997 Quarters
Total revenues .............................................. $ 22,368 $ 41,248 $ 41,454 $ 44,611
Total costs and expenses .................................... 60,504 47,932 49,809 65,247
Loss before income taxes .................................... (38,136) (6,684) (8,355) (20,636)
Net loss applicable to common shares ........................ (40,251) (10,354) (10,066) (22,024)
Basic and diluted net loss per common
share ..................................................... (.66) (.14) (.13) (.29)
(1) First quarter 1998 results included a $1.1 million of expenses related to
the write-down of investment
(2) Fourth quarter 1998 results included a $3.7 million of expenses related to
the additional write-down of investment and a charge for the Protocol
Systems lawsuit.
(3) First quarter 1997 results included the results of Rakepoll Holding from
February 28, 1997, the date of acquisition (see Note 1) and a $29.2 million
of in-process research and development.
(4) Third and fourth quarter 1997 results included a restructuring charge of
$3.2 million and $11.5 million, respectively.
17. Subsequent Events
In January 1999, Gensia Sicor Pharmaceuticals entered into a Sales and
Distribution agreement with Abbott Laboratories ("Abbott"), under which the two
companies formed a strategic alliance for marketing and distribution of oncology
products in the United States. This seven year collaboration initially involves
seven of the Company's oncology products (including doxorubicin and leucovorin
calcium) but will expand in the future to include certain of Gensia Sicor
Pharmaceuticals' oncology products currently under development. Under the
agreement, Gensia Sicor Pharmaceuticals will develop and manufacture oncology
products, and Abbott will promote and sell 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.
F-29
GENSIA SICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
In March 1999, Gensia Sicor Pharmaceuticals granted Baxter Pharmaceutical
Products Inc., a wholly owned subsidiary of Baxter Healthcare Corporation,
exclusive rights to market and sell propofol injectable emulsion manufactured by
Gensia Sicor Pharmaceuticals within the United States under an amendment to a
previously announced manufacturing and distribution agreement. Under the terms
of the amended agreement, Baxter will purchase 100% of its market requirement
from Gensia Sicor Pharmaceuticals.
F-30
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 16, 1999 (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 1998, 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.
60
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
------ -----------------------
2.1(12) Stock Exchange Agreement, dated as of November 12, 1996, as amended
on December 16, 1996 between Gensia, Inc. and Rakepoll Finance N.V.
3(i)(16) Restated Certificate of Incorporation of the Company, as amended by
Certificate of Designation of Series A Convertible Preferred Stock.
3(ii)(13) 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 Gensia Sicor Common Stock with Rights Legend
(4.1)*.
4.3(11) Warrant Agreement dated April 10, 1996 between the Company and
Domain Partners III, L.P. (4.1)*.
4.4(11) Warrant Agreement dated July 22, 1996 between the Company and
MMC/GATX Partnership No. 1 (4.2)*.
4.5(13) 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(16) 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(16) Securities Purchase Agreement, dated May 1, 1997, by and between the
Company and HCCP (4.2)*.
4.8(16) Registration Rights Agreement, dated May 19, 1997, by and between
the Company and HCCP (4.3)*.
4.9(16) Form of 2.675% Subordinated Convertible Notes due May 1, 2004,
issued to certain affiliates of HCCP (4.4)*.
61
4.10(16) Form of Common Stock Purchase Warrant, dated May 19, 1997, issued
to certain affiliates of HCCP (4.5)*.
4.11(17) Form of Unit Purchase Agreement between the Company and certain
accredited investors, dated as of March 27, 1997 (4.2)*.
4.12(20) Form of Unit Purchase Agreement between the Company and certain
accredited investors, dated December 1997 (4.6)*.
4.13(21)+ Investor's Rights Agreement among the Company, Metabasis
Therapeutics, Inc. and Sankyo Co., Ltd. dated December 18, 1997
(4.13)*.
4.14 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.
10.1(1)# Form of Indemnification Agreement entered into between Gensia and
its directors (10.1)*.
10.2(6)# Amended and Restated 1990 Stock Plan of Gensia (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(1) + Development and Supply Agreement dated January 26, 1990 between
the Company and Protocol Systems, Inc. (10.46)*.
10.6(2)# Form of Indemnification Agreement entered into between the Company
and its officers and certain key employees (10.50)*.
10.7(3) Form of Limited Partner Warrant (10.53)*.
10.8(3) Form of Investment Executive Warrant (10.54)*.
10.9(3) Form of Warrant issued to MMC/GATX Partnership No. 1 (10.56)*.
10.10(5) Stockholder Rights Plan dated March 9, 1992.
10.11(8) Lease agreement between Gena Property Company and the Company
dated as of December 21, 1993.
10.12(9) Severance Agreement dated October 1995 between Gensia, Inc. and
David F. Hale (10.52)*.
10.13(9) Form of Severance Agreement for officers and certain other
employees.
10.14(10)+ Collaborative Research Agreement dated as of May 1, 1996 between
the Company and Pfizer Inc.
10.15(10)+ License and Royalty Agreement dated as of May 1, 1996 between the
Company and Pfizer Inc.
10.16(10)+ Stock Purchase Agreement dated as of May 1, 1996 between the
Company and Pfizer Inc.
10.17(14) Amendment No. 1 to Stockholder Rights Agreement dated November 12,
1996.
10.18(15) Factoring agreement, dated September 25, 1997, by and between the
Company and Silicon Valley Financial Services (a division of
Silicon Valley Bank) (10.1)*.
10.19(17)+ Collaborative Research and Development Agreement between the
Company and Sankyo Co., Ltd., dated as of April 18, 1997 (10.1)*.
10.20(17)+ Supply Agreement between and among Sicor S.p.A., Alco Chemicals,
Ltd. and Boehringer Ingelheim International GmbH, dated September
23, 1996 (10.2)*.
10.21(17)+ 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)*.
10.22(17) Manufacturing Agreement between Sicor S.p.A. and Alco Chemicals,
Ltd., dated July 16, 1992 (10.12)*.
10.23(17) Service Agreement between Sintesis Lerma and Grupo Fairmex S.A. de
C.V., dated January 2, 1995 (10.13)*.
10.24(17) Letter Agreement between the Company and Donald E. Panoz, dated
March 18, 1997 (10.14)*.
10.25(18) Gensia Sicor Inc. 1997 Long-Term Incentive Plan.
10.26(19)+ 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.
62
10.27(16) Agreement, dated as of April 15, 1997, by and between Sicor de
Mexico S.A. de C.V. and Alco Chemicals, Ltd. (10.2)*.
10.28(16)+ Agreement, dated as of April 15, 1997, by and between Genchem
Pharma, Ltd. and Alco Chemicals, Ltd. (10.3)*.
10.29(16) Agreement, dated as of January 1, 1997, by and between Sicor and
Alco Chemicals, Ltd. (10.4)*.
10.30(21)+ 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)*.
10.31(21) Amendment to Severance Agreement, dated December 16, 1997, between
the Company and David F. Hale (10.42)*.
10.32(21) Amendment dated as of December 23, 1997 to Development and Supply
Agreement, dated as of January 26, 1990, by and between the
Company and Protocol Systems, Inc. (10.43)*.
10.33(21) Asset and Liability Transfer Agreements by and among Gensia
Automedics, Inc., the Company and Gensia Sicor Pharmaceuticals,
Inc. dated December 23, 1997 (10.44).*
10.34 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).
10.35 Consulting Agreement, dated January 27, 1998, as amended on March
6, 1998, between the Company and Frank C. Becker.
21.1 Subsidiaries of Gensia Sicor.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Powers of attorney (see page 65).
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 June 30, 1996 (0-18549).
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 (0-18549).
(12) Incorporated by reference to Annex A to the Company's Proxy Statement dated
January 15, 1997 (0-18549).
(13) Incorporated by reference to the Company's Report on Form 8-K dated
February 28, 1997 (0-18549).
(14) Incorporated by reference to the Company's Annual Report of Form 10-K for
the fiscal year ended December 31, 1996 (0-18549).
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 (0-18549).
63
(16) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 (0-18549).
(17) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 (0-18549).
(18) Incorporated by reference to Annex D of the Company's Definitive Proxy
Statement dated January 15, 1997 (0-18549).
(19) 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).
(20) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 332-44563).
(21) 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).
* 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.
64
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.
GENSIA SICOR INC.
Date: March 29, 1999 By: /s/ Carlo Salvi
------------------------------------
Carlo Salvi, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Carlo Salvi and John W. Sayward, with
each of them his attorney-in-fact, with full power of substitution, for him in
any and all capacities, to sign any amendments to the Report, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
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, 1999
- ---------------------------- Chief Executive Officer
(Carlo Salvi)
/s/ John W. Sayward Executive Vice President, March 29, 1999
- -------------------------------- Finance, Chief Financial
(John W. Sayward) Officer and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Donald E. Panoz Chairman of the Board March 29, 1999
- --------------------------------
(Donald E. Panoz)
65
SIGNATURES
----------
Signature Title Date
--------- ----- ----
/s/ Frank C. Becker Director March 29, 1999
- ---------------------------------
(Frank C. Becker)
/s/ Michael D. Cannon Director March 29, 1999
- ---------------------------------
(Michael D. Cannon)
/s/ Gianpaolo Colla Director March 29, 1999
- ---------------------------------
(Gianpaolo Colla)
/s/ Herbert J. Conrad Director March 29, 1999
- ---------------------------------
(Herbert J. Conrad)
/s/ Carlos A. Ferrer Director March 29, 1999
- ---------------------------------
(Carlos A. Ferrer)
/s/ David F. Hale Director March 29, 1999
- ---------------------------------
(David F. Hale)
/s/ Carlo Ruggeri Director March 29, 1999
- ---------------------------------
(Carlo Ruggeri)
66
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
4.14 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.
10.34 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).
10.35 Consulting Agreement, dated January 27, 1998, as amended on March 6,
1998, between the Company and Frank C. Becker.
21.1 Subsidiaries of Gensia Sicor.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Powers of Attorney (see page 65).
27.1 Financial Data Schedule.
67